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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, 1997
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
Commission File No.: 0-11478
TCA CABLE TV, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-1798185
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
3015 S.S.E. LOOP 323, TYLER, TEXAS 75701
(Address of principal executive offices) (Zip Code)
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(903) 595-3701
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
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<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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 January 9, 1998
($43.69) was $672,520,607. Shares of voting stock held by each officer and
director and by each person who owns 10% or more of the Company's outstanding
voting stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
The number of shares outstanding of the registrant's Common Stock as of
January 9, 1998 was:
24,891,364 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 26, 1998.
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PART I
ITEM 1. BUSINESS
OVERVIEW
TCA Cable is engaged in the development, operation and management of cable
television systems. As of October 31, 1997, based on number of subscribers, the
Company is the sixteenth largest cable television system operator, serving
approximately 703,000 subscribers through 62 cable television systems, which
passed approximately 935,000 households. Over 90% of the Company's subscribers
are located in regional clusters primarily in Texas, Louisiana and Arkansas. The
Company also operates clusters in Oklahoma and has one system in each of Idaho,
Mississippi and New Mexico. The Company intends to continue to concentrate its
activities in these and similar non-urban markets where residents rely on cable
television to provide quality reception and services, referred to by the Company
as "classic cable markets". By acquiring and developing systems in geographic
proximity, the Company has realized operating efficiencies through the
consolidation of various managerial, administrative and technical functions. The
Company believes that the geographic clustering of its cable systems makes it a
cost effective cable service provider.
The following table sets forth certain operating data as of October 31,
1997:
<TABLE>
<CAPTION>
NUMBER EQUIVALENT
OF HOMES BASIC BASIC PREMIUM PREMIUM
LOCATION SYSTEMS PASSED SUBSCRIBERS PENETRATION UNITS* PENETRATION*
-------- ------- ------- ----------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Texas............................... 19 336,631 240,778 72% 136,654 57%
Louisiana........................... 14 231,320 173,798 75% 128,758 74%
Arkansas............................ 23 300,516 234,495 78% 124,656 53%
New Mexico.......................... 1 16,500 10,658 65% 4,468 42%
Mississippi......................... 1 18,823 13,802 73% 11,583 84%
Oklahoma............................ 3 24,348 20,925 86% 8,057 39%
Idaho............................... 1 7,300 8,203 112% 3,247 40%
------- ------- -------
Subtotal.......................... 62 935,438 702,659 75% 417,423 59%
Managed Systems..................... 2 5,410 3,614 67% 2,196 61%
------- ------- -------
Total..................... 64 940,848 706,273 75% 419,619 59%
======= ======= =======
</TABLE>
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* Premium units are calculated based upon the number of premium services
subscribed to per basic subscriber. Premium penetration equals the ratio of
premium units to basic subscribers.
Upon completion of the formation of TCA Cable Partners II, the Company will
operate 73 systems with approximately 850,000 subscribers. See "-- Recent
Developments."
Through its wholly-owned subsidiary, VPI Communications, Inc., d/b/a
CableTime ("CableTime"), the Company is the largest third party turnkey
advertising insertion provider serving the cable television industry. As of
October 31, 1997, CableTime served 82 cable television operators in 467 systems,
including the Company's systems, collectively reaching approximately 2.9 million
subscribers.
The Company believes it is a low-cost provider of video entertainment in
its markets, a concept embodied in its current marketing plan, "The Best
Entertainment Value in Town." The Company typically offers its customers a range
of 35 to 82 channels including such premium channels as Home Box Office(R),
Cinemax(R), Showtime(R), The Movie Channel(R) and The Disney Channel(R). The
Company's focus on community involvement, locally available high-quality service
and repairs, and local programming assures close ties with its customer base and
enables the Company to maintain a competitive advantage.
The Company was organized as a Texas corporation in 1981 to consolidate the
ownership of four corporations which had been developing and operating cable
television systems since 1965, 1973, 1975 and 1976, respectively. Senior
management of the Company is highly experienced in the cable television industry
and has spent the majority of their careers at the Company. The Chairman, Chief
Executive Officer and President; Chief Financial Officer; and Senior Vice
President of the Company have spent 17, 13 and 15 years,
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respectively, with the Company or its predecessors. The Company completed its
initial public offering of Common Stock in 1982.
RECENT DEVELOPMENTS
Consistent with the Company's regional clustering strategy, in November
1997 the Company entered into an agreement with TCI American Cable Holdings IV,
L.P. (the "TCI Affiliate"), an affiliate of Tele-Communications, Inc., to form a
partnership, TCA Cable Partners II (the "TCI Transaction"). The Company will
contribute to TCA Cable Partners II certain cable systems in Texas and New
Mexico serving approximately 155,000 subscribers and $46.6 million in unsecured
debt and the TCI Affiliate will contribute its systems in North Texas and
Western Louisiana serving approximately 150,000 subscribers and $247.9 million
in unsecured debt, in exchange for an 80% and 20% partnership interest,
respectively, in TCA Cable Partners II. The cable systems to be contributed by
the Company and the TCI Affiliate are each valued at approximately $315 million.
The Company intends to finance the TCI Transaction with a portion of the
proceeds from a $150 million increase in the Company's primary credit facility
and the issuance of $150 million in public debt. Upon closing the TCI
Transaction, the Company will extend a loan to TCA Cable Partners II in the
aggregate amount of the unsecured debt of TCA Cable Partners II. TCA Cable
Partners II will in turn use the proceeds of the loan to retire such debt. TCA
Cable Partners II will be consolidated in the financial statements of TCA and
20% of the estimated fair value of TCA Cable Partners II net assets will be
recorded by the Company as a redeemable minority interest at the acquisition
date. The TCI Affiliate has the right to require the Company to purchase the TCI
Affiliate's 20% partnership interest at fair market value beginning in February
2003 through February 2023 (the "Put and Call Period"), the termination date of
the partnership agreement. The Company has a corresponding right to require the
TCI Affiliate to sell its 20% partnership interest in TCA Cable Partners II to
the Company at fair market value during the Put and Call Period. TCA Cable
Partners II will be managed by the Company, and the Company expects the
contribution of assets and debt from the Company and the TCI Affiliate to occur
on February 2, 1998. Assuming the closing of the TCI Transaction, the Company on
a pro forma basis will serve approximately 850,000 subscribers. The closing is
conditioned, among other things, upon the receipt of various regulatory consents
and other approvals. Because, among other things, the TCI Transaction is subject
to receipt of approvals that are outside the control of the Company, there can
be no assurance that the TCI Transaction will be consummated.
In September 1997, Mr. Robert M. Rogers, the founder, Chairman of the Board
and former Chief Executive Officer, and largest shareholder of the Company,
passed away. Approximately 15.2% of the Company's Common Stock (the "Rogers
Trust Stock") was bequeathed by Mr. Rogers to a trust (the "Trust"), of which
Kanaly Trust Company (the "Trustee") is trustee. The life beneficiary of the
Trust is Robyn M. Rogers, Mr. Rogers' wife, and the remainder beneficiaries are
the grandchildren of Mr. Rogers and The Rogers Foundation, a charitable
foundation established by Mr. Rogers. Under the terms of Mr. Rogers' will, the
executor of Mr. Rogers' estate must, prior to selling any shares of TCA Common
Stock owned by the estate, notify the President of the Company and provide the
Company with the opportunity to purchase the shares to be sold by the estate at
a price per share equal to the greater of (i) the closing price of TCA Common
Stock on the date prior to the date that the Company is notified of the proposed
sale or (ii) the best price available to the estate from a third party, the
price of which is to be contained in the notice to the Company. The Company must
exercise its right to purchase the shares within 15 days of the date it receives
notice from the executor and must purchase the shares to be purchased within 30
days of the date it receives notice from the executor. The executor of Mr.
Rogers' estate is the Trustee. The Trustee has indicated that it may sell some
or all of the Rogers Trust Stock held by the estate. The estate of Mr. Rogers
also owns a 50% interest in Rogers Venture Enterprises, Inc., a corporation that
holds 800,000 shares of Common Stock. Louise Rogers, Mr. Rogers' former wife,
beneficially owns approximately 13% of the Common Stock of the Company, which
percentage does not include 800,000 shares of Common Stock for which Louise
Rogers has historically disclaimed ownership, that are owned by Rogers Venture
Enterprises, Inc., a corporation owned 50% by Louise Rogers.
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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 television 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 number of operator
consolidations.
The cable television industry began in the early 1950s. The industry's
founding and subsequent growth were the result of consumer demand for additional
programming and improved signal reception. The use of cable television as the
means of providing additional programming and improved over-the-air reception is
now generally referred to as "basic service," and typically consists of
programming available from local over-the-air television channels, public
channels, and a limited number of channels relayed from out of region cities,
typically by satellite. 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
across the United States.
More recently, cable operators have been upgrading existing cable plant in
an effort to introduce other revenue producing services to their subscribers.
Such services are expected to include high speed internet access, telephony,
video conferencing, video on demand, and business-to-business communications.
BUSINESS STRATEGY
The Company's systematic approach of acquiring, operating and developing
cable television systems is based on the principal of increasing operating cash
flow while maintaining a high standard of subscriber service. In meeting this
objective, the Company employs the following strategies:
Regional Clustering. Over 90% of the Company's subscribers are located in
five regional clusters in three states. By acquiring and developing systems in
geographic proximity, the Company has realized significant operating
efficiencies through the consolidation of various managerial, administrative and
technical functions including the ability to serve a number of systems within a
single region through a central headend facility. Consistent with its clustering
strategy, the Company intends to continue its emphasis on growth regionally
through acquisitions of existing systems and is also considering potential joint
venture and partnership arrangements with other cable system operators. The
formation of TCA Cable Partners II is another example of this clustering
strategy. See "-- Recent Developments."
Technological Innovation and New Services. The Company has actively
invested in technological advances and system upgrades over the past several
years. The Company considers technological innovation to be an important
component of its service offerings and customer satisfaction and is continually
evaluating the technical and economic feasibility of providing enhanced or new
subscriber services. Such services are expected to include high speed internet
access, digital video, expanded pay-per-view and other interactive services. In
December 1997, the Company began offering commercial high-speed internet access
over its cable plant in select markets and anticipates a broader roll out in
1998. The Company plans to perform test trials with digital compression
technology in certain of its systems and to launch digital services to its
subscribers in fiscal 1998.
Conservative Capital Structure. The Company adheres to a policy of
conservative leverage relative to other cable television operators in the United
States. As of October 31, 1997, the Company had a ratio of debt to EBITDA of
2.5x. By maintaining a conservative capital structure, the Company has been able
to generate a
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strong cash flow, which has provided the Company with the flexibility to upgrade
its systems and to pursue acquisitions opportunistically.
Emphasis on Local Subscriber Service. The Company believes that maintaining
a strong local presence with a focus on timely subscriber service is a key
element to its long-term success. The Company has historically emphasized
subscriber service in all facets of its operations and has been recognized by
cable industry organizations as an industry leader. In 1995, TCA was awarded the
Cable Operator of the Year award by Cable Vision Magazine. A cornerstone of the
Company's operating strategy is to maintain local offices where the Company can
provide timely customer service. In its cable systems, the Company maintains one
manager per approximately 10,000 subscribers, which it believes to be among the
highest ratios in the industry. The Company strives to respond to service calls
on a same day basis and has a policy of calling each subscriber following a
service call to determine the level of customer satisfaction. Through these
initiatives, the Company has been able to achieve consistently high levels of
subscriber satisfaction and the ability to compete more effectively against
alternative video entertainment offerings.
DEVELOPMENT OF CABLE SYSTEMS
Subscriber growth experienced by the Company in recent years has been
derived from a combination of internally generated growth and selective
acquisitions of existing systems. System acquisitions are chosen to fit the
Company's strategy of geographically clustering cable systems in markets outside
of major metropolitan areas. 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.
Recent significant acquisitions include the Company's acquisitions in
September 1989, when it purchased systems serving approximately 82,000
subscribers in Bryan-College Station, Paris and Victoria, Texas, Clovis, New
Mexico and Greenville, Mississippi and in 1995, systems serving approximately
72,000 subscribers in and around San Angelo, Texas and El Dorado, Fayetteville
and Russellville, Arkansas. In 1996, the Company contributed 22 systems in
Arkansas and Mississippi, serving approximately 175,000 subscribers, to TCA
Cable Partners in exchange for a 75% interest in TCA Cable Partners. The
remaining 25% interest in TCA Cable Partners is held by DR Partners ("Donrey")
who contributed five systems in Arkansas, Oklahoma and California serving
approximately 60,000 subscribers. The Vallejo, California system, one of the
systems contributed by Donrey, was subsequently traded in 1996 for the Fort
Smith, Arkansas system. Following its formation, TCA Cable Partners has acquired
cable systems serving 8,100 subscribers in Van Buren and 21,000 subscribers in
Jonesboro, Arkansas. The Company believes that partnerships and joint ventures
are advantageous to acquiring strategic systems located near Company owned
systems that the Company would otherwise not be in a position to purchase
outright. In any partnership or joint venture, the Company currently intends to
maintain a majority ownership interest and will manage the systems in each
partnership. The Company believes that its future acquisitions are likely to
include partnership and joint venture transactions as well as more conventional
system acquisitions. See "-- Recent Developments."
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The following table provides historical data on the development of the
Company's cable television systems. Information with respect to systems managed
but not owned by the Company are excluded from the table.
<TABLE>
<CAPTION>
NUMBER
MILES OF NUMBER OF
ACTIVE HOMES OF BASIC BASIC PREMIUM PREMIUM
PLANT PASSED SUBSCRIBERS PENETRATION UNITS* PENETRATION*
-------- ------- ----------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Period Ended October 31,
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%
1997................... 16,275 935,438 702,659 75% 417,423 59%
</TABLE>
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* Premium units are calculated based on the number of premium services
subscribed to per basic subscriber. Premium penetration equals the ratio of
premium units to basic subscribers. Premium services include single channel
services offered for a monthly fee per channel and each channel offered in a
package.
The Company currently owns and operates a total of 62 cable systems and
manages two additional systems for third parties. The Company's cable systems
primarily have bandwidth capacities ranging from 300 MHZ to 750 MHZ, which
permit its systems to carry from 35 to 82 channels. The Company's current
upgrade program calls for the continued implementation of fiber optic cable
which has served a major role in expanding channel capacity, improving system
reliability, reducing operating expenses and providing additional
revenue-producing services. As of October 31, 1997, approximately 50% of the
Company's subscribers are in systems employing fiber optic plant. The Company
plans to perform test trials with digital compression technology in certain of
its systems and expects to launch digital services to its subscribers in 1998.
The Company expects that digital compression will enable it to increase the
channel capacity of its cable systems in excess of 100 channels.
As of October 31, 1997, approximately 70% of the Company's cable systems
employed addressable technology and approximately 82% of the Company's
subscribers have addressable converters. Addressable technology enables the
cable operator to electronically control the cable television services to be
delivered to each home, including pay-per-view programming. As a result, the
Company can upgrade, downgrade or disconnect services to a subscriber
immediately, without the delay or expense associated with dispatching a
technician to the subscriber's home.
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 the major commercial networks; independent,
specialty and educational stations; sports and educational programming; and
additional satellite programming such as signals of out of region independent
stations, news, sports and religious programming, and continuous news and
weather information. The monthly service fee for basic service generally ranges
from $9 to $14.
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 to basic service and the
incremental fee generally ranges from $8 to $14. A new product tier, known as
the "premier package," is now being introduced in systems where fiber optic
rebuilds are either finished or nearing completion. The premier package offers
the five to twelve channels most requested by customers in the system's area of
service and the fee generally ranges from $5.95 to $6.95.
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As of October 31, 1997, approximately 90% of the Company's systems offer
four premium service channels. Premium services include channels such as: The
Movie Channel(R), Home Box Office(R), Showtime(R), Cinemax(R) and The Disney
Channel(R), which offer feature motion pictures, concerts and other special
features without commercial interruption. The Company's services do not include
adult programming.
Rates charged subscribers vary with the type of service selected. All of
the Company's cable systems are subject to rate regulation. See "-- Legislation
and Regulation." The Company's average monthly revenue per subscriber for the
year ended October 31, 1997 was $30.81. In addition to monthly subscriber fees,
the Company charges a one-time installation fee ranging from $24 to $42 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. The Company individually negotiates the installation
and monthly fees for commercial subscribers.
ADVERTISING
In addition to its cable systems, the Company owns CableTime, the largest
third party turnkey advertising insertion provider for cable operators in the
United States. CableTime services approximately 82 cable television operators in
467 systems, including the Company's systems, collectively reaching
approximately 2.9 million subscribers. In 1996, the Company expanded its
CableTime cable advertising insertion business through the acquisition of Cable
One, a Pennsylvania-based cable advertising insertion provider serving
approximately 46 cable television operators in over 200 systems.
CableTime currently services select systems owned and operated by 21 of the
25 largest cable system operators in the United States, including Cox, TCI and
Time-Warner. CableTime concentrates its advertising services in single
geographic areas targeting a variety of cable operators in those areas to
achieve maximum efficiencies. CableTime provides a complete cable advertising
solution to both local and national advertisers by furnishing the components
necessary to create commercials from start to finish including concept
origination, design and production. Revenues from CableTime represented
approximately 17%, 14% and 9% of total revenue in fiscal years 1997, 1996, and
1995, respectively.
PROGRAMMING AND SUPPLIERS
TCA seeks and services long-term programming contracts for premium and
basic service options from independent suppliers generally for a fixed fee per
customer or for a fee equal to a specific portion of the amount charged by the
Company for the service. Programming costs increase in the ordinary course of
the Company's business as a result of increases in the number of subscribers,
expansion of the number of channels provided to customers and contractual rate
increases from programming suppliers. In order to improve programming buying
efficiencies, the Company is a member of TeleSynergy, Inc., a consortium of
twelve cable system operators who negotiate and purchase programming in bulk.
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.
National manufacturers of electronic equipment are the primary suppliers of
equipment and materials utilized in the rebuild and upgrade of the Company's
cable systems. Rebuild and upgrade costs of the Company's systems have increased
during recent years and are expected to remain at or near the same level for the
next several years, until the current expansion process is completed, but the
Company does not anticipate it will have a material adverse impact. The Company
anticipates it will continue to be able to fund construction out of internally
generated funds. The Company historically has not experienced any difficulty in
obtaining equipment or supplies.
The programming provided under premium service, and in some cases under
basic service, is acquired by the Company from independent sources for fees
based on viewing subscribers.
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MANAGEMENT SERVICES
In addition to operating its own cable television systems, the Company
provides general management services for two systems owned by entities
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.
Total revenues earned by the Company for management services in fiscal years
1997, 1996 and 1995 were $62,602, $61,975 and $60,388, respectively.
The Company's management contract with one of the Affiliated Companies
provides the Company a right of first refusal with respect to any proposed sales
of any of the Affiliated Company's cable systems or with respect to any cable
system acquisition opportunities which come to the attention of the Affiliated
Company. The Company does not intend to exercise its right of first refusal with
respect to relatively small cable systems which are contiguous to, or in the
vicinity of, systems owned by the Affiliated Company.
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.
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 municipal authorities that have not
awarded cable television franchises has rapidly diminished, and thus the
competition 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
Federal Communications Commission ("FCC") and in Congress with respect to
developing competition to cable operators. 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. See
"-- Legislation and Regulation."
Competition for the Company's cable services arises from numerous
alternative entertainment and information sources such as movie theaters,
terrestrial broadcast television stations, direct broadcast satellite ("DBS")
operators, wireless cable operators, video cassette recorders, and other sources
of home entertainment. Cable operators face additional competition from private
satellite master antenna television ("SMATV") systems that serve condominiums,
apartment and office complexes and private residential developments. The ability
of the Company to compete for subscribers in residential and commercial
developments served by SMATV operators is uncertain. 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.
The Cable Television Consumer Protection and Competition Act of 1992
("Cable Act of 1992") contains provisions, which the FCC has implemented with
regulations, to enhance the ability of cable competitors to purchase and make
available to home satellite dish earth station ("HSD") owners certain
satellite-delivered cable programming at competitive costs. The FCC and Congress
have adopted policies providing a more favorable operating environment for new
and existing technologies that provide, or have the potential to provide,
substantial competition to cable systems. These technologies include, among
others, DBS service whereby signals are transmitted by satellite to receiving
facilities located on customer premises.
DBS systems use video compression technology to increase the channel
capacity of their systems to provide movies, broadcast stations and other
program services comparable to those of cable systems. Digital satellite service
offered by DBS systems currently has certain advantages over cable systems with
respect to programming capacity and digital quality, as well as certain current
disadvantages that include high up-front customer equipment costs, line of sight
problems and a lack of local programming, local service and
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equipment distribution. While this service presents a competitive threat to
cable, the Company currently is increasing channel capacity in many of its
systems and upgrading its local customer service and technical support.
Cable operators also compete with wireless distribution services such as
multichannel, multipoint distribution services ("MMDS") which use low-power
microwave frequencies to transmit video programming over-the-air to subscribers.
Certain MMDS operators are authorized to provide or are providing broadcast and
satellite programming to subscribers in areas served by the Company's cable
systems. In addition the Telecommunications Act of 1996 ("1996 Telecom Act")
allows telephone companies and electric utility companies to provide video
services in competition with services provided by cable systems. See
"-- Legislation and Regulation."
Advances in communications technology as well as changes in the marketplace
and the regulatory and legislative environment are constantly occurring. Such
changes could have an adverse effect on the Company's financial condition and
results of operations. At this time, the impact of such changes is not known or
estimatable.
