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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 EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED: OCTOBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE 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)
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<C> <C>
TEXAS 75-1798185
(State or other jurisdiction of (I.R.S. Employer Identification No.)
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
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<C> <C>
None None
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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 December 31, 1996
($30.125) was $449,228,971. 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
December 31, 1996 was:
24,813,563 shares of common stock.
Documents incorporated by reference: Part III Items 10, 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 21, 1997.
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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, 1996, the Company,
through wholly-owned subsidiaries and TCA Cable Partners, an affiliated
partnership in which the Company holds a 75% interest (the "Partnership"), owned
and operated 62 cable television systems which had approximately 671,000
subscribers and managed 2 systems which are owned by affiliated corporations and
had approximately 3,600 subscribers. 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, New Mexico and Oklahoma where over-the-air television reception is
unsatisfactory, and the Company intends to continue to concentrate its
activities in these and similar areas, as well as the Partnership. See Note 9 to
Notes to the Consolidated Financial Statements.
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 1950s. The industry's
birth and subsequent growth were the result of demand for more stations and
improved reception in areas where over-the-air television 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.
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. The Company
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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.
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provides cable advertising sales through its wholly-owned subsidiaries VPI
Communications, Inc. and Cable One Corporation. Revenue from advertising was
approximately 14%, 11% and 9% of total revenue during 1996, 1995 and 1994,
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.
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BASIC SERVICE PREMIUM SERVICE
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SUBSCRIBERS PREMIUM UNITS
MILES OF HOMES AS % OF NUMBER OF AS % OF
ACTIVE PASSED BY NUMBER OF HOMES PREMIUM BASIC
PLANT CABLE SUBSCRIBERS PASSED UNITS SUBSCRIBERS
<S> <C> <C> <C> <C> <C> <C>
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At October 31:
1992................... 9,953 639,265 457,524 72% 238,760 52%
1993................... 10,216 649,415 476,312 73% 255,101 54%
1994................... 10,413 651,250 486,852 75% 321,076 66%
1995................... 12,671 761,621 573,951 75% 356,836 62%
1996................... 15,226 891,458 670,500 75% 390,457 58%
</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 and 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 in
the past. The Company does not currently have any definitive agreements from the
acquisition of any additional systems except for the agreement to purchase
Jonesboro, Arkansas on December 18, 1996, as discussed in Note 17 to the
consolidated 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, 1996,
regarding the Company's cable systems, all of which are owned by the Company
unless otherwise indicated:
<TABLE>
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BASIC EQUIVALENT PREMIUM
PLANT SUBSCRIBER BILLING TV HOMES
STATES MILES ACCOUNTS UNITS UNITS PASSED
------ ------ ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Texas............................................. 4,437 221,628 235,054 129,591 329,442
Louisiana......................................... 3,971 164,315 169,722 120,044 230,825
Arkansas.......................................... 5,803 203,141 210,704 111,983 264,240
New Mexico........................................ 199 11,775 12,200 5,517 16,500
Mississippi....................................... 237 13,218 13,829 10,622 18,823
Oklahoma.......................................... 351 20,689 20,932 8,356 24,328
Idaho............................................. 228 5,694 8,059 4,344 7,300
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TCA owned systems................................. 15,226 640,460 670,500 390,457 891,458
Managed systems................................... 88 3,532 3,571 2,218 5,410
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Owned and Managed systems......................... 15,314 643,992 674,071 392,675 896,868
====== ======= ======= ======= =======
</TABLE>
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* Equivalent Billing Units 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 make
up the difference.
System Operating Offices (at October 31, 1996)
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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: Abbeville, Alexandria, Bastrop, Crowley, DeRidder, Franklin,
Lafayette, Minden, Natchitoches, New Iberia, Patterson,
Ruston, St. Martinville and Winnfield.
Arkansas: Arkadelphia, Batesville, Bentonville, Berryville, El Dorado,
Fayetteville, Ft. Smith, Harrison, Heber Springs, Helena,
Hot Springs Village, Magnolia, Malvern, McGehee, Mena,
Mountain Home, Newport, Ozark, Pocahontas, Rogers,
Russellville, Siloam Springs, and Springdale.
Mississippi: Greenville.
New Mexico: Clovis.
Oklahoma: Bartlesville, Blackwell and Guymon.
Idaho: Sun Valley.
</TABLE>
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The Company's Arkansas, Mississippi and Oklahoma systems are held in the
Partnership. See Note 9 to the Notes to the Consolidated 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, 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 the five to twelve channels most requested by customers.
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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 $9 to $14. The monthly service fee for expanded basic service
generally ranges from $8 to $14. The Company's average monthly revenue per
subscriber during fiscal 1996 for basic and expanded basic services were $22.15.
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 to $11 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 ("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 1996, 1995 and 1994 were $61,975, $60,388 and $53,323, 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
Companies' cable systems or with respect to any cable system acquisition
opportunities which come to the attention of the Affiliated Companies 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.
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".
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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 232 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 "Business 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
marketplace are constantly occurring. Due to changes in technology and
regulatory policies encouraging competition, the Company anticipates
significantly increased competition, particularly from direct broadcast
satellite systems, as well as telephone companies, providing video programming
to subscribers. As discussed below, the Telecommunications Act of 1996 ("1996
Telecom Act") now allows well financed local telephone companies and electric
utility companies to provide video services in competition with services
provided by cable systems.
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.
FEDERAL REGULATION
General. Federal regulation of cable television systems is affected
primarily through the Federal Communications Commission ("FCC"). Regulations
promulgated by the FCC contain detailed provisions
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relating to virtually all aspects of the cable industry including rate
regulations, 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; the Cable Television Consumer
Protection and Competition Act of 1992; and the Telecommunications Act
of 1996.
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.
The 1996 Telecom Act was signed into law on February 8, 1996. This new law
alters the regulatory structure governing the nations's telecommunications
providers. It removes barriers to competition in both the cable television
market and the local telephone market. Among other things, it reduces the scope
of cable regulation. Provisions of these laws which the Company believes may
have a significant impact on its operations are summarized below.
Rate Regulations
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, review the "reasonableness" of rates for
additional tiers of cable service. However, the 1996 Telecom Act sunsets FCC
rate regulation of such additional tiers of service as of March 31, 1999. 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 stations on the Company's cable systems.
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 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. The constitutionality of these must carry requirements has
been challenged and is awaiting a decision from the U.S. Supreme Court.
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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 and Market Entry
The 1996 Telecom Act allows telephone companies to compete directly with
cable operators by repealing the historic telephone company/cable
cross-ownership ban and the FCC's video dialtone regulations. This allows local
exchange carriers ("LECs"), including the Bell Operating Companies, to compete
with cable operators both inside and outside their telephone service areas.
Because of their resources, LECs could be formidable competitors to traditional
cable operators, and certain LECs have begun offering cable service.
The 1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services (including cable
television) notwithstanding the Public Utilities Holding Company Act. Electric
utilities must establish separate subsidiaries, known as "exempt
telecommunications companies" and must apply to the FCC for operating authority.
Again, because of their resources, electric utilities could be formidable
competitors to traditional cable systems.
The 1996 Telecom Act eliminates statutory restrictions on broadcast/cable
cross-ownership (including broadcast network/cable restrictions), but leaves in
place existing FCC regulations prohibiting local cross-ownership between
television stations and cable systems. The 1996 Telecom Act also eliminates the
three year holding period required under the 1992 Cable Act's "anti-trafficking"
provision. The 1996 Telecom Act leaves in place existing restrictions on cable
cross-ownership with SMATV and MMDS facilities, but lifts those restrictions
where the cable operator is subject to effective competition. In January 1995,
however, the FCC adopted regulations which permit cable operators to own and
operate SMATV systems within their franchise area, provided that such operation
is consistent with local cable franchise requirements.
Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a cable
system from devoting more than 40% of its activated channel capacity to the
carriage of affiliated national program services. A companion rule establishing
a nationwide ownership cap on any cable operator equal to 30% of all domestic
cable subscribers has been stayed pending further judicial review.
The 1996 Telecom Act provides that no state or local laws or regulations
may prohibit or have the effect of prohibiting any entity from providing any
interstate or intrastate telecommunications service. States are authorized,
however, to impose "competitively neutral" requirements regarding universal
service, public safety and welfare, service quality, and consumer protection.
State and local governments also retain their authority to manage the public
rights-of-way. Although the 1996 Telecom Act clarifies that traditional cable
franchise fees may be based only on revenues related to the provision of cable
television services, it also provides that local franchising authorities
("LFAs") may require reasonable, competitively neutral compensation for
management of the public rights-of-way when cable operators provide
telecommunications service. The 1996 Telecom Act prohibits LFAs from requiring
cable operators to provide telecommunications service or facilities as a
condition of a franchise grant, renewal or transfer, except that LFAs can seek
"institutional networks" as part of such franchise negotiations. The favorable
pole attachment rates afforded cable operators under federal law can be
gradually increased by utility companies owning the poles (beginning in 2001) if
the cable operator provides telecommunications service, as well as cable
service, over its facilities.
Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the FCC and state regulators. One critical
component of the 1996 Telecom Act to facilitate the entry of new
telecommunications providers (including cable operators) is the interconnection
obligation imposed on all
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telecommunications carriers. Review of the FCC's initial interconnection order
is now pending before the Eighth Circuit Court of Appeals.
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.
Access Channels
LFAs can include franchise provisions requiring cable operators to set
aside certain channels for public, educational and governmental access
programming. Federal law also requires a cable system with 36 or more channels
to designate a portion of its channel capacity (up to 15% in some cases) for
commercial leased access by unaffiliated third parties. The FCC has adopted
rules regulating the terms, conditions and maximum rates a cable operator may
charge for use of the designated channel capacity, but use of commercial leased
access channels has been relatively limited. The FCC is now reconsidering its
rules, and proposed revisions could reduce rates significantly and make
commercial leased access a more attractive option to third party programmers.
Should this occur, the Company's control over its channel line-up would be
reduced and the quality of that line-up might decline.
Other Provisions
The Cable Act of 1992, contains a host of other regulatory provisions.
Together with the Cable Act of 1984, and the 1996 Telecom Act, the 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.
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, and the 1996 Telecom Act, 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".
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
8
<PAGE> 10
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 non-broadcast 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 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, 1996, the Company had 1,523 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.
PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-K and other materials filed or to be filed by the Company with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Company)
contains statements that are forward-looking, such as statements relating to
plans for future expansion and other business development activities as well as
other capital spending, financing sources and the effects of regulation and
competition. Such forward-looking information involves important risks and
uncertainties that could significantly affect anticipated results in the future
and, accordingly, such results may differ form those expressed in any
forward-looking statements made by or on behalf of the Company. These risks and
uncertainties include, but are not limited to, those relating to development and
construction activities, dependence on existing management, leverage and debt
service (including sensitivity to fluctuations in interest rates), domestic or
global economic conditions, changes in federal or state tax laws or the
administration of such laws and changes in laws or regulations.
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
9
<PAGE> 11
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> 12
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 high and low 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, 1995, as reported by NASDAQ. The quotations
represent prices in the over-the-counter market between dealers in securities,
and do not include retail markup, markdown or commission, and do not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
- ------------- ------ ------
<S> <C> <C>
01/31/95...................................................... $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
01/31/96...................................................... 30.88 26.50
04/30/96...................................................... 33.75 27.38
07/31/96...................................................... 30.25 25.13
10/31/96...................................................... 27.25 24.25
</TABLE>
(b) Approximate Number of Equity Security Holders
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF
EQUITY HOLDERS
TITLE OF CLASS (AS OF DECEMBER 31, 1996)
-------------- -------------------------
<S> <C>
Common Stock $0.10 Par Value........................... 3,600
</TABLE>
(c) Dividends
During the fiscal year ended October 31, 1996, cash dividends were paid to
shareholders in the amount of $13,846,432 ($.14 per share paid in January,
April, July and October, 1996). During the prior fiscal year, $11,787,622 in
cash dividends were paid to shareholders ($.12 per share paid in January, April,
July, and October, 1995). At the December 11, 1996, regularly scheduled Board of
Directors meeting, a cash dividend of $.16 per share for the quarter ending
January 31, 1997, was declared. This dividend was payable January 22, 1997, to
shareholders of record as of January 8, 1997.
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> 13
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,
----------------------------------------------------
1996 1995 1994(1) 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operations for the periods indicated:
Total Revenues........................ $253,308 $190,708 $162,300 $152,291 $138,839
Costs and Expenses.................... 218,368 159,419 141,225 131,842 123,850
Net Income............................ 34,940 31,289 21,075 20,449 14,989
Earnings per share of Common Stock.... 1.41 1.27 0.86 0.83 0.61
Financial position at the end of the
periods indicated:
Total Assets.......................... 663,997 454,089 286,213 288,077 289,889
Term Debt............................. 314,493 262,213 126,447 143,253 163,319
Total Shareholders' Equity.............. 146,332 118,148 98,897 90,251 77,957
Cash Dividends per Common Share......... 0.56 0.48 0.44 0.40 0.34
</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,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenues from:
Basic and expanded basic subscriptions.................... 65.7% 66.7% 68.5%
Premium subscriptions..................................... 14.9 17.1 18.0
Advertising............................................... 14.5 10.9 8.5
Other sources............................................. 4.9 5.3 5.0
----- ----- -----
100.0% 100.0% 100.0%
Operating expenses:
Salaries, wages and benefits.............................. 17.2% 17.2% 18.1%
Programming costs......................................... 24.4 23.0 22.5
Other operating expenses.................................. 3.3 3.4 3.6
Selling, general and administrative....................... 7.9 7.0 6.8
Depreciation and amortization............................. 14.8 14.9 20.7
----- ----- -----
Total operating expenses.......................... 67.6% 65.5% 71.7%
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31,
------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating income............................................ 32.4% 34.5% 28.3%
Other income.............................................. 0.1 0.2 1.0
Interest expense.......................................... 8.6 7.3 6.0
Minority interest......................................... 1.3 0.0 0.0
Income tax................................................ 8.8 11.0 9.2
Cumulative effect of change in accounting principle....... 0.0 0.0 1.1
Net income................................................ 13.8 16.4 13.0
</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, 1993 through
October 31, 1996, revenues, operating income and net income increased at average
annual growth rates of approximately 19%, 24% and 21%, respectively.
1996 COMPARED TO 1995
Fiscal year 1996 revenue increased by 33% over 1995 revenues. Approximately
14% of the revenue increase was the result of increased revenue from existing
customers, 11% from internal growth in advertising revenue, 15% from advertising
acquisitions and 60% from cable acquisitions. The Company's revenue from
advertising increased 77%, revenue from basic and expanded basic services
increased 32%, revenue from premium services increased 13% and revenue from pay
per view increased 62%.
Operating expenses increased 37% in 1996 compared to 1995. Programming
costs increased 41%, salaries, wages and benefits 33%, other operating expenses
27%, selling, general and administrative 49% and depreciation and amortization
32%. The increases were primarily the result of acquisitions.
Interest expense increased 58% as a result of borrowings under the
Company's bank lines of credit to finance the Company's acquisition of cable
television properties. See Note 9 to the consolidated financial statements.
Minority interest in earnings was $3.2 million for 1996. This amount is the
25% minority partner's share of the earnings of TCA Cable Partners. See Note 9
to the consolidated financial statements.
The Company's net income increased 12%. Earnings per share increased from
$1.27 to $1.41 per share.
1995 COMPARED TO 1994
Fiscal year 1995 revenue increased by 17% over 1994 revenues. Approximately
31% of the revenue increase was the result of increased revenue from existing
customers, 10% from internal growth in the number of subscribers, 24% from
additional advertising revenue and 35% 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 7% in 1995 compared to 1994. Programming costs
increased 20%, salaries, wages and benefits 12%, other operating expenses 14%,
selling, general and administrative 21% 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 borrowing under the Company's
bank lines of credit and a $100 million private placement, as described in Note
4 to the consolidated financial statements, made to
13
<PAGE> 15
finance the Company's acquisition of cable television properties. The Company's
net income increased 48%. Earnings per share increased from $0.86 to $1.27 per
share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital expenditures, other than for acquisitions, during
fiscal 1996 were primarily directed at cable system construction, upgrading and
rebuilding, and purchases of converters to be furnished to subscribers.
Approximately $45.9 million of internally generated funds was spent for system
upgrading and expansion during fiscal 1996. The Company anticipates no increase
in the amount of capital expenditures needed for system upgrading and expansion
during 1997 compared to 1996. Approximately $78.1 million, $150.7 million and
$3.1 million was spent on acquisitions in fiscal years 1996, 1995 and 1994,
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 $15.9 million
in interest expense and dividends, respectively, during fiscal 1997. The Company
does not anticipate a material negative effect 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 $90.5 million, up from $68.2 million in fiscal
1995 and $60.5 million in fiscal 1994. The increase is a result of increased
revenue per subscriber, increased advertising revenue and acquisitions, as more
fully explained above with respect to the Company's results of operations.
At October 31, 1996, the Company had $177.5 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 1996, 1995 and 1994, the Company borrowed approximately
$157.6 million, $315.8 million and $73.7 million, respectively, and repaid
approximately $105.3 million, $180.0 million and $90.5 million respectively. At
October 31, 1996, the Company had total outstanding term debt of approximately
$314.5 million, bearing interest at a weighted average rate of approximately
6.8%.
Under terms of the Company's current term debt, the Company will have
scheduled debt maturities of approximately $35.0 million, $12.2 million, $61.5
million, $54.2 million and $56.8 million in fiscal 1997, 1998, 1999, 2000 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 2.6 to
1, 2.5 to 1, and 1.6 to 1 at October 31, 1996, 1995 and 1994, respectively.
Interest coverage is the ratio of operating income before depreciation and
amortization to interest expense. The Company's interest coverage ratio was
557%, 773% and 816% for 1996, 1995 and 1994, 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 borrowing 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.
On December 18, 1996, the Company, through TCA Cable Partners, signed an
agreement with two affiliates of TCI Communications, Inc. to acquire the assets
of cable television systems serving approximately 29,500 subscribers in
Northeastern Arkansas. TCA will serve approximately 21,000 subscribers in
Jonesboro, Arkansas and surrounding areas. TCA will assign its right to serve
the remaining 8,500 subscribers to Friendship Cable Arkansas, Inc.
14
<PAGE> 16
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
See Note 16 to the consolidated financial statements for the impact of
recently issued accounting pronouncements.
INFLATION
The net impact of inflation on operations has not been material in the last
three years due to the relatively low rates of inflation during this period. If
the rate of inflation increases the Company may increase customer rates to keep
pace with the increase in inflation, although there may be timing delays.
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.
The information called for by Item 10, Directors and Executive Officers of
the Registrant, 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 21, 1997, which shall be filed with
Securities and Exchange Commission within 120 days of the end of the
Registrant's last fiscal year.
15
<PAGE> 17
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, 1996 and
1995........................................................ F2
(iii) Consolidated Statements of Operations for the years ended
October 31, 1996, 1995 and 1994............................. F3
(iv) Consolidated Statements of Shareholders' Equity for the
years ended October 31, 1996, 1995 and 1994................. F4
(v) Consolidated Statements of Cash Flows for the years ended
October 31, 1996, 1995 and 1994............................. F5-F6
(vi) Notes to Consolidated Financial Statements.................. F7-F14
14(a)(2) FINANCIAL STATEMENT SCHEDULES:
None
14(a)(3) EXHIBITS
2(a) Asset Exchange Agreement dated June 20, 1996 between TCA
Cable Partners and Communications Services, Inc. *1, *7
3(a) Articles of Incorporation and Bylaws. *2
3(b) Articles of Amendment to Articles of Incorporation. *3
3(c) Articles of Amendment to Articles of Incorporation. *3
3(d) Articles of Amendment to Articles of Incorporation. *4
4(a) Form of Stock Certificate. *2
9 None.
10(a) General Partnership Agreement by and between TAL Financial
Corporation and DR Partners dated December 13, 1995. *5
10(b) Restated and Amended General Partnership Agreement of TCA
Cable Partners dated as of April 11, 1996. *6
11 None.
12 None.
13 None.
16 None.
18 None.
21 Subsidiaries of the Registrant. *1
22 None.
23 Consent of Coopers & Lybrand L.L.P. *1
24 None.
27 Financial Data Schedule. *1
28 None.
99 None.
</TABLE>
16
<PAGE> 18
- ---------------
*1 Filed herewith.
*2 Previously filed as an Exhibit to the Registrant's Registration Statement on
Form S-1, File No. 2-75516, and incorporated by reference herein.
*3 Previously filed as an Exhibit to the Registrant's Registration Statement on
Form S-8, File No. 33-21901, and incorporated by reference herein.
*4 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.
*5 Previously filed as an exhibit to Registrant's Form 10-K for fiscal year
ended October 31, 1995, filed January 29, 1996, and incorporated by
reference herein.
*6 Previously filed as an exhibit to Registrant's Form 8-K/A, filed July 15,
1996 and incorporated by reference herein.
*7 Certain schedules and exhibits to this Agreement have been omitted. The
Registrant will furnish a copy of any omitted schedule or exhibit to the
Commission upon request.
14(b) REPORTS ON FORM 8-K:
None
17
<PAGE> 19
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)
Dated: January 22, 1997 /s/ ROBERT M. ROGERS
------------------------------------
Robert M. Rogers
Chairman and Chief Executive Officer
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>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROBERT M. ROGERS Chairman and Chief Executive January 22, 1997
- ----------------------------------------------------- Officer
Robert M. Rogers
/s/ FRED R. NICHOLS President, Chief Operating January 22, 1997
- ----------------------------------------------------- Officer and Director
Fred R. Nichols
/s/ WAYNE J. MCKINNEY Director January 22, 1997
- -----------------------------------------------------
Wayne J. McKinney
/s/ BEN R. FISCH Director January 22, 1997
- -----------------------------------------------------
Ben R. Fisch, M.D.