EMPLOYEES
On October 31, 1997, the Company had 1,654 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. The Company's
customer services are provided by employees rather than independent contractors.
LEGISLATION AND REGULATION
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 FCC. Regulations promulgated by the FCC contain detailed
provisions 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 emergency alert
systems 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 Act of 1992; and the
1996 Telecom Act. 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 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 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. 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
9
<PAGE> 10
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 ends FCC rate regulation of such additional tiers of service as
of March 31, 1999, although legislation is pending before Congress, which, if
enacted, would extend that date. 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. In addition, proposals for
even more stringent rate regulation, including a rate freeze, are pending before
Congress and the FCC. The Company can not predict whether or to what extent new
rate regulation may be adopted.
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 was
affirmed in March 1997 by the U.S. Supreme Court.
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 dial
tone regulations. This allows local exchange carriers ("LECs"), including the
regional Bell Operating Companies, to compete with cable operators both inside
and outside their telephone service areas. Cable systems could be placed at a
competitive disadvantage if the delivery of video services by LECs becomes
widespread since LECs are not required, under certain circumstances, to obtain
local franchises to deliver such video services or to comply with the variety of
obligations imposed upon cable systems under such franchises. Because of their
resources and cross-subsidization issues, 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.
10
<PAGE> 11
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.
The FCC recently adopted rules relating to the ownership of cable wiring
located inside multiple dwelling unit complexes. The FCC has concluded that such
wiring can, in certain cases, be unilaterally acquired by the complex owners,
making it easier for complex owners to terminate service from the incumbent
cable operator in favor of a new entrant.
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 telecommunications carriers. However, many of the
specific terms and conditions for such interconnection will remain uncertain
until they are resolved by the courts, the FCC and state regulatory commissions.
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.
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
11
<PAGE> 12
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 Federal laws and
regulations applicable to cable television have been appealed in the courts. The
outcome of some of those appeals and the potential impact on the Company is
uncertain. In addition, regulatory requirements for cable television are subject
to continual changes through actions of Federal, state and local governmental
authorities.
ENVIRONMENTAL REGULATION
As an owner, lessee and operator of real property, the Company is subject
to Federal, state and local environmental laws and regulations relating to
disposal of waste and hazardous materials, cleanup of contaminated property and
operation of underground storage tanks. The Company believes that it is in
material compliance with all applicable environmental laws and regulations.
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 be in compliance with certain copyright and FCC regulations. Additionally, a
semiannual royalty payment must be made to the U.S. Copyright Office and is
generally calculated as a percentage of each system's gross receipts. The U.S.
Copyright Office is empowered to review and increase copyright rates.
Carriage of any television broadcast station by a cable system in a manner
inconsistent with applicable FCC regulations, the Copyright Act, or copyright
regulations, can subject the cable system operator to full copyright liability,
including a potential copyright infringement action for material damages and
suspension of the operator's compulsory license. Cable systems do not receive a
compulsory license and are subject to the general copyright laws, with respect
to the transmission of 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 U.S. Copyright Office recently
recommended to Congress substantial changes in the cable compulsory license and
similar recommendations have been made by other government agencies and
interested parties. Although none of these proposals has 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.
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
"-- Legislation and Regulation."
12
<PAGE> 13
FCC rules and some franchises generally require approval by the franchising
authority for the sale of a system. See "-- Legislation and Regulation." Most of
the Company's franchises can be terminated prior to their stated expiration for
breach of material provisions. The Company holds approximately 235 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 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." 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.
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
Report 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 from 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 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.
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<PAGE> 14
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 partially owned by the
estate of Mr. Rogers, a former officer and director 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
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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, 1996, 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>
01/31/96.................................................... $31.00 $26.25
04/30/96.................................................... 35.00 27.25
07/31/96.................................................... 30.63 25.00
10/31/96.................................................... 27.25 23.75
01/31/97.................................................... 32.00 26.38
04/30/97.................................................... 33.63 29.50
07/31/97.................................................... 40.38 31.50
10/31/97.................................................... 42.75 37.00
</TABLE>
(b) Approximate Number of Equity Security Holders
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF
EQUITY HOLDERS
TITLE OF CLASS (AS OF DECEMBER 31, 1997)
-------------- -------------------------
<S> <C>
Common Stock $0.10 Par Value 3,600
</TABLE>
(c) Dividends
During the fiscal year ended October 31, 1997, cash dividends were paid to
shareholders in the amount of $15,892,884 ($.16 per share paid in January,
April, July and October, 1997). During the prior fiscal year, $13,846,432 in
cash dividends were paid to shareholders ($.14 per share paid in January, April,
July, and October, 1996). At the December 17, 1997 regularly scheduled Board of
Directors meeting, a cash dividend
14
<PAGE> 15
of $.16 per share for the quarter ending January 31, 1998, was declared. This
dividend was payable January 20, 1998, to shareholders of record as of January
6, 1998.
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.
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,
--------------------------------------------------------
1997 1996 1995 1994(1) 1993
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Operations for the period indicated:
Total revenues.................... $307,501 $253,308 $190,708 $162,300 $152,291
Costs and expenses................ 269,361 218,368 159,419 141,225 131,842
Net income........................ 38,140 34,940 31,289 21,075 20,449
Earnings per share of common
stock.......................... 1.53 1.41 1.27 0.86 0.83
Financial position at the end of the
periods indicated:
Total assets...................... 721,132 663,997 454,089 286,213 288,077
Term debt......................... 317,025 314,493 262,213 126,447 143,253
Total shareholders' equity........ 170,667 146,332 118,148 98,897 90,251
Cash dividends per common share..... 0.64 0.56 0.48 0.44 0.40
</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 discussion and analysis of the Company's financial condition
and results of operations should be read in conjunction with, and is qualified
in its entirety by reference to, the audited consolidated financial statements
of the Company appearing elsewhere herein.
OVERVIEW
The Company is engaged in the development, operation and management of
cable television systems. As of October 31, 1997, based on number of
subscribers, the Company is the sixteenth largest cable television operator in
the United States serving approximately 703,000 subscribers through 62 cable
television systems which passed approximately 935,000 homes. Over 90% of the
Company's subscribers are located in regional clusters primarily in Texas,
Louisiana and Arkansas. The Company also operates clusters in Oklahoma and has
one system in each of Idaho, Mississippi and New Mexico. The Company intends to
continue to concentrate its activities in these and similar non-urban markets
where residents rely on cable television to provide quality reception and
services, referred to by the Company as "classic cable markets." In addition,
through CableTime the Company is the largest third party turnkey advertising
insertion provider serving the cable television industry in the United States.
The Company has recently been experiencing significant growth in its
operations. Over the last three fiscal years, revenues, EBITDA (as herein
defined), and net income have grown at annual compound growth rates of 24%, 17%
and 22%, respectively. Such growth has resulted primarily from strategic
acquisitions, and also from internal subscriber growth, and the introduction of
new products and services.
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<PAGE> 16
The Company's cable revenues are derived from subscriber fees for basic,
expanded basic, premium and pay-per-view television services, cable installation
fees, long distance and internet access fees and the sale of local advertising
time on its cable systems. Cable revenues for the year ended October 31, 1997
increased 16% (8% excluding acquisitions) compared to the same period for 1996,
and represented 83% of the Company's total revenues in fiscal 1997.
The Company also derives revenues from CableTime. For the fiscal year ended
October 31, 1997, advertising insertion revenues represented 17% of the
Company's total revenues. As of October 31, 1997, CableTime provided services to
82 cable television operators in 467 markets, including the Company's systems,
collectively reaching approximately 2.9 million subscribers. CableTime revenues
for the year ended October 31, 1997 increased 54% (38% excluding acquisitions)
compared to the same period for 1996. During the three year period from November
1, 1994 through October 31, 1997, CableTime's revenues increased at a compound
annual growth rate of 62%, primarily as a result of CableTime's acquisition of
Cable One Corporation, an advertising insertion company based in Pennsylvania
("Cable One") in May 1996, and greater demand for advertising insertion services
by cable system operators.
FINANCIAL HIGHLIGHTS
The following table provides segment information for the periods indicated.
<TABLE>
<CAPTION>
ADVERTISING
CABLE INSERTION TOTAL
YEAR ENDED OCTOBER 31, 1997: -------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues......................................... $253,813 $53,688 $307,501
Operating income................................. 84,718 6,903 91,621
Depreciation and amortization ................... 42,280 1,975 44,255
Capital expenditures, including acquisitions..... 58,340 3,410 61,750
Identifiable assets.............................. 689,127 32,005 721,132
YEAR ENDED OCTOBER 31, 1996:
Revenues......................................... $218,386 $34,922 $253,308
Operating income................................. 75,899 6,088 81,987
Depreciation and amortization.................... 36,255 1,269 37,524
Capital expenditures, including acquisitions..... 68,631 4,932 73,563
Identifiable assets.............................. 635,972 28,025 663,997
YEAR ENDED OCTOBER 31, 1995:
Revenues......................................... $172,822 $17,887 $190,709
Operating income................................. 61,494 4,319 65,813
Depreciation and amortization ................... 27,350 1,001 28,351
Capital expenditures, including acquisitions..... 60,106 803 60,909
Identifiable assets.............................. 441,619 12,470 454,089
</TABLE>
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<PAGE> 17
The following table sets forth for the periods indicated certain operations
data expressed as a percentage of total revenues.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES FOR
YEAR ENDED OCTOBER 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Revenues from:
Basic and expanded basic subscriptions................. 62.9% 65.7% 66.7%
Premium and Pay-Per-View............................... 13.1 14.9 17.1
Advertising(1)......................................... 18.1 14.5 10.9
Other sources.......................................... 5.9 4.9 5.3
------ ------ ------
Total revenues................................. 100.0% 100.0% 100.0%
Operating expenses:
Salaries, wages and benefits........................... 18.4% 17.2% 17.2%
Programming costs...................................... 26.3 24.4 22.9
Other operating expenses............................... 3.4 3.3 3.5
Selling, general and administrative.................... 7.7 7.9 7.0
Depreciation and amortization.......................... 14.4 14.8 14.9
------ ------ ------
Total operating expenses....................... 70.2% 67.6% 65.5%
Operating income......................................... 29.8% 32.4% 34.5%
Other income............................................. .1 .1 .2
Other expenses:
Interest expense....................................... 7.2 8.6 7.3
Minority interest...................................... 2.3 1.3 --
Income tax............................................. 8.0 8.8 11.0
------ ------ ------
Net income............................................... 12.4% 13.8% 16.4%
</TABLE>
- ---------------
(1) Includes revenues from both the Company's cable advertising business and net
cable advertising revenues from third parties.
Year Ended October 31, 1997 Compared to Year Ended October 31, 1996
Revenues. Revenues increased by $54.2 million, or 21.4%, during the year
ended October 31, 1997 compared to the year ended October 31, 1996. Management
attributes approximately $15.3 million, or 28.2%, of the revenue increase to
internal growth in cable systems; $16.2 million, or 29.9%, to cable system
acquisitions; $9.9 million, or 18.3%, to internal growth in the Company's
advertising insertion business; $8.9 million, or 16.4%, to advertising insertion
acquisitions; and $3.9 million, or 7.2%, to long distance and internet access.
Revenues from basic and expanded basic cable television subscriptions
increased $26.9 million, or 16.1%, during the year ended October 31, 1997
compared to the year ended October 31, 1996. As a percentage of revenues,
revenues from basic and expanded basic subscriptions decreased to 62.9% of
revenues for 1997 compared to 65.7% for 1996. Revenues from premium
subscriptions and pay-per-view increased $2.5 million, or 6.7%, during 1997
compared to 1996. As a percentage of revenues, revenues from premium
subscriptions and pay-per-view decreased to 13.1% during 1997 compared to 14.9%
during 1996. The reduced percentages of revenues attributable to basic, expanded
basic, premium subscriptions and pay-per-view are the result of the increased
significance of cable advertising insertion revenues to the Company. Cable
advertising insertion revenues, including revenues from both the Company's cable
advertising business and net cable advertising revenues from third parties,
increased by approximately $19.0 million, or 51.9%, to $55.6 million for the
year ended October 31, 1997 compared to $36.6 million for the year ended October
31, 1996. As a percentage of revenues, cable advertising revenues increased to
18.1% during 1997 compared to 14.5% during 1996. Other revenues increased $5.8
million, or 46.9%, during 1997 compared to 1996 primarily due to the addition of
17
<PAGE> 18
$3.9 million of long distance and internet access revenues. As a percentage of
revenues, revenues from other sources increased to 5.9% in 1997 compared to 4.9%
in 1996.
Expenses. Operating expenses increased $44.6 million, or 26.0%, in fiscal
1997 compared to fiscal 1996. As a percentage of revenues, operating expenses
increased to 70.2% for fiscal 1997 compared to 67.6% for fiscal 1996, reflecting
the increased significance of the Company's cable advertising insertion
business, which experiences lower margins than the Company's cable system
operations. The increase in operating expenses during the year ended October 31,
1997 is primarily due to the acquisitions of cable systems and the increase in
the cable advertising insertion business relative to the cable business.
Salaries, wages and benefits increased $12.9 million, or 29.6%, during
fiscal 1997 compared to fiscal 1996. As a percentage of revenues, salaries,
wages and benefits were 18.4% for fiscal 1997 compared to 17.2% for fiscal 1996.
Programming costs increased $19.2 million, or 31.1%, during fiscal 1997 compared
to fiscal 1996. As a percentage of revenues, programming costs were 26.3% for
fiscal 1997 and 24.4% for fiscal 1996. The increase in programming costs is the
result of increases of $10.0 million in cable programming costs, $6.6 million in
the Company's payments to other cable operators of a percentage of advertising
sales and $2.6 million in network access fees in the long distance business.
Other operating expenses increased $1.9 million, or 22.1%, during fiscal 1997
compared to fiscal 1996. As a percentage of revenues, other operating expenses
were 3.4% for fiscal 1997 and 3.3% for fiscal 1996. Selling, general and
administrative expense increased $3.8 million, or 19.2%, during fiscal 1997 when
compared to fiscal 1996. As a percentage of revenues, selling, general and
administrative expenses were 7.7% for fiscal 1997 and 7.9% for fiscal 1996.
Depreciation and amortization increased $6.7 million, or 17.9%, during fiscal
1997 when compared to fiscal 1996. As a percentage of revenues, depreciation and
amortization was 14.4% for fiscal 1997 and 14.8% for fiscal 1996.
Interest expense increased $0.2 million, or 1.1%, in fiscal 1997 compared
to fiscal 1996 as a result of increased borrowings to fund acquisitions. The
Company's weighted average interest rate approximated 6.8% at both October 31,
1997 and 1996.
Income Taxes. The Company's provision for income taxes was $24.6 million
and $22.2 million in fiscal 1997 and 1996, respectively. The increase in taxes
of 10.8% in fiscal 1997 compared to fiscal 1996 was a result of a 9.8% increase
in income before income tax and an increase in the effective tax rate to 39.2%
in fiscal 1997 compared to 38.9% for fiscal 1996.
Minority Interest. Minority interest in earnings related to TCA Cable
Partners was $7.1 million for fiscal 1997 and $3.2 million for 1996. See
"Business -- Development of Cable Systems."
Year Ended October 31, 1996 Compared to Year Ended October 31, 1995
Revenues. Fiscal 1996 revenues increased by $62.6 million, or 32.8%, over
fiscal 1995 revenues. The revenue increase during fiscal 1996 compared to fiscal
1995 was the result of increased revenue of $9.4 million, or 14.9%, from
existing customers; $6.6 million, or 10.6%, from internal growth in advertising
revenue; $9.3 million, or 14.8%, from acquisitions of advertising companies; and
$37.3 million, or 59.7%, from cable system acquisitions. During fiscal 1996
compared to fiscal 1995, the Company's revenues from cable advertising increased
$15.9 million, or 76.7%. As a percentage of revenues, revenues from cable
advertising were 14.5% for fiscal 1996 and 10.9% for fiscal 1995. During fiscal
1996, revenues from basic and expanded basic service increased $39.3 million, or
30.9%. As a percentage of revenues, revenues from basic and expanded basic
subscriptions were 65.7% for fiscal 1996 and 66.7% for fiscal 1995. During
fiscal 1996, revenues from premium and pay-per-view subscriptions increased $5.1
million, or 15.7%, as a result of the addition of approximately 65,000 premium
subscribers through acquisitions, offset by the loss of approximately 32,000
premium subscribers from existing systems. As a percentage of revenues, revenues
from premium subscriptions and pay-per-view were 14.9% for fiscal 1996 and 17.1%
for fiscal 1995. During fiscal 1996, revenues from other sources increased $2.4
million, or 22.1%. As a percentage of revenues, revenues from other sources were
4.9% for fiscal 1996 and 5.3% for fiscal 1995.
18
<PAGE> 19
Expenses. Operating expenses increased $46.4 million, or 37.2%, in fiscal
1996 compared to fiscal 1995. As a percentage of revenues, operating expenses
increased to 67.6% for fiscal 1996 compared to 65.5% for fiscal 1995. The
increase in operating expenses was primarily the result of additional systems
acquired in the Alexandria, Louisiana and TCA Cable Partners' acquisitions,
which resulted in an additional 100,000 cable subscribers, and the acquisition
of Cable One in May 1996 which resulted in an additional 200 advertising
insertion markets servicing 1.2 million subscribers at fiscal 1996, compared to
fiscal 1995. The Cable One acquisition created additional expenses such as
advertising agency commissions, third party billing services, property taxes and
utility expenses. See "Business -- Advertising."
Salaries, wages and benefits increased $10.8 million, or 32.8%, during
fiscal 1996 compared to fiscal 1995. As a percentage of revenues, salaries,
wages and benefits were 17.2% for each of fiscal 1996 and 1995. Programming
costs increased $18.1 million, or 41.4%, during fiscal 1996 compared to fiscal
1995. As a percentage of revenues, programming costs were 24.4% for fiscal 1996
and 22.9% for fiscal 1995. Other operating expenses increased $1.8 million, or
27.1%, during fiscal 1996 compared to fiscal 1995, principally as the result of
increased pole rental payments resulting from system acquisitions. As a
percentage of revenues, other operating expenses were 3.3% for fiscal 1996 and
3.5% for fiscal 1995. Selling, general and administrative expenses increased
$6.6 million, or 49.4%, during fiscal 1996 when compared to fiscal 1995. As a
percentage of revenues, selling, general and administrative expenses were 7.9%
for fiscal 1996 and 7.0% for fiscal 1995. Depreciation and amortization
increased $9.2 million, or 32.4%, during fiscal 1996 when compared to fiscal
1995. As a percentage of revenues, depreciation and amortization was 14.8% for
fiscal 1996 and 14.9% for fiscal 1995.
Interest expense increased $8.1 million, or 58.4%, in fiscal 1996 compared
to fiscal 1995 as a result of borrowings under the Company's Bank Credit
Facilities to finance the Company's acquisition of cable television properties.
Income Taxes. The Company's provision for income taxes was $22.2 million
and $21.0 in fiscal 1996 and 1995, respectively. The increase in taxes of 5.6%
in fiscal 1996 compared to fiscal 1995 was as a result of a 9.2% increase in
income before income tax and a decrease in the effective tax rate from 38.9% in
fiscal 1996 compared to 40.2% for fiscal 1995.
Minority Interest. Minority interest in earnings was $3.2 million for
fiscal 1996. No minority interest existed in fiscal 1995. See
"Business -- Development of Cable Systems."
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically been able to meet its current and long-term
liquidity and capital requirements, including dividends and fixed charges,
through cash flow generated from operating activities, existing cash, bank lines
of credit and other external financing.
Net cash flow from operating activities increased 11.4% to $100.9 million
in fiscal 1997 from $90.5 million in fiscal 1996. The increase was principally
due to cable system acquisitions and internal growth in cable operations.
At October 31, 1997, the Company had $193.0 million in borrowings under its
bank credit facilities. The Company had $170 million borrowed under The Primary
Credit Facility which provides for up to $200 million in borrowings by the
Company and expires on June 30, 2002 with 16 quarterly commitment reductions
commencing September 1998. The Primary Credit Facility provides for interest to
be paid quarterly at prime or LIBOR plus an applicable margin. Additionally, in
connection with the planned TCI Acquisition, the Company intends to increase the
Primary Credit Facility by $150 million (see discussion below). At October 31,
1997 the Company also had $23.0 million borrowed under additional credit
facilities with two banks. The additional bank credit facilities provide for up
to $25.0 million and $4.0 million in borrowing by the Company and expire June
1998 and March 1998, respectively. During fiscal years 1997, 1996 and 1995, the
Company borrowed approximately $108.9 million, $157.6 and $315.8 million,
respectively, and repaid approximately $106.4 million, $105.3 million, and
$180.0 million, respectively. At October 31, 1997, the Company's bank debt
carried a weighted average interest rate of 6.4%.
19
<PAGE> 20
On September 27, 1989, the Company completed a $100 million private
placement of debt securities due August 1999 bearing an interest rate of 9.0%.
The terms of the securities call for the repayment of principal in semiannual
installments beginning February 1993. In addition, on June 23, 1995, the Company
completed a $100 million private placement of debt securities due June 2005
bearing an interest rate of 7.26%. The terms of these securities call for the
repayment of principal in annual installments beginning in June 1999.
The Company believes that EBITDA, defined as earnings before interest,
taxes, depreciation and amortization, and related measures of cash flow serve as
important financial analysis tools for measuring and comparing cable television
companies in several areas, such as liquidity, operating performance and
leverage. The Company's ratio of indebtedness to EBITDA was 2.5x, 2.7x and 2.8x
in the fiscal years ended 1997, 1996 and 1995, respectively. The Company's
interest coverage ratio, defined as the ratio of EBITDA to total interest
expense, was 5.8x, 5.3x and 6.8x in the fiscal years ended 1997, 1996 and 1995,
respectively.
The Company's capital expenditures totaled $51.8 million in fiscal 1997,
$45.9 million in fiscal 1996 and $39.8 million in fiscal 1995. Funds were
applied primarily toward the upgrade of the Company's cable systems and the
purchase of subscriber equipment, including converter boxes. The Company has
principally financed its capital expenditures through funds generated by its
operating activities, and to a lesser extent, by bank borrowings and private
placements of debt securities. The Company expects to continue the upgrade of
its cable systems in 1998 and anticipates total capital expenditure requirements
in fiscal 1998 to be comparable to levels experienced in 1997.
As part of the Company's growth strategy the Company has been actively
acquiring cable systems which meet the Company's acquisition criteria. The
Company has funded its acquisitions through internally generated funds, private
placements of debt securities, bank financing and capital contributions from
Donrey. Donrey contributed five cable systems in Arkansas serving approximately
60,000 subscribers at the formation of TCA Cable Partners. See
"Business -- Development of Cable Systems." In fiscal years 1997, 1996 and 1995,
the Company expended approximately $41.2 million, $78.1 million and $150.7
million, respectively, on cable system acquisitions. The Company anticipates the
acquisition of additional systems in selected markets in the future. See
"Business -- Development of Cable Systems."
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 $6 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, Cable Time.
The Company paid dividends on its Common Stock totaling approximately $15.9
million, or $0.64 per share, in fiscal 1997, $13.8 million, or $0.56 per share,
in fiscal 1996 and $11.8 million, or $0.48 per share, in fiscal 1995.
The Company believes that net cash provided by operating activities,
borrowings under its bank credit facilities and the Company's ability to obtain
financing will provide adequate sources of short-term and long-term liquidity in
the future.
Consistent with the Company's regional clustering strategy, in November
1997 the Company entered into an agreement with TCI American Cable Holdings IV,
L.P. (the "TCI Affiliate"), an affiliate of Tele-Communications, Inc., to form a
partnership, TCA Cable Partners II (the "TCI Transaction"). The Company will
contribute to TCA Cable Partners II certain cable systems in Texas and New
Mexico serving approximately 155,000 subscribers and $46.6 million in unsecured
debt and the TCI Affiliate will contribute its systems in North Texas and
Western Louisiana serving approximately 150,000 subscribers and $247.9 million
in unsecured debt, in exchange for an 80% and 20% partnership interest,
respectively, in TCA Cable Partners II. The cable systems to be contributed by
the Company and the TCI Affiliate are each valued at approximately $315 million.
The Company intends to finance the TCI Transaction with a portion of the
20
<PAGE> 21
proceeds from a $150 million increase in the Company's Primary Credit Facility
and the issuance of $150 million in public debt. Upon closing The TCI
Transaction, the Company will extend a loan to TCA Cable Partners II in the
aggregate amount of the unsecured debt of TCA Cable Partners II. TCA Cable
Partners II will in turn use the proceeds of the loan to retire such debt. TCA
Cable Partners II will be consolidated in the financial statements of TCA and
20% of the estimated fair value of TCA Cable Partners II net assets will be
recorded by the Company as a redeemable minority interest at the acquisition
date. The TCI Affiliate has the right to require the Company to purchase the TCI
Affiliate's 20% partnership interest at fair market value beginning in February
2003 through February 2023 (the "Put and Call Period"), the termination date of
the partnership agreement. The Company has a corresponding right to require the
TCI Affiliate to sell its 20% partnership interest in TCA Cable Partners II to
the Company at fair market value during the Put and Call Period. TCA Cable
Partners II will be managed by the Company, and the Company expects the
contribution of assets and debt from the Company and the TCI Affiliate to occur
on February 2, 1998. Assuming the closing of the TCI Transaction, the Company on
a pro forma basis will serve approximately 850,000 subscribers. The closing is
conditioned, among other things, upon the receipt of various regulatory consents
and other approvals. Because, among other things, the TCI Transaction is subject
to receipt of approvals that are outside the control of the Company, there can
be no assurance that the TCI Transaction will be consummated.
On July 24, 1997, the Company filed a shelf registration with the SEC for a
public debt offering of up to $300 million. The Company has received a
preliminary rating of BBB+ from Standard & Poor's and Baa2 from Moody's. As
noted above, the Company plans to issue $150 million in public debt in February,
1998 to finance the TCI Transaction. In connection with this contemplated debt
offering, the Company entered into treasury lock transactions with a notional
amount totaling $100 million in August 1997 (the "Treasury Locks"). The Treasury
Locks are designated as a hedge against future interest rate changes prior to
the anticipated closing of the contemplated debt offering. At October 31, 1997,
the Company's liability associated with the Treasury Locks approximated $5.1
million as a result of declining interest rates. The offset to this liability,
which is included in accrued expenses in the accompanying consolidated balance
sheet, has been capitalized in prepaid expenses and other assets in the
accompanying consolidated balance sheet. In January 1998, the Treasury Locks
were terminated at a cost of $7.9 million. The cost will be amortized over the
term of the public debt as an interest rate yield adjustment. If plans for
issuance of the public debt are terminated, the deferred Treasury Locks
termination cost of $7.9 million will be charged to expense.
IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Earnings Per Share (SFAS 128)
The Company will adopt Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"), during the fiscal year ending October 31,
1998. SFAS 128 established simplified accounting standards for computing
earnings per share and makes them comparable to international earnings per share
standards. If SFAS 128 had been applied during 1997, the Company's basic and
diluted earnings per share would have been $1.54 and $1.53, respectively.
Disclosure of Information about Capital Structure (SFAS 129)
In February 1997, the Financial Accounting Standards Board issued SFAS No.
129, "Disclosure of Information about Capital Structure" ("SFAS 129"). SFAS 129
is applicable to all entities and requires that disclosure about any entity's
capital structure include a brief discussion of rights and privileges for
securities outstanding. SFAS 129 is effective for financial statements for
periods ending after December 15, 1997.
Reporting Comprehensive Income (SFAS 130)
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which
is effective for fiscal years beginning after December 15, 1997. This statement
establishes standards for reporting and display of comprehensive income and its
components.
21
<PAGE> 22
Disclosures about Segments of an Enterprise and Related Information (SFAS 131)
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 is effective for
fiscal years beginning after December 15, 1997. This statement establishes
standards for the way that public companies report information about segments in
annual and interim financial statements.
YEAR 2000 IMPACT
During the fiscal year ended October 31, 1997, the Company began a process
to identify and address issues surrounding the Year 2000 and its impact on the
Company's computer operations. The issue surrounding the Year 2000 is whether
the Company's computer systems will properly recognize date sensitive
information when the year changes to 2000, or "00." Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. As the Company has not completed their initial assessment of the impact
the Year 2000 may have on their computer operations, management can not estimate
the costs associated with ensuring the Company's systems are Year 2000
compliant. Although the Company is in the initial phases of determining the
impact of the Year 2000, management anticipates completion of the project by
January 1999, allowing adequate time for testing. However, there can be no
assurance that the Company's systems nor the computer systems of other companies
with whom the Company conducts business will be Year 2000 compliant prior to
December 31, 1999. If such modifications and conversions are not completed
timely, the Year 2000 problem may have a material impact on the operations of
the Company.
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.
ITEMS 10-13.
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 26, 1998, which shall be filed with the
Securities and Exchange Commission within 120 days of the end of the
Registrant's last fiscal year.
22
<PAGE> 23
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........................... F-1
Consolidated Balance Sheets as of October 31, 1997 and
(ii) 1996........................................................ F-2
(iii) Consolidated Statements of Operations for the years ended
October 31, 1997, 1996 and 1995............................. F-3
Consolidated Statements of Changes in Shareholders' Equity
(iv) for the years ended
October 31, 1997, 1996 and 1995............................. F-4
(v) Consolidated Statements of Cash Flows for the years ended
October 31, 1997, 1996 and 1995............................. F-5
(vi) Notes to Consolidated Financial Statements.................. F-6 - F-15
</TABLE>
14(A)(2) FINANCIAL STATEMENT SCHEDULES:
None.
14(A)(3) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
-------
<S> <C>
2 General Partnership Agreement of TCA Cable Partners II dated
as of November 13, 1997.(1)
3.1 Articles of Incorporation.(2)
3.2 Articles of Amendment to Articles of Incorporation.(3)
3.3 Articles of Amendment to Articles of Incorporation.(3)
3.4 Articles of Amendment to Articles of Incorporation.(4)
3.5 Amended and Restated Bylaws.(1)
4.1 Form of Stock Certificate.(2)
4.2 Rights Agreement, dated as of January 15, 1998, between the
Company and ChaseMellon Shareholder Services, L.L.C. which
includes the Certificate of Designations for the Series A
Junior Participating Preferred Stock as Exhibit A, the form
of Right Certificate as Exhibit B and the Summary of Rights
to Purchase Shares as Exhibit C.(5)
9 None.
10 None.
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>
- ---------------
(1) Filed herewith.
23
<PAGE> 24
(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 the Registrant's form 8-K dated January
15, 1998 and incorporated by reference herein.
14(B) REPORTS ON FORM 8-K:
The Company filed reports on Form 8-K reporting Item 5 -- Other Events on
August 1, 1997, August 7, 1997 and October 15, 1997.
24
<PAGE> 25
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, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended October 31, 1997, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
January 15, 1998
F-1
<PAGE> 26
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
------------- -------------
<S> <C> <C>
Cash........................................................ $ 3,270,190 $ 3,473,443
Accounts receivable, subscribers............................ 15,852,757 12,408,291
Accounts receivable, other.................................. 1,017,070 666,957
Income tax receivable....................................... 529,830 1,001,709
Notes receivable, affiliates................................ -- 80,000
Investments................................................. -- 4,714,629
Property, plant and equipment, at cost:
Land...................................................... 4,110,347 3,313,883
Distribution systems...................................... 380,864,913 340,766,176
Transportation equipment.................................. 11,277,388 9,686,330
Other..................................................... 40,994,072 32,386,113
------------- -------------
437,246,720 386,152,502
Less accumulated depreciation............................. (208,416,640) (186,892,042)
------------- -------------
228,830,080 199,260,460
------------- -------------
Other assets:
Intangibles, net of accumulated amortization of
$98,669,961 and $84,660,150, respectively.............. 464,602,414 441,189,861
Prepaid expenses and other assets......................... 7,029,979 1,201,281
------------- -------------
471,632,393 442,391,142
------------- -------------
$ 721,132,320 $ 663,996,631
============= =============
LIABILITIES
Accounts payable............................................ $ 12,047,781 $ 12,137,215
Accrued expenses............................................ 23,653,545 14,671,323
Subscriber advance payments................................. 3,522,240 4,909,936
Deferred income taxes....................................... 71,580,000 59,580,000
Term debt................................................... 317,025,181 314,492,583
------------- -------------
427,828,747 405,791,057
------------- -------------
Redeemable minority interest................................ 122,636,878 111,873,245
Contingencies and commitments
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value, 5,000,000 shares
authorized; none issued................................... -- --
Common stock, $0.10 par value, 60,000,000 shares authorized;
24,991,048 and 24,931,931 shares issued, respectively..... 2,499,105 2,493,193
Additional paid in capital.................................. 51,845,522 49,984,093
Retained earnings........................................... 119,108,443 96,861,418
------------- -------------
173,453,070 149,338,704
Less treasury stock, at cost, 113,000 and 123,000 shares,
respectively.............................................. (2,786,375) (3,006,375)
------------- -------------
170,666,695 146,332,329
------------- -------------
$ 721,132,320 $ 663,996,631
============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE> 27
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CATV revenues.................................... $307,501,312 $253,308,282 $190,708,487
------------ ------------ ------------
Operating expenses:
Salaries, wages and benefits................... 56,489,396 43,581,967 32,814,442
Programming costs.............................. 81,010,410 61,792,409 43,713,752
Other operating expenses....................... 10,307,048 8,443,728 6,641,685
Selling, general and administrative............ 23,817,927 19,978,765 13,374,093
Depreciation and amortization.................. 44,255,420 37,523,989 28,351,802
------------ ------------ ------------
215,880,201 171,320,858 124,895,774
------------ ------------ ------------
Operating income............................... 91,621,111 81,987,424 65,812,713
Other income..................................... 389,768 332,891 353,221
Interest expense................................. (22,182,337) (21,932,562) (13,847,458)
Minority interest................................ (7,088,633) (3,248,245) --
------------ ------------ ------------
Income before income taxes..................... 62,739,909 57,139,508 52,318,476
------------ ------------ ------------
Provisions for income taxes:
Current........................................ 12,600,000 10,800,000 12,849,000
Deferred....................................... 12,000,000 11,400,000 8,180,000
------------ ------------ ------------
24,600,000 22,200,000 21,029,000
------------ ------------ ------------
Net income..................................... $ 38,139,909 $ 34,939,508 $ 31,289,476
============ ============ ============
Earnings per common share........................ $ 1.53 $ 1.41 $ 1.27
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-3
<PAGE> 28
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK ISSUED ADDITIONAL
------------------------ PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK
----------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
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................................... 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)
Net income...................................... -- -- -- 38,139,909 --
Issuance of common stock in connection with an
acquisition................................... -- -- 160,000 -- 220,000
Other issuances of common stock................. 32,015 3,202 1,071,843 -- --
Stock options exercised......................... 27,102 2,710 441,786 -- --
Amortization of warrants (Note 5)............... -- -- 187,800 -- --
Cash dividends at $.64 per share................ -- -- -- (15,892,884) --
----------- ---------- ----------- ------------ -----------
BALANCE, OCTOBER 31, 1997......................... $24,991,048 $2,499,105 $51,845,522 $119,108,443 $(2,786,375)
=========== ========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 29
TCA CABLE TV, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flow from operating activities:
Net income..................................... $ 38,139,909 $ 34,939,508 $ 31,289,476
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense........................ 30,193,797 25,464,954 20,883,186
Amortization expense........................ 14,061,623 12,059,035 7,468,616
Deferred income taxes....................... 12,000,000 11,400,000 8,180,000
(Gain) loss on sale of assets............... 127,288 (72,497) (283,118)
Share of (earnings) losses of affiliates.... (366,235) 385,144 542,875
Minority interest in earnings............... 7,088,633 3,248,245 --
Employee stock bonus........................ 163,125 138,750 --
Stock warrant amortization.................. 187,800 93,900 --
Contribution of common stock to retirement
plan...................................... 911,920 611,803 553,401
Change in prepaid expenses and other
assets.................................... (706,624) 370,472 (433,164)
Change in accounts receivable,
subscribers............................... (3,444,466) (4,434,332) (3,060,247)
Change in accounts receivable, other........ (350,113) 212,311 (714,364)
Change in income tax receivable/payable..... 471,879 (69,403) (1,427,584)
Change in subscriber advance payments....... (1,387,696) 1,053,574 117,049
Change in accrued expenses.................. 3,860,148 (524,001) 3,918,597
Change in accounts payable.................. (89,434) 5,640,808 1,139,045
------------ ------------ ------------
Net cash provided by operating
activities........................... 100,861,554 90,518,271 68,173,768
------------ ------------ ------------
Cash flows from investing activities:
Payments for purchases of companies and CATV
systems..................................... (41,209,854) (78,108,502) (150,713,520)
Capital expenditures........................... (51,762,673) (45,902,219) (39,766,039)
Loan to affiliate.............................. -- -- (2,500,000)
Investment in affiliate........................ -- (1,000,000) --
Distributions from affiliates.................. 400,000 -- --
Proceeds from sales of assets.................. 748,510 150,510 1,090,992
------------ ------------ ------------
Net cash used in investing
activities........................... (91,824,017) (124,860,211) (191,888,567)
------------ ------------ ------------
Cash flows from financing activities:
Borrowings of term debt........................ 108,899,990 157,582,679 315,785,939
Repayments of term debt........................ (106,367,392) (105,303,151) (180,020,230)
Debt issuance costs............................ -- -- (643,750)
Treasury stock purchased....................... -- (1,906,375) (1,100,000)
Proceeds from stock options exercised.......... 444,496 153,388 295,624
Partnership capital contributions.............. 10,275,000 3,175,000 --
Partnership distributions...................... (6,600,000) (3,300,000) --
Dividends paid................................. (15,892,884) (13,846,432) (11,787,622)
------------ ------------ ------------
Net cash provided by (used in)
financing activities................. (9,240,790) 36,555,109 122,529,961
------------ ------------ ------------
Net increase (decrease) in cash.................. (203,253) 2,213,169 (1,184,838)
Cash at beginning of year........................ 3,473,443 1,260,274 2,445,112
------------ ------------ ------------
Cash at end of year.............................. $ 3,270,190 $ 3,473,443 $ 1,260,274
============ ============ ============
Supplemental Cash Flow Information:
Interest paid.................................. $ 22,459,853 $ 21,694,203 $ 13,246,011
============ ============ ============
Income taxes paid.............................. $ 10,376,712 $ 10,869,403 $ 14,276,584
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-5
<PAGE> 30
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 directly and indirectly,
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.; Sun Valley Cablevision, Inc.; VPI
Communications, Inc.; TCA Communications, Inc., M.T. Associates, Inc., TCA
Interests, L.L.C., TCA Holdings, L.P., TCA Interests II, Inc., and TCA Holdings
II, L.P. The consolidated financial statements also include the accounts of TCA
Cable Partners, a partnership that is owned 75% by TCA and 25% by DR Partners, 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. The Company utilizes an asset and liability approach for financial
accounting and reporting for income taxes in accordance with Statement on
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
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 non discounted 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 distributions are received. The Company's share of the
results of operations of affiliates is not material. During 1996, the Company
converted $2,420,000 of notes receivable from affiliates to investments in
affiliates.
F-6
<PAGE> 31
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Covenants not to compete................................. $ 38,046,463 $ 37,911,423
Franchises............................................... 145,192,565 145,192,565
Goodwill................................................. 380,033,347 342,746,023
------------ ------------
563,272,375 525,850,011
Less: Accumulated amortization........................... (98,669,961) (84,660,150)
------------ ------------
$464,602,414 $441,189,861
============ ============
</TABLE>
4. TERM DEBT:
Term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Notes payable to three companies payable in semiannual
installments beginning February 1993, due August 1999,
bearing interest at 9.0%............................... $ 24,000,000 $ 36,000,000
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 16
quarterly commitment reductions commencing September
1998, with interest at prime or LIBOR plus an
applicable margin, unused portion of $30,000,000 and
$45,000,000 as of October 31, 1997 and 1996,
respectively, with a commitment fee of 1/4% per annum
on the unused portion(a)............................... 170,000,000 155,000,000
Revolving bank credit, terminating June 1998, with
interest at prime or LIBOR plus an applicable margin,
unused portion of $2,000,000 and $2,500,000 as of
October 31, 1997 and 1996, respectively, with no
commitment fees(a)..................................... 23,000,000 22,500,000
Other.................................................... 25,181 992,583
------------ ------------
$317,025,181 $314,492,583
============ ============
</TABLE>
F-7
<PAGE> 32
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- ---------------
(a) The weighted average interest rate on the Company's revolving bank credit at
October 31, 1997 and 1996 was 6.39% and 6.18%, respectively.
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, 1997, are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 35,008,989
1999........................................................ 58,795,642
2000........................................................ 64,291,978
2001........................................................ 64,285,714
2002........................................................ 51,785,714
Thereafter.................................................. 42,857,144
------------
$317,025,181
============
</TABLE>
On July 24, 1997, the Company filed a shelf registration with the SEC for a
public debt offering of up to $300 million. The Company plans to issue $150
million in public debt in February, 1998 to finance the TCI Transaction (see
Note 17). In connection with this contemplated debt offering, the Company
entered into treasury lock transactions with a notional amount totaling $100
million in August 1997 (the "Treasury Locks"). The Treasury Locks are designated
as a hedge against future interest rate changes prior to the anticipated closing
of the contemplated debt offering. At October 31, 1997, the Company's liability
associated with the Treasury Locks approximated $5.1 million as a result of
declining interest rates. The offset to this liability, which is included in
accrued expenses in the accompanying consolidated balance sheet, has been
capitalized in prepaid expenses and other assets in the accompanying
consolidated balance sheet. In January 1998, the Treasury Locks were terminated
at a cost of $7.9 million. The cost will be amortized over the term of the
public debt as an interest rate yield adjustment. If plans for issuance of the
public debt are terminated, the deferred Treasury Locks termination cost of $7.9
million will be charged to expense.
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 the estate of Mr. Robert M. Rogers, a former officer and director of TCA, and
his former wife, Louise Rogers. The annual lease expense was $318,515 for 1997,
1996 and 1995.
The Company purchased distribution system construction services from a
partnership partially owned by a director of the Company. During 1997, 1996 and
1995, transactions with the partnership totaled $7,894,454, $7,572,130 and
$4,603,694, all of which were capitalized. Effective June 1, 1997, this
partnership was merged with a corporation 100% owned by the Company.
On December 31, 1996, TCA Communications Inc. ("TCAC"), a 50% owned
affiliate of the Company, distributed certain assets of TCAC primarily related
to its 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 became a
wholly-owned subsidiary of TCA which provides long distance and Internet
services in West Texas, New Mexico, and Arkansas.