/s/ KENNETH S. GUNTER Director January 22, 1997
- -----------------------------------------------------
Kenneth S. Gunter
/s/ RANDALL K. ROGERS Director January 22, 1997
- -----------------------------------------------------
Randall K. Rogers
/s/ A. W. RITER, JR. Director January 22, 1997
- -----------------------------------------------------
A. W. Riter, Jr.
/s/ JAMES F. ACKERMAN Director January 22, 1997
- -----------------------------------------------------
James F. Ackerman
/s/ FRED W. SMITH Director January 22, 1997
- -----------------------------------------------------
Fred W. Smith
/s/ JIMMIE F. TAYLOR Vice President, Chief January 22, 1997
- ----------------------------------------------------- Financial Officer and
Jimmie F. Taylor Treasurer
/s/ SABRINA A. WARR Controller, TCA Management January 22, 1997
- ----------------------------------------------------- Company
Sabrina A. Warr
</TABLE>
18
<PAGE> 20
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, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended October 31, 1996, 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 17, 1997
F-1
<PAGE> 21
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Cash........................................................ $ 3,473,443 $ 1,260,274
------------- -------------
Accounts receivable, subscribers............................ 12,408,291 7,973,959
------------- -------------
Accounts receivable, other.................................. 666,957 879,268
------------- -------------
Income tax receivable....................................... 1,001,709 932,306
------------- -------------
Notes receivable, affiliates................................ 80,000 2,500,000
------------- -------------
Investments................................................. 4,714,629 1,680,163
------------- -------------
Property, plant and equipment, at cost:
Land...................................................... 3,313,883 2,888,678
Distribution systems...................................... 340,766,176 293,134,397
Transportation equipment.................................. 9,686,330 7,800,092
Other..................................................... 32,386,113 26,668,443
------------- -------------
386,152,502 330,491,610
Less accumulated depreciation............................. (186,892,042) (178,722,319)
------------- -------------
199,260,460 151,769,291
------------- -------------
Other assets:
Intangibles, net of accumulated amortization of
$84,660,150 and $72,601,115, respectively.............. 441,189,861 285,521,922
Prepaid expenses.......................................... 1,201,281 1,571,753
------------- -------------
442,391,142 287,093,675
------------- -------------
$ 663,996,631 $ 454,088,936
============= =============
LIABILITIES
Accounts payable............................................ $ 12,137,215 $ 6,496,407
Accrued expenses............................................ 14,671,323 15,195,324
Subscriber advance payments................................. 4,909,936 3,856,362
Deferred income taxes....................................... 59,580,000 48,180,000
Term debt................................................... 314,492,583 262,213,055
------------- -------------
405,791,057 335,941,148
------------- -------------
Redeemable minority interest................................ 111,873,245 --
------------- -------------
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;
24,931,931 and 24,782,121 shares issued, respectively..... 2,493,193 2,478,212
Additional paid-in capital.................................. 49,984,093 43,704,988
Retained earnings........................................... 96,861,418 75,768,342
------------- -------------
149,338,704 121,951,542
Less treasury stock at cost, 123,000 and 209,828 shares,
respectively.............................................. (3,006,375) (3,803,754)
------------- -------------
146,332,329 118,147,788
------------- -------------
$ 663,996,631 $ 454,088,936
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE> 22
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CATV revenues.................................... $253,308,282 $190,708,487 $162,300,265
Operating expenses:
Salaries, wages and benefits................... 43,581,967 32,814,442 29,341,560
Programming costs.............................. 61,792,409 43,713,752 36,476,851
Other operating expenses....................... 8,443,728 6,641,685 5,807,893
Selling, general and administrative............ 19,978,765 13,374,093 11,086,059
Depreciation and amortization.................. 37,523,989 28,351,802 33,635,939
------------ ------------ ------------
171,320,858 124,895,774 116,348,302
------------ ------------ ------------
Operating income............................... 81,987,424 65,812,713 45,951,963
Other income..................................... 332,891 353,221 1,662,688
Interest expense................................. (21,932,562) (13,847,458) (9,747,932)
Minority interest................................ (3,248,245)
------------ ------------ ------------
Income before income taxes..................... 57,139,508 52,318,476 37,866,719
Provision for income taxes:
Current........................................ 10,800,000 12,849,000 11,805,000
Deferred....................................... 11,400,000 8,180,000 3,087,114
------------ ------------ ------------
22,200,000 21,029,000 14,892,114
------------ ------------ ------------
Income before cumulative effect of change in
accounting principle........................ 34,939,508 31,289,476 22,974,605
Cumulative effect of change in accounting
principle...................................... (1,900,000)
------------ ------------ ------------
Net income....................................... $ 34,939,508 $ 31,289,476 $ 21,074,605
============ ============ ============
Earnings per common share before cumulative
effect of change in accounting principle....... $ 1.41 $ 1.27 $ 0.93
Cumulative effect of change in accounting
principle...................................... (0.07)
------------ ------------ ------------
Earnings per common share........................ $ 1.41 $ 1.27 $ 0.86
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-3
<PAGE> 23
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1996, 1995, 1994
<TABLE>
<CAPTION>
COMMON STOCK ISSUED ADDITIONAL
----------------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK
---------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
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 per
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 per
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)
Net income................. 34,939,508
Issuance of common stock in
connection with an
acquisition (Note 9).... 106,839 10,684 5,285,562 2,703,754
Other issuances of common
stock................... 26,756 2,676 747,876
Stock options exercised.... 16,215 1,621 151,767
Amortization of warrants
(Note 5)................ 93,900
Cash dividends at $.56 per
share................... (13,846,432)
Treasury stock purchased... (1,906,375)
---------- ---------- ----------- ------------ -----------
Balance, October 31, 1996.... 24,931,931 $2,493,193 $49,984,093 $ 96,861,418 $(3,006,375)
========== ========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 24
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers................. $ 250,139,835 $ 185,512,723 $162,261,147
Cash paid to suppliers and employees......... (127,703,496) (90,429,159) (79,791,539)
Other revenue received....................... 645,538 612,799 391,800
Interest paid................................ (21,694,203) (13,246,011) (9,840,838)
Income taxes paid............................ (10,869,403) (14,276,584) (12,522,454)
------------- ------------- ------------
Net cash provided by operating
activities......................... 90,518,271 68,173,768 60,498,116
------------- ------------- ------------
Cash flows from investing activities:
Payments for purchases of companies and CATV
systems................................... (78,108,502) (150,713,520) (3,116,975)
Capital expenditures......................... (45,902,219) (39,766,039) (28,452,921)
Loan to affiliate............................ (2,500,000)
Investment in affiliate...................... (1,000,000)
Proceeds from sales of assets................ 150,510 1,090,992 1,828,538
------------- ------------- ------------
Net cash used in investing
activities......................... (124,860,211) (191,888,567) (29,741,358)
------------- ------------- ------------
Cash flows from financing activities:
Borrowings of term debt...................... 157,582,679 315,785,939 73,699,990
Repayments of term debt...................... (105,303,151) (180,020,230) (90,506,034)
Debt issuance costs.......................... (643,750)
Treasury stock purchased..................... (1,906,375) (1,100,000) (2,160,000)
Proceeds from stock options exercised........ 153,388 295,624 35,762
Partnership capital contributions............ 3,175,000
Partnership distributions.................... (3,300,000)
Dividends paid............................... (13,846,432) (11,787,622) (10,831,640)
------------- ------------- ------------
Net cash provided by (used in)
financing activities............... 36,555,109 122,529,961 (29,761,922)
------------- ------------- ------------
Net increase (decrease) in cash................ 2,213,169 (1,184,838) 994,836
Cash at beginning of year...................... 1,260,274 2,445,112 1,450,276
------------- ------------- ------------
Cash at end of year............................ $ 3,473,443 $ 1,260,274 $ 2,445,112
============= ============= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-5
<PAGE> 25
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
FOR THE YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Reconciliation of net income to net cash by operating
activities:
Net income........................................ $34,939,508 $31,289,476 $21,074,605
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense............................ 25,464,954 20,883,186 22,039,964
Amortization expense............................ 12,059,035 7,468,616 11,595,975
Deferred income taxes........................... 11,400,000 8,180,000 4,987,114
(Gain) loss on sale of assets................... (72,497) (283,118) (1,463,491)
Share of losses of affiliates................... 385,144 542,875 192,603
Minority interest in earnings................... 3,248,245
Employee stock bonus............................ 138,750
Stock warrant amortization...................... 93,900
Contribution of common stock to retirement
plan......................................... 611,803 553,401 527,362
(Increase) decrease in prepaid expenses......... 370,472 (433,164) 129,034
Increase in accounts receivable, subscribers.... (4,434,332) (3,060,247) (190,688)
(Increase) decrease in accounts receivable,
other........................................ 212,311 (714,364) 296,892
Increase in income tax receivable............... (69,403) (932,306)
Increase (decrease) in subscriber advance
payments..................................... 1,053,574 117,049 (145,322)
Increase (decrease) in accrued expenses......... (524,001) 3,918,597 1,563,226
(Decrease) in income taxes payable.............. (495,278) (717,454)
Increase in accounts payable.................... 5,640,808 1,139,045 608,296
----------- ----------- -----------
Net cash provided by operating activities.............. $90,518,271 $68,173,768 $60,498,116
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-6
<PAGE> 26
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 non-urban areas in Arkansas, Idaho, Louisiana,
Mississippi, New Mexico, Oklahoma and Texas. 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.; Cable One Corporation; AvComm Corporation;
Tele-Communications of Arkansas L.P. and Tele-Communications of Northwest
Arkansas L.P. The consolidated financial statements also include the accounts of
TCA Cable Partners, a partnership that is owned 75 percent by TCA and 25 percent
by Donrey Media Group, a division of Stephens Group, Inc.
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, non-compete 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, estimated undiscounted future cash flows, trends and
prospects.
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
F-7
<PAGE> 27
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
distributions are received. The Company's share of the results of operations of
investees is not material. During 1996, the Company converted $2,420,000 of
notes receivable affiliates to investments in affiliates.
Reclassifications:
Certain reclassifications have been made to the prior years financial
statements to conform to the current year presentation.
Concentration of credit risk:
The Company maintains cash balances at several financial institutions.
During the year, these balances may exceed federally insured amounts.
3. INTANGIBLE ASSETS:
Intangible assets consists of the following October 31:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Covenants not to compete......................... $ 37,911,423 $ 35,441,423
Franchises....................................... 145,192,565 145,192,565
Goodwill......................................... 342,746,023 177,489,049
------------ ------------
525,850,011 358,123,037
Less: Accumulated amortization................... (84,660,150) (72,601,115)
------------ ------------
$441,189,861 $285,521,922
============ ============
</TABLE>
4. TERM DEBT:
Term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Notes payable to three companies payable in semiannual
installments beginning February 1993, due August 1999,
bearing interest at 9.0%.................................. $ 36,000,000 $ 52,000,000
Notes payable to five insurance companies payable in annual
installments beginning June 1999, due June 2005, bearing
interest at 7.26%......................................... 100,000,000 100,000,000
Revolving bank credit, terminating June 30, 2002, with 20
quarterly commitment reductions commencing September 1997,
with interest at prime or LIBOR, unused portion of
$45,000,000 and $116,000,000 as of October 31, 1996 and
1995, respectively, with a commitment fee of 1/4% per
annum on the unused portion(a)............................ 155,000,000 84,000,000
Revolving bank credit, terminating June 1997, with interest
at prime or LIBOR, unused portion of $2,500,000 and
$300,000 as of October 31, 1996 and 1995, respectively,
with no commitment fees(a)................................ 22,500,000 24,700,000
Other....................................................... 992,583 1,513,055
------------ ------------
$314,492,583 $262,213,055
============ ============
</TABLE>
- ---------------
(a) The weighted average interest rate on the Company's revolving bank credit
at October 31, 1996 and 1995 was 6.18% and 6.64%, respectively.
F-8
<PAGE> 28
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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, 1996, are as follows:
<TABLE>
<S> <C>
1997........................................................ $ 34,999,736
1998........................................................ 12,248,631
1999........................................................ 61,523,665
2000........................................................ 54,291,978
2001........................................................ 56,785,714
Thereafter.................................................. 94,642,859
------------
$314,492,583
============
</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,
$318,515 and $324,784 for 1996, 1995 and 1994, respectively.
The Company purchased distribution system construction services from a
partnership partially owned by a director of the Company. During 1996, 1995 and
1994, transactions with the partnership totaled $7,572,130, $4,603,694 and
$816,705, all of which were capitalized.
On May 1, 1996, the Company issued warrants to purchase 300,000 shares of
TCA common stock at $30 per share to Stephens Group, Inc. (See Note 9) in
exchange for financial advisory services to be provided over a ten year period.
The warrants were valued at $1,878,000 at the issuance date using the Black
Scholes method. Fifty percent of the warrants are exercisable five years from
the date of issuance and the remaining 50% are exercisable ten years from the
date of issuance. The value assigned to the warrants is being amortized over a
ten year period with a corresponding increase in additional paid-in capital.
6. CONTINGENCIES AND COMMITMENTS:
Annual rental expense for utility poles and tower sites for the years ended
October 31, 1996, 1995 and 1994 was approximately $2,111,949, $1,434,000 and
$1,482,000, respectively.
Rental expense for all rental agreements for the years ended October 31,
1996, 1995 and 1994 was approximately $3,215,536, $2,316,000 and $2,288,000,
respectively.
Various lawsuits are pending against the Company and its subsidiaries. The
Company intends to vigorously contest the liability in all matters brought
against the Company. While no assurance can be given as to the ultimate outcome,
management believes the litigation will not have a material adverse effect on
the results of operations or financial position of the Company.
F-9
<PAGE> 29
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>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Income before income taxes.......................... $57,139,508 $52,318,476 $37,866,719
=========== =========== ===========
Statutory federal rate.............................. 35.0% 35.0% 35.0%
Provision for federal income taxes at the statutory
federal rate...................................... $19,998,828 $18,311,467 $13,253,352
State income taxes.................................. 1,988,949 2,671,414 1,362,000
Amortization of goodwill............................ 184,610 272,654 317,300
Other............................................... 27,613 (226,535) (40,538)
----------- ----------- -----------
Provision for income taxes.......................... $22,200,000 $21,029,000 $14,892,114
=========== =========== ===========
</TABLE>
The deferred income taxes liability balance of $59,580,000 and $48,180,000
at October 31, 1996 and 1995, respectively, is the tax effect of temporary
differences 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:
24,748,980 shares for 1996, 24,582,447 shares for 1995, and 24,638,135 shares
for 1994.
9. SALES AND ACQUISITIONS:
On October 2, 1996, the Company, through TCA Cable Partners, completed an
asset exchange with Communications Services, Inc. ("CSI"), a wholly-owned
subsidiary of TCI Communications, Inc. TCA Cable Partners acquired the cable
television system operating in Ft. Smith, Arkansas and surrounding areas in
exchange for its Vallejo, California system.
On September 11, 1996, the Company, through TCA Cable Partners, purchased
the assets of the cable television system serving approximately 8,100
subscribers in Van Buren, Alma and Barling, Arkansas. The system was acquired
from subsidiaries of Classic Cable, Inc. The cost of the acquisition was
approximately $12.7 million. $10 million of which relates to acquired
intangibles. The system is managed by the Company's Ft. Smith, Arkansas system.
The acquisition was funded by the Company's bank line of credit.
On May 1, 1996, TCA acquired five additional cable television systems
through a partnership with Donrey Media Group ("Donrey"), a division of Stephens
Group, Inc. The partnership, TCA Cable Partners, is owned 75 percent by TCA and
25 percent by Donrey. The partnership is comprised of 22 systems in Arkansas and
Mississippi contributed by TCA and five systems in Arkansas, Oklahoma and
California contributed by Donrey. The partnership serves approximately 240,000
subscribers and is managed by TCA.
The acquisition of the Donrey systems in exchange for a 25% interest in the
partnership was valued at $109 million, $94 million of which related to acquired
intangibles. The value of the Donrey systems was recorded as redeemable minority
interest at the acquisition date, as Donrey has the right to require TCA to
purchase their 25% partnership interest at fair market value in January 2004.
TCA has a corresponding right to require Donrey to sell their 25% partnership
interest to TCA at fair market value in January 2004. The estimated fair market
value of the redeemable minority interest approximated the related carrying
value for
F-10
<PAGE> 30
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
financial reporting purposes as of October 31, 1996. In accordance with the
partnership agreement, free cash flow, as defined, will be distributed to the
partners in each year. Total partnership distributions for fiscal 1996 were
$13.2 million, $3.3 million of which was distributed to Donrey.
Also on May 1, 1996, the Company acquired Cable One Corporation ("Cable
One"), a cable television advertising sales company based in Williamsport,
Pennsylvania. Cable One represents approximately 200 cable television systems
serving approximately 1.2 million subscribers primarily in the Northeastern
United States. The Company issued 266,667 shares of its common stock (159,828
shares of which were issued from treasury), valued at $8 million at the
acquisition date, for 100% of the stock of Cable One. Acquired intangibles
accounted for approximately $5.8 million of the $8 million purchase price. The
Company also paid $1.8 million for a non-compete agreement. Cable One is managed
by TCA's advertising sales subsidiary VPI Communications, Inc.
On December 15, 1995, the Company acquired the assets of the cable
television system serving approximately 29,000 subscribers in Alexandria and
Pineville, Louisiana ("Alexandria"). TCA acquired the assets of cable television
systems in North Carolina and South Carolina from Star Cable Associates and
simultaneously exchanged them with Time Warner Entertainment -- Advance/Newhouse
Partnership for Alexandria. The cost of the acquisition was approximately $63
million, $54.9 million of which relates to acquired intangibles. The acquisition
was funded by the Company's bank line of credit.
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, Russellville, 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.
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 from operations. The remaining
50% of TCAC is owned by a privately held independent telephone company.
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.
F-11
<PAGE> 31
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The pro forma operating results for the fiscal 1996 and 1995 acquisitions
as though the acquisitions had been made at the beginning of 1995 are as
follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Revenues................................................ $264,840,593 $233,534,753
Net income.............................................. 35,169,193 30,413,470
Earnings per share...................................... $ 1.42 $ 1.24
</TABLE>
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisitions had been in effect for the entire periods
presented. In addition, they are not intended to be a projection of future
results and do not reflect any synergies that might be achieved from combined
operations.
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 1996, 1995 and 1994 under this plan are summarized
below:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Options outstanding at beginning of year.................... 178,359 152,206 109,728
Granted................................................... 67,500 66,900 47,300
Exercised................................................. (28,609) (40,747) (4,822)
Canceled.................................................. 0 0 0
------- ------- -------
Options outstanding at end of year.......................... 217,250 178,359 152,206
======= ======= =======
Options exercisable at end of year.......................... 63,200 51,034 67,231
======= ======= =======
Average price of options:
Granted during year....................................... $ 28.09 $ 25.00 $ 24.45
Exercised during year..................................... 19.01 16.81 15.98
Outstanding at end of year................................ 25.05 22.93 20.38
</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. 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, 1996, 1995
and 1994 were $611,803, $553,401 and $527,362, respectively.
12. UNCERTAINTIES AND USE OF ESTIMATES
The Telecommunications Act of 1996 was signed into law on February 8, 1996.
This new law alters the regulatory structure governing the nation's
telecommunications providers. It removes barriers to competition in both the
cable television market and the local telephone market. Among other things, it
reduces the scope of cable regulation. The Company's management believes this
legislation may have a significant impact on its operations and its competitive
environment.
F-12
<PAGE> 32
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates:
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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:
1996................................... $55,000,233 $57,577,680 $69,399,627 $71,330,742
1995................................... $43,603,643 $44,289,021 $49,525,693 $53,290,130
Operating income:
1996................................... 19,363,883 19,439,800 21,755,887 21,427,854
1995................................... 15,483,918 15,323,093 15,876,023 19,129,679
Net income:
1996................................... 8,488,375 8,960,299 8,609,313 8,881,521
1995................................... 7,737,164 7,717,958 7,524,512 8,309,842
Earnings per common share:
1996................................... $ 0.34 0.36 $ 0.35 $ 0.36
1995................................... $ 0.31 0.31 $ 0.31 $ 0.34
</TABLE>
14. SEGMENT INFORMATION
The Company operates primarily in the cable television industry. Certain
subsidiaries of the Company provide cable advertising sales.
<TABLE>
<CAPTION>
CABLE ADVERTISING TOTAL
------------ ----------- ------------
<S> <C> <C> <C>
YEAR ENDED OCTOBER 31, 1996
Revenues.......................................... $216,698,439 $36,609,843 $253,308,383
Operating Income.................................. 73,681,306 8,306,118 81,987,424
Depreciation and amortization..................... 36,255,472 1,268,517 37,523,989
Capital expenditures, including acquisitions...... 68,102,212 4,931,924 73,034,136
Identifiable assets............................... 635,971,570 28,025,061 663,996,631
YEAR ENDED OCTOBER 31, 1995
Revenues.......................................... 169,993,253 20,715,234 190,708,487
Operating income.................................. 59,969,449 5,843,264 65,812,713
Depreciation and amortization..................... 27,350,376 1,001,426 28,351,802
Capital expenditures, including acquisitions...... 60,105,585 802,930 60,908,515
Identifiable assets............................... 441,618,510 12,470,426 454,088,936
</TABLE>
15. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amount of the Company's term debt approximates fair value as
the interest rate on such debt approximates market.
F-13
<PAGE> 33
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. 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 only the disclosure
requirements of FAS 123 during the first quarter of the fiscal year ending
October 31, 1997.
17. SUBSEQUENT EVENTS
At the December 11, 1996 Director's Meeting, a cash dividend of $0.16 was
declared. This dividend is to holders of record on January 8, 1997, and payable
on January 22, 1997.
On December 18, 1996, the Company, through TCA Cable Partners, signed an
agreement with two affiliates of TCI Communications, Inc. to acquire the assets
of cable television systems serving approximately 29,500 subscribers in
Northeastern Arkansas. TCA will serve approximately 21,000 subscribers in
Jonesboro, Arkansas and surrounding areas. TCA will assign its right to serve
the remaining 8,500 subscribers to Friendship Cable Arkansas, Inc.
On January 1, 1997, TCA Communications, Inc. ("TCAC"), a 50% owned
affiliate of the Company, distributed certain assets of TCAC primarily related
to it's long distance operations and internet operations in East Texas to
Lufkin-Conroe Telecommunications Corporation ("LCT") in exchange for LCT's 50%
ownership interest in TCAC. Effective January 1, 1997, TCAC is a wholly-owned
subsidiary of TCA and continues to provide long distance and internet services
in West Texas, New Mexico and Arkansas.
F-14
<PAGE> 34
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2 Asset Exchange Agreement dated June 20, 1996 between TCA Cable
Partners and Communications Services, Inc. *1, *7
3(a) Articles of Incorporation and Bylaws. *2
3(b) Articles of Amendment to Articles of Incorporation. *3
3(c) Articles of Amendment to Articles of Incorporation. *3
3(d) Articles of Amendment to Articles of Incorporation. *4
4(a) Form of Stock Certificate.*2
9 None.
10(a) General Partnership Agreement by and between TAL Financial
Corporation and DR Partners dated December 13, 1995. *5
10(b) Restated and Amended General Partnership Agreement of TCA Cable
Partners dated as of April 11, 1996. *6
11 None.
12 None.
13 None.
16 None.
18 None.
21 Subsidiaries of the Registrant. *1
22 None.
23 Consent of Coopers & Lybrand L.L.P. *1
24 None.
27 Financial Data Schedule. *1
28 None.
</TABLE>
<PAGE> 35
99 None
- ---------------
*1 Filed herewith.
*2 Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-1, File No. 2-75516, and incorporated by
reference herein.
*3 Previously filed as an Exhibit to the Registrant's Registration
Statement on Form S-8, File No. 33-21901, and incorporated by
reference herein.
*4 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.
*5 Previously filed as an exhibit to Registrant's Form 10-K for fiscal
year ended October 31, 1995, filed January 29, 1996, and incorporated by
reference herein.
*6 Previously filed as an exhibit to Registrant's Form 8-K/A, filed
July 15, 1996 and incorporated by reference herein.
*7 Certain schedules and exhibits to this Agreement have been omitted. The
Registrant will furnish a copy of any omitted schedule or exhibit to the
Commission upon request.