F-8
<PAGE> 33
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 pricing model. 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, 1997, 1996 and 1995 was approximately $2,292,000, $2,112,000 and
$1,434,000, respectively.
Rental expense for all rental agreements for the years ended October 31,
1997, 1996 and 1995 was approximately $3,817,000, $3,216,000, and $2,316,000,
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
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 each of the three years in the period ended October 31:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income before taxes.......................... $62,739,909 $57,139,508 $52,318,476
=========== =========== ===========
Statutory federal rate....................... 35.0% 35.0% 35.0%
Provision for federal income taxes at the
statutory federal rate..................... $21,958,968 $19,998,828 $18,311,467
State income taxes........................... 2,138,966 1,988,949 2,671,414
Amortization of goodwill..................... 236,605 184,610 272,654
Other........................................ 265,461 27,613 (226,535)
----------- ----------- -----------
Provision for income taxes................... $24,600,000 $22,200,000 $21,029,000
=========== =========== ===========
</TABLE>
The deferred income taxes liability balance of $71,580,000 and $59,580,000
at October 31, 1997 and 1996, respectively, is the tax effect of temporary
differences between the tax bases of the Company's property, plant and equipment
and intangibles and their bases for financial reporting purposes. 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:
24,916,576 shares for 1997, 24,748,980 shares for 1996, and 24,582,447 shares
for 1995.
9. SALES AND ACQUISITIONS:
On April 2, 1997 the Company acquired the assets of the cable television
system serving approximately 21,000 subscribers in Jonesboro, Arkansas and
surrounding areas. The acquisition was made through TCA
F-9
<PAGE> 34
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cable Partners, the TCA managed partnership with DR Partners ("Donrey"), a
division of Stephens Group, Inc. The system was acquired from East Arkansas
Cablevision, Inc. The cost of the acquisition was approximately $41 million, $35
million of which related to acquired intangibles. The acquisition was funded by
the Company's bank line of credit and a capital contribution of $10.3 million by
Donrey.
Effective June 1, 1997, the Company acquired the remaining 60% of its
previously 40% owned affiliates M.T. Associates, Inc. ("Media") and Media
Technologies, Ltd. ("Media Tech"). The cost of the acquisition was $932,000.
Media is a wholly-owned subsidiary of the Company engaged in the construction of
cable television plant. All of Media's revenue for 1997 was derived from
distribution system construction services provided to the Company.
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 TCA Cable Partners, a partnership which is owned 75% by TCA and 25% by
Donrey and is managed by TCA. The partnership was originally comprised of 22
systems in Arkansas and Mississippi contributed by TCA and five systems in
Arkansas, Oklahoma and California contributed by Donrey. The partnership served
approximately 240,000 subscribers at closing.
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 did not exceed the related carrying
value for financial reporting purposes as of October 31, 1997. 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 1997
and 1996 were $26.4 million and $13.2 million, respectively, of which $6.6
million and $3.3 million was distributed to Donrey during 1997 and 1996,
respectively.
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 $6 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. d/b/a CableTime.
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
F-10
<PAGE> 35
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
10. INCENTIVE STOCK OPTION PLAN:
The Company, in fiscal years 1997 and 1996, granted stock options and
issued shares of restricted Common Stock under the TCA Cable TV, Inc. Amended
and Restated Incentive Stock Option Plan and the 1996 Non-Employee Directors'
Stock Option Plan (collectively the "Plan"). The Company applies APB Opinion No.
25 and related interpretations in accounting for the Plan. In 1995, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
Companies may continue to apply the provisions of APB Opinion No. 25 in
determining net income; however, they must apply the disclosure requirements of
SFAS 123 for all grants issued after fiscal 1995. The Company elected to
continue to apply the provisions of APB Opinion No. 25 in accounting for all
grants.
The Company granted stock options in fiscal 1997 and 1996 to employees and
directors. All of the options granted to the employees and directors have an
exercise price equal to or greater than the fair market value of the stock at
grant date and become exercisable beginning on the first anniversary of the date
of grant. The options granted to non-employee directors have a contractual term
of 10 years and vest immediately on the date of grant. The options granted to
employees have a contractual term of 7 years and vest over four years at the
rate of 25% per year beginning on the first anniversary date of the grant.
F-11
<PAGE> 36
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's stock options as of October 31, 1997, 1996 and
1995, and the changes during the years ended on those dates is presented below:
<TABLE>
<CAPTION>
STOCK OPTIONS
-------------------------------------------------------------
1997 1996 1995
---------------------- ---------------------- -----------
WEIGHTED WEIGHTED
# OF SHARES AVERAGE # OF SHARES AVERAGE # OF SHARES
UNDERLYING EXERCISE UNDERLYING EXERCISE UNDERLYING
OPTIONS PRICES OPTIONS PRICES OPTIONS
----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of the year...... 217,250 $25.05 178,359 $22.93 152,206
Granted................................... 72,000 30.34 67,500 28.09 66,900
Exercised................................. (44,428) 23.58 (28,609) 19.01 (40,747)
Forfeited................................. -- -- -- -- --
Expired................................... -- -- -- -- --
------- ------ ------- ------ --------
Outstanding at end of year................ 244,822 $26.87 217,250 $25.05 178,359
======= ====== ======= ====== ========
Exercisable at end of year................ 121,922 26.56 63,200 22.88 51,034
======= ====== ======= ====== ========
Weighted-average fair value of options
granted................................. -- $ 6.92 $ 6.29 --
====== ======
</TABLE>
The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for grants in fiscal 1997 and 1996: dividend yield
of 2.22%; risk free interest rate 5.82%; expected life of 4.5 years; and a
volatility of 22.8%.
Options outstanding as of October 31, 1997 have exercise prices ranging
from $20.75 to $31.13 and weighted average remaining term of 4.75 years.
Had the compensation cost for the Company's stock-based compensation plans
been determined consistent with the requirements of SFAS 123, the Company's net
income and net income per common share for 1997 and 1996 would approximate the
pro forma amounts below:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
10/31/97 10/31/97 10/31/96 10/31/96
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
SFAS 123 Charge............... -- $ 448,452 -- $ 94,000
APB 25 Charge................. -- -- -- --
Net income.................... $38,139,909 $37,869,099 $34,939,508 $34,845,508
Net Income Per Common Share... $ 1.53 $ 1.52 $ 1.41 $ 1.41
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards granted prior to
the 1996 fiscal year.
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 employees'
contributions but not in excess of three percent of the employees' 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, 1997, 1996
and 1995 were $911,920, $611,803 and $553,401, respectively.
F-12
<PAGE> 37
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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:
1997................................. $73,489,288 $74,983,934 $79,181,508 $79,846,582
1996................................. 55,000,233 57,577,680 69,399,627 71,330,742
Operating income:
1997................................. 22,813,374 21,914,993 23,479,678 23,413,066
1996................................. 19,363,883 19,439,800 21,755,887 21,427,854
Net income:
1997................................. 9,686,768 9,200,564 9,484,822 9,767,755
1996................................. 8,488,375 8,960,299 8,609,313 8,881,521
Earnings per common share:
1997................................. $ 0.39 $ 0.37 $ 0.38 $ 0.39
1996................................. $ 0.34 $ 0.36 $ 0.35 $ 0.36
</TABLE>
F-13
<PAGE> 38
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SEGMENT INFORMATION:
The Company operates primarily in the cable television industry. The
Company's wholly-owned subsidiary, VPI Communications, Inc. d/b/a CableTime,
provides cable advertising sales for the Company and third parties.
<TABLE>
<CAPTION>
ADVERTISING
CABLE INSERTION CONSOLIDATED
------------ ----------- ------------
<S> <C> <C> <C>
YEAR ENDED OCTOBER 31, 1997
Revenues................................. $253,812,951 $53,688,361 $307,501,312
Operating income......................... 84,718,185 6,902,926 91,621,111
Depreciation and amortization............ 42,280,074 1,975,346 44,255,420
Capital expenditures, including
acquisitions.......................... 58,339,790 3,410,114 61,749,904
Identifiable assets...................... 689,127,318 32,005,002 721,132,320
YEAR ENDED OCTOBER 31, 1996
Revenues................................. $218,385,752 $34,922,530 $253,308,282
Operating income......................... 75,899,140 6,088,284 81,987,424
Depreciation and amortization............ 36,255,472 1,268,517 37,523,989
Capital expenditures, including
acquisitions.......................... 68,631,042 4,931,924 73,562,966
Identifiable assets...................... 635,971,570 28,025,061 663,996,631
YEAR ENDED OCTOBER 31, 1995
Revenues................................. $172,821,258 $17,887,229 $190,708,487
Operating income......................... 61,493,755 4,318,958 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 rates on the significant components of such debt approximate
market.
16. IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
Earnings Per Share (SFAS 128)
The Company will adopt Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"), during the fiscal year ending October 31,
1998. SFAS 128 established simplified accounting standards for computing
earnings per share and makes them comparable to international earnings per share
standards. If SFAS 128 had been applied during 1997, the Company's basic and
diluted earnings per share would have been $1.54 and $1.53, respectively.
Disclosure of Information about Capital Structure (SFAS 129)
In February 1997, the Financial Accounting Standards Board issued SFAS No.
129, "Disclosure of Information about Capital Structure" ("SFAS 129"). SFAS 129
is applicable to all entities and requires that disclosure about any entity's
capital structure include a brief discussion of rights and privileges for
securities outstanding. SFAS 129 is effective for financial statements for
periods ending after December 15, 1997.
Reporting Comprehensive Income (SFAS 130)
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income," which
is effective for fiscal years beginning after
F-14
<PAGE> 39
TCA CABLE TV, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 15, 1997. This statement establishes standards for reporting and
display of comprehensive income and its components.
Disclosures about Segments of an Enterprise and Related Information (SFAS 131)
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 is effective for
fiscal years beginning after December 15, 1997. This statement establishes
standards for the way that public companies report information about segments in
annual and interim financial statements.
17. SUBSEQUENT EVENTS:
On November 13, 1997, the Company signed an agreement with TCI American
Cable Holdings IV, L.P. (the "TCI Affiliate"), an affiliate of
Tele-Communications, Inc., to establish a partnership involving cable systems in
several communities in Texas, Louisiana, and New Mexico (the "TCI Transaction").
The Company will contribute selected systems in Texas and New Mexico, serving
approximately 155,000 customers, and approximately $46.6 million in debt to the
partnership. The TCI Affiliate will contribute its cable systems in mid-Texas
and western Louisiana, serving approximately 150,000 customers, and
approximately $247.9 million in debt to the partnership. The systems to be
contributed by the Company and the TCI Affiliate are each valued at $315
million. The TCI Affiliate will hold a 20 percent interest in the partnership.
The Company will hold an 80 percent interest and will be the managing partner
for the venture. TCA will consolidate the partnership for financial statement
purposes. The TCI Transaction is projected to close in February 1998.
On December 15, 1997, the Company sold the assets of its long distance
business to NTS Communications, Inc. The sales price was $4.1 million resulting
in a gain of approximately $0.7 million.
At the December 17, 1997 Board of Directors' Meeting, a cash dividend of
$0.16 was declared. This dividend is to holders of record on January 6, 1998,
and payable on January 20, 1998.
On January 15, 1998, the Company's Board of Directors adopted a Shareholder
Rights Plan (the "Rights Plan"). In connection with the adoption of the Rights
Plan, the Board declared a dividend of one preferred share purchase right for
each outstanding share of Company Common Stock. Each Right, which is not
presently exercisable, entitles the holder to purchase one one-thousandth of a
share of Series A Junior Participating Preferred Stock at an exercise price of
$170. In the event that any person acquires 15 percent or more of the
outstanding shares of Common Stock, each holder of a Right (other than the
acquiring person or group) will be entitled to receive, upon payment of the
exercise price, that number of Common Stock having a market value equal to two
times the exercise price. The distribution of the Rights will be made on January
28, 1998, payable to shareholders of record at the close of business on that
date. The Rights will expire on January 15, 2008.
F-15
<PAGE> 40
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)
/s/ FRED R. NICHOLS
------------------------------------
Fred R. Nichols,
Chairman, Chief Executive Officer,
and President
Dated: January 15, 1998
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 POSITION DATE
--------- -------- ----
<C> <S> <C>
/s/ FRED R. NICHOLS Chairman, Chief Executive January 15, 1998
- ----------------------------------------------------- Officer, and President
Fred R. Nichols
/s/ JAMES F. ACKERMAN Director January 15, 1998
- -----------------------------------------------------
James F. Ackerman
/s/ DARRELL L. CAMPBELL Director January 15, 1998
- -----------------------------------------------------
Darrell L. Campbell
/s/ BEN R. FISCH Director January 15, 1998
- -----------------------------------------------------
Ben R. Fisch, M.D.
Director
- -----------------------------------------------------
Kenneth S. Gunter
/s/ ROBERT B. HOLLAND, III Director January 15, 1998
- -----------------------------------------------------
Robert B. Holland, III
/s/ WAYNE J. MCKINNEY Director January 15, 1998
- -----------------------------------------------------
Wayne J. McKinney
/s/ A. W. RITER, JR. Director January 15, 1998
- -----------------------------------------------------
A. W. Riter, Jr.
/s/ RANDALL K. ROGERS Senior Vice President, January 15, 1998
- ----------------------------------------------------- Director
Randall K. Rogers
</TABLE>
<PAGE> 41
<TABLE>
<CAPTION>
SIGNATURE POSITION DATE
--------- -------- ----
<C> <S> <C>
/s/ MICHAEL S. SHANNON Director January 15, 1998
- -----------------------------------------------------
Michael S. Shannon
/s/ FRED W. SMITH Director January 15, 1998
- -----------------------------------------------------
Fred W. Smith
TCA CABLE TV, INC.
(REGISTRANT)
/s/ JIMMIE F. TAYLOR Senior Vice President, Chief January 15, 1998
- ----------------------------------------------------- Financial Officer and
Jimmie F. Taylor Treasurer
/s/ SABRINA A. WARR Controller January 15, 1998
- ----------------------------------------------------- TCA Management Company
Sabrina A. Warr
</TABLE>
<PAGE> 42
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
2 General Partnership Agreement of TCA Cable Partners II,
dated as of November 13, 1997.(1)
3.1 Articles of Incorporation.(2)
3.2 Articles of Amendment to Articles of Incorporation.(3)
3.3 Articles of Amendment to Articles of Incorporation.(3)
3.4 Articles of Amendment to Articles of Incorporation.(4)
3.5 Amended and Restated Bylaws.(1)
4.1 Form of Stock Certificate.(2)
4.2 Rights Agreement, dated as of January 15, 1998, between the
Company and ChaseMellon Shareholder Services, L.L.C.
which includes the Certificate of Designations for the
Series A Junior Participating Preferred Stock as Exhibit
A, the form of Right Certificate as Exhibit B and the
Summary of Rights to Purchase Shares as Exhibit C. (5)
9 None.
10 None
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>
- ---------------
(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 the Registrant's Form 8-K dated January
15, 1998 and incorporated herein by reference.
<PAGE> 1
EXHIBIT 2
GENERAL PARTNERSHIP AGREEMENT
This General Partnership Agreement is entered into and effective as of
November 13, 1997, by and between TCI American Cable Holdings IV, L.P., a
Colorado limited partnership ("TCI Partner"), and TCA Holdings II, L.P., a
Texas limited partnership ("TCA Partner").
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings set forth below:
"ACT" shall mean the Uniform Partnership Act of the State of Delaware.
"AFFILIATE" shall mean with respect 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.
"AGREEMENT" shall mean this General Partnership Agreement, as it may
be further amended from time to time in accordance with the terms hereof.
"ASSETS" shall mean the TCI Partner Assets and the TCA Partner Assets,
as the context requires.
"ASSUMED CONTRACTS" shall mean the Assumed TCI Partner Contracts and
the Assumed TCA Partner Contracts, as the context requires.
"ASSUMED TCI PARTNER CONTRACTS" shall mean the contracts, leases and
other agreements listed on Schedule 1.1 hereto.
"ASSUMED TCA PARTNER CONTRACTS" shall mean the contracts, leases and
other agreements listed on Schedule 1.2 hereto.
"BASIC SERVICES" shall mean the lowest tier of service offered to
subscribers of a System.
<PAGE> 2
"BOOK VALUE" means, with respect to any asset of the Partnership, the
adjusted basis of such asset as of the relevant date for federal income tax
purposes, except as follows:
(a) the Book Value of any asset contributed by a Partner
to the Partnership shall be the Fair Market Value of such asset;
(b) the Book Value of all Partnership assets (including
intangible assets such as goodwill) shall be adjusted to equal their respective
Fair Market Values as of the following times:
(i) the acquisition of an additional interest in
the Partnership by any new or existing Partner in exchange for more than a de
minimis Capital Contribution;
(ii) the distribution by the Partnership to a
Partner of more than a de minimis amount of money or Partnership property as
consideration for an interest in the Partnership; and
(iii) the liquidation of the Partnership within the
meaning of Treasury Regulations, Section 1.704-1(b)(2)(iv)(f)(5)(ii); and
(c) if the Book Value of an asset has been determined or
adjusted pursuant to subsection (a) or (b) above, such Book Value shall
thereafter be adjusted by the Depreciation taken into account with respect to
such asset for purposes of computing Profits and Losses and other items
allocated pursuant to Section 6.1.
The foregoing definition of Book Value is intended to comply with the
provisions of Treasury Regulations, Section 1.704-1(b)(2)(iv) and shall be
interpreted and applied consistently therewith.
"BUSINESS" shall mean the business of acquiring, investing, owning,
constructing, maintaining, promoting, selling, disposing and otherwise
operating the Systems.
"BUSINESS DAY" shall mean 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.
"CABLE ACT" shall mean the Cable Television Consumer Protection and
Competition Act of 1992.
"CABLE BUSINESS" shall mean TCI Partner's Cable Business or TCA
Partner's Cable Business, as applicable.
2
<PAGE> 3
"CAPITAL ACCOUNTS" shall mean the capital accounts maintained by the
Partnership for each Partner as described in Section 4.1 hereof.
"CAPITAL CONTRIBUTIONS" shall mean the contributions made to the
capital of the Partnership by the Partners and credited to their respective
Capital Accounts pursuant to Article IV hereof.
"CLOSING" shall have the meaning set forth in Section 4.7 hereof.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"COMMUNICATIONS ACT" shall mean the Communications Act of 1934, as
amended.
"COPYRIGHT ACT" shall mean the Copyright Act of 1976, as amended.
"DEPRECIATION" means, for each Fiscal Year or part thereof, an amount
equal to the depreciation, amortization, or other cost recovery deduction
allowable for federal income tax purposes with respect to an asset for such
Fiscal Year or part thereof, except that if the Book Value of an asset differs
from its adjusted basis for federal income tax purposes, the depreciation,
amortization or other cost recovery deduction for such Fiscal Year or part
thereof shall be an amount which bears the same ratio to such Book Value as the
federal income tax depreciation, amortization or other cost recovery deduction
for such Fiscal Year or part thereof bears to such adjusted tax basis. If such
asset has a zero adjusted tax basis, the depreciation, amortization or other
cost recovery deduction for each Fiscal Year shall be determined under a method
agreed to by the Partners.
"DISTRIBUTIONS" shall mean the distributions from the Partnership
described in Section 6.3 hereof.
"EFFECTIVE DATE" shall mean the date of the Closing.
"EFFECTIVE TIME" shall mean 11:59 A.M. on the date that TCI Partner
and TCA Partner make their initial capital contributions pursuant to Article IV
hereof.
"ENVIRONMENTAL CLAIM" shall mean any written notice by a Person or
entity alleging liability (including, without limitation, potential liability
for investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries, or penalties) arising
out of, based on or resulting from (a) the presence, or release into the
environment, of any Material of Environmental Concern in violation of any
Environmental Law at any location or (b) circumstances forming the basis of any
violation of any Environmental Law.
"ENVIRONMENTAL LAWS" shall mean all federal, state, local and foreign
laws and regulations (including common law) relating to pollution or protection
of the environment (including, ground
3
<PAGE> 4
water, land surface or subsurface strata), including, without limitation, laws
and regulations relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, recycling, reporting or handling of Materials of Environmental
Concern and the construction and siting of facilities.
"EQUIVALENT BASIC SUBSCRIBERS (or "EBS")" shall mean as of any date of
determination and for each franchise area served by a System, the sum of (a)
the total number of private residential customer accounts that are billed by
individual unit (regardless of whether such accounts are in single-family homes
or in individually billed units in apartment buildings and other multi-unit
buildings) (exclusive of (i) "second connects" and "additional outlets" as such
terms are commonly understood in the cable television industry and (ii)
accounts that are not charged or are charged less than the standard monthly
service fees and charges then in effect for such System for Basic Services) for
Basic Services and (b) the quotient of (i) 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 to 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
(ii) 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. For purposes of calculating the number of EBS, there
will be excluded (1) all billings to any subscriber who is more than 60 days
past due in the payment of any amount in excess of $5.00, (2) all billings to
any subscriber (including all commercial, bulk-billed and other accounts not
billed by individual units) who, as of the date of calculation, has not paid in
full the charges for at least one full month of service, (3) that portion of
the billings to each subscriber (including all commercial, bulk- billed and
other accounts not billed by individual units) 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, (4) all billings to any
subscriber (including all commercial, bulk-billed and other accounts not billed
by individual units) whose service is pending disconnection for any reason and
(5) all billings to any subscriber (including all commercial, bulk-billed and
other accounts not billed by individual units) 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 EBS 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.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
4
<PAGE> 5
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"EXPANDED BASIC SERVICES" shall mean any video programming provided
over a cable television system, regardless of service tier, other than Basic
Services, any new product tier and Pay TV.