14(b) Reports on Form 8-K:
None
<PAGE> 1
EXHIBIT 2
ASSET EXCHANGE AGREEMENT
DATED JUNE 20, 1996
BETWEEN
TCA CABLE PARTNERS
AND
COMMUNICATIONS SERVICES, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 1992 Cable Act . . . . . . . . . . . . . . . . . . . . . . . 2
--------------
1.2 Additional System Closing Date. . . . . . . . . . . . . . . 2
------------------------------
1.3 Additional System Agreement. . . . . . . . . . . . . . . . 2
---------------------------
1.4 Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . 2
---------
1.5 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
------
1.6 Basic Services . . . . . . . . . . . . . . . . . . . . . . . 2
--------------
1.7 Business Day . . . . . . . . . . . . . . . . . . . . . . . . 2
------------
1.8 CSI Assets . . . . . . . . . . . . . . . . . . . . . . . . . 2
----------
1.9 CSI Books and Records . . . . . . . . . . . . . . . . . . . 3
---------------------
1.10 CSI Intangibles . . . . . . . . . . . . . . . . . . . . . . 3
---------------
1.11 CSI Leased Property . . . . . . . . . . . . . . . . . . . . 3
-------------------
1.12 CSI Other Real Property Interests . . . . . . . . . . . . . 3
---------------------------------
1.13 CSI Owned Property . . . . . . . . . . . . . . . . . . . . . 3
------------------
1.14 CSI Required Consents . . . . . . . . . . . . . . . . . . . 3
---------------------
1.15 CSI Systems Contracts . . . . . . . . . . . . . . . . . . . 4
---------------------
1.16 CSI Systems Franchises . . . . . . . . . . . . . . . . . . . 4
----------------------
1.17 CSI Systems Licenses . . . . . . . . . . . . . . . . . . . . 4
--------------------
1.18 CSI Tangible Personal Property . . . . . . . . . . . . . . . 4
------------------------------
1.19 CSI's Cable Business . . . . . . . . . . . . . . . . . . . . 4
--------------------
1.20 Cable Act . . . . . . . . . . . . . . . . . . . . . . . . . 4
---------
1.21 Cable Business . . . . . . . . . . . . . . . . . . . . . . . 4
--------------
1.22 Closing Time . . . . . . . . . . . . . . . . . . . . . . . . 4
------------
1.23 Communications Act . . . . . . . . . . . . . . . . . . . . . 4
------------------
1.24 Contract . . . . . . . . . . . . . . . . . . . . . . . . . . 4
--------
1.25 Employees. . . . . . . . . . . . . . . . . . . . . . . . . 5
---------
1.26 Equivalent Basic Subscribers . . . . . . . . . . . . . . . . 5
----------------------------
1.27 Environmental Law . . . . . . . . . . . . . . . . . . . . . 5
-----------------
1.28 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
-----
1.29 ERISA Affiliate . . . . . . . . . . . . . . . . . . . . . . 6
---------------
1.30 Expanded Basic Services . . . . . . . . . . . . . . . . . . 6
-----------------------
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
1.31 FCC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
---
1.32 Financial Statements . . . . . . . . . . . . . . . . . . . . 6
--------------------
1.33 Governmental Authority . . . . . . . . . . . . . . . . . . . 6
----------------------
1.34 Hazardous Substances . . . . . . . . . . . . . . . . . . . . 6
--------------------
1.35 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . 7
-------
1.36 Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . 7
--------
1.37 Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . 7
---------
1.38 Leased Property . . . . . . . . . . . . . . . . . . . . . . 7
---------------
1.39 Legal Requirement . . . . . . . . . . . . . . . . . . . . . 7
-----------------
1.41 Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
----
1.42 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 8
----------
1.43 Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
------
1.44 Intentionally Omitted. . . . . . . . . . . . . . . . . . . . 8
1.45 Owned Property . . . . . . . . . . . . . . . . . . . . . . . 8
--------------
1.46 Pay TV . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
------
1.47 Permitted Lien . . . . . . . . . . . . . . . . . . . . . . . 8
--------------
1.48 Other Real Property Interests . . . . . . . . . . . . . . . 9
-----------------------------
1.49 Person . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
------
1.50 Required Consents . . . . . . . . . . . . . . . . . . . . . 9
-----------------
1.51 System . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
------
1.52 System Contracts . . . . . . . . . . . . . . . . . . . . . . 9
----------------
1.53 System Franchises . . . . . . . . . . . . . . . . . . . . . 9
-----------------
1.54 System Licenses . . . . . . . . . . . . . . . . . . . . . . 9
---------------
1.55 TCA Assets . . . . . . . . . . . . . . . . . . . . . . . . . 9
----------
1.56 TCA Books and Records . . . . . . . . . . . . . . . . . . . 9
---------------------
1.57 TCA Intangibles . . . . . . . . . . . . . . . . . . . . . . 10
---------------
1.58 TCA Leased Property . . . . . . . . . . . . . . . . . . . . 10
-------------------
1.59 TCA Other Real Property Interests . . . . . . . . . . . . . 10
---------------------------------
1.60 TCA Owned Property . . . . . . . . . . . . . . . . . . . . . 10
------------------
1.61 TCA Required Consents . . . . . . . . . . . . . . . . . . . 10
---------------------
1.62 TCA System Contracts . . . . . . . . . . . . . . . . . . . . 10
--------------------
1.63 TCA System Franchises . . . . . . . . . . . . . . . . . . . 10
---------------------
1.64 TCA Systems Licenses . . . . . . . . . . . . . . . . . . . . 11
--------------------
1.65 TCA Tangible Personal Property . . . . . . . . . . . . . . . 11
------------------------------
1.66 TCA's Cable Business . . . . . . . . . . . . . . . . . . . . 11
--------------------
1.67 Tangible Personal Property . . . . . . . . . . . . . . . . . 11
--------------------------
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
1.68 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-----
1.69 third party . . . . . . . . . . . . . . . . . . . . . . . . 11
-----------
1.70 Transaction Documents . . . . . . . . . . . . . . . . . . . 11
---------------------
1.71 Other Definitions . . . . . . . . . . . . . . . . . . . . . 11
-----------------
SECTION 2. EXCHANGE . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 3. CONSIDERATION . . . . . . . . . . . . . . . . . . . . . . . 14
3.1 Valuation Differential . . . . . . . . . . . . . . . . . . . 14
----------------------
3.2 Adjustments . . . . . . . . . . . . . . . . . . . . . . . . 14
-----------
3.3 Additional System Adjustments . . . . . . . . . . . . . . . 15
-----------------------------
3.4 Calculation of Adjustments . . . . . . . . . . . . . . . . . 16
--------------------------
SECTION 4. ASSUMED LIABILITIES AND EXCLUDED ASSETS . . . . . . . . . . 17
4.1 CSI Assumed Obligations and Liabilities . . . . . . . . . . 17
---------------------------------------
4.2 CSI Excluded Assets . . . . . . . . . . . . . . . . . . . . 18
-------------------
4.3 TCA Assumed Obligations and Liabilities . . . . . . . . . . 18
---------------------------------------
4.4 TCA Excluded Assets . . . . . . . . . . . . . . . . . . . . 19
-------------------
SECTION 5. TCA'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . 19
5.1 Organization and Qualification of TCA . . . . . . . . . . . 19
-------------------------------------
5.2 Authority and Validity . . . . . . . . . . . . . . . . . . . 20
----------------------
5.3 No Conflict; Required Consents . . . . . . . . . . . . . . . 20
------------------------------
5.4 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
------
5.5 TCA Systems Franchises, TCA Systems Licenses, TCA Systems
---------------------------------------------------------
Contracts and TCA Other Real Property Interests . . . . . . . . . . 21
-----------------------------------------------
5.6 Real Property . . . . . . . . . . . . . . . . . . . . . . . 22
-------------
5.7 Environmental . . . . . . . . . . . . . . . . . . . . . . . 23
-------------
5.8 Compliance with Legal Requirements . . . . . . . . . . . . . 24
----------------------------------
5.9 Patents, Trademarks and Copyrights . . . . . . . . . . . . . 25
----------------------------------
5.10 Financial Statements; Undisclosed Liabilities . . . . . . . 26
---------------------------------------------
5.11 Absence of Certain Changes or Events . . . . . . . . . . . . 26
------------------------------------
5.12 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 26
----------
5.13 Tax Returns; Other Reports . . . . . . . . . . . . . . . . . 27
--------------------------
5.14 Employment Matters . . . . . . . . . . . . . . . . . . . . . 27
------------------
5.15 TCA Systems Information . . . . . . . . . . . . . . . . . . 28
-----------------------
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<S> <C> <C>
5.16 Subscriber Numbers . . . . . . . . . . . . . . . . . . . . . 29
------------------
5.17 Finders and Brokers . . . . . . . . . . . . . . . . . . . . 29
-------------------
SECTION 6. CSI'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . 29
6.1 Organization and Qualification of CSI . . . . . . . . . . . 29
-------------------------------------
6.2 Authority and Validity . . . . . . . . . . . . . . . . . . . 29
----------------------
6.3 No Conflict; Required Consents . . . . . . . . . . . . . . . 30
------------------------------
6.4 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
------
6.5 CSI Systems Franchises, CSI Systems Licenses, CSI Systems
---------------------------------------------------------
Contracts and CSI Other Real Property Interests . . . . . . . . . . 31
-----------------------------------------------
6.6 Real Property . . . . . . . . . . . . . . . . . . . . . . . 32
-------------
6.7 Environmental . . . . . . . . . . . . . . . . . . . . . . . 32
-------------
6.8 Compliance with Legal Requirements . . . . . . . . . . . . . 33
----------------------------------
6.9 Patents, Trademarks and Copyrights . . . . . . . . . . . . . 35
----------------------------------
6.10 Financial Statements; Undisclosed Liabilities . . . . . . . 35
---------------------------------------------
6.11 Absence of Certain Changes or Events . . . . . . . . . . . . 35
------------------------------------
6.12 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 36
----------
6.13 Tax Returns; Other Reports . . . . . . . . . . . . . . . . . 36
--------------------------
6.14 Employment Matters . . . . . . . . . . . . . . . . . . . . . 37
------------------
6.15 CSI Systems Information . . . . . . . . . . . . . . . . . . 38
-----------------------
6.16 Subscriber Numbers . . . . . . . . . . . . . . . . . . . . . 38
------------------
6.17 Finders and Brokers . . . . . . . . . . . . . . . . . . . . 38
-------------------
SECTION 7. ADDITIONAL COVENANTS . . . . . . . . . . . . . . . . . . . . 39
7.1 Access to Premises and Records . . . . . . . . . . . . . . . 39
------------------------------
7.2 Continuity and Maintenance of Operations; Certain Deliveries
------------------------------------------------------------
and Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
-----------
7.3 Employees . . . . . . . . . . . . . . . . . . . . . . . . . 41
---------
7.4 Leased Vehicles; Other Capital Leases . . . . . . . . . . . 43
-------------------------------------
7.6 Title Commitments and Surveys . . . . . . . . . . . . . . . 45
-----------------------------
7.7 HSR Notification . . . . . . . . . . . . . . . . . . . . . . 46
----------------
7.8 Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . 46
--------------
7.9 Distant Broadcast Signals . . . . . . . . . . . . . . . . . 47
-------------------------
7.10 Noncompetition . . . . . . . . . . . . . . . . . . . . . . . 47
--------------
7.11 Programming . . . . . . . . . . . . . . . . . . . . . . . . 47
-----------
7.12 Updated Schedules . . . . . . . . . . . . . . . . . . . . . 47
-----------------
</TABLE>
-iv-
<PAGE> 6
<TABLE>
<S> <C> <C>
7.13 Use of Names and Logos . . . . . . . . . . . . . . . . . . . 47
----------------------
7.14 Transitional Billing Services . . . . . . . . . . . . . . . 48
-----------------------------
7.15 Confidentiality and Publicity . . . . . . . . . . . . . . . 48
-----------------------------
7.16 Bulk Transfers . . . . . . . . . . . . . . . . . . . . . . . 49
--------------
7.17 Allocation of Value to Exchanged Assets . . . . . . . . . . 49
---------------------------------------
7.18 Additional System . . . . . . . . . . . . . . . . . . . . . 49
-----------------
7.19 Lien Searches . . . . . . . . . . . . . . . . . . . . . . . 50
-------------
7.21 Rebuild of Ft. Smith System . . . . . . . . . . . . . . . . 50
---------------------------
7.22 Further Assurances . . . . . . . . . . . . . . . . . . . . . 50
------------------
7.23 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 50
--------
7.24 Post-Closing Cooperation upon Inquiries as to Rates . . . . 51
---------------------------------------------------
SECTION 8. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . 51
8.1 Conditions to TCA's Obligations . . . . . . . . . . . . . . 51
-------------------------------
8.1.1 Accuracy of Representations and Warranties . . . . . . . . . 51
------------------------------------------
8.1.2 Performance of Agreements . . . . . . . . . . . . . . . . . 51
-------------------------
8.1.3 Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . 51
----------
8.1.4 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 51
-----------------
8.1.5 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 52
--------
8.1.6 No Material Adverse Change . . . . . . . . . . . . . . . . . 52
--------------------------
8.1.7 Title Defects . . . . . . . . . . . . . . . . . . . . . . . 52
-------------
8.1.8 Environmental Assessments . . . . . . . . . . . . . . . . . 52
-------------------------
8.1.9 Subscribers . . . . . . . . . . . . . . . . . . . . . . . . 52
-----------
8.1.10 Documents and Records . . . . . . . . . . . . . . . . . . . 52
---------------------
8.1.11 Retransmission Consent . . . . . . . . . . . . . . . . . . . 53
----------------------
8.1.12 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . 53
-------
8.1.13 Franchise Renewals . . . . . . . . . . . . . . . . . . . . . 53
------------------
8.2 Conditions to CSI's Obligations . . . . . . . . . . . . . . 53
-------------------------------
SECTION 9. THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . 55
9.1 The Closing; Time and Place . . . . . . . . . . . . . . . . 55
---------------------------
9.2 CSI's Delivery Obligations . . . . . . . . . . . . . . . . . 55
--------------------------
9.3 TCA's Delivery Obligations . . . . . . . . . . . . . . . . . 57
--------------------------
SECTION 10. TERMINATION AND DEFAULT . . . . . . . . . . . . . . . . . . 59
10.1 Termination Events . . . . . . . . . . . . . . . . . . . . . 59
------------------
</TABLE>
-v-
<PAGE> 7
<TABLE>
<S> <C> <C>
10.2 Effect of Termination . . . . . . . . . . . . . . . . . . . 60
---------------------
SECTION 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION 60
11.1 Survival of Representations and Warranties . . . . . . . . . 60
------------------------------------------
11.2 Indemnification by CSI . . . . . . . . . . . . . . . . . . . 61
----------------------
11.3 Indemnification by TCA . . . . . . . . . . . . . . . . . . . 61
----------------------
11.4 Third Party Claims . . . . . . . . . . . . . . . . . . . . . 62
------------------
11.5 Limitations on Indemnification - CSI . . . . . . . . . . . . 63
------------------------------------
11.7 Other Indemnification . . . . . . . . . . . . . . . . . . . 64
---------------------
SECTION 12. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . 64
12.1 Parties Obligated and Benefited . . . . . . . . . . . . . . 64
-------------------------------
12.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 64
-------
12.3 Right to Specific Performance . . . . . . . . . . . . . . . 65
-----------------------------
12.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
------
12.5 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . 65
--------
12.6 Choice of Law . . . . . . . . . . . . . . . . . . . . . . . 66
-------------
12.7 Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
-----
12.8 Rights Cumulative . . . . . . . . . . . . . . . . . . . . . 66
-----------------
12.9 Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
----
12.10 Late Payments . . . . . . . . . . . . . . . . . . . . . . . 66
-------------
12.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 66
------------
12.12 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 66
----------------
12.13 Severability . . . . . . . . . . . . . . . . . . . . . . . . 66
------------
12.14 Construction . . . . . . . . . . . . . . . . . . . . . . . . 67
------------
12.15 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 67
--------
12.16 Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . 67
------------
12.17 Tax Consequences . . . . . . . . . . . . . . . . . . . . . . 68
----------------
12.18 Commercially Reasonable Efforts . . . . . . . . . . . . . . 68
-------------------------------
</TABLE>
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<PAGE> 8
LIST OF SCHEDULES AND EXHIBITS
<TABLE>
<S> <C>
Schedules
- ---------
Schedule 1.11 CSI Leased Property
Schedule 1.12 CSI Other Real Property Interests
Schedule 1.13 CSI Owned Property
Schedule 1.15 CSI Systems Contracts
Schedule 1.16 CSI Systems Franchises
Schedule 1.17 CSI Systems Licenses
Schedule 1.18 CSI Tangible Personal Property
Schedule 1.58 TCA Leased Property
Schedule 1.59 TCA Real Property Interests
Schedule 1.60 TCA Owned Property
Schedule 1.62 TCA Systems Contracts
Schedule 1.63 TCA Systems Franchises
Schedule 1.64 TCA Systems Licenses
Schedule 1.65 TCA Tangible Personal Property
</TABLE>
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<PAGE> 9
<TABLE>
<S> <C>
Schedule 4.2 CSI Excluded Assets
Schedule 4.4 TCA Excluded Assets
Schedule 5.3 TCA Required Consents
Schedule 5.4 TCA Liens and Permitted Liens
Schedule 5.10 TCA Financial Statements; TCA Changes
or Events
Schedule 5.12 TCA Litigation
Schedule 5.14 TCA Plans; Employee Matters
Schedule 5.15 TCA Systems Information
Schedule 6.3 CSI Required Consents
Schedule 6.4 CSI Liens and Permitted Liens
Schedule 6.10 CSI Financial Statements; CSI Changes
or Events
Schedule 6.12 CSI Litigation
Schedule 6.14 CSI Plans; Employee Matters
Schedule 6.15 CSI Systems Information
</TABLE>
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<PAGE> 10
<TABLE>
<S> <C>
Exhibits
- --------
Exhibit 7.5.2 Forms of Nondisturbance and
Attornment Agreements
Exhibit 7.5.4 Form of MDU Agreement
Exhibit 7.10(a) CSI Noncompetition Covenant
Exhibit 7.10(b) TCA Noncompetition Covenant
Exhibit 7.11 Form Letter to Programmers
Exhibit 9.2.2 CSI Bill of Sale and Assignment and
Assumption Agreement
Exhibit 9.2.12 CSI Counsel Opinion
Exhibit 9.3.2 TCA Bill of Sale and Assignment and
Assumption Agreement
Exhibit 9.3.12 TCA Counsel Opinion
</TABLE>
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<PAGE> 11
ASSET EXCHANGE AGREEMENT
THIS ASSET EXCHANGE AGREEMENT ("Agreement") is made and entered into as
of the 20th day of June, 1996, by and between TCA Cable Partners, a Delaware
general partnership ("TCA"), whose U.S. Taxpayer Identification Number is 75-
2628484 and Communications Services, Inc., a Kansas corporation ("CSI"), whose
U.S. Taxpayer Identification Number is 48-0879531.
RECITALS
A. TCA owns and operates cable television systems which are
franchised or hold other operating authority and operate in and around the
California municipalities of Solano County and Vallejo (the "TCA Systems").
B. CSI owns and operates cable television systems which are
franchised or hold other operating authority and operate in and around the
Arkansas municipalities of Bonanza, Fort Smith, Greenwood, and Hackett, and the
unincorporated areas of Jenny Lind, Old Jenny Lind and White Bluff in Sebastian
County; and the Oklahoma municipalities of Arkoma, Muldrow, Roland, Sallisaw
and Sequoyah County (the "CSI Systems").
C. This Agreement sets forth the terms and conditions on
which TCA will convey, or cause to be conveyed, to CSI substantially all of the
assets comprising or used or useful in connection with the TCA's Cable Business
and CSI will convey to TCA substantially all of the assets comprising or used
in connection with the CSI's Cable Business, all in such a manner as to effect,
to the extent reasonably possible, a like-kind exchange of such assets under
Section 1031 of the United States Internal Revenue Code, as amended (the
"Code").
<PAGE> 12
AGREEMENTS
In consideration of the mutual covenants and promises set forth herein,
the parties agree as follows:
SECTION 1. DEFINITIONS
In addition to terms defined elsewhere in this Agreement, the following
capitalized terms or terms otherwise defined in this SECTION 1 shall have the
meanings set forth below:
1.1 1992 Cable Act. The Cable Television Consumer Protection
and Compensation Act of 1992 and the FCC rules and regulations promulgated
thereunder.
1.2 Additional System Closing Date. The closing date of the
purchase of the Additional System pursuant to the Additional System Agreement.
1.3 Additional System Agreement. The Asset Purchase Agreement
pursuant to which the Additional Systems are purchased.
1.4 Affiliate. With respect as to any Person, any Person
controlling, controlled by or under common control with such Person; "control"
means the ownership, directly or indirectly, of voting securities representing
the right generally to elect a majority of the directors (or similar officials)
of a Person or the possession, by contract or otherwise, of the authority to
direct the management and policies of a Person.
1.5 Assets. The TCA Assets or the CSI Assets, as the context
requires.
1.6 Basic Services. The lowest tier of service offered to
subscribers of a System.
1.7 Business Day. Any day other than a Saturday, Sunday or a
day on which the banking institutions in Denver, Colorado or New York, New York
are required or authorized to be closed.
1.8 CSI Assets. All of the assets, properties, privileges,
rights, interests and claims, real and personal, tangible and intangible, of
every type and description that are owned, leased, held, used or useful in
CSI's Cable Business in which CSI has any right, title or interest or
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<PAGE> 13
in which CSI acquires any right, title or interest on or before the Closing
Time that are not CSI Excluded Assets, including the CSI Tangible Personal
Property, the CSI Owned Property, the CSI Leased Property, the CSI Other Real
Property Interests, the CSI Systems Franchises, the CSI Systems Licenses and
the CSI Systems Contracts, but excluding any CSI Excluded Assets.
1.9 CSI Books and Records. All engineering records, files,
data, drawings, blueprints, schematics, reports, lists, plans and processes and
all files of correspondence, lists, records and reports concerning subscribers
and prospective subscribers of the CSI Systems, signal and program carriage and
dealings with Governmental Authorities, including all reports filed by or on
behalf of CSI with the FCC and statements of account filed by or on behalf of
CSI with the U.S. Copyright Office.
1.10 CSI Intangibles. All intangible assets, including
subscriber lists, accounts receivable, claims (excluding any claims relating to
Excluded Assets), patents, copyrights and goodwill, if any, owned, used or held
for use in CSI's Cable Business.
1.11 CSI Leased Property. The leaseholds of real property
described as CSI Leased Property on SCHEDULE 1.11.
1.12 CSI Other Real Property Interests. The easements and
rights of access (other than those relating to multiple dwelling units) and
other interests in real property described as CSI Other Real Property Interests
on SCHEDULE 1.12.
1.13 CSI Owned Property. The fee interests in the real
property described as CSI Owned Property on SCHEDULE 1.13 and all improvements
thereon.
1.14 CSI Required Consents. Any and all consents,
authorizations and approvals required under the CSI Systems Franchises, the CSI
Systems Licenses, the leases and other documents evidencing the CSI Leased
Property or the CSI Other Real Property Interests and the CSI Systems Contracts
for (a) CSI to transfer the CSI Assets to TCA, (b) TCA to operate the CSI
Systems and to own, lease, use and operate the CSI Assets and the CSI Systems
at the places and in the manner in which the CSI Assets are used and the CSI
Systems are operated as of the date of this Agreement and as of the Closing,
and (c) TCA to assume and perform the CSI Systems Franchises, the CSI Systems
Licenses, the leases and other documents evidencing CSI Leased Property or CSI
Other Real Property Interests and the CSI Systems Contracts.
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<PAGE> 14
1.15 CSI Systems Contracts. The pole line agreements,
underground conduit agreements, crossing agreements, multiple dwelling or
commercial service agreements and other Contracts (other than CSI Systems
Franchises) described on SCHEDULE 1.15.
1.16 CSI Systems Franchises. The franchises and similar
authorizations or permits described on SCHEDULE 1.16.
1.17 CSI Systems Licenses. The intangible cable television
channel distribution rights, cable television relay service (CARS), business
radio and other licenses, copyright notices and other licenses, authorizations,
consents or permits issued by the FCC or any other Governmental Authority
(other than those described on SCHEDULE 1.15) described on SCHEDULE 1.17.
1.18 CSI Tangible Personal Property. All tangible personal
property, including towers, tower equipment, aboveground and underground cable,
distribution systems, headend amplifiers, line amplifiers, microwave equipment,
converters, testing equipment, motor vehicles, office equipment, furniture,
fixtures, supplies, inventory and other physical assets, the principal items of
which are described on SCHEDULE 1.18.
1.19 CSI's Cable Business. The cable television business and
other income-generating business conducted by CSI through the CSI Systems.
1.20 Cable Act. The Cable communications Policy Act of 1984,
as amended, and the rules and regulations promulgated thereunder.
1.21 Cable Business. The TCA's Cable Business or CSI's Cable
Business, as the context requires.
1.22 Closing Time. 11:59 P.M., Mountain Time, on the Closing
Date.
1.23 Communications Act. The Communications Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
1.24 Contract. Any contract, mortgage, deed of trust, bond,
indenture, lease, license, note, franchise, certificate, option, warrant, right
or other instrument, document, obligation or agreement, whether written or
oral.
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<PAGE> 15
1.25 Employees. With respect to CSI, the personnel employed by
the CSI Systems to fill relevant job positions at such systems, and with
respect to TCA, the personnel assigned to the TCA Systems to fill relevant job
positions at such systems, whether employed specifically by TCA or leased by
TCA from DR Partners (the "General Partner") pursuant to an Agreement dated May
1, 1996 between the General Partner and TCA Management Co., the managing
operator of TCA.
1.26 Equivalent Basic Subscribers (or "EBSs"). As of any date
of determination and for each franchise area served by a System, the number
equal to the quotient of (a) the total monthly billings for sales of Basic
Services and Expanded Basic Services by such System during the most recent
month ended prior to the date of calculation (including billings to
single-family households and commercial and bulk subscribers, whether on a
discounted or undiscounted basis, but excluding billings in excess of a single
month's charges for any account), divided by (b) the standard monthly combined
rate (without discount of any kind) charged to single-family households for
Basic Services and Expanded Basic Services in effect during such month, which
monthly rate will not be less than the rates specified in SCHEDULE 5.15 (in the
case of TCA) or SCHEDULE 6.15 (in the case of CSI). For purposes of
calculating the number of EBSs, there will be excluded (i) all billings to any
subscriber who is more than 60 days' past due in the payment of any amount in
excess of $10.00, (ii) all billings to any subscriber who, as of the date of
calculation, has not paid in full the charges for at least one full month of
service, (iii) that portion of the billings to each subscriber representing an
installation or other non-recurring charge, a charge for equipment or for any
outlet or connection other than the first outlet or first connection in any
single-family household or, with respect to a bulk account, in any residential
unit (e.g., an individual apartment or rental unit), a charge for any tiered
service other than Expanded Basic Service (whether or not included within Pay
TV), any charge for Pay TV or a pass-through charge for sales taxes,
line-itemized franchise fees, fees charged by the FCC and the like, (iv) all
billings to any subscriber whose service is pending disconnection for any
reason and (v) all billings to any subscriber who was solicited during the
sixty day period preceding the Closing to purchase such services by promotions
or offers of discounts other than those then generally being offered by the
party for which the determination of EBSs is being made or any of such party's
Affiliates. For purposes of this definition, payments on account of monthly
billings will be deemed due on the first day of the period for which the
service to which such billings relate is provided.
1.27 Environmental Law. Any Legal Requirement relating to
pollution or protection of public health, safety or welfare or the environment,
including those relating to emissions, discharges, releases or threatened
releases of Hazardous Substances into the environment (including ambient air,
surface water, ground water or land) or otherwise relating to the manufacture,
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<PAGE> 16
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Substances.
1.28 ERISA. The Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder and
published interpretations with respect thereto.
1.29 ERISA Affiliate. As to any Person, any trade or business,
whether or not incorporated, which together with such Person would be deemed a
single employer within the meaning of Section 4001 of ERISA.
1.30 Expanded Basic Services. Any video programming provided
over a cable television system, regardless of service tier, other than Basic
Services, any new product tier and video programming services offered on a per
channel or per program basis.
1.31 FCC. The Federal Communications Commission.
1.32 Financial Statements. The TCA's Financial Statements or
CSI's Financial Statements, as the context requires.
1.33 Governmental Authority. The United States of America, any
state, commonwealth, territory or possession of the United States of America
and any political subdivision or quasi-governmental authority of any of the
same, including any court, tribunal, department, commission, board, bureau,
agency, county, municipality, province, parish or other instrumentality of any
of the foregoing.
1.34 Hazardous Substances. (a) Any "hazardous waste" as
defined by the Resource Conservation and Recovery Act of 1976 (RCRA) (42
U.S.C.A. Sections 6901 et seq.), as amended, and the rules and regulations
promulgated thereunder; (b) any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(42 U.S.C.A. Sections 9601 et seq.) (CERCLA), as amended, and the rules and
regulations promulgated thereunder; (c) any substance regulated by the Toxic
Substances Control Act (TSCA) (42 U.S.C. Section 2601 et seq.), as amended, and
the rules and regulations promulgated thereunder; (d) asbestos or
asbestos-containing material of any kind or character; (e) polychlorinated
biphenyls; (f) any substances regulated under the provisions of Subtitle I of
RCRA relating to underground storage tanks; (g) any substance the presence,
use, treatment, storage or disposal of which on Owned Property or Leased
Property is
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<PAGE> 17
prohibited by any Environmental Law; and (h) any other substance which by any
Environment Law requires special handling, reporting or notification of any
Governmental Authority in its collection, storage, use, treatment or disposal.
1.35 HSR Act. The Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the rules and regulations promulgated thereunder.
1.36 Judgment. Any judgment, writ, order, injunction, award or
decree of any court, judge, justice or magistrate, including any bankruptcy
court or judge or the arbitrator in any binding arbitration, and any order of
or by any Governmental Authority.
1.37 Knowledge. The actual knowledge of a particular matter of
one or more of the executive officers of such party or the general manager or
one or more of the managers of such party's Systems.
1.38 Leased Property. The TCA Leased Property or CSI Leased
Property, as the context requires.
1.39 Legal Requirement. Applicable common law and any statute,
ordinance, code or other law, rule, regulation, order, technical or other
written standard, requirement or procedure enacted, adopted, promulgated,
applied or followed by any Governmental Authority, including any Judgment.
1.40 Intentionally Omitted.
1.41 Lien. Any security interest, security agreement,
financing statement filed with any Governmental Authority, conditional sale or
other title retention agreement, any lease, consignment or bailment given for
purposes of security, any mortgage, lien, indenture, pledge, option,
encumbrance, adverse interest, constructive trust or other trust, claim,
attachment, exception to or defect in title or other ownership interest
(including but not limited to reservations, rights of entry, possibilities of
reverter, encroachments, easements, rights-of-way, restrictive covenants,
leases and licenses) of any kind, which constitutes an interest in or claim
against property, whether arising pursuant to any Legal Requirement, System
License, System Franchise, System Contract or otherwise.
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<PAGE> 18
1.42 Litigation. Any claim, action, suit, proceeding,
arbitration, investigation, hearing or other activity or procedure that could
result in a Judgment and any notice of any of the foregoing.
1.43 Losses. Any claims, losses, liabilities, damages, Liens,
penalties, costs and expenses, including interest that may be imposed in
connection therewith, expenses of investigation, reasonable fees and
disbursements of counsel and other experts, and the cost to any Person making a
claim or seeking indemnification under this Agreement with respect to funds
expended by such Person by reason of the occurrence of any event with respect
to which indemnification is sought.
1.44 Intentionally Omitted.
1.45 Owned Property. The TCA Owned Property or CSI Owned
Property, as the context requires.
1.46 Pay TV. Premium programming services selected by and sold
to subscribers on a per channel or per program basis.
1.47 Permitted Lien. Any (a) Lien securing Taxes, assessments
and governmental charges not yet due and payable, (b) zoning law or ordinance
or any similar Legal Requirement, (c) right reserved to any Governmental
Authority to regulate the affected property, (d) as to Owned Property and Other
Real Property Interests, any Lien which is reflected in the public records and
that does not individually or in the aggregate interfere with the right or
ability to own, use or operate the Owned Property or Other Real Property
Interests as they are being used or operated or to convey good, marketable and
indefeasible fee simple title to the same, and (e) in the case of Leased
Property, the rights of the fee owner and any lien encumbering the fee interest
in such property; provided that "Permitted Lien" will not include any Lien
securing a debt or claim (other than inchoate materialmen's, mechanics,
workman's repairman's or other like liens arising in the ordinary course of
business or any lien described in clause (e) above) or any Lien which could
prevent or inhibit in any way the conduct of the business of the affected
System as it is currently being conducted, and provided further that
classification of any Lien as a "Permitted Lien" will not affect any liability
which CSI may have for any such Lien with respect to the exchange of the CSI
Systems or which TCA may have for any such Lien with respect to the exchange of
the TCA Systems, including pursuant to any indemnity obligation under this
Agreement.
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<PAGE> 19
1.48 Other Real Property Interests. The TCA Other Real
Property Interests or the CSI Other Real Property Interests, as the context
requires.
1.49 Person. Any natural person, Governmental Authority,
corporation, general or limited partnership, limited liability company, joint
venture, trust, association or unincorporated entity of any kind.
1.50 Required Consents. The TCA Required Consents or the CSI
Required Consents, as the context requires.
1.51 System. Any of the TCA Systems or the CSI Systems, as
the context requires.
1.52 System Contracts. The TCA Systems Contracts or the CSI
Systems Contracts, as the context requires.
1.53 System Franchises. The TCA Systems Franchises or the CSI
Systems Franchises, as the context requires.
1.54 System Licenses. The TCA Systems Licenses or the CSI
Systems Licenses, as the context requires.
1.55 TCA Assets. All properties, privileges, rights, interests
and claims, real and personal, tangible and intangible, of every type and
description that are owned, leased, held, used or useful in TCA's Cable
Business in which TCA has any right, title or interest or in which TCA acquires
any right, title or interest on or before the Closing Time that are not TCA
Excluded Assets, including the TCA Tangible Personal Property, TCA Owned
Property, TCA Leased Property, TCA Other Real Property Interests, TCA Systems
Franchises, TCA Systems Licenses and TCA Systems Contracts, but excluding any
TCA Excluded Assets. Notwithstanding the foregoing, if the Additional System
is acquired on or prior to the Closing Date or, if the Additional System is
identified within 45 days after the Closing Date and the Additional System
Closing Date occurs on or before the Outside Additional System Closing Date,
then the Additional System shall be deemed to be a TCA System and included
within the definition of TCA's Cable Business.
1.56 TCA Books and Records. All engineering records, files,
data, drawings, blueprints, schematics, reports, lists, plans and processes and
all files of correspondence, lists, records and reports concerning subscribers
and prospective subscribers of the TCA Systems, signal
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and program carriage and dealings with Governmental Authorities, including all
reports filed by or on behalf of TCA with the FCC and statements of account
filed by or on behalf of TCA with the U.S. Copyright Office.
1.57 TCA Intangibles. All intangible assets, including
subscriber lists, accounts receivable, claims (excluding any claims relating to
Excluded Assets), patents, copyrights and goodwill, if any, owned, used or held
for use in TCA's Cable Business.
1.58 TCA Leased Property. The leaseholds of real property
described as TCA Leased Property on SCHEDULE 1.58.
1.59 TCA Other Real Property Interests. The easements and
rights of access (other than those relating to multiple dwelling units) and
other interests in real property described as TCA Other Real Property Interests
on SCHEDULE 1.59.
1.60 TCA Owned Property. The fee interests in the real
property described as TCA Owned Property on SCHEDULE 1.60 and all improvements
thereon.
1.61 TCA Required Consents. Any and all consents,
authorizations and approvals required under the TCA Systems Franchises, TCA
Systems Licenses, the leases and other documents evidencing TCA Leased Property
and TCA Other Real Property Interests and TCA Systems Contracts for (a) TCA to
transfer the TCA Assets to CSI, (b) CSI to operate the TCA Systems and to own,
lease, use and operate the TCA Assets and the TCA Systems at the places and in
the manner in which the TCA Assets are used and the TCA Systems are operated as
of the date of this Agreement and as of the Closing, and (c) CSI to assume and
perform the TCA Systems Franchises, the TCA Systems Licenses, the leases and
other documents evidencing TCA Leased Property and TCA Other Real Property
Interests and the TCA Systems Contracts.
1.62 TCA System Contracts. The pole line agreements,
underground conduit agreements, crossing agreements, multiple dwelling or
commercial service agreements and other Contracts (other than TCA Systems
Franchises) described on SCHEDULE 1.62.
1.63 TCA System Franchises. The franchises and other
authorizations or permits described on Schedule 1.63.
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1.64 TCA Systems Licenses. The intangible cable television
channel distribution rights, cable television relay service (CARS), business
radio and other licenses, copyright notices and other licenses, authorizations,
consents or permits issued by the FCC or any other Governmental Authority
(other than those described on SCHEDULE 1.62) described on SCHEDULE 1.64.
1.65 TCA Tangible Personal Property. All tangible personal
property, including towers, tower equipment, aboveground and underground cable,
distribution systems, headend amplifiers, line amplifiers, microwave equipment,
converters, testing equipment, motor vehicles, office equipment, furniture,
fixtures, supplies, inventory and other physical assets, the principal items of
which are described on SCHEDULE 1.65.
1.66 TCA's Cable Business. The cable television business and
other income-generating business conducted by TCA through the TCA Systems.
1.67 Tangible Personal Property. The TCA Tangible Personal
Property or the CSI Tangible Personal Property, as the context requires.
1.68 Taxes. All levies and assessments of any kind or nature
imposed by any Governmental Authority, including all income, sales, use, ad
valorem, value added, franchise, severance, net or gross proceeds, withholding,
payroll, employment, excise or property taxes and levies or assessments related
to unclaimed property, together with any interest thereon and any penalties,
additions to tax or additional amounts applicable thereto.
1.69 third party. Any Person other than CSI and its Affiliates
or TCA and its Affiliates.
1.70 Transaction Documents. The instruments and documents
described in SECTIONS 9.2 and 9.3 which are being executed and delivered by or
on behalf of TCA or CSI in connection with this Agreement or the transactions
contemplated hereby.
1.71 Other Definitions. The following terms are defined in the
Sections or Recitals indicated:
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<TABLE>
<CAPTION>
Term Section or Recital
---- ------------------
<S> <C>
Action 11.4
Additional System 7.18
Additional System Purchase Price 3.4.1
Agreement First Paragraph
Antitrust Division 7.7
CSI First Paragraph
CSI Assumed Obligations and Liabilities 4.1
CSI Counsel Opinion 9.2.12
CSI Damages 11.6
CSI Excluded Assets 4.2
CSI Noncompetition Covenant 9.2.7
CSI Plans 6.14
CSI Systems Recital B
CSI Title Policies 9.2.4
CSI's Balance Sheet 6.10
CSI's Financial Statements 6.10
Cash Consideration 3.1
Closing 9.1
Closing Date 9.1
Code Recital C
Cost of Service Election 5.8
Estoppel Certificates 6.15(h)
Final Adjustment Certificate 3.3
FTC 7.6
General Partner 1.25
Indemnified Party 11.4
Indemnifying Party 11.4
Initial Adjustment Certificate 3.3
Memorandum of Lease 7.1(i)
Nondisturbance and Attornment Agreements 7.1(i)
Outside Additional System Closing Date 3.4.2
Prime Rate 12.10
Retained Employees 7.3.1
Surveys 7.5
</TABLE>
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<TABLE>
<S> <C>
Survival Period 11.1
Taking 12.16
TCA Assumed Obligations and Liabilities 4.3
TCA Balance Sheet 5.10
TCA Counsel Opinion 9.3.12
TCA Damages 11.5
TCA Excluded Assets 4.4
TCA Noncompetition Covenant 9.3.6
TCA Plans 5.14
TCA Systems Recital A
TCA Title Policies 9.3.4
TCA's Financial Statements 5.10
Title Commitments 7.5
Title Company 7.5
Title Defect 7.5
Transitional Billing Services 7.12
WARN 6.15
</TABLE>
1.72 Accounting Terms. All accounting terms not otherwise
defined in this Agreement will have the meanings ascribed to them under
generally acceptable accounting principles as in effect from time to time in
the United States.
SECTION 2. EXCHANGE
Subject to the terms and conditions set forth in this Agreement, at the
Closing:
2.1 CSI and TCA agree to exchange simultaneously the CSI Assets,
except the CSI Excluded Assets, for the TCA Assets, except the TCA Excluded
Assets, free and clear of all Liens (except Permitted Liens). CSI and TCA
agree to use all reasonable efforts to structure the transaction in such a way
that it will be a tax free exchange of like-kind assets under Section 1031 of
the Code.
2.2 Such exchange is to occur as follows: (a) the CSI Tangible
Personal Property and the TCA Tangible Personal Property are being exchanged
each for the other; (b) the CSI Owned Property, CSI Leased Property and CSI
Other Property Interests and TCA Owned Property, TCA
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<PAGE> 24
Leased Property and TCA Other Real Property Interests are being exchanged each
for the other; (c) the CSI Systems Contracts, CSI Systems Franchises, CSI
Systems Licenses and other CSI Intangibles and the TCA Systems Contracts, TCA
Systems Franchises, TCA System Licenses and other TCA Intangibles are being
exchanged each for the other; (d) the CSI Assumed Liabilities and TCA Assumed
Liabilities are being exchanged each for the other to the maximum extent
permitted by Section 1031 of the Code and regulations promulgated thereunder.
SECTION 3. CONSIDERATION
3.1 Valuation Differential. In order to equalize the
value of the transaction for both parties, in addition to the exchange of the
Assets of the CSI Systems for the TCA Systems as described in SECTION 2, at
Closing at CSI's option either (a) TCA shall pay to CSI by wire transfer, in
immediately available funds, $3,500,000, subject to adjustment as provided in
Sections 3.2 and 3.3, or (b) TCA shall acquire the Additional System which
shall be deemed to be a TCA System and exchanged pursuant to the provisions
hereof.
3.2 Adjustments. On the Closing Date, the following
amounts shall be calculated and paid by the applicable party, without
duplication, by wire transfer in immediately available funds:
3.2.1 Each party shall make adjustments on a pro
rata basis as of the Closing Date for all prepaid expenses, other than
inventory (but only to the extent the full benefit thereof will be realizable
by the other party within 12 months after the Closing Date), accrued expenses
(including real and personal property taxes), prepaid income and accounts
receivable related to such party's Business, to reflect the principle that all
expenses and income attributable to such party's Business for the period prior
to the Closing Date are for the account of such party, and all expenses and
income attributable to such party's Business for the period on and after the
Closing Date are for the account of the other party. Such party will receive
no credit for any (a) accounts receivable resulting from cable service sales
any portion of which is 60 days or more past due as of the Closing Date, (b)
all accounts receivable resulting from advertising sales any portion of which
is 120 days or more past due as of the Closing Date, or (c) accounts receivable
from customers whose accounts are inactive or whose service is pending
disconnection for any reason as of the Closing Date. Notwithstanding the
foregoing, no adjustment will be made for any items of income or expense which
relate to any Excluded Assets or the Additional System.
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3.2.2 All advance payments to, or funds of third
parties on deposit with, a party as of the Closing Date, relating to such
party's Business, including advance payments and deposits (including any
accrued interest on such deposits) by subscribers served by such party's
Business for converters, encoders, decoders, cable television service and
related sales, shall be assumed by, and credited to the account of, the other
party.
3.2.3 Each party shall pay to the other party the
economic value of all accrued vacation time permitted to be taken by the
Employees of such party on and after the Closing Date pursuant to SECTION
7.3.6(A).
3.3 Additional System Adjustments.
3.3.1 If the Additional System is acquired by TCA
on or prior to the Closing Date and (a) the Additional System Purchase Price is
greater than $3,300,000, (i) TCA shall pay to the seller of the Additional
System, $3,300,000, and (ii) CSI shall pay to the seller of the Additional
System the difference between (x) the Additional System Purchase Price and (y)
$3,300,000, or (b) the Additional System Purchase Price is less than
$3,300,000, (i) TCA shall pay to the seller of the Additional System, the
Additional System Purchase Price, and (ii) TCA shall pay to CSI an amount equal
to (x) $3,300,000 less (y) the Additional System Purchase Price. The
"Additional System Purchase Price" means the purchase price paid by TCA to
acquire the Additional System, after taking into account preliminary closing
purchase price adjustments under the Additional System Agreement. Such
payments shall be made by wire transfer of immediately available funds.
3.3.2 If the Additional System is not acquired by
TCA on or prior to the Closing Date, on the Closing Date TCA shall deposit by
wire transfer of immediately available funds, $3,500,000 (the "Escrow Amount")
into an escrow account with an escrow agent chosen by CSI (the "Escrow Agent")
pursuant to an Escrow Agreement in the form of Exhibit 3.2.6 (the "Escrow").
If CSI does not identify and designate an Additional System within 45 days
after the Closing Date, TCA shall direct the Escrow Agent to pay the Escrow
Amount to CSI. If CSI does identify and designate an Additional System within
45 days after the Closing Date but the Additional System Closing Date does not
occur within 180 days after the Closing Date (the "Outside Additional System
Closing Date"), or the Additional System Agreement is terminated before the
Outside Additional System Closing Date, then on the earlier of the date of
termination of the Additional System Agreement and the Outside Additional
Closing Date, TCA shall direct the Escrow Agent to
pay the Escrow Amount to CSI. If an Additional System is identified and
designated within 45 days after the Closing Date and the Additional System
Closing Date occurs on or before the Outside
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Additional Closing Date, then on the Additional System Closing Date, (a) if the
Additional System Purchase Price is less than $3,300,000, TCA shall direct the
Escrow Agent to pay (i) the amount of the Additional System Purchase Price to
the seller of the Additional System, (ii) an amount equal to $3,300,000 less
the Additional System Purchase Price to CSI, and (iii) the remainder of the
Escrow Amount to TCA; and (b) if the Additional System Purchase Price is
greater than $3,300,000, TCA shall direct the Escrow Agent to pay (i)
$3,300,000 to the seller of the Additional System and (ii) the remainder of the
Escrow Amount to TCA; provided, however, that CSI pays an amount equal to the
Additional System Purchase Price less $3,300,000 to the seller of the
Additional System. The Escrow Agreement shall provide that (a) all fees to be
paid to the Escrow Agent shall be shared equally between CSI and TCA, and (b)
if (i) $3,500,000 is distributed to CSI pursuant to the Escrow Agreement, CSI
shall retain all interest earned on the Escrow Amount, or (ii) if the
Additional System is transferred to CSI, then CSI shall receive interest on an
amount equal to $3,300,000 and TCA shall receive interest on the remainder of
the Escrow Amount.
3.4 Calculation of Adjustments. Each party will estimate
in good faith with respect to their respective Systems, and set forth, together
with a detailed statement of the calculation thereof, the adjustments and
prorations prescribed by SECTIONS 3.2 and 3.3, in a certificate (the "Initial
Adjustment Certificate") executed by an authorized representative of TCA or
CSI, as appropriate, and delivered to the other party at least 10 Business Days
prior to the Closing. Each Initial Adjustment Certificate will be accompanied
by appropriate documentation, including an accounts receivable detail with
relevant aging information as of the Closing Time, in summary form, supporting
the determination of the adjustments and prorations prescribed by SECTIONS 3.2
and 3.3 proposed in such certificate. Following receipt of such Initial
Adjustment Certificate, the recipient shall have five Business Days to review
such schedule and supporting information and to notify the preparer of such
Initial Adjustment Certificate of any disagreements with the preparer's
estimates thereof. If the recipient provides a notice of disagreement with the
preparer's estimates of such amounts within such five Business Day period, CSI
and TCA shall negotiate in good faith to resolve any such dispute and to reach
an agreement prior to the Closing Date on such estimated amounts as of the
Closing Date. The estimate so agreed upon by CSI and TCA or (if the parties do
not reach such an agreement on such estimated amounts set forth in the Initial
Adjustments Certificate prior to the Closing Date or if the recipient fails to
provide a notice of disagreement with the preparer's estimates of such amounts
within the time provided) the estimates of such adjustments and prorations
prescribed by SECTIONS 3.2 and 3.3 set forth in the Initial Adjustments
Certificate shall be the basis for determining such party's adjustments. An
estimate of the net amount payable by either party to the other (the
"Adjustment Amount") will be made by TCA and CSI based on the preliminary
determination of their respective adjustments set forth in their respective
Initial
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Adjustment Certificates. Within 90 days after the Closing, TCA and CSI will
each deliver to the other a certificate (the "Final Adjustment Certificate")
showing in full detail the final determination of their respective adjustments
and prorations prescribed by SECTIONS 3.2 and 3.3 the Adjustment Amount, which
certificate will be accompanied by appropriate documentation supporting the
amounts proposed in such certificate, including an accounts receivable detail
with relevant aging information as of the Closing Time, and which will be
executed by an officer of TCA or CSI, as appropriate. Each party will provide
to the other reasonable access to all records in its possession which were used
in the preparation of its Initial and Final Adjustment Certificates.
TCA and CSI will each review the other's Final Adjustment
Certificate and will give written notice to the other party of any objections
it has to the calculations shown in such certificate within 30 days after its
receipt thereof. CSI and TCA will endeavor in good faith to resolve any such
objections within 30 days after the receipt by the parties of each other's
objections. If any objections or disputes have not been resolved at the end of
such 30-day period, the disputed portion of the Adjustment Amount will be
determined within the following 30 days by a partner in a major accounting firm
with substantial cable television audit experience which is not the auditor of
either TCA or CSI (or any Affiliate of either of them) and the determination of
such auditor will be final and will be binding upon all parties. If TCA and
CSI cannot agree with respect to the selection of an auditor, TCA and CSI will
each select an auditor and those two auditors will select a third auditor whose
determination will be final and will be binding upon all parties. TCA and CSI
will bear equally the expenses arising in connection with such determination of
all disputed amounts, whether by agreement of the parties or by an auditor's
determination, and payment of the final Adjustment Amount (after taking into
account any estimated Adjustment Amount paid at the Closing) will be made by
the party responsible therefor to the other party within 15 Business Days after
the final determination is made.
SECTION 4. ASSUMED LIABILITIES AND EXCLUDED ASSETS
4.1 CSI Assumed Obligations and Liabilities. At the
Closing, CSI will assume and after the Closing, CSI will pay, discharge and
perform the following (the "CSI Assumed Obligations and Liabilities"): (a)
those obligations and liabilities accruing and relating to periods after the
Closing Time under or with respect to the TCA Assets assigned and transferred
to CSI at the Closing; (b) those obligations and liabilities to customers of
the TCA Business for (i) customer deposits held by TCA as of the Closing Date
and which are refundable, in the amount for which CSI received credit under
SECTION 3.2, and (ii) customer, advertising and other advance payments held
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by TCA as of the Closing Date, in the amount for which CSI received credit
under SECTION 3.2; and (c) all other obligations and liabilities accruing and
relating to periods after the Closing Time and arising out of CSI's ownership
of the TCA Assets or operation of the TCA Systems after the Closing.
Notwithstanding the foregoing, CSI will not assume any obligations or
liabilities which relate to any TCA Excluded Asset. All obligations and
liabilities, contingent, fixed or otherwise, arising out of or relating to the
TCA Assets or the TCA Systems other than the CSI Assumed Obligations and
Liabilities will remain and be the obligations and liabilities solely of TCA,
including any obligation, liability or claims relating to or arising pursuant
to (x) rate refunds with respect to periods prior to Closing, (y) litigation
commenced prior to, or related to an event occurring prior to, the Closing
Date, or (z) credit, loan or other agreements pursuant to which TCA has
created, incurred, assumed or guaranteed indebtedness for borrowed money or
under which any Lien securing such indebtedness has been or may be imposed on
any TCA Assets.
4.2 CSI Excluded Assets. "CSI Excluded Assets" means
all: (a) programming and retransmission consent Contracts (other than those
listed on SCHEDULE 1.15; (b) CSI Plans; (c) insurance policies and rights and
claims thereunder (except as otherwise provided in SECTION 12.16); (d) bonds,
letters of credit, surety instruments and other similar items; (e) cash and
cash equivalents; (f) CSI's trademarks, trade names, service marks, service
names, logos and similar proprietary rights; (g) subscriber billing Contracts
and related leased equipment; (h) all equipment, contracts or agreements for
or relating to the provision of direct satellite television programming to
subscribers by a CSI System or any of its Affiliates; and (i) rights, assets
and properties described on SCHEDULE 4.2.
4.3 TCA Assumed Obligations and Liabilities. At the
Closing, TCA will assume and after the Closing, TCA will pay, discharge and
perform the following (the "TCA Assumed Obligations and Liabilities"): (a)
those obligations and liabilities accruing and relating to periods after the
Closing Time under or with respect to the CSI Assets assigned and transferred
to TCA at the Closing; (b) those obligations and liabilities to customers of
the CSI Business for (i) customer deposits held by CSI as of the Closing Date
and which are refundable, in the amount for which TCA received credit under
SECTION 3.2, and (ii) customer, advertising and other advance payments held by
CSI as of the Closing Date, in the amount for which TCA received credit under
SECTION 3.2; and (c) all other obligations and liabilities accruing and
relating to periods after the Closing Time and arising out of TCA's ownership
of the CSI Assets or operation of the CSI Systems after the Closing.
Notwithstanding the foregoing, TCA will not assume any obligations or
liabilities which relate to any CSI Excluded Asset. All obligations and
liabilities, contingent, fixed or otherwise, arising out of or relating to the
CSI Assets or the CSI Systems other than the TCA Assumed Obligations and
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Liabilities will remain and be the obligations and liabilities solely of CSI,
including any obligation, liability or claims relating to or arising pursuant
to (x) rate refunds with respect to periods prior to Closing, (y) litigation
commenced prior to, or related to an event occurring prior to, the Closing
Date, or (z) credit, loan or other agreements pursuant to which CSI has
created, incurred, assumed or guaranteed indebtedness for borrowed money or
under which any Lien securing such indebtedness has been or may be imposed on
any CSI Assets.
4.4 TCA Excluded Assets. "TCA Excluded Assets" means
all: (a) programming and retransmission consent Contracts (other than those
listed on SCHEDULE 1.44; (b) TCA Plans; (c) insurance policies and rights and
claims thereunder (except as otherwise provided in SECTION 12.16); (d) bonds,
letters of credit, surety instruments and other similar items; (e) cash and
cash equivalents and notes receivable; (f) TCA's trademarks, trade names,
service marks, service names, logos and similar proprietary rights; (g)
subscriber billing Contracts and equipment; (h) all equipment, contracts or
agreements for or relating to the provision of direct satellite television
programming to subscribers by a TCA System or any of its Affiliates; and (i)
rights, assets and properties described on SCHEDULE 4.4.
SECTION 5. TCA'S REPRESENTATIONS AND WARRANTIES
TCA represents and warrants to CSI as of the date of this
Agreement and as of the Closing, as follows (except that such representations
and warranties shall not apply to the Additional System):
5.1 Organization and Qualification of TCA.
5.1.1 TCA is a partnership duly organized and
validly existing under the laws of the State of Delaware and has all requisite
power and authority to own, lease and use the TCA Assets owned, leased or used
by it and to conduct TCA's Cable Business as it is currently conducted. TCA is
duly qualified to do business and is in good standing under the laws of each
jurisdiction in which the ownership, leasing or use of the TCA Assets owned,
leased or used by it or the nature of its activities in connection with the TCA
Systems makes such qualification necessary, except in any such jurisdiction
where the failure to be so qualified and in good standing would not have a
material adverse effect on the ownership or operation of TCA's Cable Business,
the TCA Assets or TCA Systems or on the ability of TCA to perform its
obligations under this Agreement.
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5.1.2 TAL Financial, Inc. is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada and has all requisite corporate power and authority to own, lease and
use all of its assets and to conduct its business as currently conducted. TAL
Financial, Inc. is duly qualified to do business and is in good standing under
the laws of each jurisdiction in which the nature of its activities or its
ownership, lease or use of its assets makes such qualification necessary.
5.1.3 DR Partners is a partnership duly organized
and validly existing under the laws of the State of Delaware and has all
requisite power and authority to own, lease and use its assets and to conduct
its business as currently conducted. DR Partners is duly qualified to do
business and is in good standing under the laws of each jurisdiction in which
the nature of its activities or its ownership, lease or use of its assets makes
such qualification necessary.
5.2 Authority and Validity. TCA has all requisite power
and authority to execute and deliver, to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement and the Transaction
Documents to which TCA is a party. The execution and delivery by TCA, the
performance of TCA under, and the consummation of the transactions contemplated
by, this Agreement and the Transaction Documents to which TCA is a party have
been duly and validly authorized by all action by or on behalf of TCA. This
Agreement has been, and when executed and delivered by TCA the Transaction
Documents will be, duly and validly executed and delivered by TCA and the valid
and binding obligations of TCA, enforceable against TCA in accordance with
their terms, except as the same may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect relating to the enforcement of creditors' rights generally or by
principles governing the availability of equitable remedies.
5.3 No Conflict; Required Consents. Except for the TCA
Required Consents, all of which are listed on SCHEDULE 5.3, and the CSI
Required Consents and the HSR notification, the execution and delivery by TCA,
the performance of TCA under, and the consummation of the transactions
contemplated by, this Agreement and the Transaction Documents to which TCA is a
party do not and will not: (a) conflict with or violate any provision of its
charter or bylaws; (b) violate any provision of any Legal Requirement; (c)
require any consent, approval or authorization of, or filing of any
certificate, notice, application, report or other document with, any
Governmental Authority or other Person; or (d) (i) conflict with, violate,
result in a breach of or constitute a default under (without regard to
requirements of notice, lapse of time or elections of other Persons or any
combination thereof), (ii) permit or result in the termination, suspension or
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modification of, (iii) result in the acceleration of (or give any Person the
right to accelerate) the performance of TCA under, (iv) result in the creation
or imposition of any Lien under any Systems Contract or any Systems Contract or
other instrument evidencing any of the TCA Assets or by which TCA or any of
its assets is bound or affected, except for purposes of this clause (d) such
violations, conflicts, breaches, defaults, terminations, suspensions,
modifications and accelerations as would not, individually or in the aggregate,
have a material adverse effect on any TCA System, TCA's Cable Business or TCA
or on the ability of TCA to perform its obligations under this Agreement or the
Transaction Documents to which TCA is a party.