"FAIR MARKET VALUE" shall mean (a) with respect to the Initial Capital
Contributions, the fair market value thereof as agreed to by the Partners and
set forth on Exhibit A attached hereto and (b) with respect to any revaluation
of any partnership asset on the books of the Partnership, the valuation of any
asset subsequently contributed to the Partnership or distributed by the
Partnership, and for purposes of the Put/Call Purchase Price, the fair market
value shall mean the price, at which the Partnership assets would be sold in an
arm's length transaction between a willing seller and a willing buyer under no
compulsion to buy or sell, but with the expectation of concluding the purchase
or sale within a reasonable time, taking into account all relevant factors,
including, without limitation, the assets and liabilities associated with the
Business, the rights and obligations that would be assigned to and assumed by
any such buyer, and market conditions (but excluding any application of any
minority discounts). The procedure for determining Fair Market Value set
forth in clause (b) above is set forth in Section 5.3. For purposes of
determining the Put/Call Purchase Price, the Fair Market Value of the
Partnership shall be deemed to include the value of any local programming
agreements, retransmission consents or must carry agreements held by TCA
Management Co. for the benefit of the Partnership, as if such agreements were
held directly by the Partnership.
"FCC" shall mean the Federal Communications Commission.
"FISCAL YEAR" shall have the meaning set forth in Section 2.7 hereof.
"FREE CASH FLOW" shall mean the amount of cash received by the
Partnership from operations, any transaction, and any dividends, interest or
other cash distributions from any Person in which the Partnership has an
interest which is in excess of 100% of the amount of cash reasonably
contemplated by the Budget as being necessary for the cash payment of the
Partnership's operating expenses, debt service including interest,
contingencies, budgeted capital expenditures and anticipated working capital
requirements.
"GOVERNMENTAL AUTHORITY" shall mean 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.
"INITIAL CAPITAL CONTRIBUTION" shall mean with respect to each of TCI
Partner and TCA Partner the initial capital contributions made by such Partner
pursuant to Section 4.2 hereof.
5
<PAGE> 6
"INTEREST" means, with respect to any Partner at any time, such
Partner's entire beneficial partnership ownership interest in the Partnership
at such time, including such Partner's Capital Account, voting rights, and
right to share in Profits and Losses, Distributions and all other benefits of
the Partnership as specified in this Agreement, together with such Partner's
obligations to comply with all of the terms of this Agreement.
"JUDGMENT" shall mean 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.
"LEGAL EXPENSES" of a Person shall mean any and all fees, costs and
expenses of any kind incurred by such Person and its counsel (whether one or
more) in investigating, preparing for, defending against or providing evidence,
producing documents or taking other action with respect to, any threatened or
asserted claim.
"LEGAL REQUIREMENT" shall mean 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.
"LIENS" shall mean any mortgage, security interest, lien, pledge,
escrow, option, right of first refusal, indenture, easement, license, security
agreement or encumbrance of any kind or character.
"LOSSES" shall mean all losses, damages, liabilities, claims,
out-of-pocket costs and expenses, of any nature or kind, known or unknown,
fixed, accrued, absolute or contingent, liquidated or unliquidated, including,
without limitation, any and all Legal Expenses.
"MANAGEMENT AGREEMENT" shall mean the agreement, dated the Effective
Date substantially in the form attached hereto as Exhibit B, pursuant to which
TCA Management Co. shall manage the Partnership.
"MATERIAL CONTRACTUAL CONSENTS" shall mean consents under: (a) the TCI
Partner Franchises and Licenses; (b) the TCA Partner Franchises and Licenses;
(c) pole attachment or joint line agreements, underground conduit agreements,
crossing agreements, construction permits or retransmission consent agreements;
(d) easements, rights of way, and multiple dwelling unit agreements; (e) any
contracts, agreements or arrangements relating to the Assumed Debt; or (f) any
other contracts that contemplate payments by or to TCI Partner or TCA Partner
in any 12 month period exceeding $50,000 individually or $250,000 in the
aggregate; all of which are set forth on Schedule 1.3.
6
<PAGE> 7
"MATERIALS OF ENVIRONMENTAL CONCERN" shall mean hazardous materials,
hazardous wastes, hazardous substances, other wastes or contaminants including,
without limitation, newspaper ink, and radio frequency energy, the handling,
storage or disposal of which is governed by Environmental Laws.
"MINIMUM GAIN" with respect to any Fiscal Year of the Partnership
shall mean the minimum gain of the Partnership computed in accordance with the
principles of Treasury Regulations, Section 1.704-2(d) and (k).
"NONRECOURSE LIABILITIES" shall mean liabilities of the Partnership
for which no Partner bears the economic risk of loss, in accordance with
Treasury Regulations, Sections 1.704-2(b)(3) and 1.752-1(a)(2).
"PARTNER" shall mean each of TCI Partner and TCA Partner.
"PARTNER NONRECOURSE DEBT" shall mean any nonrecourse debt of the
Partnership (as defined in Treasury Regulations, Section 1.1001 - 2) for which
any Partner bears the economic risk of loss, in accordance with Treasury
Regulations, Sections 1.704-2(b)(4) and 1.752-2.
"PARTNER NONRECOURSE DEBT MINIMUM GAIN" shall have the meaning set
forth in Treasury Regulations, Section 1.704 - 2(i)(2).
"PARTNER NONRECOURSE DEDUCTIONS" shall have the meaning set forth in
Treasury Regulations, Section 1.704- 2(i)(2) and as determined in accordance
with Treasury Regulations, Section 1.704-2(k).
"PARTNERSHIP" shall mean the partnership formed by this Agreement,
which partnership is known as TCA Cable Partners II, a Delaware general
partnership.
"PARTNERSHIP INTEREST" shall mean with respect to each Partner, the
percentage ownership interest of such Partner in the Partnership specified in
Section 5.1, as adjusted in accordance with the terms of this Agreement.
"PAY TV" shall mean premium programming services selected by and sold
to subscribers on a per channel or per program basis.
"PERSON" shall mean any individual, partnership, corporation, trust or
other entity.
"PROFITS OR LOSSES" means for each Fiscal Year or other period, an
amount equal to the Partnership's taxable income or loss for such year or
period, determined in accordance with Code Section 703(a) (for this purpose,
all items of income, gain, loss, or deduction required to be stated
7
<PAGE> 8
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(a) any income of the Partnership that is exempt from federal
income tax and not otherwise taken into account in computing Profits or Losses
shall be added to such taxable income or loss;
(b) any expenditures of the Partnership described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Treasury Regulations, Section 1.704-1(b)(2)(iv)(i) and not
otherwise taken into account in computing Profits or Losses shall be subtracted
from such taxable income or loss;
(c) in the event the Book Value of any Partnership asset is
adjusted, the amount of such adjustment shall be taken into account as gain or
loss from the disposition of such asset for purposes of computing Profits or
Losses;
(d) upon any distribution of any Partnership asset other than
cash, the distributed asset shall be treated as if it had been sold for its
Fair Market Value and the resulting gain or loss shall be taken into account as
gain or loss from the disposition of the asset for purposes of computing
Profits or Losses;
(e) gain or loss resulting from any disposition of property
with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Book Value of the property
disposed of, rather than the adjusted tax basis of such property;
(f) in lieu of the depreciation, amortization or other cost
recovery deductions taken into account in computing such taxable income or
loss, there shall be taken into account Depreciation for such Fiscal Year or
other period; and
(g) such taxable income or loss shall be deemed not to
include any income, gain, loss, deduction or other item thereof allocated
pursuant to Section 6.1(c).
"PUT/CALL PURCHASE PRICE" shall mean the purchase price payable
pursuant to Section 5.2(b) or (c).
"REAL PROPERTY" shall mean the TCA Partner Real Property or the TCI
Partner Real Property, as the context requires.
"SYSTEM FRANCHISES AND LICENSES" shall mean the TCA Partner's Systems
Franchises and Licenses or the TCI Partner's Systems Franchises and Licenses,
as the context requires.
8
<PAGE> 9
"SYSTEMS" shall mean the TCI Partner Systems or the TCA Partner
Systems, as the context requires.
"TANGIBLE PERSONAL PROPERTY" shall mean the TCA Tangible Personal
Property or the TCI Tangible Personal Property, as the context requires.
"TAXES" shall mean all taxes, charges, fees, levies, or other
assessments, including, without limitation, income, net income, profits, gross
receipts, ad valorem, excise, property, sales, gains, payroll, employment,
severance, withholding, intangibles and franchise taxes, imposed by the United
States or any state, county, local or foreign government or subdivision or
agency thereof, and including any interest, penalties or additions attributable
thereto.
"TCA" shall mean TCA Cable TV, Inc., a Texas corporation.
"TCA MANAGEMENT CO." shall mean TCA Management Company, a Texas
corporation, in its capacity as operator of the Partnership pursuant to the
Management Agreement.
"TCA PARTNER" shall mean TCA Holdings II, L.P., a Texas limited
partnership.
"TCA PARTNER ASSETS" shall mean all right, title and interest of TCA,
TCA Partner or the TCA Partner Entities in, to and under all of the assets and
properties (of every kind, character and description wherever located)
primarily relating to the operation of the TCA Partner Systems, including,
without limitation:
(a) the TCA Partner Tangible Personal Property
(b) the TCA Partner Real Property
(c) the TCA Partner Franchises and Licenses;
(d) the Assumed TCA Partner Contracts;
(e) the TCA Partner Books and Records; and
(f) the right to use the name "TCA" as set forth in
Section 4.2 hereof.
"TCA PARTNER BOOKS AND RECORDS" shall mean all books and records (or
true and complete copies thereof), including computerized books and records
maintained by TCA, TCA Partner or the TCA Partner Entities which relate to the
TCA Partner Systems and are necessary for the Partnership to operate the TCA
Partner Systems after the Effective Time, including, without limitation,
statements of account filed by or on behalf of TCA, TCA Partner or the TCA
Partner Entities with the
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U.S. Copyright Office with respect to the TCA Partner Systems, books of
account, general, financial, tax and personnel records, sales, adverting,
marketing or promotional records and literature and other sales-related
materials with respect to the TCA Partner Systems, and the TCA Partner
Franchises and Licenses (including all correspondence, orders or related
materials).
"TCA PARTNER'S CABLE BUSINESS" shall mean the cable television
business and other income-generating business relating to the TCA Partner
Systems conveyed by TCA Partner or its Affiliates.
"TCA PARTNER DISCLOSURE SCHEDULES" shall mean the written disclosure
schedules TCA Partner is delivering to TCI Partner simultaneously with the
execution and delivery hereof, containing various exceptions to the
representations and warranties of TCA Partner as set forth in this Agreement
copies of which are attached hereto as Exhibit F.
"TCA PARTNER ENTITIES" shall mean Teleservice Corporation of America,
Texas Community Antennas, Inc., Telecable Associates, Inc. and TCA Cable of
Amarillo, Inc.
"TCA PARTNER EXCLUDED ASSETS" shall mean the following assets and
properties of TCA Partner used by TCA, TCA Partner or the TCA Partner Entities
in the operation of the TCA Partner Systems which are not being contributed to
the Partnership:
(a) all cash and cash equivalents on hand or on deposit
in banks;
(b) insurance policies and rights under or arising from
such policies (including pre-paid premiums and receivables);
(c) all rights of TCA Partner under this Agreement;
(d) any rights of TCA, TCA Partner or the TCA Partner
Entities to the name "TCA" or any variation thereof; provided however that TCA
shall contribute to the Partnership the right to use the name "TCA" as set
forth in Section 4.2;
(e) all assets and properties of TCA, TCA Partner or the
TCA Partner Entities not relating to or used in the operation of the TCA
Systems;
(f) all other assets listed on Schedule 1.4.
"TCA PARTNER FRANCHISES AND LICENSES" shall mean the governmental
permits, licenses, registrations, and applications held or filed by TCA, TCA
Partner or the TCA Partner Entities and required for the ownership of the TCA
Partner Assets and the lawful operation of, or appropriate with respect to, the
TCA Partner Systems, including, without limitation, all licenses, permits and
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authorizations issued or granted by the FCC or any state or local governmental
authority, all franchises, permits, intangible CATV channel distribution
rights, cable television relay service (CARS), domestic satellite receive only
(TVRO), business radio and other licenses, permits or similar authorizations.
"TCA PARTNER LIABILITIES" shall mean (a) liabilities to be paid or
performed after the Effective Time under the Assumed TCA Partner Contracts
which are assigned to the Partnership at the Effective Time pursuant to Article
IV hereof, (b) all liabilities and obligations arising out of the Partnership's
ownership of the TCA Partner Assets or operation of the TCA Partner Systems
after the Effective Time including liabilities for subscriber prepayments and
converter deposits existing at the Effective Time, and (c) all liabilities and
obligations relating to any TCA Assumed Debt, except in each case to the extent
that such obligations or liabilities relate to any TCA Excluded Asset.
"TCA PARTNER REAL PROPERTY" shall mean the interests in real property
(including easements and rights of way) owned or leased by TCA, TCA Partner or
the TCA Partner Entities including all improvements thereon owned or leased by
TCA, TCA Partner or the TCA Partner Entities with respect to the TCA Partner
Systems;
"TCA PARTNER RETRANSMISSION AGREEMENTS" shall mean those agreements
listed on Schedule 1.6 hereto.
"TCA PARTNER SYSTEMS" shall mean the cable television systems serving
the towns of Cannon AFB, NM, Clovis, NM, Texico, NM, Amarillo, TX, Andrews, TX,
Athens, TX, Ballinger, TX, Big Springs, TX, Canyon, TX, Clarksville, TX,
Coahoma, TX, Como, TX, Dalhart, TX, Farwell, TX, Floydada, TX, Gladewater, TX,
Goodfellow AFB, TX, Grand Saline, TX, Henderson, TX, Hide A Way Lake, TX, Honey
Grove, TX, Lake Tanglewood, TX, Lindale, TX, Miles, TX, Mineola, TX, Paris, TX,
Plainview, TX, Quitman, TX, Reno, TX, Roxton, TX, San Angelo, TX, Snyder, TX,
Sulpur Springs, TX, Toco, TX, Union Grove, TX, Warren City, TX, White Oak, TX,
Winnsboro, TX, Winters, TX and unincorporated areas adjacent to the foregoing
cities to be contributed to the Partnership by TCA Partner pursuant to Article
IV hereof.
"TCA PARTNER TANGIBLE PERSONAL PROPERTY" shall mean all tangible
personal property, including but not limited to tower equipment, antennae,
aboveground and underground cable, distribution systems, headend amplifiers,
line amplifiers, earth satellite receive stations and related equipment,
microwave equipment converters, testing equipment, office equipment, furniture,
fixtures, supplies, inventory, and other physical assets used in or held by the
TCA Partner Systems.
"TCI PARTNER" shall mean TCI American Cable Holdings IV, L.P., a
Colorado limited partnership.
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"TCI PARTNER ASSETS" shall mean all right, title and interest of TCI
Partner in, to and under all of the assets and properties (of every kind,
character and description wherever located) primarily relating to the operation
of the TCI Partner Systems, including, without limitation:
(a) the TCI Partner Tangible Personal Property
(b) the TCI Partner Real Property;
(c) the TCI Partner Franchises and Licenses;
(d) the Assumed TCI Partner Contracts; and
(e) the TCI Partner Books and Records.
"TCI PARTNER BOOKS AND RECORDS" shall mean all books and records (or
true and complete copies thereof), including computerized books and records
maintained by TCI Partner or the TCI Partner Entities which relate to the TCI
Partner Systems and are necessary for the Partnership to operate the TCI
Partner Systems after the Effective Time, including, without limitation,
statements of account filed by or on behalf of TCI Partner with the U.S.
Copyright Office with respect to the TCI Partner Systems, books of account,
general, financial, tax and personnel records, sales, adverting, marketing or
promotional records and literature and other sales-related materials with
respect to the TCI Partner Systems, and the TCI Partner Franchises and Licenses
(including all correspondence, orders or related materials).
"TCI PARTNER'S CABLE BUSINESS" shall mean the cable television
business and other income-generating business relating to the TCI Partner
Systems conveyed by TCI Partner or its Affiliates.
"TCI PARTNER DISCLOSURE SCHEDULES" shall mean the written disclosure
schedules TCI Partner is delivering to TCA Partner simultaneously with the
execution and delivery hereof, containing various exceptions to the
representations and warranties of TCI Partner as set forth in this Agreement,
copies of which are attached hereto as Exhibit E.
"TCI PARTNER ENTITIES" shall mean United Cable Television of Bossier
City, Inc., Communications Services, Inc., Telecommunications Cable Systems,
Inc., Television Cable Service, Inc., and TCI Cablevision of Texas, Inc.
"TCI PARTNER EXCLUDED ASSETS" shall mean the following assets and
properties of TCI Partner or the TCI Partner Entities used by TCI Partner or
the TCI Partner Entities in the operation of the TCI Partner Systems which are
not being contributed to the Partnership:
(a) all cash and cash equivalents on hand or on deposit
in banks;
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(b) insurance policies and rights under or arising from
such policies (including pre-paid premiums and receivables);
(c) all rights of TCI Partner under this Agreement;
(d) any rights of TCI Partner to the name "TCI Partner"
or any variation thereof; provided, however, that for a period of one year from
the Effective Time, the Partnership may use any stationary or billing forms or
other TCI Partner Assets existing on the Effective Time bearing the name "TCI
Partner" or which were in stock or ordered on the Effective Time;
(e) all assets and properties of TCI Partner not relating
to or used in the operation of the TCI Partner Systems;
(f) TCI Partner Plans; and
(g) all other assets listed on Schedule 1.6.
"TCI PARTNER FRANCHISES AND LICENSES" shall mean the governmental
permits, licenses, registrations, and applications held or filed by TCI Partner
or the TCI Partner Entities and required for the ownership of the TCI Partner
Assets and the lawful operation of, or appropriate with respect to, the TCI
Partner Systems, including, without limitation, all licenses, permits and
authorizations issued or granted by the FCC or any state or local governmental
authority, all franchises, permits, intangible CATV channel distribution
rights, cable television relay service (CARS), domestic satellite receive only
(TVRO), business radio and other licenses, permits or similar authorizations.
"TCI PARTNER LIABILITIES" shall mean (a) liabilities to be paid or
performed after the Effective Time under the Assumed TCI Partner Contracts
which are assigned to the Partnership at the Effective Time pursuant to Article
IV hereof, and (b) all liabilities and obligations arising out of the
Partnership's ownership of the TCI Partner Assets or operation of the TCI
Partner Systems after the Effective Time and (c) all liabilities and
obligations relating to any TCI Assumed Debt, except in each case to the extent
that such obligations or liabilities relate to any TCI Excluded Asset.
"TCI PARTNER REAL PROPERTY" shall mean the interests in real property
owned or leased by TCI Partner or the TCI Partner Entities, including all
improvements thereon owned by TCI Partner with respect to the TCI Partner
Systems.
"TCI PARTNER RETRANSMISSION CONSENT AGREEMENTS" shall mean those
agreements listed on Schedule 1.9 hereto.
"TCI PARTNER SYSTEMS" shall mean the cable television systems serving
the towns of Barksdale AFB, LA, Bossier City, LA, Bossier Parish, LA, Calcasieu
Parish, LA, Fillmore, LA,
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Haughton, LA, Lake Charles, LA, Pinceton, LA, Sulfur, LA, Abilene, TX, Bowie
County, TX, Camp, TX, Cherokee, TX, Cooke County, TX, DeKalb, TX, Dyess AFB,
TX, Franklin County, TX, Gainesville,TX, Grayson, TX, Hooks, TX, Jacksonville,
TX, Maud, TX, Mineral Wells, TX, Mt. Pleasant, TX, Mt. Vernon, TX, Nolan
County, TX, New Boston, TX, Oak Ridge, TX, Palo Pinto County, TX, Perryton, TX,
Pittsburg, TX, Red River Army Depot, TX, Sadler, TX, Smith County, TX,
Sweetwater, TX, Titus County, TX, Tye, TX, Tyler, TX, Whitesboro, TX,
Whitehouse, TX and unincorporated areas adjacent to the foregoing cities.
"TCI PARTNER TANGIBLE PERSONAL PROPERTY" shall mean all tangible
personal property, including but not limited to tower equipment, antennae,
aboveground and underground cable, distribution systems, headend amplifiers,
line amplifiers, earth satellite receive stations and related equipment,
microwave equipment converters, testing equipment, office equipment, furniture,
fixtures, supplies, inventory, and other physical assets used or held for use
in the TCI Partner Systems.
"TRANSACTION DOCUMENTS" shall mean the instruments and documents
described in Section 4.8 which are being executed and delivered by or on behalf
of TCA Partner or TCI Partner in connection with this Agreement or the
transactions contemplated hereby.
"OTHER DEFINITIONS" shall mean the terms are defined in the Sections
or Recitals indicated:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
"Adjustments" 4.6(a)
"Assumed Debt" 4.5(a)
"Budget" 3.3
"Bulk Rate" 8.4(b)
"Call Period" 5.2(b)
"Call Notice Date" 5.2(b)
"Call" 5.2(b)
"Capital Budget" 3.3
"Designated System" 5.4(c)(i)
"Distributable Property" 9.2(e)
"Exchanging Party" 4.8(c)(vi)
</TABLE>
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<PAGE> 15
<TABLE>
<S> <C>
"Final Adjustment 4.6(b)
Certificate"
"Indemnified Party" 8.2(g)
"Indemnifying Party" 8.2(g)
"Initial Adjustment 4.6(a)
Certificate"
"Investment Advisor" 5.3
"Members" 3.1(a)
"Minimum Damage 8.4(a)
Requirement"
"Operating Budget" 3.3
"Option Notice" 5.4(c)(i)
"Partnership Committee" 3.1(a)
"Put Notice Date" 5.2(c)
"Programming Supply Agreement" 11.3(a)
"Put Period" 5.2(c)
"Put" 5.2(c)
"TCA Shortfall" 4.4(d)
</TABLE>
ARTICLE II.