5.4 Assets.
5.4.1 TCA has exclusive, good and marketable title
to (or, in the case of Assets that are leased, valid leasehold interests in)
the TCA Assets (other than TCA Owned Property, TCA Leased Property and TCA
Other Real Property Interests, as to which representations and warranties in
SECTION 5.6 apply). The TCA Assets are free and clear of all Liens, except (a)
Permitted Liens (b) Liens described on SCHEDULE 5.4, all of which will be
terminated, released or, in the case of rights of first refusal listed on
SCHEDULE 5.4, waived, as appropriate, at or prior to the Closing. Except as
described on SCHEDULE 1.65, the TCA Tangible Personal Property is in good
operating condition and repair (ordinary wear and tear excepted).
5.4.2 Except for items included in the TCA Excluded
Assets, the TCA Assets constitute all the assets necessary to permit CSI to
conduct TCA's Cable Business and to operate the TCA Systems substantially as
they are being conducted and operated on the date of this Agreement and in
compliance with all applicable Legal Requirements and Contracts and to perform
all of the CSI Assumed Obligations and Liabilities.
5.4.3 To the Knowledge of TCA, no third party has
been granted or applied for a cable television franchise or is providing or
intending to provide cable television services in any of the communities or
unincorporated areas currently served by the TCA's Cable Business.
5.5 TCA Systems Franchises, TCA Systems Licenses, TCA
Systems Contracts and TCA Other Real Property Interests.
5.5.1 Except as described on SCHEDULES 1.58, 1.59,
1.62, 1.63 AND 1.64 , or 4.4, TCA is not bound or affected by any of the
following that relate primarily or in whole to TCA's Cable Business: (a)
leases of real or personal property; (b) franchises for the construction or
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operation of cable television systems or Contracts of substantially equivalent
effect; (c) other licenses, authorizations, consents or permits of the FCC or
any other Governmental Authority; (d) material easements or rights of access;
(e) material pole line and joint line agreements, underground conduit
agreements, crossing agreements or bulk or commercial service agreements; or
(f) Contracts relating to the operation of TCA's Business other than those
described in any other clause of this SECTION 5.5.1 which contemplate payments
by or to TCA in any 12-month period exceeding $10,000 individually or $100,000
in the aggregate.
5.5.2 Complete and correct copies of the TCA System
Franchises and TCA System Licenses have been delivered by TCA to CSI. The TCA
System Franchises and TCA System Licenses are currently in full force and
effect, are not in default and are valid under all applicable Legal
Requirements according to their terms. There is no legal action, governmental
proceeding or investigation, pending or to TCA's Knowledge threatened, to
terminate, suspend or modify any TCA System Franchises and TCA System Licenses
and TCA is in compliance with the terms and conditions of all the TCA System
Franchises and TCA System Licenses and with other applicable requirements of
all Governmental Authorities (including the FCC and the Register of Copyrights)
relating to the TCA System Franchises and TCA System Licenses, including all
requirements for notification, filing, reporting, posting and maintenance of
logs and records.
5.5.3 Complete and correct copies of all TCA System
Contracts (including Contracts relating to Leased Property and Other Real
Property Interests) have been provided to CSI. Such documents constitute the
entire agreement with the other party. Each such TCA System Contract is in
full force and effect and constitutes the valid, legal, binding and enforceable
obligation of TCA and TCA is not and to TCA's Knowledge, each other party
thereto is not in breach or default of any terms or conditions thereunder.
5.6 Real Property. All the Assets consisting of TCA
Owned Property, TCA Leased Property and TCA Other Real Property Interests are
described on SCHEDULES 1.58, 1.59 AND 1.60. Except as otherwise disclosed on
SCHEDULES 1.58, 1.59 AND 1.60, TCA holds good, marketable and indefeasible fee
simple title to the TCA Owned Property and the valid and enforceable right to
use and possess such TCA Owned Property, subject only to the Permitted Liens.
TCA has valid and enforceable leasehold interests in all TCA Leased Property
and, with respect to TCA Other Real Property Interests the valid and
enforceable right to use all TCA Other Real Property Interests subject only to
Permitted Liens. Except for routine repairs, all of the material improvements,
leasehold improvements and the premises of the TCA Owned Property and the
premises demised under the leases and other documents evidencing the TCA Leased
Property are in good condition
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and repair and are suitable for the purposes used. Each parcel of TCA Owned
Property and each parcel of TCA Leased Property and any improvements thereon
and their current use (a) has access to and over public streets or private
streets for which TCA has a valid right of ingress and egress, (b) conforms in
its current use and occupancy to all material zoning requirements without
reliance upon a variance issued by a Governmental Authority or a classification
of the parcel in question as a nonconforming use and (c) conforms in its use to
all restrictive covenants, if any, or other Liens affecting all or part of such
parcel.
5.7 Environmental.
5.7.1 The TCA Owned Property and TCA Leased
Property comply with all Environmental Laws. TCA has not generated, released,
stored, used, treated, handled, discharged or disposed of any Hazardous
Substances at, on, under, in or about, or in any other manner affecting, any
TCA Owned Property or TCA Leased Property, transported any Hazardous Substances
to or from any TCA Owned Property or TCA Leased Property or discharged any
Hazardous Substances from any TCA Owned Property or TCA Leased Property into
any body of water, directly or indirectly or undertaken or caused to be
undertaken any other activities relating to the TCA Owned Property or TCA
Leased Property, which would support a claim or cause of action under any
Environmental Law and, to TCA's Knowledge, no other present or previous owner,
tenant, occupant or user of any TCA Owned Property or TCA Leased Property or
any other Person has committed or suffered any of the foregoing. To TCA's
Knowledge, no release of Hazardous Substances outside the TCA Owned Property or
TCA Leased Property has entered or threatens to enter any TCA Owned Property or
TCA Leased Property, nor is there any pending or threatened claim based on
Environmental Laws which arises from any condition of the land surrounding any
TCA Owned Property or TCA Leased Property. No claim or investigation based on
Environmental Laws which relates to any TCA Owned Property or TCA Leased
Property or any operations or conditions on it (a) has been asserted or
conducted in the past or is currently pending against or with respect to TCA
or, to TCA's Knowledge, any other Person or (b) to TCA's Knowledge, is
threatened or contemplated.
5.7.2 To TCA's Knowledge, (a) no underground
storage tanks are currently or have been located on any TCA Owned Property or
TCA Leased Property, (b) no TCA Owned Property or TCA Leased Property has been
used at any time as a gasoline service station or any other facility for
storing, pumping, dispensing or producing gasoline or any other petroleum
products or wastes and (c) no building or other structure on any TCA Owned
Property or TCA Leased Property contains asbestos or asbestos-containing
material.
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5.7.3 TCA has provided CSI with complete and
correct copies of (a) all studies, reports, surveys or other materials in TCA's
possession or to which TCA has access relating to the presence or alleged
presence of Hazardous Substances at, on or affecting the TCA Owned Property or
TCA Leased Property, (b) all notices or other materials in TCA's possession or
to which TCA has access that was received from any Governmental Authority
having the power to administer or enforce any Environmental Laws relating to
current or past ownership, use or operation of the TCA Owned Property or TCA
Leased Property or activities at the TCA Owned Property or TCA Leased Property
and (c) all materials in TCA's possession or to which TCA has access relating
to any claim, allegation or action by any private third party under any
Environmental Law.
5.8 Compliance with Legal Requirements.
5.8.1 The ownership, leasing and use of the TCA
Assets as they are currently owned, leased and used and the conduct of TCA's
Cable Business and the operation of the TCA Systems as they are currently
conducted and operated do not violate or infringe in any material respect any
Legal Requirements currently in effect (other than Legal Requirements described
in SECTION 5.8.4, as to which the representations and warranties set forth in
that subsection shall apply). TCA has received no notice of any violation by
TCA or the TCA Business of any Legal Requirement applicable to the operation of
TCA's Cable Business as currently conducted, or the TCA Systems as currently
operated and to its Knowledge, there is no basis for the allegation of any such
violation.
5.8.2 A valid request for renewal has been duly and
timely filed under Section 626 of the Communications Act with the proper
Governmental Authority with respect to all TCA Systems Franchises that have
expired prior to or will expire within 36 months after the date of this
Agreement.
5.8.3 TCA has complied and the Cable Business is in
compliance, in all material respects, with the specifications set forth in Part
76, Subpart K of the rules and regulations of the FCC, Section 111 of the U.S.
Copyright Act of 1976 and the applicable rules and regulations thereunder and
the applicable rules and regulations of the U.S. Copyright Office, the Register
of Copyrights, the Copyright Royalty Tribunal and the Communications Act,
including provisions of any thereof pertaining to signal leakage, to utility
pole make ready and to grounding and bonding of cable television systems (in
each case as the same is currently in effect), and all other applicable Legal
Requirements relating to the construction, maintenance, ownership and operation
of the TCA Assets, the TCA Systems and TCA's Cable Business.
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5.8.4 Notwithstanding the foregoing, TCA has used
reasonable good faith efforts to comply in all material respects with the
provisions of the 1992 Cable Act as such Legal Requirements relate to the
operation of the TCA's Business. TCA has complied in all material respects
with the must carry and retransmission consent provisions of the 1992 Cable
Act. TCA has used reasonable good faith efforts to establish rates charged to
subscribers, effective since September 1, 1993, that are or were allowable
under the 1992 Cable Act and any authoritative interpretation thereof now or
then in effect, whether or not such rates are or were subject to regulation at
that date by any Governmental Authority, including any local franchising
authority and/or the FCC, unless such rates were not subject to regulation
pursuant to a specific exemption from rate regulation contained in the 1992
Cable Act other than the failure of any franchising authority to have been
certified to regulate rates. Notwithstanding the foregoing, TCA makes no
representation or warranty that the rates charged to subscribers provided would
be allowable under any rules and regulations of the FCC or any authoritative
interpretation thereof, promulgated after the date of the Closing. TCA has
delivered to CSI complete and correct copies of all FCC Forms 393, 1200, 1205,
1210, 1215, 1220, 1225, 1235 and 1240 filed with respect to the TCA Systems,
copies of all other FCC Forms filed by TCA and of all correspondence with any
Governmental Authority relating to rate regulation generally or specific rates
charged to subscribers with respect to TCA Systems, including copies of any
complaints filed with the FCC with respect to any rates charged to subscribers
of the TCA Systems, and any other documentation supporting an exemption from
the rate regulation provisions of the 1992 Cable Act claimed by TCA with
respect to any of the TCA Systems. TCA has received no notice from any
Governmental Authority with respect to an intention to enforce customer service
standards pursuant to the 1992 Cable Act and TCA has not agreed with any
Governmental Authority to establish customer service standards that exceed the
standards in the 1992 Cable Act. TCA has not made any election with respect to
any cost of service proceeding conducted in accordance with Part 76.922 of
Title 47 of the Code of Federal Regulations or any similar proceeding with
respect to any of the TCA Systems (a "Cost of Service Election"). TCA has not
entered into or is not subject to any so-called social contract or proposed
resolution with the FCC with respect to rates charged for cable television
services in the TCA Systems and is not currently negotiating or anticipating
entering into or being subject to the same.
5.9 Patents, Trademarks and Copyrights. TCA has timely
and accurately made all requisite filings and payments with the Register of
Copyrights. TCA has delivered to CSI complete and correct copies of all
current reports and filings for the past three years, made or filed pursuant to
copyright rules and regulations with respect to the TCA Business. TCA does not
possess any patent, patent right, trademark or copyright related to or material
to the operation of the TCA Systems and TCA is not a party to any license or
royalty agreement with respect to any such patent,
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trademark or copyright, except for licenses respecting program material and
obligations under the Copyright Act of 1976 applicable to cable television
systems generally. The TCA Systems and TCA's Cable Business have been operated
in such a manner so as not to violate or infringe upon the rights, or give rise
to any rightful claim of any Person for copyright, trademark, service mark,
patent or license infringement or the like.
5.10 Financial Statements; Undisclosed Liabilities. TCA
has delivered to CSI complete and correct copies of (i) the unaudited balance
sheets of TCA and related statements of income, for and as of the year ended
December 31, 1995 and (ii) the unaudited balance sheets and the related
unaudited statements of income for each quarter ending on and after March 31,
1996 (all of such financial statements and notes being hereinafter referred to
as "TCA's Financial Statements"). TCA's Financial Statements are in accordance
with the books and records of TCA, and, except as may be described therein,
present fairly the financial condition of TCA at the dates and for the periods
indicated. The Balance Sheet as of December 31, 1995 of TCA is herein called
"TCA Balance Sheet." At the date of the TCA Balance Sheet, TCA had no material
liabilities required by generally accepted accounting principles to be
reflected or reserved against therein that were not fully reflected or reserved
against on the TCA Balance Sheet, other than liabilities set forth on SCHEDULE
5.10.
5.11 Absence of Certain Changes or Events. Except as set
forth on SCHEDULE 5.10, since the date of TCA Balance Sheet: (a) TCA has not
incurred any obligation or liability (contingent or otherwise), except normal
trade or business obligations incurred in the ordinary course of business, the
performance of which will not, to the TCA's Knowledge, individually or in the
aggregate, have a material adverse effect on the financial condition TCA or
results of operations of TCA or TCA's Cable Business; (b) there has been no
material adverse change in the business, condition, financial or otherwise, or
liabilities of TCA's Cable Business and, to TCA's Knowledge, no fact or
condition exists or is contemplated or threatened which would result in such a
change in the future; and (c) TCA's Cable Business has been conducted only in
the ordinary course of business. For the purpose of this Agreement, the impact
on TCA of events which affect the cable industry as a whole in the State of
California or the United States, shall not be considered in determining whether
there has been a material adverse change in the business, financial or other
condition or liabilities of TCA's Cable Business.
5.12 Litigation. Except as set forth in SCHEDULE 5.12:
(i) there is no Litigation pending or, to TCA's Knowledge, threatened, by or
before any Governmental Authority or private arbitration tribunal against TCA
which, if adversely determined, would materially adversely affect
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the financial condition or operations of TCA's Cable Business, TCA Systems, the
TCA Assets or the ability of TCA to perform its obligations under this
Agreement, or which, if adversely determined, would result in the modification,
revocation, termination, suspension or other limitation of any of the TCA
Systems Franchises, TCA Systems Licenses, TCA Systems Contracts or leases or
other documents evidencing the TCA Leased Property or the TCA Other Real
Property Interests; and (ii) there is not in existence any Judgment requiring
TCA to take any action of any kind with respect to the TCA Assets or the
operation of the TCA Systems, or to which TCA (with respect to the TCA
Systems), the TCA Systems or the TCA Assets are subject or by which they are
bound or affected.
5.13 Tax Returns; Other Reports. TCA has duly and timely
filed in correct form all federal, state, local and foreign Tax returns and
other Tax reports required to be filed by TCA, and has timely paid all Taxes
which have become due and payable, whether or not so shown on any such return
or report, the failure of which to be filed or paid could affect or result in
the imposition of a Lien upon the TCA Assets, except such amounts as are being
contested diligently and in good faith and are not in the aggregate material.
TCA has received no notice of, nor does TCA have any Knowledge of, any
deficiency, assessment or audit, or proposed deficiency, assessment or audit
from any taxing Governmental Authority which could affect or result in the
imposition of a Lien upon the TCA Assets.
5.14 Employment Matters.
5.14.1 SCHEDULE 5.14 contains a complete and correct
list of the names and positions of all Employees engaged in TCA's Business.
TCA or the General Partner, as applicable, has complied in all material
respects with all applicable Legal Requirements relating to the employment of
labor, including, the Worker Adjustment and Retraining Notification Act, 29
U.S.C. Section 2101, et seq. ("WARN"), ERISA, continuation coverage
requirements with respect to group health plans and those relating to wages,
hours, collective bargaining, unemployment insurance, worker's compensation,
equal employment opportunity, age and disability discrimination, immigration
control and the payment and withholding of Taxes.
5.14.2 Each employee benefit plan (as defined in
Section 3(3) of ERISA) or any multiemployer plan (as defined in Section 3(37)
of ERISA) with respect to which TCA, the General Partner or any of their ERISA
Affiliates has any liability or in which any Employees or agents, or any former
employees or agents, of TCA, the General Partner or any of their ERISA
Affiliates participate is set forth in SCHEDULE 5.14 (the "TCA Plans").
Neither TCA, the General
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Partner, any of their ERISA Affiliates nor any TCA Plan is in material
violation of any provision of ERISA. No "reportable event" (as defined in
Section 4043 of ERISA) has occurred and is continuing with respect to any TCA
Plan and no "prohibited transaction" (as defined in Section 406 of ERISA) has
occurred with respect to any TCA Plan which would result in material liability
to TCA, the General Partner or any of their ERISA Affiliates. No material
"accumulated funding deficiency" or "withdrawal liability" (as defined in
Section 302 of ERISA) exists with respect to any TCA Plan. After the Closing,
neither TCA nor the General Partner will be required, under ERISA, the Code or
any collective bargaining agreement, to establish, maintain or continue any
Plan currently maintained by CSI or any of its ERISA Affiliates.
5.14.3 Except as set forth on SCHEDULE 5.14, there
are no collective bargaining agreements applicable to any Person employed by
TCA or the General Partner that render services in connection with the TCA
Systems and neither TCA nor the General Partner has any duty to bargain with
any labor organization with respect to any such Person. There are not pending
any unfair labor practice charges against TCA or the General Partner, any
demand for recognition or any other request or demand from a labor organization
for representative status with respect to any Person employed by TCA or the
General Partner that render services in connection with the TCA Systems.
Except as described on SCHEDULE 5.14, neither TCA nor the General Partner has
employment agreements, either written or oral, with any Employee of the TCA
Systems and none of the employment agreements listed on SCHEDULE 5.14 requires
CSI to employ any Person after the Closing.
5.15 TCA Systems Information. SCHEDULE 5.15 sets forth a
materially true and accurate description of the following information relating
to TCA's Cable Business as of the date of this Agreement:
(a) the cities, towns, townships, villages,
boroughs and counties served by the TCA Systems;
(b) the number of miles of plant included in the
TCA Assets and the channel capacity of such plant.
(c) the number of subscribers served by the TCA
Systems for each TCA System Franchise;
(d) the number of single family homes and
residential dwelling units passed by the TCA Systems;
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(e) a description of basic and optional or tier
services available from the TCA Systems, the rates charged by TCA for each and
the number of EBSs receiving each optional or tier service; and
(f) the stations and signals carried by the TCA
Systems and the channel position of each such signal and station.
5.16 Subscriber Numbers. As of the Closing Date, the TCA
Systems will have no fewer than 26,000 EBSs.
5.17 Finders and Brokers. Except for Daniels &
Associates, TCA has not employed any financial advisor, broker or finder or
incurred any liability for any financial advisory, brokerage, finder's or
similar fee or commission in connection with the transactions contemplated by
this Agreement for which CSI could be liable.
SECTION 6. CSI'S REPRESENTATIONS AND WARRANTIES
CSI represents and warrants to TCA as of the date of this
Agreement and as of the Closing, as follows:
6.1 Organization and Qualification of CSI. CSI is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Kansas and has all requisite corporate power and authority
to own, lease and use the CSI Assets owned, leased or used by it and to conduct
CSI's Cable Business as it is currently conducted. CSI is duly qualified to do
business and is in good standing under the laws of each jurisdiction in which
the ownership, leasing or use of the CSI Assets owned, leased or used by it or
the nature of its activities in connection with the CSI Systems makes such
qualification necessary, except in any such jurisdiction where the failure to
be so qualified and in good standing would not have a material adverse effect
on the ownership or operation of CSI's Cable Business, the CSI Assets or CSI
Systems or on the ability of CSI to perform its obligations under this
Agreement.
6.2 Authority and Validity. CSI has all requisite
corporate power and authority to execute and deliver, to perform its
obligations under, and to consummate the transactions contemplated by, this
Agreement and the Transaction Documents to which CSI is a party. The execution
and delivery by CSI, the performance of CSI under, and the consummation CSI of
the
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transactions contemplated by, this Agreement and the Transaction Documents to
which CSI is a party have been duly and validly authorized by all action by or
on behalf of CSI. This Agreement has been, and when executed and delivered by
CSI the Transaction Documents will be, duly and validly executed and delivered
by CSI and the valid and binding obligations of CSI, enforceable against CSI in
accordance with their terms, except as the same may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws now or
hereafter in effect relating to the enforcement of creditors' rights generally
or by principles governing the availability of equitable remedies.
6.3 No Conflict; Required Consents. Except for the CSI
Required Consents, all of which are listed on SCHEDULE 6.3, and the TCA
Required Consents and the HSR notification, the execution and delivery by CSI,
the performance of CSI under, and the consummation of the transactions
contemplated by, this Agreement and the Transaction Documents to which CSI is a
party do not and will not: (a) conflict with or violate any provision of its
charter or bylaws; (b) violate any provision of any Legal Requirement; (c)
require any consent, approval or authorization of, or filing of any
certificate, notice, application, report or other document with, any
Governmental Authority or other Person; or (d) (i) conflict with, violate,
result in a breach of or constitute a default under (without regard to
requirements of notice, lapse of time or elections of other Persons or any
combination thereof), (ii) permit or result in the termination, suspension or
modification of, (iii) result in the acceleration of (or give any Person the
right to accelerate) the performance of CSI under, or (iv) result in the
creation or imposition of any Lien under any Systems Contract or any Systems
Contract or other instrument evidencing any of the CSI Assets or by which CSI
or any of its assets is bound or affected, except for purposes of this clause
(d) such violations, conflicts, breaches, defaults, terminations, suspensions,
modifications and accelerations as would not, individually or in the aggregate,
have a material adverse effect on any CSI System, CSI's Cable Business or CSI
or on the ability of CSI to perform its obligations under this Agreement or the
Transaction Documents to which CSI is a party.
6.4 Assets.
6.4.1 CSI has exclusive, good and marketable
title to (or, in the case of Assets that are leased, valid leasehold interests
in) the CSI Assets (other than CSI Owned Property, CSI Leased Property and CSI
Other Real Property Interests, as to which representations and warranties in
SECTION 6.6 apply). The CSI Assets are free and clear of all Liens, except (a)
Permitted Liens (b) Liens described on SCHEDULE 6.4, all of which will be
terminated, released or, in the case of rights of first refusal listed on
SCHEDULE 6.4, waived, as appropriate, at or prior to the Closing.
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Except as described on SCHEDULE 1.18, the CSI Tangible Personal Property is in
good operating condition and repair (ordinary wear and tear excepted).
6.4.2 Except for items included in the CSI
Excluded Assets, the CSI Assets constitute all the assets necessary to permit
TCA to conduct CSI's Cable Business and to operate the CSI Systems
substantially as they are being conducted and operated on the date of this
Agreement and in compliance with all applicable Legal Requirements and
Contracts and to perform all of the TCA Assumed Obligations and Liabilities.
6.4.3 To the Knowledge of CSI, no third party has
been granted or applied for a cable television franchise or is providing or
intending to provide cable television services in any of the communities or
unincorporated areas currently served by the CSI's Cable Business.
6.5 CSI Systems Franchises, CSI Systems Licenses, CSI
Systems Contracts and CSI Other Real Property Interests.
6.5.1 Except as described on SCHEDULES 1.11,
1.12, 1.15, 1.16 and 1.17 OR 4.2, CSI is not bound or affected by any of the
following that relate primarily or in whole to CSI's Cable Business: (a) leases
of real or personal property; (b) franchises for the construction or operation
of cable television systems or Contracts of substantially equivalent effect;
(c) other licenses, authorizations, consents or permits of the FCC or any other
Governmental Authority; (d) material easements or rights of access; (e)
material pole line and joint line agreements, underground conduit agreements,
crossing agreements or bulk or commercial service agreements; or (f) Contracts
relating to the operation of CSI's Business other than those described in any
other clause of this SECTION 6.5.1 which contemplate payments by or to CSI in
any 12-month period exceeding $10,000 individually or $100,000 in the
aggregate.
6.5.2 Complete and correct copies of the CSI
System Franchises and CSI System Licenses have been delivered by CSI to TCA.
The CSI System Franchises and CSI System Licenses are currently in full force
and effect, are not in default and are valid under all applicable Legal
Requirements according to their terms. There is no legal action, governmental
proceeding or investigation, pending or to CSI's Knowledge threatened, to
terminate, suspend or modify any CSI System Franchises and CSI System Licenses
and CSI is in compliance with the terms and conditions of all the CSI System
Franchises and CSI System Licenses and with other applicable requirements of
all Governmental Authorities (including the FCC and the Register of Copyrights)
relating to the
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CSI System Franchises and CSI System Licenses, including all requirements for
notification, filing, reporting, posting and maintenance of logs and records.
6.5.3 Complete and correct copies of all CSI
System Contracts (including Contracts relating to Leased Property and Other
Real Property Interests) have been provided to TCA. Such documents constitute
the entire agreement with the other party. Each such CSI System Contract is in
full force and effect and constitutes the valid, legal, binding and enforceable
obligation of CSI and CSI is not and to CSI's Knowledge, each other party
thereto is not in breach or default of any terms or conditions thereunder.
6.6 Real Property. All the Assets consisting of CSI
Owned Property, CSI Leased Property and CSI Other Real Property Interests are
described on SCHEDULES 1.11, 1.12 and 1.13. Except as otherwise disclosed on
SCHEDULES 1.11, 1.12 AND 1.13, CSI holds good, marketable and indefeasible fee
simple title to the CSI Owned Property and the valid and enforceable right to
use and possess such CSI Owned Property, subject only to the Permitted Liens.
CSI has valid and enforceable leasehold interests in all CSI Leased Property
and, with respect to CSI Other Real Property Interests the valid and
enforceable right to use all CSI Other Real Property Interests subject only to
Permitted Liens. Except for routine repairs, all of the material improvements,
leasehold improvements and the premises of the CSI Owned Property and the
premises demised under the leases and other documents evidencing the CSI Leased
Property are in good condition and repair and are suitable for the purposes
used. Each parcel of CSI Owned Property and each parcel of CSI Leased Property
and any improvements thereon and their current use (a) has access to and over
public streets or private streets for which CSI has a valid right of ingress
and egress, (b) conforms in its current use and occupancy to all material
zoning requirements without reliance upon a variance issued by a Governmental
Authority or a classification of the parcel in question as a nonconforming use
and (c) conforms in its use to all restrictive covenants, if any, or other
Liens affecting all or part of such parcel.
6.7 Environmental.
6.7.1 The CSI Owned Property and CSI Leased
Property comply with all Environmental Laws. CSI has not generated, released,
stored, used, treated, handled, discharged or disposed of any Hazardous
Substances at, on, under, in or about, or in any other manner affecting, any
CSI Owned Property or CSI Leased Property, transported any Hazardous Substances
to or from any CSI Owned Property or CSI Leased Property or discharged any
Hazardous Substances from any CSI Owned Property or CSI Leased Property into
any body of water, directly or indirectly or
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undertaken or caused to be undertaken any other activities relating to the CSI
Owned Property or CSI Leased Property, which would support a claim or cause of
action under any Environmental Law and, to CSI's Knowledge, no other present or
previous owner, tenant, occupant or user of any CSI Owned Property or CSI
Leased Property or any other Person has committed or suffered any of the
foregoing. To CSI's Knowledge, no release of Hazardous Substances outside the
CSI Owned Property or CSI Leased Property has entered or threatens to enter any
CSI Owned Property or CSI Leased Property, nor is there any pending or
threatened claim based on Environmental Laws which arises from any condition of
the land surrounding any CSI Owned Property or CSI Leased Property. No claim
or investigation based on Environmental Laws which relates to any CSI Owned
Property or CSI Leased Property or any operations or conditions on it (a) has
been asserted or conducted in the past or is currently pending against or with
respect to CSI or, to CSI's Knowledge, any other Person, or (b) to CSI's
Knowledge, is threatened or contemplated.
6.7.2 To CSI's Knowledge, (a) no underground
storage tanks are currently or have been located on any CSI Owned Property or
CSI Leased Property, (b) no CSI Owned Property or CSI Leased Property has been
used at any time as a gasoline service station or any other facility for
storing, pumping, dispensing or producing gasoline or any other petroleum
products or wastes and (c) no building or other structure on any CSI Owned
Property or CSI Leased Property contains asbestos or asbestos-containing
material.
6.7.3 CSI has provided TCA with complete and
correct copies of (a) all studies, reports, surveys or other materials in CSI's
possession or to which CSI has access relating to the presence or alleged
presence of Hazardous Substances at, on or affecting the CSI Owned Property or
CSI Leased Property, (b) all notices or other materials in CSI's possession or
to which CSI has access that was received from any Governmental Authority
having the power to administer or enforce any Environmental Laws relating to
current or past ownership, use or operation of the CSI Owned Property or CSI
Leased Property or activities at the CSI Owned Property or CSI Leased Property
and (c) all materials in CSI's possession or to which CSI has access relating
to any claim, allegation or action by any private third party under any
Environmental Law.
6.8 Compliance with Legal Requirements.
6.8.1 The ownership, leasing and use of the CSI
Assets as they are currently owned, leased and used and the conduct of CSI's
Cable Business and the operation of the CSI Systems as they are currently
conducted and operated do not violate or infringe in any material respect any
Legal Requirements currently in effect (other than Legal Requirements described
in
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SECTION 6.8.4, as to which the representations and warranties set forth in that
subsection shall apply). CSI has received no notice of any violation by CSI or
the CSI Business of any Legal Requirement applicable to the operation of CSI's
Cable Business as currently conducted, or the CSI Systems as currently operated
and to its Knowledge, there is no basis for the allegation of any such
violation.
6.8.2 A valid request for renewal has been duly
and timely filed under Section 626 of the Communications Act with the proper
Governmental Authority with respect to all CSI Systems Franchises that have
expired prior to or will expire within 36 months after the date of this
Agreement.
6.8.3 CSI has complied and the Cable Business is
in compliance, in all material respects, with the specifications set forth in
Part 76, Subpart K of the rules and regulations of the FCC, Section 111 of the
U.S. Copyright Act of 1976 and the applicable rules and regulations thereunder
and the applicable rules and regulations of the U.S. Copyright Office, the
Register of Copyrights, the Copyright Royalty Tribunal and the Communications
Act, including provisions of any thereof pertaining to signal leakage, to
utility pole make ready and to grounding and bonding of cable television
systems (in each case as the same is currently in effect), and all other
applicable Legal Requirements relating to the construction, maintenance,
ownership and operation of the CSI Assets, the CSI Systems and CSI's Cable
Business.
6.8.4 Notwithstanding the foregoing, CSI has used
reasonable good faith efforts to comply in all material respects with the
provisions of the 1992 Cable Act as such Legal Requirements relate to the
operation of the CSI's Business. CSI has complied in all material respects
with the must carry and retransmission consent provisions of the 1992 Cable
Act. CSI has used reasonable good faith efforts to establish rates charged to
subscribers, effective since September 1, 1993, that are or were allowable
under the 1992 Cable Act and any authoritative interpretation thereof now or
then in effect, whether or not such rates are or were subject to regulation at
that date by any Governmental Authority, including any local franchising
authority and/or the FCC, unless such rates were not subject to regulation
pursuant to a specific exemption from rate regulation contained in the 1992
Cable Act other than the failure of any franchising authority to have been
certified to regulate rates. Notwithstanding the foregoing, CSI makes no
representation or warranty that the rates charged to subscribers provided would
be allowable under any rules and regulations of the FCC or any authoritative
interpretation thereof, promulgated after the date of the Closing. CSI has
delivered to TCA complete and correct copies of all FCC Forms 393, 1200, 1205,
1210, 1215, 1220, 1225, 1235 and 1240 filed with respect to the CSI Systems,
copies of all other FCC Forms filed by CSI and of all correspondence with any
Governmental Authority relating to rate regulation
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generally or specific rates charged to subscribers with respect to CSI Systems,
including copies of any complaints filed with the FCC with respect to any rates
charged to subscribers of the CSI Systems, and any other documentation
supporting an exemption from the rate regulation provisions of the 1992 Cable
Act claimed by CSI with respect to any of the CSI Systems. CSI has received no
notice from any Governmental Authority with respect to an intention to enforce
customer service standards pursuant to the 1992 Cable Act and CSI has not
agreed with any Governmental Authority to establish customer service standards
that exceed the standards in the 1992 Cable Act. CSI has not made any Cost of
Service Election with respect to any of the CSI Systems.
6.9 Patents, Trademarks and Copyrights. CSI has timely
and accurately made all requisite filings and payments with the Register of
Copyrights. CSI has delivered to TCA complete and correct copies of all
current reports and filings for the past three years, made or filed pursuant to
copyright rules and regulations with respect to the CSI Business. CSI does not
possess any patent, patent right, trademark or copyright related to or material
to the operation of the CSI Systems and CSI is not a party to any license or
royalty agreement with respect to any such patent, trademark or copyright,
except for licenses respecting program material and obligations under the
Copyright Act of 1976 applicable to cable television systems generally. The
CSI Systems and CSI's Cable Business have been operated in such a manner so as
not to violate or infringe upon the rights, or give rise to any rightful claim
of any Person for copyright, trademark, service mark, patent or license
infringement or the like.
6.10 Financial Statements; Undisclosed Liabilities. CSI
has delivered to TCA complete and correct copies of (i) the internally
generated unaudited balance sheets of CSI and related statements of income for
and as of the year ended December 31, 1995 and (ii) the internally generated
unaudited balance sheets and the related unaudited statements of income for
each quarter ending on and after March 31, 1996 (all of such financial
statements and notes being hereinafter referred to as "CSI's Financial
Statements"). CSI's Financial Statements are in accordance with the books and
records of CSI, and, except as may be described therein, present fairly the
financial condition of CSI at the dates and for the periods indicated. The
unaudited Balance Sheet as of December 31, 1995 of CSI is herein called "CSI
Balance Sheet." At the date of the CSI Balance Sheet, CSI had no material
liabilities required by generally accepted accounting principles to be
reflected or reserved against therein that were not fully reflected or reserved
against on the CSI Balance Sheet, other than liabilities set forth on SCHEDULE
6.10.
6.11 Absence of Certain Changes or Events. Except as set
forth on SCHEDULE 6.10, since the date of CSI Balance Sheet: (a) the CSI has
not incurred any obligation or liability
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(contingent or otherwise), except normal trade or business obligations incurred
in the ordinary course of business, the performance of which will not, to the
CSI's Knowledge, individually or in the aggregate, have a material adverse
effect on the financial condition CSI or results of operations of CSI or CSI's
Cable Business; (b) there has been no material adverse change in the business,
condition, financial or otherwise, or liabilities of CSI's Cable Business and,
to CSI's Knowledge, no fact or condition exists or is contemplated or
threatened which would result in such a change in the future; and CSI's Cable
Business has been conducted only in the ordinary course of business. For the
purpose of this Agreement, the impact on the CSI of events which affect the
cable industry as a whole in the States of Arkansas or Oklahoma or the United
States, shall not be considered in determining whether there has been a
material adverse change in the business, financial or other condition or
liabilities of CSI's Cable Business.
6.12 Litigation. Except as set forth in SCHEDULE 6.12:
(i) there is no Litigation pending or, to CSI's Knowledge, threatened, by or
before any Governmental Authority or private arbitration tribunal against CSI
which, if adversely determined, would materially adversely affect the financial
condition or operations of CSI's Cable Business, CSI Systems, the CSI Assets or
the ability of CSI to perform its obligations under this Agreement, or which,
if adversely determined, would result in the modification, revocation,
termination, suspension or other limitation of any of the CSI Systems
Franchises, CSI Systems Licenses, CSI Systems Contracts or leases or other
documents evidencing the CSI Leased Property or the CSI Other Real Property
Interests; and (ii) there is not in existence any Judgment requiring CSI to
take any action of any kind with respect to the CSI Assets or the operation of
the CSI Systems, or to which CSI (with respect to the CSI Systems), the CSI
Systems or the CSI Assets are subject or by which they are bound or affected.
6.13 Tax Returns; Other Reports. CSI has duly and timely
filed in correct form all federal, state, local and foreign Tax returns and
other Tax reports required to be filed by CSI, and has timely paid all Taxes
which have become due and payable, whether or not so shown on any such return
or report, the failure of which to be filed or paid could affect or result in
the imposition of a Lien upon the CSI Assets, except such amounts as are being
contested diligently and in good faith and are not in the aggregate material.
CSI has received no notice of, nor does CSI have any Knowledge of, any
deficiency, assessment or audit, or proposed deficiency, assessment or audit
from any taxing Governmental Authority which could affect or result in the
imposition of a Lien upon the CSI Assets.
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6.14 Employment Matters.
6.14.1 SCHEDULE 6.14 contains a complete and
correct list of the names and positions of all Employees engaged in CSI's
Business. CSI has complied in all material respects with all applicable Legal
Requirements relating to the employment of labor, including, the Worker
Adjustment and Retraining Notification Act, 29 U.S.C. Section
2101, et seq. ("WARN"), ERISA, continuation coverage requirements with respect
to group health plans and those relating to wages, hours, collective
bargaining, unemployment insurance, worker's compensation, equal employment
opportunity, age and disability discrimination, immigration control and the
payment and withholding of Taxes.
6.14.2 Each employee benefit plan (as defined in
Section 3(3) of ERISA) or any multiemployer plan (as defined in Section 3(37)
of ERISA) with respect to which CSI or any of its ERISA Affiliates has any
liability or in which any Employees or agents, or any former Employees or
agents, of CSI or any of its ERISA Affiliates participate is set forth in
SCHEDULE 6.14 (the "CSI Plans"). Neither CSI, any of its ERISA Affiliates nor
any CSI Plan is in material violation of any provision of ERISA. No
"reportable event" (as defined in Section 4043 of ERISA) has occurred and is
continuing with respect to any CSI Plan and no "prohibited transaction" (as
defined in Section 406 of ERISA) has occurred with respect to any CSI Plan
which would result in material liability to CSI or any of its ERISA Affiliates.
No material "accumulated funding deficiency" or "withdrawal liability" (as
defined in Section 302 of ERISA) exists with respect to any CSI Plan. After
the Closing, CSI will not be required, under ERISA, the Code or any collective
bargaining agreement, to establish, maintain or continue any Plan currently
maintained by TCA, the General Partner or any of their ERISA Affiliates.
6.14.3 Except as set forth on SCHEDULE 6.14, there
are no collective bargaining agreements applicable to any Person employed by
CSI that render services in connection with the CSI Systems and CSI has no duty
to bargain with any labor organization with respect to any such Person. There
are not pending any unfair labor practice charges against CSI, any demand for
recognition or any other request or demand from a labor organization for
representative status with respect to any Person employed by CSI that render
services in connection with the CSI Systems or any effort by any labor
organization to obtain representative status. Except as described on SCHEDULE
6.14, CSI has no employment agreements, either written or oral, with any
Employee of the CSI Systems and none of the employment agreements listed on
SCHEDULE 6.14 requires TCA to employ any Person after the Closing.
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6.15 CSI Systems Information. SCHEDULE 6.15 sets forth a
materially true and accurate description of the following information relating
to CSI's Cable Business as of the date of this Agreement:
(a) the number of single family homes and
residential dwelling units passed by the CSI Systems;
(b) the number of miles of plant included in the CSI
Assets and the channel capacity of such plant;
(c) the number of subscribers served by the CSI
Systems;
(d) the cities, towns, townships, villages,
boroughs and counties served by the CSI Systems;
(e) a description of basic and optional or tier
services available from the CSI Systems, the rates charged by CSI for each and
the number of EBSs receiving each optional or tier service; and
(f) the stations and signals carried by the CSI
Systems and the channel position of each such signal and station.
6.16 Subscriber Numbers. As of the Closing Date, the CSI
Systems will have no fewer than 30,500 EBSs.
6.17 Finders and Brokers. Except for Daniels &
Associates, CSI has not employed any financial advisor, broker or finder or
incurred any liability for any financial advisory, brokerage, finder's or
similar fee or commission in connection with the transactions contemplated by
this Agreement for which TCA could be liable.
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SECTION 7. ADDITIONAL COVENANTS
7.1 Access to Premises and Records. Between the date of
this Agreement and the Closing Date each party will give to the other and its
counsel, accountants and other representatives full access during normal
business hours to all the premises and books and records of its Cable Business
and to all its Assets and those Systems' personnel; and will furnish to the
other and such representatives all such documents, financial information and
other information regarding its Cable Business and its Assets as the other from
time to time reasonably may request; provided that no investigation will affect
or limit the scope of any of the representations, warranties, covenants and
indemnities of the other in this Agreement or in any Transaction Document or
limit liability for any breach of any of the foregoing.
7.2 Continuity and Maintenance of Operations; Certain
Deliveries and Notices. Except as the other party may otherwise consent in
writing, between the date of this Agreement and the Closing, each of CSI with
respect to CSI's Cable Business, the CSI Systems and the CSI Assets and TCA
with respect to TCA's Cable Business, the TCA Systems and the TCA Assets:
7.2.1 will conduct its Cable Business and operate
those Systems only in the usual, regular and ordinary course and consistent
with past practices (including but not limited to making capital expenditures
and fulfilling installation requests) and, to the extent consistent with such
conduct and operation, use its commercially reasonable efforts to (i) preserve
its current business intact in all material respects, including preserving
existing relationships with franchising authorities, suppliers, customers and
others having business dealings with those Systems, unless the other party
requests otherwise, (ii) use commercially reasonable efforts to keep available
the services of its Employees and agents providing services in connection with
the Cable Business and (iii) continue making normal marketing, advertising and
promotional expenditures with respect to its Cable Business;
7.2.2 will maintain those Assets in good repair,
order and condition, ordinary wear and tear excepted, will maintain equipment
and inventory for those Systems at normal historical levels consistent with
past practices, but, as of the Closing Date, there shall not be less than that
amount of equipment and inventory necessary to operate those Systems for a
period of thirty days after Closing assuming normal use and operations; will
maintain in full force and effect, policies of insurance with respect to its
Cable Business, in such amounts and with respect to such risks as customarily
maintained by operators of cable television systems of the size and geographic
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location of those Systems and will maintain its books, records and accounts
with respect to those Assets and the operation of those Systems in the usual,
regular and ordinary manner on a basis consistent with past practices;
7.2.3 will not (i) modify, terminate, renew,
suspend or abrogate any System Contract other than retransmission consents or
programming Contracts other than in the ordinary course of business, (ii)
modify, terminate, renew, suspend or abrogate any retransmission consent or
programming Contract, System Franchise, lease or document evidencing Leased
Property or Other Real Property Interests or System License, (iii) take or omit
to take any action that would result in any of its representations and
warranties in this Agreement or in any Transaction Document not being true and
correct in all material respects when made or at the Closing, (iv) engage in
any marketing, subscriber installation or collection practices that are
inconsistent with its past practices; (v) except in the ordinary and normal
course of business, change the rate charged for any level of Basic Services,
Expanded Basic Services, or any Pay TV or add, delete, retier or repackage any
programming services except to the extent required under the 1992 Cable Act or
any other Legal Requirement; provided however if rates are changed in order to
so comply, the party changing the rates will provide the other with copies of
any FCC forms (even if not filed with any Governmental Authority) that such
party used to determine that the new rates were allowable, (vi) make any Cost
of Service Election, (vii) enter into any agreement with or commitment to any
competitive access providers with respect to the System, (viii) sell, transfer
or assign any portion of the Assets other than sales in the ordinary course of
business or permit the creation of a Lien on any Asset or (ix) take any actions
that would cause the transactions contemplated hereby to fail to qualify as a
like-kind exchange under Section 1031 of the Code;
7.2.4 will promptly deliver to the other true and
complete copies of all monthly and quarterly financial statements and operating
reports and any reports with respect to the operation of the Cable Business
prepared by or for such party at any time from the date of this Agreement until
the Closing;
7.2.5 will give or cause to be given to the other
and its counsel, accountants and other representatives, as soon as reasonably
possible but in any event prior to the date of submission to the appropriate
Governmental Authority, copies of all FCC Forms 1200, 1205, 1210, 1215, 1220,
1225, 1235 and 1240 or any other FCC forms required to be filed with any
Governmental Authority under the 1992 Cable Act and prepared with respect to
any of its Systems, such forms to be reasonably satisfactory in form and
substance to the other;
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7.2.6 will duly and timely file a valid notice of
renewal under Section 626 of the Cable Act with the appropriate Governmental
Authority with respect to any System Franchise that will expire within 36
months after any date between the date of the Agreement and the Closing Date;
and
7.2.7 will promptly notify the other of any fact,
circumstance, event or action by it or otherwise (i) which, if known at the
date of this Agreement, would have been required to be disclosed in or pursuant
to this Agreement or (ii) the existence, occurrence or taking of which would
result in any of its representations and warranties in this Agreement or in any
Transaction Document not being true, complete and correct in all material
respects when made or at the Closing, and, with respect to clause (ii), use its
commercially reasonable efforts to remedy the same.
7.3 Employees.
7.3.1 Each party may, but shall have no
obligation to employ or offer employment to any Employee of the other party's
Cable Business. Not less than 45 days' prior to the Closing, each party shall
provide to the other a list of all active Employees of their respective
Systems excluding all Employees subject to a collective bargaining agreement or
represented by a labor organization, if any, as of a recent date, showing
then-current positions and rates of compensation and indicating which of such
Employees such party desires to retain as its employees (the "Retained
Employees). Within 10 days after receipt of this list, the party receiving
such list will provide to the other in writing a list of Employees such party
or its Affiliates desires to employ following the Closing, which list shall not
include any Retained Employees. As of the Closing Date, each party shall
terminate the employment of all its Employees who were employed incidental to
the conduct of such party's Cable Business other than Retained Employees.
7.3.2 Each party will pay or cause to be paid to
all Employees employed in their respective Cable Business all compensation,
including salaries, commissions, bonuses, deferred compensation, severance,
insurance, pensions, profit sharing, vacation (other than vacation which is
allowed to be carried over pursuant to SECTION 7.3.6(A), sick pay and other
compensation or benefits to which they are entitled for periods prior to the
Closing, including, without limitation, all amounts, if any, payable on account
of the termination of their employment. Each party agrees to cooperate in all
reasonable respects with the other party to allow such party to evaluate and
interview Employees of the Cable Business to make hiring decisions.
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7.3.3 Each party will be responsible for
maintenance and distribution of benefits accrued under any employee benefit
plan (as defined in ERISA) maintained by such party (or in the case of TCA, the
General Partner) pursuant to the provisions of such plans. Neither party will
assume any obligation or liability for any such accrued benefits nor any
fiduciary or administrative responsibility to account for or dispose of any
such accrued benefits under any employee benefit plans maintained by the other
party (or in the case of TCA, the General Partner).
7.3.4 All claims and obligations under, pursuant
to or in connection with any welfare, medical, insurance, disability or other
employee benefit plans of such party (or in the case of TCA, the General
Partner) or arising under any Legal Requirement affecting Employees of such
party incurred on or before the Closing Date or resulting from or arising from
events or occurrences occurring or commencing on or before the Closing Date
will remain the responsibility of such party, whether or not such Employees are
hired by the other party after the Closing. Neither party will have and assume
any obligation or liability under or in connection with any such plan.
7.3.5 Each party will remain solely responsible
for, and will indemnify and hold harmless the other from and against all Losses
arising from or with respect to, all salaries and all severance, vacation,
medical, sick, holiday, continuation coverage and other compensation or
benefits to which its Employees may be entitled, whether or not such Employees
may be hired by the other party, as a result of their employment by it prior to
the Closing Time, the termination of their employment prior to the Closing
Time, the obligation, if any, to notify and/or bargain with any labor
organization, the consummation of the transactions contemplated hereby or
pursuant to any applicable Legal Requirement (including without limitation
WARN) or otherwise relating to their employment prior to the Closing Time.
7.3.6 Notwithstanding anything to the contrary
herein, any Employee of a party (other than a Retained Employee) which is
offered employment by the other party and accepts such offer of employment
prior to the Closing Date (a) shall be entitled to vacation accrued by them as
Employees of such party; provided, however, that the amount of accrued vacation
permitted to be carried over by such Employees shall be limited to the maximum
amount of vacation permitted to be accrued by Employees of the other party in
accordance with such other party's standard practices (or in the case of TCA,
the General Partner's standard practices); (b) shall be entitled to participate
in such party's employee benefit plans (or in the case of TCA, the General
Partner's employee benefit plans) to the same extent as similarly situated
employees of such party and their dependents; (c) shall receive credit for such
Employee's past service with the other party as of the Closing Time (including
past service with any prior owner or operator of such party) for
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purposes of eligibility and vesting under such party's employee benefit and
other plans (or in the case of TCA, the General Partner's employee benefit
plans and other plans) to the same extent as other similarly situated Employees
of such party; and (d) shall not be subject to any waiting periods or
limitations on benefits for pre-existing conditions under such party's employee
benefit plans (or in the case of TCA, the General Partner's employee benefit
plans), including any group health and disability plans, except to the extent
such Employees were subject to such limitations under the other party's
employee benefit plans (or in the case of TCA, the General Partner's employee
benefit plans).
7.3.7 If any party discharges without cause
within 90 days after Closing any former Employees of the other party hired by
such party at Closing, and such Employees would have been entitled to severance
payments pursuant to the other party's severance benefits plan (or in the case
of TCA, the General Partner's severance benefit plans) if such Employees had
been discharged without cause by the other party in accordance with Section
7.3.1 and not hired by such party as of Closing, then such party shall pay
severance benefits to such Employees in accordance with CSI's severance benefit
plan to the extent such plan would have paid severance to any such Employees.
7.3.8 Nothing in this Section 7.3 or elsewhere in
this Agreement shall be deemed to make any employee of the parties a third
party beneficiary of this Agreement.
7.4 Leased Vehicles; Other Capital Leases. Each party
will pay the remaining balances on any leases for vehicles or capital leases
included in its Tangible Personal Property and will deliver title to such
vehicles and other Tangible Personal Property free and clear of all Liens
(other than Permitted Liens) to the other party at the Closing.
7.5 Required Consents, Estoppel Certificates, Franchise
Renewal; MDU Agreements. Each party will use its commercially reasonable
efforts to obtain in writing as promptly as possible and at its expense, all
the Required Consents and any other consent, authorization or approval required
to be obtained by such party in connection with the transactions contemplated
by this Agreement, reasonably satisfactory in form and substance to the other,
and deliver to the other copies of such Required Consents and such other
consents, authorizations or approvals promptly after they are obtained by such
party; provided, however, that each party will afford the other party the
opportunity to review, approve and revise the form of Required Consent prior to
delivery to the party whose consent is sought. Each party will cooperate with
the other party to obtain all Required Consents, but neither party will be
required to accept or agree or accede to any modifications or
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amendments to, or the imposition of any condition to the transfer of, any of
the System Franchises, System Licenses, System Contracts or leases or documents
evidencing Leased Property or Other Real Property Interests of its Cable
Business that are not acceptable to the other. Notwithstanding the foregoing,
as soon as practicable after the date of this Agreement, but in any event no
later than 20 days after the date of this Agreement, the parties will cooperate
with each other to complete, execute and deliver, or cause to be completed,
executed and delivered to the appropriate Governmental Authority, an FCC Form
394 with respect to each System Franchise as to which such Form 394 is
required.