GENERAL PROVISIONS
SECTION 2.1 FORMATION. The Partners hereby form a general
partnership pursuant to the laws of the State of Delaware.
SECTION 2.2 NAME. The name of the Partnership shall be TCACable
Partners II.
SECTION 2.3 PRINCIPAL PLACE OF BUSINESS. The principal place of
business of the Partnership shall be located at 3015 SSE Loop 323, Tyler, Texas
75701. The principal place of business of the
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Partnership may be changed by the Partnership Committee. The Partnership may
engage in business in such place or places as may be permitted by law.
SECTION 2.4 AGENT FOR SERVICE OF PROCESS. The agent for service of
process for the Partnership and its address shall be the Chairman of the
Partnership and the address of the Partnership's principal place of business,
respectively. The agent for service of process may be changed by the
Partnership Committee.
SECTION 2.5 PURPOSE. The purpose of the Partnership shall be to
engage in and conduct the Business and to do any and all acts and things which
may be necessary, incidental or convenient to carry on the Business as
contemplated by this Agreement. The Partnership may engage in any business
other than the business as the Partnership Committee may determine pursuant to
Section 3.4 hereof.
SECTION 2.6 TERM. The term of the Partnership shall be from the
Effective Time through twenty-five (25) years from the Effective Time, unless
extended by the unanimous consent of the Partners or dissolved as provided
herein.
SECTION 2.7 FISCAL YEAR. Unless the Partnership Committee shall at
any time determine otherwise, the fiscal year of the Partnership shall end on
October 31 ("Fiscal Year").
ARTICLE III.
MANAGEMENT
SECTION 3.1 PARTNERSHIP COMMITTEE.
(a) Except as otherwise expressly provided in this Agreement,
complete and exclusive power to direct and control the business affairs of the
Partnership is delegated to a Partnership Committee (the "Partnership
Committee"), which will initially consist of five members (the "Members"). TCA
Partner will appoint three Members and shall select one of its appointees to
serve as the initial Chairman. TCI Partner will appoint the remaining two
Members. The initial membership of the Partnership Committee shall be
designated by TCA Partner and TCI Partner on or prior to the Effective Date.
TCA Partner or TCI Partner may, at any time, remove and replace any of its
respective Members.
(b) The Partnership Committee hereby delegates to TCA
Management Co. the authority to manage the day to day affairs of the Business
in accordance with and to the extent provided in this Agreement, the Management
Agreement and the Budget. The Partnership Committee shall instruct TCA
Management Co. not to take any action on behalf of the Partnership which is not
so authorized by the Management Agreement, the Budget or the Partnership
Committee.
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SECTION 3.2 PARTNERSHIP COMMITTEE MEETINGS.
(a) Meetings of the Partnership Committee may be called at
any time by any Member on at least five business days written notice, stating
the purpose of the requested meeting, but must be held at least once each
fiscal quarter.
(b) Members may participate in a meeting of the Partnership
Committee by means of conference telephones or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at such
meeting.
(c) Members may act by written consent provided that at least
one Member designated by TCI Partner and one Member designated by TCA Partner
have signed such consent or counterparts thereof.
SECTION 3.3 VOTING. On any matter on which a vote is taken, each of
the Members shall have one vote. If one of the Members is not present at a
meeting, the Member shall be entitled to appoint a representative to attend
such meeting and cast the absent Member's vote. No action may be taken at a
meeting of the Partnership Committee unless a quorum of at least three Members
for the transaction of business consisting of at least one Member designated by
TCI Partner and at least one Member designated by TCA Partner is present.
Except as otherwise provided in this Agreement, all actions by the Partnership
Committee shall require the affirmative vote of three Members on the
Partnership Committee who attend a meeting, in person or by proxy, at which a
quorum is present. Such vote must be evidenced by a written consent. The
Partnership Committee shall adopt on or before October 31 of each Fiscal Year
an annual budget setting forth the Partnership's proposed expenditures for
repair, maintenance and operations (the "Operating Budget") and for expansion
and other capital expenditures (the "Capital Budget") for the next Fiscal Year
for the Business (as supplemented or amended from time to time by the
affirmative vote of three members of the Partnership Committee). The Operating
Budget and the Capital Budget are collectively referred to as the "Budget".
The Business and affairs of the Partnership shall be conducted in accordance
with the terms of the Budget.
SECTION 3.4 MANAGEMENT.
(a) Except as otherwise provided in this Agreement, the
Partnership Committee shall be responsible for taking all actions not otherwise
delegated to TCA Management Co. pursuant to the terms of the Management
Agreement, the Budget and Section 3.4(b) hereof.
(b) Notwithstanding any other provision of this Agreement,
the following actions shall require the unanimous approval of the Partnership
Committee:
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(i) A fundamental change in the Partnership's
Business;
(ii) the commencement or settlement of any
material litigation with third parties that is not in the ordinary course of
business of the Partnership (for purposes of this clause, "material" shall mean
any settlement equal to or greater than ten percent of the total assets of the
Partnership at the time of the initial offer of settlement);
(iii) the call for additional Capital Contributions
to the Partnership;
(iv) the admission of new partners to the
Partnership or the issuance or redemption of Partnership Interests or any other
equity interests in the Partnership;
(v) the dissolution, liquidation, bankruptcy or
reorganization of the Partnership;
(vi) the amendment of this Agreement;
(vii) the approval of any transaction or agreement
between the Partnership and TCA Partner or any Affiliate of TCA Partner unless
the transaction is in the ordinary course of the Partnership's business and is
on terms that are no less favorable to the Partnership than could have been
obtained in a comparable arm's-length transaction with a Person that is not an
affiliate of the TCA Partner;
(viii) the acquisition, either through purchase,
consolidation, merger or other business combination, of any asset or group of
assets exceeding 20% or more of the Fair Market Value of the total assets of
the Partnership, or the sale of any asset or group of assets representing 20%
or more of the Fair Market Value of the total assets of the Partnership; and
(ix) causing or permitting any Person to take any
action which if it had been taken by the Partnership would require the
unanimous vote of the Members.
It is the intent of the Partners that the items described in Sections
3.4(b)(i) - (ix) comprise effective minority protective rights for the benefit
of the TCI Partner as a minority partner. If the Securities and Exchange
Commission or any other Governmental Authority modifies its position on such
rights whereby the TCA Partner would be disallowed from consolidating the
Partnership, the Partners will use their best efforts to comply with such new
requirements. If the Partners are unable to so comply, either Partner shall
have the right to initiate the provisions set forth in Sections 5.2(b) and (c)
notwithstanding the date provisions in those Sections.
(c) Notwithstanding any other provision of this Agreement,
each Partner shall have the unilateral right to cause the Partnership to (i)
seek indemnification against a Partner pursuant to
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Section 8.2 hereof or (ii) institute legal proceedings against a Partner
pursuant to Section 4.10(b) hereof.
SECTION 3.5 INSURANCE. The Partnership shall carry or cause to be
carried on its behalf with carriers acceptable to the Partnership Committee all
property, liability and workers' compensation insurance and such other
insurance as shall be required under applicable mortgages, leases, agreements,
and other instruments and statutes or as determined by the Partnership
Committee. All such insurance policies shall provide coverage to the Partners
as named insureds.
SECTION 3.6 DISCLOSURE SCHEDULES. Attached hereto as Exhibits E and
F are the TCI Partner Disclosure Schedules and the TCA Partner Disclosure
Schedules, respectively.
ARTICLE IV.
CAPITAL ACCOUNTS, CAPITAL CONTRIBUTIONS AND WITHDRAWALS
SECTION 4.1 CAPITAL ACCOUNTS.
(a) A Capital Account shall be maintained for each Partner in
accordance with federal income tax accounting principles and Treasury
Regulations, Section 1.704-1(b)(2)(iv). This Section 4.1 is intended to comply
with such principles and requirements and shall be interpreted consistently
therewith. The initial balance of each Partner's Capital Account shall be the
Fair Market Value of the Initial Capital Contribution of each Partner as set
forth on Exhibit A hereto less such Partner's debt being assumed as set forth
in Exhibit A hereto, and subject to the adjustments applicable to such Partner
pursuant to Section 4.4 and any adjustment to the debt being assumed pursuant
to Section 4.5. Subsequent to the date of this Agreement, each Capital Account
shall be:
(i) increased by (1) the amount of the cash
contribution to the capital of the Partnership by such Partner, (2) the Fair
Market Value of property contributed to the Partnership by such Partner on the
date of such contribution (net of any liabilities secured by such contributed
property that the Partnership is considered to assume or take subject to under
Section 752 of the Code), (3) the distributive share of the Partnership's
Profits, as allocated to such Partner pursuant to Sections 6.1(a) and (b)
hereof and (4) any positive adjustment to such Capital Account by reason of an
adjustment to the Book Value of Partnership assets;
(ii) decreased by (1) the amount of all cash
distributions to such Partner pursuant to this Agreement, (2) the Fair Market
Value of property distributed to such Partner (net of any liabilities secured
by such property that the Partner is considered to assume or take subject to
under Section 752 of the Code), (3) the distributive share of the Partnership's
Losses, as allocated to such Partner pursuant to Sections 6.1(a) and (b) hereof
and (4) any negative adjustment to such Capital Account by reason of an
adjustment to the Book Value of Partnership Assets; and
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(iii) otherwise adjusted to comply with the
requirements of Treasury Regulations, Section 1.704-1(b)(2)(iv).
SECTION 4.2 INITIAL CAPITAL CONTRIBUTIONS.
(a) At the Effective Time, TCI Partner shall contribute,
or cause to be contributed, to the capital of the Partnership and shall sell,
convey, transfer and assign to the Partnership, all of the right, title and
interest of TCI Partner in and to the TCI Partner Assets, free and clear of all
Liens, except Permitted Liens and debt assumed by the Partnership in accordance
with Section 4.5, and the Partnership shall assume the TCI Partner Liabilities.
Notwithstanding anything in this Agreement to the contrary, TCI Partner shall
retain title to, and possession of, and TCI Partner shall not sell, assign,
convey, transfer or deliver any right, title or interest of TCI Partner in or
to the TCI Partner Excluded Assets.
(b) At the Effective Time, TCA Partner shall contribute,
or cause to be contributed, to the capital of the Partnership and shall sell,
convey, transfer and assign, or cause to be sold, conveyed, transferred or
assigned, to the Partnership, (i) all of the right, title and interest of TCA,
TCA Partner and the TCA Partner Entities in and to the TCA Partner Assets and
(ii) a non-exclusive, royalty free license to use for the duration of the
Partnership all rights of TCA, TCA Partner and the TCA Partner Entities in and
to the name "TCA" and the Partnership shall assume the TCA Partner
Liabilities. Notwithstanding anything in this Agreement to the contrary, TCA,
TCA Partner and the TCA Partner Entities shall retain title to, and possession
of, and TCA, TCA Partner and the TCA Partner Entities shall not sell, assign,
convey, transfer or deliver any right, title or interest of TCA, TCA Partner or
the TCA Partner Entities in or to the TCA Partner Excluded Assets; provided,
however, that the TCA Partner Retransmission Agreements shall continue to be
held by TCA Management Co. for the benefit of the Partnership.
(c) Exhibit A hereto sets forth: (i) the Fair Market Value
of the assets to be contributed by each Partner to the; and (ii) the amount of
debt of each Partner assumed by the Partnership.
SECTION 4.3 ADDITIONAL CONTRIBUTIONS. Prior to the Closing, if
mutually agreed to by the Partners, either Partner may contribute additional
Systems to the Partnership so long as the Partnership Interests of each Partner
as set forth in Section 5.1 does not change ("Pre-Closing Contributions").
Such Pre-Closing Contributions shall be included as part of such Partner's
Initial Capital Contribution. The Fair Market Value of the Pre-Closing
Contributions shall be agreed upon by the Partners 30 days prior to Closing and
set forth on Exhibit A. Any dispute concerning the amount of the Fair Market
Value of such Pre-Closing Contributions will be determined prior to Closing by
an auditor selected in accordance with Section 4.6(b). Notwithstanding the
foregoing, or any other provision contained in this Agreement, at any time, TCI
Partner may contribute the systems listed on Exhibit C to the Partnership that
it may acquire from Time Warner, Inc. without
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the prior consent of the TCA Partner. The Fair Market Value of such systems
shall be agreed to by the Partners pursuant to the provisions set forth in
Section 5.3.
SECTION 4.4 ADJUSTMENTS. On the Effective Date, the Capital Accounts
of each Partner shall be adjusted, without duplication, by the net amount of
the following adjustments:
(a) Each Partner shall make adjustments on a pro rata
basis as of the Effective Time for all prepaid expenses, other than inventory
(but only to the extent the full benefit thereof will be realizable by the
Partnership within 12 months after the Effective Time), accrued expenses
(including real and personal property taxes), prepaid income and accounts
receivable related to such Partner's Cable Business, to reflect the principle
that all expenses and income attributable to such Partner's Cable Business for
the period prior to the Effective Time are for the account of such Partner, and
all expenses and income attributable to such Partner's Cable Business for the
period on and after the Effective Time are for the account of the Partnership.
Such Partner will receive no credit for any (i) accounts receivable resulting
from cable service sales any portion of which is 60 days or more past due from
the billing date as of the Effective Time, (b) accounts receivable resulting
from advertising sales any portion of which is 120 days or more past due as of
the Effective Time, or (c) accounts receivable from customers whose accounts
are inactive or whose service is pending disconnection for any reason as of the
Effective Time. Notwithstanding the foregoing, no adjustment will be made for
any items of income or expense that relate to any Excluded Assets. For
purposes of making "past due" calculations under this paragraph, the billing
statements of a System will be deemed to be due and payable on the first day of
the period during which the service to which such billing statements relate is
provided.
(b) All advance payments to, or funds of third parties on
deposit with, a Partner as of the Effective Time, relating to such Partner's
Cable Business, including advance payments and deposits (including any accrued
interest on such deposits) by subscribers served by such Partner's Cable
Business for converters, encoders, decoders, cable television service and
related sales, shall be assumed by the Partnership and the applicable Partner's
Capital Account shall be reduced accordingly.
(c) Each Partner's Capital Account shall be reduced by
the economic value of all accrued vacation time permitted to be taken by the
employees hired by the Partnership for employment on and after the Effective
Time pursuant to Section 11.3(f) and for severance payable pursuant to Section
11.3(g).
(d) If TCA Partner's Amarillo system does not have at
least 30,315 subscribers receiving Expanded Basic Services at Closing, then
TCA's Capital Account shall be reduced by the TCA Shortfall. The "TCA
Shortfall" shall be defined as an amount equal to (i) the lesser of (1) the
positive difference between 30,315 and the number of subscribers receiving
Expanded Basic Subscribers for the Amarillo system as of Closing, or (2) 5,000,
multiplied by (ii) the current
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monthly rate (without discount of any kind) for Expanded Basic Services (which
rate shall not be less than $18.00), multiplied by (C) 87.36 (10.4*70%*12).
4.5 ASSUMPTION OF DEBT.
(a) Concurrent with the Closing, the Partnership will
assume the respective debt of the Partners as set forth on Exhibit A (the
"Assumed Debt") subject to adjustment in accordance with Section 4.5(b). Such
assumption will be accomplished in a manner that fully releases the respective
Partner from further liability for the Assumed Debt pursuant to applicable loan
documents.
(b) The Assumed Debt will be adjusted upward or downward,
as necessary, so that the aggregate Partnership Interest of the Partners in the
Partnership upon and after Closing will be equal to the percentages set forth
in Section 5.1. Any dispute concerning the amount of such Assumed Debt
adjustment will be determined prior to Closing by an auditor selected in
accordance with Section 4.6(b).
SECTION 4.6 CALCULATION OF ADJUSTMENTS.
(a) Each Partner 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 with respect to its
Cable Business prescribed by Section 4.4 (the "Adjustments"), in a certificate
(the "Initial Adjustment Certificate") executed by an authorized representative
of the TCA Partner or TCI Partner, as appropriate, and delivered to the other
Partner at least 10 Business Days prior to the Effective Time. Each Initial
Adjustment Certificate will be accompanied by appropriate documentation,
including an accounts receivable detail with relevant aging information as of
the Effective Time, in summary form, supporting the determination of the
Adjustments 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 of its Adjustments. If the recipient provides a notice of
disagreement with the preparer's estimates of such amounts within such five
Business Day period, TCI Partner and TCA Partner shall negotiate in good faith
to resolve any such dispute and to reach an agreement prior to the Effective
Time on such estimated amounts as of the Effective Time. The Partner with the
highest estimated Adjustment shall adjust its Capital Account by an amount
equal to the difference between the estimated Adjustment of the TCA Partner and
TCI Partner. The other Partner's Capital Account shall then be adjusted
pursuant to Section 4.5(b). The estimate so agreed upon by TCI Partner and TCA
Partner or (if the parties do not reach such an agreement on such estimated
amounts set forth in the Initial Adjustments Certificate prior to the Effective
Time 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
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Adjustments set forth in the Initial Adjustments Certificate shall be the basis
for determining the amount to be credited to the Capital Accounts of each
Partner.
(b) Within 90 days after the Effective Date, TCA Partner
and TCI Partner will each deliver to the other a certificate (the "Final
Adjustment Certificate") showing in full detail the final determination of
their respective Adjustments, 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 Effective Date, and which will be executed by an officer of TCA Partner or
TCI Partner, as appropriate. Each Partner 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 Partner and TCI Partner
will each review the other's Final Adjustment Certificate and will give written
notice to the other Partner of any objections it has to the calculations shown
in such certificate within 30 days after its receipt thereof. TCA Partner and
TCI Partner 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 Adjustments 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 Partner or
TCI Partner and the determination of such auditor will be final and will be
binding upon all parties. If TCA Partner and TCI Partner cannot agree with
respect to selection of an auditor, TCA Partner and TCI Partner 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 Partner
and TCI Partner 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
Effective Time) will be made by the Partner responsible therefor by wire
transfer in immediately available funds to the other Partner within 15 Business
Days after the final determination is made.
SECTION 4.7 THE CLOSING; TERMINATION PRIOR TO THE EFFECTIVE DATE.
(a) Upon the terms and subject to the conditions
contained in this Agreement, the closing of the transactions contemplated by
Section 4.2 hereof shall take place at the offices of Jackson Walker L.L.P.,
901 Main Street, Suite 6000, Dallas, Texas at 9:30 a.m., local time on the
first day of the month following the month in which all conditions set forth in
Section 4.9 have been met, or at such other date, time and place as the parties
hereto may otherwise agree (the "Closing").
(b) This Agreement may be terminated at any time prior to
the Effective Date:
(i) by mutual consent of TCI Partner and TCA
Partner; or
(ii) by either TCI Partner or TCA Partner if the
Initial Capital Contributions shall have not been made pursuant to Section 4.2
of this Agreement on or before October 1,
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1998 (unless the failure to so consummate the Initial Capital Contributions on
or before such date shall be due to the wilful action or failure to act of the
party seeking to terminate this Agreement).
(c) Upon termination of this Agreement pursuant to
Section 4.7(b) hereof, this Agreement will forthwith become null and void;
except that Sections 13.3 and 13.12 hereof shall survive such termination and
that termination of this Agreement will not relieve either party of any
liability for wilful breach of any covenants or agreements hereunder.
(d) TCI Partner and TCA Partner will each use
commercially reasonable efforts to cause its Initial Capital Contribution to be
made in accordance with Section 4.2 of the Agreement.
SECTION 4.8 DELIVERIES ON THE EFFECTIVE DATE. In order to effect the
Initial Capital Contributions, on the Effective Date:
(a) TCI Partner shall execute and deliver, or cause to be
executed and delivered, to the Partnership or TCA Partner, as applicable:
(i) such general and specific bills of sale,
endorsements, assignments, special warranty deeds and such other good and
sufficient instruments of conveyance and transfer as shall be necessary to vest
in the Partnership good title to the TCI Partner Assets;
(ii) all other documents, instruments and writings
required to be delivered by TCI Partner to the Partnership pursuant to this
Agreement or otherwise required in connection herewith;
(iii) evidence satisfactory to TCA Partner that all
Liens (other than Permitted Liens and Assumed Debt) affecting or encumbering
the TCI Partner Assets have been terminated, released or waived, as
appropriate, or original, executed instruments in form satisfactory to TCA
Partner effecting such terminations, releases or waivers;
(iv) certified corporate resolutions or other
evidence reasonably satisfactory to TCA Partner that the TCI Partner has taken
all actions necessary to authorize the execution of this Agreement and the
Transaction Documents and the consummation of the transactions contemplated
hereby;
(v) TCA Partner will have received an opinion of
TCI Partner's General Counsel, dated the date of the Effective Date, in the
form of Exhibit G;
(vi) the Programming Supply Agreement, duly
executed by the applicable TCI Affiliate; and
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(vii) such other documents and instruments as may
be necessary to effect the intent of this Agreement and consummate the
transactions contemplated hereby.
(b) TCA Partner shall execute and deliver, or cause to be
executed and delivered, to the Partnership or TCI Partner, as applicable:
(i) such general and specific bills of sale,
endorsements, assignments, special warranty deeds and such other good and
sufficient instruments of conveyance and transfer as shall be necessary to vest
in the Partnership good title to the TCA Partner Assets;
(ii) all other documents, instruments and writings
required to be delivered by or on behalf of TCA Partner to the Partnership
pursuant to this Agreement or otherwise required in connection herewith;
(iii) evidence satisfactory to TCI Partner that all
Liens (other than Permitted Liens and Assumed Debt) affecting or encumbering
the TCA Assets have been terminated, released or waived, as appropriate, or
original, executed instruments in form satisfactory to TCI Partner effecting
such terminations, releases or waivers;
(iv) certified resolutions of the Board of
Directors of TCA Partner or other evidence reasonably satisfactory to TCI
Partner that TCA Partner has taken all action necessary to authorize the
execution of this Agreement and the Transaction Documents and the consummation
of the transactions contemplated hereby;
(v) TCI Partner will have received an opinion of
Jackson Walker L.L.P., counsel for TCA Partner, dated the date of the Effective
Date, in the form of Exhibit H;
(vi) a fully executed asset purchase agreement
with Friendship Cable or a third party approved by TCI Partner (the "Purchasing
Party") whereby the Purchasing Party would buy the systems listed on Schedule
4.8(b)(vi) (the "Purchase Systems") which are owned by the TCI Partner as of
the date of this Agreement from TCI Partner; and
(vii) an advertising representation agreement with
VPI Communications, Inc., which agreement shall be on terms satisfactory to
each Partner ("Ad Sales Agreement"); and
(viii) such other documents and instruments as may
be necessary to effect the intent of this Agreement and consummate the
transactions contemplated hereby.
(c) the Partnership shall execute and deliver to (i) each
of TCI Partner and TCA Partner an assumption agreement pursuant to which the
Partnership shall assume the TCI Partner Liabilities and the TCA Partner
Liabilities, respectively, and (ii) to the Partners the Programming Supply
Agreement and Ad Sales Agreement; and
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(d) TCA Management Co. shall execute and deliver to the
Partners a duly executed counterpart to the Management Agreement.
SECTION 4.9 CONDITIONS TO CONTRIBUTIONS.
(a) The respective obligations of each of TCI Partner and
TCA Partner to make its Initial Capital Contribution shall be subject to the
following conditions:
(i) The absence of any effective injunction,
writ, preliminary restraining order of a court of competent jurisdiction
directing that the transactions provided for herein may not be consummated.
(ii) No action, suit, proceeding or investigation
by or before any court, administrative agency or other governmental authority
shall have been instituted (a) to restrain, prohibit or invalidate the
transactions contemplated by this Agreement, (b) which seeks material or
substantial damages by reason of completion of such transaction or (c) which
may materially affect the right of the Partnership to own, operate or control
after the Effective Time all or any material portion of the TCI Partner Assets
or the TCA Partner Assets.
(b) The obligations of TCI Partner to effect the
transactions contemplated hereby shall be further subject to the fulfillment of
the following additional conditions, any one or more of which may be waived by
TCI Partner:
(i) TCA Partner shall have performed and complied
in all material respects with all obligations and agreements and complied in
all material respects with all covenants contained in this Agreement required
to be performed and complied with by it at or prior to the Effective Time and
TCI Partner shall have received a certificate to that effect signed by an
executive officer of TCA Partner.
(ii) The representations and warranties of TCA
Partner set forth in this Agreement and in any Transaction Document, if
specifically qualified by materiality, shall be true in all respects, and if
not so qualified, shall be true and correct in all material respects as of the
Effective Time as if made at and as of the Effective Time and TCI Partner shall
have received a certificate to that effect signed by an executive officer of
TCA Partner.
(iii) TCA Partner has executed (or caused to be
executed) and delivered to TCI Partner all of the items and documents required
to be delivered by it pursuant to this Agreement, including those described
under Section 4.8(b) and (c).
(iv) TCA Partner has delivered to TCI Partner
evidence, in form and substance satisfactory to TCI Partner, that all of the
Material Contractual Consents required to be obtained by TCA Partner have been
obtained or given and are in full force and effect.
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(v) TCA Partner has delivered releases, in form
satisfactory to TCI Partner, of all Liens affecting any of the TCA Partner
Assets (other than Permitted Liens and Assumed Debt) and a certificate of no
taxes due with respect to TCA Partner and the TCA Partner Assets issued by
appropriate state taxing authorities as of a date no earlier than 10 days prior
to the Effective Time.
(vi) There has not been any material adverse
change since July 31, 1997 in the TCA Partner Assets or the financial condition
or operations of the TCA Partner Systems.
(vii) The TCA Partner Systems are serving at least
146,424 Equivalent Basic Subscribers.
(viii) The Partnership shall have entered into a
Management Agreement with TCA Management Co., pursuant to which TCA Management
Co. will manage the business of the Partnership, the terms and conditions of
such Management Agreement to be satisfactory to each of TCI Partner and TCA
Partner.
(c) The obligations of TCA Partner to effect the
transactions contemplated hereby shall be further subject to the fulfillment of
the following additional conditions, any one or more of which may be waived by
TCA Partner:
(i) TCI Partner shall have performed and complied
in all material respects with all obligations and agreements and complied in
all material respects with all covenants contained in this Agreement required
to be performed and complied with by it at or prior to the Effective Time and
TCA Partner shall have received a certificate to that effect signed by an
executive officer of TCI Partner.
(ii) The representations and warranties of TCI
Partner set forth in this Agreement and any Transaction Document, if
specifically qualified by materiality, shall be true in all respects, and if
not so qualified, shall be true and correct in all material respects as of the
Effective Time as if made at and as of the Effective Time and TCA Partner shall
have received a certificate to that effect signed by an executive officer of
TCI Partner.
(iii) TCI Partner has executed (or caused to be
executed) and delivered to TCA Partner all of the items and documents required
to be delivered by it pursuant to this Agreement, including those described
under Section 4.8(a) and (c).
(iv) TCI Partner has delivered to TCA Partner
evidence, in form and substance satisfactory to TCA Partner, that all of the
Material Contractual Consents required to be obtained by TCI Partner have been
obtained or given and are in full force and effect.
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(v) TCI Partner has delivered releases, in form
satisfactory to TCA Partner, of all Liens affecting any of the TCI Partner
Assets (other than Permitted Liens and Assumed Debt) and a certificate of no
taxes due with respect to TCI Partner and the TCI Partner Assets issued by
appropriate state taxing authorities as of a date no earlier than 10 days prior
to the Effective Time.
(vi) There has not been any material adverse
change since July 31, 1997 in the TCI Partner Assets or the financial condition
or operations of the TCI Partner Systems.
(vii) The TCI Partner Systems are serving at least
140,885 Equivalent Basic Subscribers.
SECTION 4.10 ADDITIONAL CAPITAL CONTRIBUTIONS BY PARTNERS.
(a) (i) Any call for additional Capital Contributions
must be approved by the unanimous consent of the Partnership Committee. In the
event of such approval, the Partnership Committee shall notify the Partners of
the amount of additional Capital Contribution required from each, determined in
accordance with the relative amounts of their Partnership Interest, and the
date by which such additional Capital Contribution shall be made to the
Partnership. Such additional Capital Contributions when made shall increase
the Partner's Capital Account.
(ii) In the event that either Partner fails to
make the required additional Capital Contribution under this Section 4.10, the
other Partner may at its sole option make such payment which shall be treated
as either (1) an additional Capital Contribution and shall increase its own
Capital Account in the manner set forth below, or (2) a subordinate loan
bearing interest payable thereon at 2% over the Bank Rate. If the
non-defaulting Partners elects (1) above, the non-defaulting Partner shall have
the right, in exchange for contributing the defaulted capital to the
Partnership, to adjust its Partnership Interest to reflect the contribution of
the defaulted amount in accordance with the provisions of Section 4.11 hereof.
Any such payment by the non-defaulting Partner shall render the rights of the
Partnership against the defaulting Partner set forth in Section 4.10(b)
ineffective as to such nonpayment.
(b) The Partners agree that the prompt payment of Capital
Contributions hereunder is of the essence and that the failure to make such
payments as provided herein will cause substantial injury to the Partnership
and the other Partner and that the amount of damages caused by such injury will
be difficult to calculate. Accordingly, the Partners agree that in the event
that either Partner fails to pay any required Capital Contribution to the
Partnership promptly when due, the Partnership Committee shall give such
defaulting Partner written notice thereof, and if such defaulting Partner shall
fail to make such required payment in full within seven (7) days following the
mailing of such notice or such longer period as the Partnership Committee may
elect, the Partnership may commence legal proceedings against such defaulting
Partner to collect the due and unpaid payment of all
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amounts due as a Capital Contribution and the payment of all costs and expenses
of collection incurred by the Partnership (including Legal Expenses).
SECTION 4.11 ADJUSTMENT OF PARTNERSHIP INTERESTS UPON ADDITIONAL
CAPITAL CONTRIBUTIONS. In the event that a Partner makes an additional Capital
Contribution pursuant to Section 4.10(a)(ii), the Partnership Interests of TCA
Partner and TCI Partner shall be adjusted to reflect such contribution. Such
adjustment shall be achieved by (i) first, restating the Capital Accounts of
the Partners to reflect the Fair Market Value of the assets of the Partnership,
(ii) second, crediting to the Capital Accounts the amounts contributed pursuant
to the additional Capital Contributions, and (iii) third, recomputing the
Partnership Interests on the basis of the ratio of the Capital Account balances
to one another.
SECTION 4.12 WITHDRAWALS OF CAPITAL ACCOUNTS. Except for
Distributions contemplated by the provisions of Article VI hereof, no Partner
shall be entitled to withdraw any amount from its Capital Account prior to the
dissolution of the Partnership.
SECTION 4.13 INTEREST ON CAPITAL ACCOUNTS. No interest or
compensation shall be paid on or with respect to the Capital Account or Capital
Contributions of any of the Partners.
SECTION 4.14 TRANSFEREES. A permitted transferee of all or a part of
an interest in the Partnership will succeed to the Capital Account of the
transferor that is attributable to the transferred interest, as such Capital
Account existed at the effective date of such transfer.
ARTICLE V.
PARTNERSHIP INTERESTS
SECTION 5.1 PARTNERSHIP INTEREST. The Partnership Interests of TCA
Partner and TCI Partner shall be 80% and 20%, respectively. The Partnership
Interests shall be subject to adjustment after the Effective Time in accordance
with the terms of this Agreement.
SECTION 5.2 TRANSFER OF PARTNERSHIP INTEREST.
(a) Except as expressly provided by this Agreement, no
Partner shall, directly or indirectly, sell, assign, transfer, exchange,
mortgage, pledge, grant a security interest in, or otherwise dispose of or
encumber its interest in the Partnership or any part thereof without the prior
written consent of the other Partner, the consent of which may be granted or
denied in its sole and absolute discretion. Any purported transfer of any
interest of a Partner in the Partnership or any part thereof not in compliance
with this Section 5.2 shall be void and of no force or effect, and the
transferring Partner shall be liable to the other Partner and the Partnership
for all liabilities, obligations, damages, losses, costs and expenses
(including reasonable attorneys' fees and court costs) arising as a result of
such noncomplying transfer. Notwithstanding the foregoing, (i) either Partner
may make a bona
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fide pledge of its Partnership Interest to any financial institution or
institutions as security for the extension of financing to such Partner by such
financial institution or institutions, (ii) TCI Partner shall be entitled to
transfer its Partnership Interest to Tele-Communications, Inc. or any of its
Affiliates and (iii) TCA Partner shall be entitled to transfer its Partnership
Interest to TCA or any of its Affiliates; provided, however, that no such
transfer by a Partner of its Partnership Interest shall relieve such Partner of
its obligations under Article VIII hereunder.
(b) From the date five years from the Effective Date to the
termination of the Partnership in accordance with the terms of this Agreement
(the "Call Period"), TCA Partner shall have the right to purchase (the "Call")
from TCI Partner and TCI Partner shall be required to sell to TCA Partner all
but not less than all of TCI Partner's Partnership Interest. If TCA Partner
elects to exercise the Call it shall send written notice thereof in the manner
set forth in Section 13.1 hereof (the date of such notice being hereafter
referred to as the "Call Notice Date") to TCI Partner during the period
commencing five years from the Effective Date and expiring upon the termination
of the Partnership in accordance with the terms of this Agreement. The
purchase price for TCI Partner's Partnership Interest pursuant to this Section
5.2(b) shall be equal to the amount derived from multiplying (i) TCI Partner's
Partnership Interest on the Call Notice Date by (ii) the Fair Market Value of
the Partnership on the Call Notice Date. The closing of the purchase shall
take place at the principal offices of the Partnership not later than twelve
months following the determination of the purchase price for TCI Partner's
Partnership Interest pursuant to Section 5.3 hereof, subject to applicable law.
(c) From the date five years from the Effective Date to
the termination of the Partnership in accordance with the terms of this
Agreement (the "Put Period"), TCI Partner shall have the right to sell to TCA
Partner and TCA Partner shall be required to purchase (the "Put) from TCI
Partner all but not less than all of TCI Partner's Partnership Interest. If TCI
Partner elects to exercise the Put it shall send written notice thereof in the
manner set forth in Section 13.1 hereof (the date of such notice being
hereafter referred to as the "Put Notice Date") to TCA Partner during the
period commencing five years from the Effective Date and expiring upon the
termination of the Partnership in accordance with the terms of this Agreement.
The purchase price for TCI Partner's Partnership Interest pursuant to this
Section 5.2(c) shall be equal to the amount derived from multiplying (i) TCI
Partner's Partnership Interest on the Put Notice Date by (ii) the Fair Market
Value of the Partnership on the Put Notice Date. The closing of the purchase
shall take place at the principal offices of the Partnership not later than
twelve months following the determination of the purchase price for TCI
Partner's Partnership Interest pursuant to Section 5.3 hereof, subject to
applicable law.
SECTION 5.3 FAIR MARKET VALUE DETERMINATION. The Partners shall,
within 60 days of a notice under Section 5.2 of this Agreement requiring a
determination of the Fair Market Value, try by mutual agreement among
themselves to determine the Fair Market Value of the Partnership. If the
Partners fail to agree upon the Fair Market Value within such 60 Business Days,
then each Partner shall, within ten Business Days, select a nationally
recognized investment banking firm (the "Investment Advisor") to evaluate the
Partnership assets and to determine in good faith within 60 days of the
engagement of such Investment Advisors the Fair Market Value of the
Partnership. If
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the two values are within 3% of each other, then the Fair Market Value of the
Partnership will be the average of the two appraisal values. If the values are
not within 3% of each other, the two appraisers selected by the parties will
select a third qualifier appraiser who will determine the Fair Market Value of
the Partnership. The Fair Market Value of the Partnership used to determine
the purchase price will be equal to the average of the two appraisals that are
closest to one another. If the highest and lowest appraisals are equidistant
from the middle, then such Fair Market Value shall be equal to the middle
appraisal. Each party will bear the expenses of the investment its Investment
Advisor and if a third investment banking firm is used, the parties will share
the expense of the third firm equally.
SECTION 5.4 CONSIDERATION FOR PUT/CALL PURCHASE PRICE.
(a) The Partners shall undertake in good faith to
structure the Put and Call in a manner that provides tax free treatment to the
TCI Partner or at a minimum reduces the taxable nature of the Put/Call
transaction for the TCI Partner.
(b) In accordance with Section 5.4(a) above, within
thirty days after the determination of the Fair Market Value of the
Partnership, the Partners shall mutually agree to the form and type of
consideration to be used for the Put/Call Purchase Price. Examples of the form
and type of consideration used for the purchase price of the put/call are (i)
an equity security in TCA, (ii) a cable system owned by a third party to be
purchased by the Partnership and distributed to the TCI Partner, or (iii) a
distribution of assets out of the Partnership as mutually agreed upon by the
Partners. The Partners acknowledge that the foregoing examples are not
exhaustive of the types of transactions that could be structured to minimize
the tax treatment for the TCI Partner. If the Partners agree to the form and
type of consideration within such thirty day period, the Partners shall agree
to the structure and mechanics for the payment of the Put/Call Purchase Price
within sixty days after the determination of the Fair Market Value of the
Partnership.
(c) (i) If the Partners are unable to mutually agree
within the thirty day period described in clause (b) above to the form and type
of consideration, then the TCI Partner shall have the option to (A) require the
TCA Partner to pay cash in the amount of the Put/Call Purchase Price or (B)
designate a system (either one owned by the Partnership or by a third party
("Designated System")) and require the Partnership to distribute such
Designated System to TCI Partner as consideration for the Put/Call Purchase
Price, the value of which shall be determined pursuant to Section 5.3 (if owned
by the Partnership) or through an arms length negotiation (if owned by a third
party) (the "Designated System Value"). TCI Partner shall notify the TCA
Partner in writing of its option within sixty days after the determination of
the Fair Market Value of the Partnership (the "Option Notice"). Within thirty
days after the Option Notice, TCI Partner will notify TCA Partner of the
Designated System and the structure and mechanics for the distribution of the
Designated System to the TCA Partner.
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(ii) In accordance with Section 5.4(a) and
pursuant to this Section 5.4, the TCI Partner has an option to require the
Partnership to distribute a Partnership Asset to it and then exchange such
Asset for the Designated System in a tax-free exchange pursuant to Section 1031
of the Code or require the Partnership to purchase the Designated System and
have such System distributed to the TCI Partner and in either case, a portion
of the Partnership debt may be assumed by TCI Partner in an amount equal to the
negative basis, if any, in TCI Partner's Partnership Interest (before any
allocation of debt). The Partners acknowledge that the foregoing examples are
not exhaustive of the types of transactions that could be structured to
minimize the tax treatment for the TCI Partner and agree that the TCI Partner
may structure the payment of the Put/Call Purchase Price in any manner
necessary to minimize the tax treatment for the TCI Partner.
(d) If the Designated System Value is greater than the
Put/Call Purchase Price, TCI Partner shall pay to TCA Partner the difference.
Conversely, if the Designated System Value is less than the Put/Call Purchase
Price, TCA Partner shall pay to TCI Partner the difference. In each case, the
form of payment for the difference shall be mutually agreed to by the Partners,
and, failing agreement within thirty days after the Option Notice, the
consideration shall be paid in cash.
SECTION 5.5 ASSIGNMENT OF INTEREST IN DISTRIBUTIONS. Notwithstanding
the provisions of Section 5.2 hereof, and except as required by law, a Partner
may assign all or a portion of its interest in its right to receive
Distributions to any entity or person without the consent of the other Partner.
An assignee of an interest in distributions does not become an additional or a
substituted Partner and shall have no right to require any information or
account of the Partnership's transactions, to inspect the Partnership books, or
to vote on any of the matters as to which a Partner would be entitled to vote
under this Agreement.
ARTICLE VI.
PROFITS AND LOSSES AND DISTRIBUTIONS
SECTION 6.1 ALLOCATION OF PROFITS, GAINS AND LOSSES. Commencing at
the Effective Time and continuing until the termination of the Partnership, all
Profits or Losses for each Fiscal Year, shall be allocated to the Capital
Accounts of the Partners as provided in Sections 6.1(a) and (b):
(a) Profits and Losses. After any special allocations
required to be made by Section 6.1(b) have been made for each Fiscal Year, all
remaining Profits or Losses from the operations of the Partnership for each
Fiscal Year shall be allocated between the Partners in proportion to their
respective Partnership Interests.
(b) Special Rules. Notwithstanding the general allocation
rules set forth in Section 6.1(a), the following special allocation rules shall
apply under the circumstances described.
(i) Minimum Gain Chargeback. If there is a net
decrease in Minimum Gain during a Fiscal Year, each Partner will be allocated
items of Partnership income and gain for
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such year (and, if necessary, for subsequent years) equal to that Partner's
share of the net decrease in Partnership Minimum Gain (within the meaning of
Treasury Regulations, Section 1.704 -2(g)(2)). This provision is intended to
comply with the Minimum Gain Chargeback requirements of Treasury Regulations,
Section 1.704-2(f) and shall be interpreted consistently therewith.
(ii) Partner Nonrecourse Deductions. Partner
Nonrecourse Deductions shall be allocated to the Partners who bear the economic
risk of loss for a Partner Nonrecourse Debt that gave rise to those deductions
in accordance with Treasury Regulations, Section 1.704-(2)(i)(1).
(iii) Partner Nonrecourse Debt Minimum Gain
Chargeback. If there is a net decrease during a Fiscal Year in the Partner
Nonrecourse Debt Minimum Gain during any Fiscal Year any Partner who has a
share of the Partner Nonrecourse Debt as provided in Treasury Regulations,
Section 1.704-2(i)(5) shall be allocated items of Partnership income and gain
for such Fiscal Year in such amounts and in such manner as required under
Treasury Regulations, Section 1.704-2(i)(4). This provision is intended to
comply with the minimum gain chargeback requirement of Treasury Regulations,
Section 1.702(i)(4) and shall be interpreted consistently therewith.
(iv) Qualified Income Offset. If a Partner
unexpectedly receives an adjustment, allocation or distribution described in
Treasury Regulations, Sections 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of
Partnership income and gain (including gross income) shall be specially
allocated to the Partner in an amount and manner sufficient to eliminate, to
the extent required by the Treasury Regulations, the deficit balance in the
Partner's Adjusted Capital Account as quickly as possible. This provision
shall be interpreted consistently with Treasury Regulations, Sections
1.704(b)(2)(ii)(d).