7.5.1 will use its commercially reasonable
efforts to obtain certificates in form reasonably acceptable to the other
party, to be dated as of Closing, executed by the lessor of each certifying
that the respective real property lease has not been modified except as shown
and is in full force and effect and that the parties are not in default
thereunder, and stating the amount of the rent payable thereunder (the
"Estoppel Certificates");
7.5.2 will use its commercially reasonable
efforts to obtain with respect to each lease or other documents evidencing
Leased Property (a) if such lease is subordinate to the rights of any holder of
a Lien on the affected leased premises securing an obligation of the owner of
the fee interest in such leased premises, a Nondisturbance and Attornment
Agreement substantially to the effect of EXHIBIT 7.5.2 (mortgagor), executed by
each holder of such a Lien; and if such lease is a sublease, a Nondisturbance
and Attornment Agreement substantially to the effect of EXHIBIT 7.5.2
(landlord), executed by the landlord under the prime or master lease
("Nondisturbance and Attornment Agreement"); and (b) for each lease that has
not been recorded in the public records, execution of a document suitable for
recording in the public records and sufficient after recording to constitute a
memorandum of lease ("Memorandum of Lease");
7.5.3 will use commercially reasonable efforts to
obtain and cooperate with the other party to obtain renewals or extensions of
any System Franchise for which a valid notice of renewal pursuant to the formal
renewal procedures established by Section 626 of the Cable Act has not been
timely delivered to the appropriate Governmental Authority for a period
expiring no earlier than three years after the Closing Date.
7.5.4 Each party will use commercially reasonable
efforts to obtain and deliver to the other prior to Closing, for each multiple
unit dwelling project that is subject to common ownership which currently
receives cable television from its Cable Business for which
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there is no written agreement, a fully executed MDU Agreement in substantially
the form attached to this Agreement as EXHIBIT 7.5.4 and having a term running
at least 5 years after the Closing Date.
7.5.5 Notwithstanding the foregoing, no party
will have further obligation to obtain Required Consents: (a) with respect to
license agreements relating to pole attachments where the licensing party will
not consent to an assignment of such license agreement but requires that the
other party enter into a new agreement with such licensing authority, in which
case the other party shall use its best efforts to enter into such agreement as
soon as possible and such party will cooperate with and assist the other party
in obtaining such agreements; provided however that the other party's
commercially reasonable efforts shall not require the other party to take any
action of the type that such party is not required to take pursuant to this
Section; and (b) for any business radio license which such party reasonably
expects can be obtained within 120 days after the Closing and so long as a
temporary authorization is available to the other party under FCC rules with
respect thereto.
7.6 Title Commitments and Surveys. TCA and CSI each will
provide to the other within 30 days after the date of this Agreement, (a)
commitments to issue title insurance policies ("Title Commitments") by a
nationally recognized title insurance company (a "Title Company") and
containing policy limits and other terms reasonably acceptable to the other,
and, to the extent available, photocopies of all recorded items described as
exceptions therein, committing to insure (i) good, marketable and indefeasible
fee simple title in the other to each parcel of the Owned Property included in
its Assets, subject only to Permitted Liens and (ii) a leasehold interest in
the other in each parcel of Leased Property which is used for a headend or
tower site and on easements which provide access to such Owned Property or such
Leased Property, a Title Commitment, by ALTA (1990 Rev.) owner's or lessee's
policies of title insurance, and (b) surveys of each such parcel of Owned
Property or Leased Property, in such form as is necessary to obtain the title
insurance to be issued pursuant to the Title Commitments with the standard
printed exceptions relating to survey matters deleted (the "Surveys"),
certified to the other and to the Title Company issuing a Title Commitment.
The cost of the Title Commitments and all Surveys and other documents required
by the Title Company to issue such policies and Surveys for Owned Property
shall be paid by the party that owns such Owned Property prior to Closing, and,
with respect to Leased Property, shall be paid by the party that is party to
the lease prior to Closing. If TCA or CSI notifies the other within 20 days of
its receipt of both the Title Commitments and the Surveys of any Lien (other
than a Permitted Lien or a Lien set forth in SCHEDULES 5.4 or 6.4, as
applicable) or other matter affecting title to Owned Property or Leased
Property of the other which renders title to any parcel of Owned Property
unmerchantable or prevents access to or the use of any parcel of Owned Property
or Leased
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Property for the purposes for which it is currently used by the other (each a
"Title Defect"), the other will exercise commercially reasonable efforts to
remove or, with the consent of the objecting party, cause the Title Company to
commit to insure over, each such Title Defect prior to the Closing.
7.7 HSR Notification. As soon as practicable after the
execution of this Agreement, but in any event no later than 40 days after such
execution, TCA and CSI will each complete and file, or cause to be completed
and filed, any notification and report required to be filed under the HSR Act
and each such filing shall request early termination of the waiting period
imposed by the HSR Act. The parties shall use their reasonable best efforts to
respond as promptly as reasonably practicable to any inquiries received from
the Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "Antitrust Division") for additional information or
documentation and to respond as promptly as reasonably practicable to all
inquiries and requests received from any other Governmental Authority in
connection with antitrust matters. The parties shall use their respective
reasonable best efforts to overcome any objections which may be raised by the
FTC, the Antitrust Division or any other Governmental Authority having
jurisdiction over antitrust matters. Each of the parties will cooperate to
prevent inconsistencies between their respective filings and will furnish to
each other such necessary information and reasonable assistance as the other
may reasonably request in connection with its preparation of necessary filings
or submissions under the HSR Act. Notwithstanding the foregoing, no party
shall be required to make any significant change in the operations or
activities of the business (or any material assets employed therein) of such
party or any of its Affiliates, if a party determines in good faith that such
change would be materially adverse to the operations or activities of the
business (or any material assets employed therein) of such party or any of its
Affiliates having significant assets, net worth or revenue. Notwithstanding
anything to the contrary in this Agreement if either party determines in its
reasonable business judgment that a request for additional data and information
in connection with the HSR Act is unduly burdensome, either party may terminate
this Agreement by notifying the other party.
7.8 Transfer Taxes. All sales, use or excise Taxes
arising from or payable by reason of the transfer of any of the CSI Assets and
the TCA Assets will be shared equally by CSI and TCA. All transfer and
similar Taxes or assessments, including transfer fees and similar assessments
for or under System Franchises, System Licenses and System Contracts, arising
from or payable by reason of the conveyance of the CSI Assets and the TCA
Assets will be paid by CSI with respect to the CSI Assets and TCA with respect
to the TCA Assets.
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7.9 Distant Broadcast Signals. Unless otherwise
restricted or prohibited by any Governmental Authority or applicable Legal
Requirement, if requested by the party to which a System will be transferred
under this Agreement, the transferor of such System will delete prior to the
Closing Date any distant broadcast signals which the transferee determines will
result in unacceptable liability on the part of the transferee for copyright
payments with respect to continued carriage of such signals after the Closing.
7.10 Noncompetition. At the Closing, CSI and TCA will
execute and deliver to the other a Noncompetition Covenant, in the forms
attached as Exhibits 7.10(a) and (b).
7.11 Programming. Each party will execute and deliver
such documents and take such action as may be reasonably requested by the other
party to enable such other party to comply with the requirements of its
programming agreements with respect to divestitures and acquisitions of cable
television systems; provided, however, that neither party will be required to
provide specific programming or channels or to assume any liability with
respect to or in connection with the other's programming agreements. Not later
than 30 Business Days prior to Closing, TCA will transmit a letter in the form
of EXHIBIT 7.11 to all programmers from which TCA purchases programming.
7.12 Updated Schedules. Not less than five Business Days
prior to Closing, each party will deliver to the other revised copies of each
of the Schedules which shall have been updated and marked to show any changes
occurring between the date of this Agreement and the date of delivery;
provided, however, that for purposes of such party's representations and
warranties and covenants in this Agreement, all references to the Schedules
will mean the version of the Schedules attached to this Agreement on the date
of signing, and provided further that if the effect of any such updates to
Schedules is to disclose any one or more additional properties, privileges,
rights, interests or claims as Assets, the other party, at or before Closing,
will have the right (to be exercised by written notice to such party) to cause
any one or more of such items to be designated as and deemed to constitute
Excluded Assets for all purposes under this Agreement.
7.13 Use of Names and Logos. For a period of 60 days
after the Closing, TCA and CSI will be entitled to use the trademarks, trade
names, service marks, service names, logos and similar proprietary rights of
the other to the extent incorporated in or on the Assets transferred to it at
the Closing, provided that each will exercise reasonable efforts to remove all
such names, marks, logos and similar proprietary rights of the other from the
Assets as soon as reasonably practicable following the Closing.
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7.14 Transitional Billing Services. TCA and CSI will
each provide to the other, upon request, access to and the right to use its
billing system computers, software and related fixed assets in connection with
the System acquired by the other for a period of up to 90 days following the
Closing to allow for conversion of existing billing arrangements ("Transitional
Billing Services"). Each party will notify the other at least 10 days prior to
the Closing as to whether it desires Transitional Billing Services from the
other. All Transitional Billing Services, if any, that are requested by a
party will be provided on terms and conditions reasonably satisfactory to each
party; provided, however, that the amount to be paid by the party receiving
Transitional Billing Services will not exceed the cost to the other party of
providing such Transitional Billing Services. Each party will notify the
other, at least 45 days prior to the Closing, of the cost to such party of
providing such Transitional Billing Services.
7.15 Confidentiality and Publicity.
7.15.1 Each party will use reasonable efforts to
assure that any non-public information that such party may obtain from the
other in connection with this Agreement with respect to the other's Cable
Business and Systems will be confidential and, unless and until the Closing
occurs, such party will not disclose, and will cause its Employees,
consultants, advisors and agents not to disclose, any such information to any
other Person (other than its directors, officers and Employees and
representatives of its advisers and lenders whose knowledge thereof is
necessary in order to facilitate the consummation of the transactions
contemplated hereby) or use, and will cause its Employees, consultants,
advisors and agents not to use, such information to the detriment of the other;
provided that (i) such party may use and disclose any such information once it
has been publicly disclosed (other than by such party in breach of its
obligations under this Section) or which rightfully has come into the
possession of such party (other than from the other party) and (ii) to the
extent that such party may, in the reasonable opinion of its counsel, be
compelled by Legal Requirements to disclose any of such information, such party
may disclose such information if it will have used all reasonable efforts, and
will have afforded the other the opportunity, to obtain an appropriate
protective order or other satisfactory assurance of confidential treatment, for
the information compelled to be disclosed. The obligation by either party to
hold information in confidence pursuant to this Section will be satisfied if
such party exercises the same care with respect to such information as it would
exercise to preserve the confidentiality of its own similar information. In
the event of termination of this Agreement, each party will use all reasonable
efforts to cause to be delivered to the other, and retain no copies of, any
documents, work papers and other materials obtained by such party or on its
behalf from the other, whether so obtained before or after the execution
hereof.
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7.15.2 Neither party will issue any press releases
or make any other public announcement, any oral or written statements to TCA's
and CSI's Employees concerning this Agreement and the transactions contemplated
hereby, except as required by applicable Legal Requirements, without the prior
written consent and approval of the other, which consent and approval may not
be unreasonably withheld.
7.16 Bulk Transfers. TCA and CSI each waives compliance
by the other with Legal Requirements relating to bulk transfers applicable to
the transactions contemplated hereby.
7.17 Allocation of Value to Exchanged Assets. CSI and TCA
will, no later than sixty days after Closing, deliver to the other a written
estimate of the value to be allocated by it to each of the above exchange
groups pursuant to Internal Revenue Service regulations relating to Section
1031 like-kind exchanges. The parties will use reasonable good faith efforts
to agree within 30 days after the Closing on the final values to be allocated
to each such exchange group. If such an agreement is reached, CSI and TCA, for
purposes of Sections 1031 and 1060 of the Code and the regulations thereunder,
will report the transactions contemplated by this Agreement in accordance with
such agreed upon values. If an agreement can not be reached on such values,
each party will make its own good faith determination of the values to be
allocated to each such exchange group and will report such values in accordance
with Sections 1031 and 1060 of the Code and the regulations thereunder.
Liabilities assumed or taken subject to by each party are being exchanged each
for the other to the maximum extent permitted under Section 1031 of the Code
and regulations thereunder. Each party promptly will give the other notice of
any disallowance or challenge of asset values by the Internal Revenue Service
or any state or local tax authority.
7.18 Additional System. TCA agrees to acquire and will
cooperate with CSI in acquiring one or more cable television systems which are
identified, designated and valued by CSI (the "Additional System"). If such
Additional System is identified and designated by CSI on or within 45 days
after the Closing Date and acquired on or before the Outside Additional System
Closing, then such Additional System shall be included within the definition of
the TCA Systems and transferred to CSI effective as of the Closing Date. If
TCA acquires or will acquire the Additional System on or prior to the
Additional System Outside Closing Date, TCA and CSI will cooperate with each
other to make such amendments or changes to this Agreement or enter into such
other agreements or execute such other documents necessary or desirable to
consummate the transactions contemplated by this Section.
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7.19 Lien Searches. Each party will obtain at its
expense, the results of a lien search conducted by a professional search
company of records in the offices of the secretaries of state in each state and
county clerks in each county where there exist its tangible Assets, and in the
state and county where such party's principal offices are located, including
copies of all financing statements or similar notices or filings (and any
continuation statements) discovered by such search company.
7.20 Environmental Reports. Within 90 days after the
execution of this Agreement, each party will, at its expense, obtain and
deliver to the other party for each parcel of (a) Owned Property or (b) any
Leased Property which is used for a headend or tower site, a current Phase I
Environmental Site Assessment ("Environmental Report") prepared by a nationally
known environmental engineering firm reasonably satisfactory to the other party
in accordance with ASTM Standard E 1527-93 and certified to the other party.
Each Environmental Report shall include, in addition to the process described
in E 1527-93, such soil and groundwater sampling and other testing as will
enable the environmental engineers to determine if Hazardous Substances are
detected and to provide an estimate of the cost to remove and dispose of the
Hazardous Substances or otherwise remediate the property in accordance with all
applicable Environmental Laws.
7.21 Rebuild of Ft. Smith System. CSI shall rebuild its
System located in Fort Smith, Arkansas to the same condition it was in
immediately prior to the tornado which struck such area during the Spring of
1996.
7.22 Further Assurances. At or after the Closing, each of
TCA and CSI at the request of the other, will promptly execute and deliver, or
cause to be executed and delivered, to the other all such documents and
instruments, in addition to those otherwise required by this Agreement, in form
and substance reasonably satisfactory to the other as the other may reasonably
request in order to carry out or evidence the terms of this Agreement or to
collect any accounts receivable or other claims included in the TCA Assets or
the CSI Assets. Without limiting the generality of the foregoing, TCA and CSI
will take, or cause to be taken, all actions consistent with the terms of this
Agreement, including execution and delivery of any documents or instruments, as
the other may reasonably request to effect the qualification of the
transactions contemplated hereby as a like-kind exchange under Section 1031 of
the Code.
7.23 Consents. Subsequent to the Closing, each of CSI
with respect to its Systems and Assets and TCA with respect to its Systems and
Assets will continue to use commercially reasonable efforts to obtain in
writing as promptly as possible any consent, authorization or approval
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required to be obtained by it in connection with the transactions contemplated
under this Agreement which was not obtained on or before the Closing and will
deliver copies of the same, reasonably satisfactory in form and substance, to
the other. The obligations set forth in this Section will survive the Closing
and will not be merged in the consummation of the transactions contemplated
hereby.
7.24 Post-Closing Cooperation upon Inquiries as to Rates.
For a period of 12 months after Closing, each party will cooperate with and
assist the other by providing, upon request, all information in that party's
possession (and not previously made available to the requesting party) relating
directly to the rates set forth in SCHEDULES 5.15 or 6.15, as applicable, or on
any of FCC Forms 393, 1200, 1205, 1210, 1220, 1225, 1235 or 1240 or any other
FCC Form, that the requesting party may reasonably require to justify such
rates in response to any inquiry, order or requirements of any Governmental
Authority.
SECTION 8. CONDITIONS PRECEDENT
8.1 Conditions to TCA's Obligations. The obligations of
TCA to consummate the transactions contemplated by this Agreement will be
subject to the satisfaction, at or before the Closing, of the following
conditions, which may be waived by TCA:
8.1.1 Accuracy of Representations and Warranties.
The representations and warranties of CSI in this Agreement and in any
Transaction Document, if specifically qualified by materiality, are true in all
respects and, if not so qualified, are true in all material respects at and as
of the Closing with the same effect as if made at and as of the Closing.
8.1.2 Performance of Agreements. CSI has
performed in all material respects all obligations and agreements and complied
in all material respects with all covenants in this Agreement and in any
Transaction Document to be performed and complied with by it at or before the
Closing.
8.1.3 Deliveries. CSI has delivered the items
and documents required to be delivered by it, pursuant to this Agreement,
including those required under SECTION 9.2.
8.1.4 Legal Proceedings. No action, suit or
proceeding is pending or threatened by or before any Governmental Authority and
no Legal Requirement has been enacted, promulgated or issued or become or
deemed applicable to any of the transactions contemplated by
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this Agreement by any Governmental Authority, which would (i) prohibit TCA's
ownership or operation of all or a material portion of any CSI System, CSI's
Cable Business or the CSI Assets, (ii) compel TCA to dispose of or hold
separate all or a material portion of any CSI System, CSI's Cable Business or
the CSI Assets as a result of any of the transactions contemplated by this
Agreement, (iii) if determined adversely to TCA's interest, materially impair
the ability of TCA to realize the benefits of the transactions contemplated by
this Agreement or have a material adverse effect on the right of TCA to
exercise full rights of ownership of the CSI Systems or (iv) prevent or make
illegal the consummation of any transactions contemplated by this Agreement.
8.1.5 Consents. TCA has received evidence, in
form and substance reasonably satisfactory to it, that the CSI Required
Consents have been obtained.
8.1.6 No Material Adverse Change. There has not
been any material adverse change in the CSI Assets or the financial condition
or operations of CSI's Cable Business or the CSI Systems since the date of this
Agreement.
8.1.7 Title Defects. With respect to the CSI
Systems, there exist no Title Defects which the Title Company has not deleted
from the Title Commitments or, with the consent of TCA, committed to insure
over.
8.1.8 Environmental Assessments. Any
environmental audits or assessments conducted by TCA with respect to the CSI
Owned Property or the CSI Leased Property do not indicate the presence thereon,
or the likelihood of presence thereon, of Hazardous Substances of a kind or in
a quantity as could reasonably be expected to give rise to a material risk of
liability.
8.1.9 Subscribers. The CSI Systems are serving
at least 30,500 Equivalent Basic Subscribers.
8.1.10 Documents and Records. CSI has delivered
to TCA (i) all existing blueprints, schematics, working drawings, plans,
specifications, projections, statistics, engineering records, System
construction and as-built maps and (ii) all customer lists, files and records
used by CSI in connection with the operation of the CSI Systems, including a
list of all pending subscriber hook-ups, disconnect and repair orders, supply
orders and any other lists reasonably necessary to the operation of the CSI
Systems. Delivery of the foregoing will be deemed made to the extent such
lists, files and records are then located at any of the offices included in the
CSI Owned Property or CSI Leased Property.
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8.1.11 Retransmission Consent. With respect to
any retransmission consent Contracts for broadcast signals carried on the CSI
Systems on the date of this Agreement and on the date of the Closing that are
included as part of the CSI Excluded Assets, all required retransmission
consents for continued carriage of such broadcast signals have been obtained on
terms and conditions reasonably acceptable to TCA. With respect to any
retransmission consent Contracts for broadcast signals carried on the TCA
Systems on the date of this Agreement and on the date of the Closing that are
included as part of the TCA Excluded Assets, TCA has been relieved of any
obligations under such retransmission consent Contracts with respect to the TCA
Systems for any period after the Closing.
8.1.12 HSR Act. All filings required under the
HSR Act will have been made and the applicable waiting period will have expired
or been earlier terminated.
8.1.13 Franchise Renewals. Any CSI Systems
Franchise for which a valid notice of renewal pursuant to the formal renewal
procedures established by Section 626 of the Cable Act has not been timely
delivered to the appropriate Governmental Authority has been renewed or
extended for a period expiring no earlier than three years after the Closing
Date.
8.2 Conditions to CSI's Obligations. The obligations of
CSI to consummate the transactions contemplated by this Agreement will be
subject to the satisfaction, at or before the Closing, of the following
conditions, which may be waived by CSI:
8.2.1 Accuracy of Representations and Warranties.
The representations and warranties of TCA in this Agreement and in any
Transaction Document, if specifically qualified by materiality, are true in all
respects and, if not so qualified, are true in all material respects at and as
of the Closing with the same effect as if made at and as of the Closing.
8.2.2 Performance of Agreements. TCA has
performed in all material respects all obligations and agreements and complied
in all material respects with all covenants in this Agreement and in any
Transaction Document to be performed and complied with by it at or before the
Closing.
8.2.3 Deliveries. TCA has delivered the items
and documents required to be delivered by it pursuant to this Agreement,
including those required under SECTION 9.3.
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8.2.4 Legal Proceedings. No action, suit or
proceeding is pending or threatened by or before any Governmental Authority and
no Legal Requirement has been enacted, promulgated or issued or become or
deemed applicable to any of the transactions contemplated by this Agreement by
any Governmental Authority, which would (i) prohibit CSI's ownership or
operation of all or a material portion of any TCA System, TCA's Cable Business
or the TCA Assets, (ii) compel CSI to dispose of or hold separate all or a
material portion of any TCA System, TCA's Cable Business or TCA Assets as a
result of any of the transactions contemplated by this Agreement, (iii) if
determined adversely to CSI's interest, materially impair the ability of CSI to
realize the benefits of the transactions contemplated by this Agreement or have
a material adverse effect on the right of CSI to exercise full rights of
ownership of the TCA Systems or (iv) prevent or make illegal the consummation
of any transactions contemplated by this Agreement.
8.2.5 Consents. CSI has received evidence, in
form and substance reasonably satisfactory to it, that the TCA Required
Consents have been obtained.
8.2.6 No Material Adverse Change. There has not
been any material adverse change in the TCA Assets or the financial condition
or operations of the TCA Systems since the date of this Agreement.
8.2.7 Title Defects. With respect to the TCA
Systems, there exist no Title Defects which the Title Company has not deleted
from the Title Commitments or, with the consent of CSI committed to insure
over.
8.2.8 Environmental Assessments. Any
environmental audits or assessments conducted by CSI with respect to the TCA
Owned Property or the TCA Leased Property do not indicate the presence thereon,
or the likelihood of presence thereon, of Hazardous Substances of a kind or in
a quantity as could reasonably be expected to give rise to a material risk of
liability.
8.2.9 Subscribers. The TCA Systems are serving
at least 26,000 Equivalent Basic Subscribers.
8.2.10 Documents and Records. TCA has delivered
to CSI (i) all existing blueprints, schematics, working drawings, plans,
specifications, projections, statistics, engineering records, System
construction and as-built maps and (ii) all customer lists, files and records
used by TCA in connection with the operation of the TCA Systems, including a
list of all pending subscriber hook-ups, disconnect and repair orders, supply
orders and any other lists reasonably necessary to the
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operation of the TCA Systems. Delivery of the foregoing will be deemed made to
the extent such lists, files and records are then located at any of the offices
included in the TCA Owned Property or TCA Leased Property.
8.2.11 Retransmission Consent. With respect to
any retransmission consent Contracts for broadcast signals carried on the TCA
Systems on the date of this Agreement and on the date of the Closing that are
included as part of the TCA Excluded Assets, all required retransmission
consents for continued carriage of such broadcast signals have been obtained on
terms and conditions reasonably acceptable to CSI. With respect to any
retransmission consent Contracts for broadcast signals carried on the CSI
Systems on the date of this Agreement and on the date of the Closing that are
included as part of the CSI Excluded Assets, CSI has been relieved of any
obligations under such retransmission consent Contracts with respect to the CSI
Systems for any period after the Closing.
8.2.12 HSR Act. All filings required under the
HSR Act have been made and the applicable waiting period has expired or been
earlier terminated.
8.2.13 Franchise Renewals. Any TCA Systems
Franchise for which a valid notice of renewal pursuant to the formal renewal
procedures established by Section 626 of the Cable Act has not been timely
delivered to the appropriate Governmental Authority have been renewed or
extended for a period expiring no earlier than three years after the Closing
Date.
SECTION 9. THE CLOSING
9.1 The Closing; Time and Place. The closing of the
transactions contemplated by this Agreement (the "Closing") will take place at
a date (the "Closing Date") and time mutually determined by CSI and TCA, which
Closing Date shall be within ten days after the date on which all conditions
set forth in SECTIONS 8.1 and 8.2 have either been satisfied or waived in
writing by the party entitled to the benefit of such condition.
9.2 CSI's Delivery Obligations. At the Closing, CSI will
deliver or cause to be delivered to TCA the following:
9.2.1 Closing Payment. Any payments required to
be paid by CSI, if any, pursuant to SECTION 3.
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9.2.2 Bill of Sale and Assignment and Assumption
Agreement. The executed Bill of Sale and Assignment and Assumption Agreement
in the form of EXHIBIT 9.2.2.
9.2.3 Deeds. A general warranty deed in a form
reasonably acceptable to TCA (and complying with applicable state laws) with
respect to each parcel of CSI Owned Property, duly executed and acknowledged
and in recordable form, warranting good and clear record and marketable and
indefeasible fee simple title to such CSI Owned Property against all Persons
claiming by, through or under CSI, subject only to the exceptions reflected on
the CSI Title Policies.
9.2.4 Title Policies. ALTA (1990 Rev.) policies
of title insurance pursuant to the Title Commitments described in SECTION 7.6,
updated to the date of the Closing, and endorsed to delete or modify to the
satisfaction of TCA the standard printed exceptions and any Title Defects, the
premiums and charges for which will have been paid by CSI (the "CSI Title
Policies") or the irrevocable written commitment of the Title Company to
deliver the CSI Title Policies; TCA will pay the premiums and charges for any
non-standard endorsements TCA requests with respect to any CSI Title Policy.
9.2.5 Estoppel Certificates; Nondisturbance
Agreements; Memorandum of Lease. Any CSI Estoppel Certificates obtained
pursuant to SECTION 7.5.1 and each Nondisturbance and Attornment Agreement and
Memorandum of Lease obtained pursuant to SECTION 7.5.2.
9.2.6 Lien Releases. Evidence satisfactory to
TCA that all Liens (other than Permitted Liens) affecting or encumbering the
CSI Assets have been terminated, released or waived, as appropriate, or
original, executed instruments in form satisfactory to TCA effecting such
terminations, releases or waivers.
9.2.7 CSI NonCompetition Covenant. CSI will
have delivered to TCA a Noncompetition Covenant in the form of Exhibit 7.10(a)
executed by CSI (the "CSI Noncompetition Covenant").
9.2.8 Vehicle Titles. Title certificates to all
vehicles included among the CSI Assets, endorsed for transfer of title to TCA,
and separate bills of sale therefor, if required by the laws of the States in
which such vehicles are titled.
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9.2.9 Evidence of Corporate Actions. Certified
corporate resolutions or other evidence reasonably satisfactory to TCA that CSI
has taken all corporate action necessary to authorize the execution of this
Agreement and the Transaction Documents and the consummation of the
transactions contemplated hereby.
9.2.10 FIRPTA Certificate. FIRPTA Non-Foreign
Seller Certificate certifying that CSI is not a foreign person within the
meaning of Section 1445 of the Code reasonably satisfactory in form and
substance to TCA.
9.2.11 Officer's Certificate. TCA will have
received a certificate executed by an executive officer of CSI dated the date
of the Closing, reasonably satisfactory in form and substance to TCA certifying
that the conditions specified in SECTIONS 8.1.1 and 8.1.2 have been satisfied.
9.2.12 CSI Counsel Opinion. TCA will have
received an opinion of Mary S. Willis, Esq., counsel to CSI dated the date of
the Closing, in the form of EXHIBIT 9.2.12 (the "CSI Counsel Opinion").
9.2.13 Other. Such other documents and
instruments as may be necessary to effect the intent of this Agreement and
consummate the transactions contemplated hereby.
9.3 TCA's Delivery Obligations. At the Closing, TCA will
deliver or cause to be delivered to CSI the following:
9.3.1 Closing Payments. Any payments required
to be made by TCA pursuant to SECTIONS 3.
9.3.2 Bill of Sale and Assignment and Assumption
Agreement. The executed Bill of Sale and Assignment and Assumption Agreement
in the forms of EXHIBITS 9.3.2.
9.3.3 Deeds. A general warranty deed in a form
reasonably acceptable to CSI (and complying with applicable state laws) with
respect to each parcel of TCA Owned Property, duly executed and acknowledged
and in recordable form, warranting good and clear record and marketable fee
simple absolute title to such TCA Owned Property against all Persons claiming
by, through or under TCA, subject only to the exceptions reflected on the TCA
Title Policies.
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9.3.4 Title Policies. ALTA (1990 Rev.) policies
of title insurance pursuant to the Title Commitments described in SECTION 7.6,
updated to the Closing and endorsed to delete or modify to the satisfaction of
CSI the standard printed exceptions and any Title Defects, the premiums and
charges for which will have been paid by TCA (the "TCA Title Policies") or the
irrevocable written commitment of the Title Company to deliver the TCA Title
Policies; CSI will pay the premiums and charges for any non-standard
endorsements CSI requests with respect to any TCA Title Policy.
9.3.5 Estoppel Certificates; Nondisturbance
Agreements; Memorandum of Lease. Any TCA Estoppel Certificates obtained
pursuant to SECTION 7.5.1 and each Nondisturbance and Attornment Agreement and
Memorandum of Lease obtained pursuant to SECTION 7.5.2.
9.3.6 Lien Releases. Evidence satisfactory to
CSI that all Liens (other than Permitted Liens) affecting or encumbering the
TCA Assets have been terminated, released or waived, as appropriate, or
original, executed instruments in form satisfactory to CSI effecting such
terminations, releases or waivers.
9.3.7 TCA Noncompetition Covenant. TCA will
have delivered to CSI a Noncompetition Covenant in the form of Exhibit 7.10(b)
executed by TCA (the "TCA Noncompetition Covenant").
9.3.8 Vehicle Titles. Title certificates to all
vehicles included among the TCA Assets, endorsed for transfer of title to CSI
and separate bills of sale therefor, if required by the laws of the States in
which such vehicles are titled.
9.3.9 Evidence of Authorization Actions.
Certified resolutions of the Board of Directors of TCA or other evidence
reasonably satisfactory to CSI that TCA has taken all action necessary to
authorize the execution of this Agreement and the Transaction Documents and the
consummation of the transactions contemplated hereby.
9.3.10 FIRPTA Certificate. FIRPTA Non-Foreign
Seller Certificate certifying that CSI is not a foreign person within the
meaning of Section 1445 of the Code reasonably satisfactory in form and
substance to TCA.
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9.3.11 Officer's Certificates. CSI will have
received a certificate executed by an executive officer of TCA dated the date
of the Closing, reasonably satisfactory in form and substance to CSI certifying
that the conditions specified in SECTIONS 8.2.1 and 8.2.2 have been satisfied.
9.3.12 TCA Counsel Opinion. CSI will have
received an opinion of Jackson & Walker, counsel to TCA, dated the date of the
Closing, in the form of EXHIBIT 9.3.12 (the "TCA Counsel Opinion").
9.3.13 Other. Such other documents and
instruments as may be necessary to effect the intent of this Agreement and
consummate the transactions contemplated hereby.
SECTION 10. TERMINATION AND DEFAULT
10.1 Termination Events. This Agreement may be terminated
and the transactions contemplated hereby may be abandoned:
10.1.1 At any time, by the mutual agreement of TCA
and CSI;
10.1.2 By either TCA or CSI at any time, if the
other is in material breach or default of any of its covenants, agreements or
other obligations herein or in any Transaction Document, or if any of its
representations herein or in any Transaction Document are not true in all
material respects when made or when otherwise required by this Agreement or any
Transaction Document to be true and such breach or default is not cured or
waived prior to Closing;
10.1.3 By either TCA or CSI upon written notice to
the other, if any of the conditions to its obligations set forth in SECTIONS
8.1 and 8.2, respectively, are not satisfied on or before 365 days from the
date of this Agreement for any reason other than a material breach or default
by such party of its respective covenants, agreements or other obligations
under this Agreement, or any of its representations herein not being true and
accurate in all material respects when made or when otherwise required by this
Agreement to be true and accurate in all material respects;
10.1.4 By either party, within 30 days after it
receives information requested from the other party concerning the other
party's Assets, Systems or Business, if the results and
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findings of such party's investigation of the other party's Assets, Systems or
Business are not satisfactory in such party's sole discretion; or
10.1.5 As otherwise provided herein.
10.2 Effect of Termination. If this Agreement is
terminated pursuant to SECTION 10.1, all obligations of the parties under this
Agreement will terminate, except for the obligations set forth in SECTIONS 7.15
and 12.15. Termination of this Agreement pursuant to SECTIONS 10.1.2 or 10.1.3
will not limit or impair any remedies that any of CSI or TCA may have with
respect to a breach or default by the other of its covenants, agreements or
obligations under this Agreement.
SECTION 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
11.1 Survival of Representations and Warranties. The
representations and warranties of CSI and TCA in this Agreement and in the
Transaction Documents will survive until the first anniversary of the Closing
Date, except that (a) all such representations and warranties with respect to
any Taxes, rates, Environmental Law, ERISA, employment matters or copyright
matters will survive until 60 days after the expiration of the applicable
statute of limitations (including any extensions) for such Taxes, rates,
Environmental Law, ERISA, employment matters or copyright matters, respectively
and (b) the representations and warranties as to ownership of the Assets in
Sections 5.4 and 6.4, respectively, and as to ownership of Owned Property set
forth in Sections 5.6 and 6.6, respectively and in the general warranty deed or
deeds delivered with respect to Owned Property will survive the Closing and the
delivery of such deeds and will continue in full force and effect without
limitation. The periods of survival of the representations and warranties
prescribed by this Section 11.1 are referred to as the "Survival Period." The
liabilities of the parties under their respective representations and
warranties will expire as of the expiration of the applicable Survival Period;
provided, however, that such expiration will not include, extend or apply to
any representation or warranty, the breach of which has been asserted by a
party in a written notice to the other party before such expiration or about
which a party has given the other party written notice before such expiration
indicating that facts or conditions exist that, with the passage of time or
otherwise, can reasonably be expected to result in a breach (and describing
such potential breach in reasonable detail). The covenants and agreements of
the parties in this Agreement and in the
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Transaction Documents will survive the Closing and will continue in full force
and effect without limitation.
11.2 Indemnification by CSI. From and after the Closing,
CSI will indemnify and hold harmless TCA and its shareholders and its and their
respective Affiliates, and the shareholders, officers, directors, Employees,
agents, successors and assigns and any Person claiming by or through any of
them, as the case may be, from and against any and all Losses arising out of or
resulting from (a) any breach of any representation or warranty made by CSI in
this Agreement, (b) any breach of any covenant, agreement or obligation of CSI
contained in this Agreement, (c) any act or omission of CSI with respect to, or
any event or circumstance related to, the ownership or operation of the CSI
Assets or the conduct of CSI's Cable Business, which act, omission, event or
circumstance occurred or existed prior to or at the Closing Time, without
regard to whether a claim with respect to such matter is asserted before or
after the Closing Time, including any matter described on SCHEDULE 6.12, (d)
any liability or obligation not included in the TCA Assumed Obligations and
Liabilities, (e) any Title Defect CSI fails to eliminate as an exception from a
Title Commitment, (f) any claim that the transactions contemplated by this
Agreement violate WARN or any Legal Requirement or any fraudulent conveyance
laws of any jurisdiction, (g) the presence, generation, removal or
transportation of a Hazardous Substance on or from any of the CSI Owned
Property or CSI Leased Property prior to the Closing Time, including the costs
of removal or clean-up of such Hazardous Substance and other compliance with
the provisions of any Environmental Laws (whether before or after Closing), (h)
any rate refund ordered by any Governmental Authority with respect to the CSI
Systems for periods prior to the Closing Time or (i) the failure of CSI to
perform the CSI Assumed Obligations and Liabilities.
In the event that an indemnified item arises under both clause (a) and under
one or more of clauses (b) through (g) of this Section, TCA's rights to pursue
its claim under clauses (b) through (g), as applicable, will exist
notwithstanding the expiration of the Survival Period applicable to such claim
under clause (a).
11.3 Indemnification by TCA. From and after the Closing,
TCA will indemnify and hold harmless CSI and its shareholders and its and their
respective Affiliates and the shareholders, officers, directors, Employees,
agents, successors and assigns and any Person claiming by or through any of
them, as the case may be, from and against any and all Losses arising out of or
resulting from any breach of any representation or warranty made by TCA in this
Agreement, (b) any breach of any covenant, agreement or obligation of TCA
contained in this Agreement, (c) any act or omission of TCA with respect to, or
any event or circumstance related to, the ownership or
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operation of the TCA Assets or the conduct of TCA's Cable Business, which act,
omission, event or circumstance occurred or existed prior to or at the Closing
Time, without regard to whether a claim with respect to such matter is asserted
before or after the Closing Time, including any matter described on SCHEDULE
5.12, (d) any liability or obligation not included in the CSI Assumed
Obligations and Liabilities, (e) any Title Defect TCA fails to eliminate as an
exception from a Title Commitment, (f) any claim that the transactions
contemplated by this Agreement violate WARN or any similar Legal Requirement or
any fraudulent conveyance laws of any jurisdiction, (g) the presence,
generation, removal or transportation of a Hazardous Substance on or from any
of the TCA Owned Property or TCA Leased Property prior to the Closing Time,
including the costs of removal or clean-up of such Hazardous Substance and
other compliance with the provisions of any Environmental Laws (whether before
or after Closing), (h) any rate refund ordered by any Governmental Authority
with respect to the TCA Systems for periods prior to the Closing Date or (i)
the failure of TCA to perform the TCA Assumed Obligations and Liabilities.
In the event that an indemnified item arises under both clause (a) and under
one or more of clauses (b) through (g) of this Section, CSI's rights to pursue
its claim under clauses (b) through (g), as applicable, will exist
notwithstanding the expiration of the Survival Period applicable to such claim
under clause (a).
11.4 Third Party Claims. Promptly after the receipt by
any party of notice of any claim, action, suit or proceeding by any Person who
is not a party to this Agreement (collectively, an "Action"), which Action is
subject to indemnification under this Agreement, such party (the "Indemnified
Party") will give reasonable written notice to the party from whom
indemnification is claimed (the "Indemnifying Party"). The Indemnified Party
will be entitled, at the sole expense and liability of the Indemnifying Party,
to exercise full control of the defense, compromise or settlement of any such
Action unless the Indemnifying Party, within a reasonable time after the giving
of such notice by the Indemnified Party, (a) admits in writing to the
Indemnified Party the Indemnifying Party's liability to the Indemnified Party
for such Action under the terms of this SECTION 11, (b) notifies the
Indemnified Party in writing of the Indemnifying Party's intention to assume
such defense, (c) provides evidence reasonably satisfactory to the Indemnified
Party of the Indemnifying Party's ability to pay the amount, if any, for which
the Indemnified Party may be liable as a result of such Action and (d) retains
legal counsel reasonably satisfactory to the Indemnified Party to conduct the
defense of such Action. The other party will cooperate with the party assuming
the defense, compromise or settlement of any such Action in accordance with
this Agreement in any manner that such party reasonably may request. If the
Indemnifying Party so assumes the defense of any such Action, the Indemnified
Party will have the right to employ separate counsel and to
-62-
<PAGE> 73
participate in (but not control) the defense, compromise or settlement of the
Action, but the fees and expenses of such counsel will be at the expense of the
Indemnified Party unless (i) the Indemnifying Party has agreed to pay such fees
and expenses, (ii) any relief other than the payment of money damages is sought
against the Indemnified Party or (iii) the Indemnified Party has been advised
by its counsel that there may be one or more defenses available to it which are
different from or additional to those available to the Indemnifying Party, and
in any such case that portion of the fees and expenses of such separate counsel
that are reasonably related to matters covered by the indemnity provided in
this SECTION 11 will be paid by the Indemnifying Party. No Indemnified Party
will settle or compromise any such Action for which it is entitled to
indemnification under this Agreement without the prior written consent of the
Indemnifying Party, unless the Indemnifying Party has failed, after reasonable
notice, to undertake control of such Action in the manner provided in this
SECTION 11.4. No Indemnifying Party will settle or compromise any such Action
(A) in which any relief other than the payment of money damages is sought
against any Indemnified Party or (B) in the case of any Action relating to the
Indemnified Party's liability for any Tax, if the effect of such settlement
would be an increase in the liability of the Indemnified Party for the payment
of any Tax for any period beginning after the Closing Date, unless the
Indemnified Party consents in writing to such compromise or settlement.
11.5 Limitations on Indemnification - CSI. CSI will not be
liable for indemnification arising solely under Section 11.2(a) for (a) any
Losses of or to TCA or any other Person entitled to indemnification from CSI or
(b) any Losses incidental to or relating to or resulting from any of the
foregoing (the items described in clauses (a) and (b) collectively being
referred to for purposes of this Section 11 as "TCA Damages") unless the amount
of TCA Damages for which CSI would, but for the provisions of this Section, be
liable exceeds, on an aggregate basis, $50,000, in which case CSI will be
liable for all such TCA Damages, which will be due and payable within 15 days
after CSI's receipt of a statement therefor. CSI will not have any liability
under SECTION 11.2 to the extent that the aggregate amount of Losses otherwise
subject to its indemnification obligation thereunder exceeds $3,500,000, except
for any failure of CSI to pay or perform its Assumed Obligations and
Liabilities.
11.6 Limitations on Indemnification - TCA. TCA will not be
liable for indemnification arising solely under Section 11.3(a) for (a) any
Losses of or to CSI or any other Person entitled to indemnification from TCA or
(b) any Losses incidental to or relating to or resulting from any of the
foregoing the items described in clauses (a) and (b) collectively being
referred to for purposes of this Section as "CSI Damages") unless the amount of
CSI Damages for which TCA would, but for the provisions of this Section, be
liable exceeds, on an aggregate basis,
-63-
<PAGE> 74
$50,000, in which case TCA will be liable for all such CSI Damages, which will
be due and payable within 15 days after TCA's receipt of a statement therefor.
TCA will not have any liability under SECTION 11.3 to the extent that the
aggregate amount of Losses otherwise subject to its indemnification obligations
thereunder exceeds $3,500,000, except for any failure of TCA to pay or perform
its Assumed Obligations and Liabilities.
11.7 Other Indemnification. The provisions of SECTIONS
11.1, 11.4, 11.5 and 11.6 will be applicable to any claim for indemnification
made under any other provision of this Agreement and all references in SECTIONS
11.1, 11.4, 11.5 and 11.6 to SECTIONS 11.2 and 11.3 will be deemed to be
references to such other provisions of this Agreement.
SECTION 12. MISCELLANEOUS PROVISIONS
12.1 Parties Obligated and Benefited. Subject to the
limitations set forth below, this Agreement will be binding upon the parties
and their respective assigns and successors in interest and will inure solely
to the benefit of the parties and their respective assigns and successors in
interest, and no other Person will be entitled to any of the benefits conferred
by this Agreement. Without the prior written consent of the other parties, no
party will assign any of its rights under this Agreement or delegate any of its
duties under this Agreement, provided that a party may, without the consent of
any other party, assign or delegate its rights or obligations under this
Agreement to any of its Affiliates, and such assignee will be substituted for
such party under this Agreement as though it were the original party to this
Agreement.
12.2 Notices. Any notice, request, demand, waiver or
other communication required or permitted to be given under this Agreement will
be in writing and will be deemed to have been duly given only if delivered in
person or by first class, prepaid, registered or certified mail, or sent by
courier or, if receipt is confirmed, by telecopier:
-64-
<PAGE> 75
To CSI at:
Communications Services, Inc.
5619 DTC Parkway
Englewood, Colorado 80111
Attention: Dan L. Buchanan
Telecopy: 303/488-3219
With a copy similarly addressed to the attention of Legal
Department.
To TCA at:
TCA Cable Partners
3015 S.S.E. Loop 323
Tyler, Texas 75701
Attention: Fred R. Nichols
Telecopy: 903/595-1929
With a copy similarly addressed to the attention of Legal
Department.
Any party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this SECTION 12.2. All
notices will be deemed to have been received on the date of delivery, which in
the case of deliveries by telecopier will be the date of the sender's
confirmation.
12.3 Right to Specific Performance. The parties
acknowledge that the unique nature of the Assets to be exchanged by the parties
pursuant to this Agreement renders money damages an inadequate remedy for the
breach by the parties of its obligations under this Agreement, and the parties
agree that in the event of such breach, the parties will upon proper action
instituted by either of them, be entitled to a decree of specific performance
of this Agreement.
12.4 Waiver. This Agreement or any of its provisions may
not be waived except in writing. The failure of any party to enforce any right
arising under this Agreement on one or more occasions will not operate as a
waiver of that or any other right on that or any other occasion.
12.5 Captions. The section and other captions of this
Agreement are for convenience only and do not constitute a part of this
Agreement.
<PAGE> 76
12.6 CHOICE OF LAW. THIS AGREEMENT AND THE RIGHTS OF THE
PARTIES UNDER IT WILL BE GOVERNED BY AND CONSTRUED IN ALL RESPECTS IN
ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO, WITHOUT REGARD TO THE
CONFLICTS OF LAWS RULES OF COLORADO.
12.7 Terms. Terms used with initial capital letters or
otherwise defined in this Agreement will have the meanings specified,
applicable to both singular and plural forms, for all purposes of this
Agreement. The word "include" and derivatives of that word are used in this
Agreement in an illustrative sense rather than limiting sense.
12.8 Rights Cumulative. All rights and remedies of each
of the parties under this Agreement will be cumulative, and the exercise of one
or more rights or remedies will not preclude the exercise of any other right or
remedy available under this Agreement or applicable law.
12.9 Time. Time is of the essence under this Agreement.
If the last day permitted for the giving of any notice or the performance of
any act required or permitted under this Agreement falls on a day which is not
a Business Day, the time for the giving of such notice or the performance of
such act will be extended to the next succeeding Business Day.
12.10 Late Payments. If either party fails to pay the
other any amounts when due under this Agreement, the amounts due will bear
interest from the due date to the date of payment at the annual rate publicly
announced from time to time by The Bank of New York as its prime rate (the
"Prime Rate") plus 3%, adjusted as and when changes in the Prime Rate are made.
12.11 Counterparts. This Agreement may be executed in
counterparts, each of which will be deemed an original.
12.12 Entire Agreement. This Agreement (including the
Transaction Documents and the Schedules and Exhibits referred to in this
Agreement, which are incorporated in and constitute a part of this Agreement)
contains the entire agreement of the parties and supersedes all prior oral or
written agreements and understandings with respect to the subject matter. This
Agreement may not be amended or modified except by a writing signed by the
parties.
12.13 Severability. Any term or provision of this
Agreement which is invalid or unenforceable will be ineffective to the extent
of such invalidity or unenforceability without
<PAGE> 77
rendering invalid or unenforceable the remaining rights of the Person intended
to be benefitted by such provision or any other provisions of this Agreement.
12.14 Construction. This Agreement has been negotiated by
the parties and their respective legal counsel, and legal or equitable
principles that might require the construction of this Agreement or any
provision of this Agreement against the party drafting this Agreement will not
apply in any construction or interpretation of this Agreement.
12.15 Expenses. Except as otherwise expressly provided in
this Agreement, each party will pay all of its expenses, including attorneys'
and accountants' fees, in connection with the negotiation of this Agreement,
the performance of its obligations and the consummation of the transactions
contemplated by this Agreement.
12.16 Risk of Loss. The risk of any loss or damage to the
TCA Assets or CSI Assets resulting from fire, theft or other casualty (except
reasonable wear and tear) will be borne by TCA or CSI, respectively, at all
times prior to the Closing Time. If any such loss or damage is sufficiently
substantial so as to preclude and prevent resumption of normal operations of
any material portion of a System or the replacement or restoration of the lost
or damaged property within 20 days from the occurrence of the event resulting
in such loss or damage, TCA or CSI as appropriate, will immediately notify the
other in writing of that fact and the other, at any time within 10 days after
receipt of such notice, may elect by written notice to the notifying party to
either (a) waive such defect and proceed toward consummation of the transaction
in accordance with terms of this Agreement or (b) terminate this Agreement. If
the other elects to so terminate this Agreement, both parties will stand fully
released and discharged of any and all obligations under this Agreement. If
the other elects to consummate the transactions contemplated by this Agreement
notwithstanding such loss or damage and does so, all insurance proceeds payable
as a result of the occurrence of the event resulting in such loss or damage (to
the extent not used to replace or restore such lost or damaged property),
except for any proceeds from business interruption insurance relating to the
loss of revenue for the period prior to the Closing Date, will be delivered by
the notifying party to the other or the rights to such proceeds will be
assigned by the notifying party to the other if not yet paid over to the
notifying party, and the notifying party will pay to the other an amount equal
to the difference between the amount of such insurance costs and the full
replacement cost of the damaged or lost Assets.
If, prior to the Closing, any part of or interest in the TCA Assets or
the CSI Assets is taken or condemned as a result of the exercise of the power
of eminent domain, or if a Governmental
<PAGE> 78
Authority having such power informs TCA or CSI that it intends to condemn all
or any part of a party's Assets (such event being called, in either case, a
"Taking"), then the other party may terminate this Agreement. If the other
party does not elect to terminate this Agreement, then (a) the other party will
have the sole right, in the name of the party, if the other party so elects, to
negotiate for, claim, contest and receive all damages with respect to the
Taking, (b) the other party will be relieved of its obligation to convey to the
party the Assets or interests that are the subject of the Taking, (c) at the
Closing the party will assign to the other party all of the party's rights to
all damages payable with respect to the Taking and (d) following the Closing,
the party will give the other party such further assurances of such rights and
assignment with respect to the taking as the other party may from time to time
reasonably request.
12.17 Tax Consequences. No party to this Agreement makes
any representation or warranty, express or implied, with respect to the Tax
implications of any aspect of this Agreement on any other party to this
Agreement, and all parties expressly disclaim any such representation or
warranty with respect to any Tax consequences arising under this Agreement.
Each party has relied solely on its own Tax advisors with respect to the Tax
implications of this Agreement.
12.18 Commercially Reasonable Efforts. For purposes of
this Agreement, "commercially reasonable efforts" will not be deemed to require
a party to undertake extraordinary measures, including the initiation or
prosecution of legal proceedings or the payment of amounts in excess of normal
and usual filing fees and processing fees, if any.
<PAGE> 79
The parties have executed this Agreement as of the day and year first
above written.
COMMUNICATIONS SERVICES, INC.
By: /s/ WILLIAM R. FITZGERALD
------------------------------
Name: William R. Fitzgerald
------------------------------
Title: Vice President
------------------------------
TCA CABLE PARTNERS
By: /s/ FRED NICHOLS
------------------------------
Name: Fred Nichols
------------------------------
Title: Chairman of the Partnership
------------------------------
<PAGE> 1
SUBSIDIARIES OF THE REGISTRANT
Exhibit 21
Form 10-K - December 31, 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 except for TCA Cable Partners, a partnership owned 75% by TCA and
25% by Donrey Media Group, a division of Stephens Group, Inc.:
Name State of Incorporation of Organization
- --------------------- --------------------------------------
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
Sun Valley Cablevision, Inc. Idaho
VPI Communications, Inc. Texas
AvComm Corporation Texas
Cable One Corporation Pennsylvania
TCA Cable Partners Delaware
<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, 33-61041 and 333-1487) and Form S-3 (File Nos. 33-61616,
33-44289 and 33-40273) of our report dated January 17, 1997, on our audits of
the consolidated financial statements of TCA Cable TV, Inc. and Subsidiaries as
of October 31, 1996 and 1995, and for the years ended October 31, 1996, 1995
and 1994, 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.
/s/ COOPERS & LYBRAND L.L.P.
Dallas, Texas
January 28, 1997
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> OCT-31-1996
<CASH> 3,473,443
<SECURITIES> 0
<RECEIVABLES> 12,408,291
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 386,152,502
<DEPRECIATION> 186,892,042
<TOTAL-ASSETS> 663,996,631
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 2,493,193
0
0
<OTHER-SE> 143,839,136
<TOTAL-LIABILITY-AND-EQUITY> 663,996,631
<SALES> 0
<TOTAL-REVENUES> 253,308,282
<CGS> 0
<TOTAL-COSTS> 61,792,409
<OTHER-EXPENSES> 109,528,449
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,932,562
<INCOME-PRETAX> 57,139,508
<INCOME-TAX> 22,200,000
<INCOME-CONTINUING> 34,939,508
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<NET-INCOME> 34,939,508
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