(v) Limited Effect and Interpretation. The
special rules set forth in Sections 6.1(b)(i), (ii), (iii) and (iv) (the
"Regulatory Allocations") shall be applied only to the extent required by
applicable Treasury Regulations for the resulting allocations provided for in
this Section 6.1, taking into account such Regulatory Allocations, to be
respected for federal income tax purposes. The Regulatory Allocations are
intended to comply with the requirements of Treasury Regulations, Sections
1.704-1(b), 1.704-2 and 1-752-1 through 1.752-5 and shall be interpreted and
applied consistently therewith.
(vi) Curative Allocations. The Regulatory
Allocations may not be consistent with the manner in which the Partners intend
to divide the Partnership Profits, Losses and similar items. Accordingly,
Profits, Losses and other items will be reallocated among the Partners in a
manner consistent with Treasury Regulations, Sections 1.704-1(b) and 1.704-2 so
as to negate as rapidly as possible any deviation (after taking into account
any expected future Regulatory Allocations pursuant to Sections 6.1(b)(i) and
6.1(b)(iii)), from the manner in which Partnership Profits, Losses and other
items are intended to be allocated among the Partners pursuant to Section
6.1(a) that is caused by the Regulatory Allocations.
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(vii) Change in Regulations. If the Treasury
Regulations incorporating the Regulatory Allocations are hereafter changed or
if new Treasury Regulations are hereafter adopted, and such changed or new
Treasury Regulations, in the opinion of independent tax counsel for the
Partnership, make it necessary to revise the Regulatory Allocations or provide
further special allocation rules in order to avoid a significant risk that a
material portion of any allocation set forth in this Article VI would not be
respected for federal income tax purposes, the Partners shall make such
reasonable amendments to this Agreement as, in the opinion of such counsel, are
necessary or desirable, taking into account the interests of the Partners as a
whole and all other relevant factors, to avoid or reduce significantly such
risk to the extent possible without materially changing the amounts allocable
and distributable to any Partner pursuant to this Agreement.
(viii) Change in Partners' Partnership Interests.
If there is a change in any Partner's share of the Profits, Losses or other
items of the Partnership during any Fiscal Year, allocations among the Partners
shall be made in accordance with their interests in the Partnership from time
to time during such Fiscal Year in accordance with Code section 706, using the
closing-of-the-books method, except that Depreciation shall be deemed to accrue
ratably on a daily basis over the entire Fiscal Year during which the
corresponding asset is owned by the Partnership if such asset is placed in
service prior to or during the Fiscal Year.
(c) Tax Allocations.
(i) In General. Except as set forth in Section
6.1(c)(ii), allocations for tax purposes of items of income, gain, loss,
deduction, and credits, and basis therefor, shall be made in the same manner as
allocations for Capital Accounts purposes set forth in Sections 6.1(a) and (b).
Allocations pursuant to this Section 6.1(c) are solely for purposes of federal,
state and local income taxes and shall not affect or in any way be taken into
account in computing, any Partner's Capital Account or share of Profits,
Losses, other items or distributions pursuant to any provision of this
Agreement.
(ii) Special Rules.
(A) Elimination of Book/Tax Disparities.
Items of depreciation, amortization, and gain or loss with respect to any
contributed property, or with respect to revalued property where Partnership
property is revalued pursuant to Treasury Regulations, Section
1.704-1(b)(2)(iv)(f), computed for income tax purposes, shall be allocated to
the Partners under the "traditional method with curative allocations" as
provided in Treasury Regulations, Section 1.704-3(c); provided, that to the
extent permitted by Treasury Regulations, Section 1.704-3(c), such curative
allocations shall (i) only be made from (A) items of Partnership depreciation,
amortization and other cost recovery deductions, solely with respect to
property contributed to the Partnership by the Partners, computed for income
tax purposes, and (B) items of income, gain or loss, computed for income tax
purposes, recognized by the Partnership upon disposition of the contributed or
revalued property, and (ii) in addition to being made (from the items specified
in clause (i) above)
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to the extent necessary to offset the effect of the "ceiling rule" for a
current taxable year shall also be made to the extent necessary to offset the
effect of the ceiling rule for prior taxable years in accordance with the
second sentence of Treasury Regulations, Section 1.704-3(c)(3)(ii) and Treasury
Regulations, Section 1.704-3(c)(3)(iii)(B). This provision is intended to
comply with the requirements of Code section 704(c) and Treasury Regulations,
Sections 1.704-1(b)(iv)(2)(d)(3) and 1.704-3, and shall be interpreted
consistently therewith.
(B) Allocation of Items Among Partners.
Except as otherwise provided in Section 6.1(c)(ii)(A), each item of income,
gain, loss and deduction and all other items governed by Code section 702(a)
shall be allocated among the Partners in proportion to the allocation of
Profits or Losses and other items to the Partners hereunder, provided that any
gain recognized from any disposition of a Partnership asset that is treated as
ordinary income because it is attributable to the recapture of any depreciation
or amortization shall be allocated among the Partners in the same ratio as the
prior allocations of Profits, Losses or other items that included such
depreciation or amortization, but not in excess of the gain otherwise allocable
to each Partner.
(C) Tax Credits. Any tax credits shall
be allocated among the Partners in accordance with Treasury Regulations,
Section 1.704-1(b)(4)(ii), unless the applicable Code provision shall otherwise
require.
(d) Conformity of Reporting. The Partners are aware of the
income tax consequences of the allocations made by Section 6.1(c) and hereby
agree to be bound by the provisions of Section 6.1(c) in reporting their shares
of Partnership profits, gains, income, losses, deductions, credits and other
items for income tax purposes.
(e) Restoration of Negative Capital Accounts. Except as may
be otherwise required by law, or in respect of any negative balance resulting
from a distribution made in contravention of this Agreement, no Partner with a
negative balance in its Capital Account upon the liquidation of the Partnership
or the liquidation or other termination of its Interest shall have any
obligation to the Partnership or to the other Partner to restore such negative
balance.
SECTION 6.2 ALLOCATION TO TRANSFERRED PARTNERSHIP INTERESTS. Subject
to Section 5.2, income, gains, losses, deductions and credits allocated to an
interest in the Partnership assigned or issued during a Fiscal Year shall be
allocated to each entity or person who was the holder of the Interest in the
Partnership during an interim period in respect of which the books of the
Partnership shall be closed, or in any other manner permitted by the Code and
selected by the Partnership Committee. The effective date of the assignment
shall be (a) in the case of a voluntary assignment, the actual date the
assignment is recorded on the books of the Partnership, or (b) in the case of
involuntary assignment, the date of the operative event.
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SECTION 6.3 DISTRIBUTIONS.
(a) (i) In respect of each month the Partnership shall
distribute to the Partners, an amount equal to 100% of the estimated Free Cash
Flow for such month as set forth in the Budget, such Distribution to be made
within fifteen Business Days of the end of such month.
(ii) In respect of each fiscal quarter the
Partnership will distribute to the Partners 100% of the quarterly Free Cash
Flow, if any, in excess of the monthly Distributions made during such fiscal
quarter pursuant to clause (i) above or if such monthly Distribution(s) were in
excess of the actual Free Cash Flow for such quarter subsequent monthly
Distribution(s) will be appropriately reduced in an amount to be agreed upon by
the Partners.
(iii) Except as provided in Section 9.2,
Distributions made pursuant to this Section 6.3 shall be made to the Partners
ratably in proportion to their respective Partnership Interests.
(b) Any other provision of this Agreement to the contrary
notwithstanding, no Distribution shall be made which would render the
Partnership insolvent or which is prohibited by the terms of any Partnership
indebtedness.
ARTICLE VII.
TAX MATTERS AND REPORTS
SECTION 7.1 FILING OF TAX RETURNS. The Partnership Committee, at the
expense of the Partnership, shall prepare and file, or cause the accountants of
the Partnership to prepare and file, a federal information tax return in
compliance with Section 6031 of the Code and any required state and local
income and other tax and information returns for each tax year of the
Partnership. TCA Partner shall act as the Tax Matters Partner of the
Partnership as that term is defined in Section 6231(a)(7) of the Code. The Tax
Matters Partner shall promptly advise the other Partner of audits or other
actions by the Internal Revenue Service. The Tax Matters Partner shall consult
with and carry out the decisions of the Partnership Committee regarding all
tax matters. The Tax Matters Partner may not contest, settle or otherwise
compromise assertions made by the auditing agent or other representative of the
Internal Revenue Service without the unanimous approval of the Partnership
Committee.
SECTION 7.2 TAX AND FINANCIAL REPORTS TO CURRENT AND FORMER PARTNERS.
Within the due date (including extensions thereof) of the Partnership
information tax returns (but in no event later than June 1), the Partnership
shall prepare and mail, or cause its accountants to prepare and mail, to each
Partner a report setting forth in sufficient detail such information as is
required to be furnished to Partners by law (e.g., Section 6031(b) of the Code
and regulations thereunder) and as shall enable such Partner to prepare its
federal, state and local income tax or informational returns in accordance with
the laws, rules and regulations then prevailing. The Partnership shall
provide copies of all Federal, State and local income tax or informational
returns to the Partners when filed. Financial statements will be distributed
to the Partners within seventy five (75) days after the end of the
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Partnership's Fiscal Year if such financial statements are to be included in a
Partner's annual report on Form 10-K as required by any rules and regulations
promulgated by the Securities and Exchange Commission (ninety days if not so
required to be filed). If the Partnership's financial statements are required
to be filed in a Partner's Form 10-K filing, such Partner will notify the
Partnership thereof no later than December 15. The Partners will receive
monthly consolidated profit and loss statements, balance sheets and system
statistics (homes passed, EBUs and premium subscribers by service) within
twenty five (25) days after the end of each month. The Budgets will be
distributed to the Partners within 15 days after the preparation thereof.
SECTION 7.3 BOOKS AND RECORDS; INDEPENDENT AUDIT. Complete books and
records accurately reflecting the accounts, business, transactions, Capital
Accounts and Partners of the Partnership shall be maintained and kept by the
TCA Management Co. on behalf of the Partnership at the Partnership's principal
place of business. The books and records of the Partnership shall be open at
reasonable business hours on prior appointment for inspection and copying by
the Partners. The books and records of the Partnership shall be audited by
certified public accountants selected in accordance with Section 3.4.
SECTION 7.4 METHOD OF ACCOUNTING. The books and accounts of the
Partnership shall be maintained both for financial reporting purposes and for
income tax purposes. The financial books of the Partnership shall be kept on
the accrual basis of accounting in accordance with generally accepted
accounting principles, consistently applied. Notwithstanding the foregoing,
the Capital Accounts of the Partners shall be determined and maintained in
accordance with the provisions of Section 4.1. The books and records of the
Partnership shall be open to inspection, examination and audit by each Partner.
SECTION 7.5 WITHHOLDING. Notwithstanding any other provision of this
Agreement, the Partnership Committee is authorized to take any action that it
determines to be necessary or appropriate to cause the Partnership to comply
with any federal, state and local withholding requirement with respect to any
allocation, payment or Distribution by the Partnership to any Partner or other
entity or person. All amounts so withheld shall be treated as Distributions to
the Partners. If any such withholding requirement with respect to any Partner
exceeds the amount distributable to such Partner under this Agreement, or if
any such withholding requirement was not satisfied with respect to any amount
previously allocated or distributed to such Partner, such Partner and any
successor or assignee with respect to such Partner's interest in the
Partnership hereby indemnifies and agrees to hold harmless the Partners and the
Partnership for such excess amount or such withholding requirement, as the case
may be.
SECTION 7.6 TAX ELECTIONS. Upon the request of any Partner, the
Partnership will make the election under Section 754 of the Code in accordance
with applicable Treasury Regulations thereunder for the first Fiscal Year in
which such election could apply. In addition to the foregoing, the Partnership
Committee shall, in its sole discretion, determine whether to make any other
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available tax elections and select any other appropriate tax accounting methods
and conventions for any purpose under this Agreement.
ARTICLE VIII.
INDEMNIFICATION AND EXCULPATION
SECTION 8.1 INDEMNIFICATION OF THE PARTNERS.
(a) The Partnership shall indemnify and hold harmless the
Partners and any partner, officer, employee, agent or affiliate of a Partner
and any employee or agent of the Partnership and/or the legal representatives
of any of them, and each other person who may incur liability as a partner or
otherwise in connection with the management of the Partnership or any
corporation or other entity in which the Partnership has an investment, against
all liabilities and expenses (including amounts paid in satisfaction of
judgments, in compromise, as fines and penalties, and as counsel fees)
reasonably incurred by him or it in connection with the defense or disposition
of any action, suit or other proceeding, whether civil or criminal, in which he
or it may be involved or with which he or it may be threatened, while a Partner
or serving in such other capacity or thereafter, by reason of its being or
having been a Partner, or by serving in such other capacity, except with
respect to any matter which constitutes willful misconduct, bad faith, gross
negligence or reckless disregard of the duties of his office, or criminal
intent. The Partnership shall have the right to approve any counsel selected
by any indemnitee and to approve the terms of any proposed settlement. The
Partnership shall advance to a Partner and any partner, officer, employee,
agent or affiliate of a Partner or the Partnership reasonable attorneys' fees
and other costs and expenses incurred in connection with the defense of any
such action or proceeding upon receipt of an undertaking by or on behalf of the
party receiving such advance to repay such advance if it shall ultimately be
determined that the party receiving such advance is not entitled to
indemnification under this Agreement. Each Partner hereby agrees, and each
partner, officer, employee, agent or affiliate of the Partner or the
Partnership shall agree in writing prior to any such advancement, that in the
event he or it receives any such advance, such indemnified party shall
reimburse the Partnership for such fees, costs and expenses to the extent that
it shall be determined that he or it was not entitled to indemnification under
this Section 8.1(a). The rights accruing to a Partner and each partner,
officer, employee, agent or affiliate of a Partner or the Partnership under
this Section 8.1(a) shall not exclude any other right to which it or they may
be lawfully entitled; provided, that any right of indemnity or reimbursement
granted in this Section 8.1(a) or to which any indemnified party may be
otherwise entitled may only be satisfied out of the assets of the Partnership
and no withdrawn Partner shall be personally liable with respect to any such
claim for indemnity or reimbursement. Notwithstanding any of the foregoing to
the contrary, the provisions of this Section 8.1(a) shall not be construed so
as to provide for the indemnification of a Partner or any partner, officer,
employee, agent or affiliate of a Partner or the Partnership for any liability
to the extent (but only to the extent) that such indemnification would be in
violation of applicable law or such liability may not be waived, modified or
limited under applicable law, but shall be construed so as to effectuate the
provisions of this Section 8.1(a) to the fullest extent permitted by law.
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(b) The Partnership shall indemnify and hold harmless TCI
Partner and any partner, officer, employee, agent or affiliate of TCI Partner
from and against all Losses arising out of or resulting from the TCI Partner
Liabilities.
(c) The Partnership shall indemnify and hold harmless TCA
Partner and any partner, officer, employee, agent or affiliate of TCA Partner
from and against all Losses arising out of or resulting from the TCA Partner
Liabilities.
SECTION 8.2 INDEMNIFICATION BY THE PARTNERS.
(a) TCI Partner shall indemnify and hold the Partnership and
the TCA Partner harmless from and against, and shall reimburse the same for,
all Losses which may be claimed or assessed against it, or to which it may be
subject, in connection with any and all claims, suits or asserted Losses which
arise from or are related to (i) the inaccuracy or incompleteness of any
representation or warranty of TCI Partner (whether relating to TCI Partner or
the TCI Partner Entities) contained in or made pursuant to this Agreement, (ii)
to the ownership and operation of the TCI Partner Systems by the TCI Partner or
the TCI Partner Entities on or prior to the Effective Time, or (iii) the
failure of it or the TCI Partner Entities to perform when due in all material
respects any of their respective covenants, agreements or obligations in this
Agreement or any Transaction Document, or in the case of any agreement,
covenant, or obligation, which by its terms is qualified by a limitation that
performance need only be material, any failure to perform such covenant,
agreement or obligation.
(b) TCA Partner shall indemnify and hold the Partnership and
the TCI Partner harmless from and against, and shall reimburse the same for,
all Losses which may be claimed or assessed against it, or to which it may be
subject, in connection with any and all claims, suits or asserted Losses which
arise from or are related to (i) the inaccuracy or incompleteness of any
representation or warranty of TCA Partner (whether relating to TCA Partner or
the TCA Partner Entities) contained in or made pursuant to this Agreement, (ii)
the ownership and operation of the TCA Partner Systems by the TCA Partner or
the TCA Partner Entities on or prior to the Effective Time, or (iii) the
failure of it, the TCA Partner Entities or TCA Management Co. to perform when
due in all material respects any of their respective covenants, agreements or
obligations in this Agreement, any Transaction Document or the Management
Agreement, or in the case of any agreement, covenant, or obligation, which is
by its terms is qualified by a limitation that performance need only be
material, any failure to perform such covenant, agreement or obligation.
(c) The party seeking indemnification under Sections 8.2 and
8.1 (the "Indemnified Party") agrees to give the party that would be obligated
to provide such indemnification (an "Indemnifying Party") prompt written notice
of any claim, assertion, event or proceeding by or in respect of a third party
of which it has knowledge concerning any liability or damage as to which it may
request indemnification hereunder. With respect to claims for indemnification
brought pursuant to this Section 8.2 and Section 8.1, the Indemnifying Party
shall have the right to direct, through
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counsel of its own choosing, the defense or settlement of any such claim or
proceeding at its own expense, which counsel shall be reasonably satisfactory
to the Indemnified Party. If the Indemnifying Party elects to assume the
defense of any such claim or proceeding pursuant to this Section 8.2 or Section
8.1, the Indemnified Party may participate in such defense, but in such case
the expenses of the Indemnified Party incurred in connection with such
participation shall be paid by the Indemnified Party; provided, however, that
the Indemnifying Party shall be responsible for such expenses if the
Indemnified Party reasonably concludes that counsel selected by the
Indemnifying Party has a conflict of interest. The Indemnified Party shall
cooperate with the Indemnifying Party in the defense or settlement of any such
claim, assertion, event or proceeding. If the Indemnifying Party elects not to
compromise or defend such claim or proceeding or contests its obligation to
indemnify under this Section 8.2, Section 8.1(b) or Section 8.1(c), the
Indemnified Party hereof may pay, compromise or defend such claim or proceeding
at the Indemnifying Party's expense. Notwithstanding the foregoing, neither
the Indemnifying Party nor the Indemnified Party may settle or compromise any
claim over the objection of the other; provided, however, that consent to
settlement or compromise shall not be unreasonably delayed or withheld.
(d) If the Partnership sells any of the TCI Systems, the
TCA Partner shall indemnify and hold the TCI Partner harmless from and against,
and shall reimburse, or cause to be reimbursed, the same for, all tax
liabilities associated with any gain attributed to the TCI Partner in excess of
an amount equal to (i) TCI Partner's Partnership Interest at the time of the
sale multiplied by (ii) the total gain relating to such sale. The foregoing
indemnification obligation shall be accomplished in a non-taxable or after tax
manner so that the TCI Partner shall not pay tax on any such reimbursement.
SECTION 8.3 SURVIVAL OF REPRESENTATIONS. All representations and
warranties contained in this Agreement or in any Schedule or Exhibit delivered
pursuant hereto shall terminate on the first anniversary of the Effective Time;
provided, however, that the representations and warranties set forth in
Sections 10.1(a), 10.1(b), 10.1(c), 10.1(d) and 10.1(f) and 10.2(a), 10.2(b),
10.2(c), 10.2(d) and 10.2(f) shall survive in perpetuity. Notwithstanding
anything to the contrary contained herein, all representations and warranties
made by the Partners in this Agreement or in any Schedule or Exhibit delivered
pursuant hereto, and the liability of any party with respect thereto, shall not
terminate with respect to any claim, whether or not fixed as to liability or
liquidated as to amount, with respect to which such party has been given
written notice stating the nature of the claim prior to the date on which any
such representation and warranty expires.
SECTION 8.4 DETERMINATION OF INDEMNIFICATION AMOUNTS AND RELATED
MATTERS.
(a) Neither Partner shall have any liability under
Sections 8.2(a) and (b) unless the aggregate amount of Losses subject to its
indemnification obligations thereunder exceeds $500,000 (the "Minimum Damage
Requirement") in which case the relevant Partner will be liable for all Losses;
provided that the Minimum Damage Requirement will not apply to any Losses
resulting or arising out of (i) the failure by either Partner, as applicable,
to pay any Tax or any
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franchise fee to any Governmental Authority when due or any other breach of
such party's representations, warranties, covenants or agreements with respect
to Tax matters contained in this Agreement, (ii) the failure by either Partner
to pay any copyright payments, including interest and penalties thereon, when
due or any other breach of such parties' representations, warranties, covenants
or agreements with respect to copyright payments contained in this Agreement,
(iii) any refund obligations to subscribers of the Systems for the period prior
to the relevant Effective Time based upon rules and regulations promulgated by
the FCC under the Cable Act, or any authoritative interpretation thereof, in
effect on or prior to the relevant Effective Time, including any penalties or
interest payments relating thereto or relating to any litigation described on
Schedule 10.1(i) (with respect to TCI Partner) or Schedule 10.2(i) (with
respect to TCA Partner) (the "Refund Obligation"), (iv) any breach of the
representations, warranties, covenants or agreements of either Party with
respect to any Environmental Law contained in this Agreement, and (v) any
Losses arising out of TCA Management Company's performance under the Management
Agreement. Neither Partner will have any liability under Section 8.2 to the
extent that the aggregate amount of Losses otherwise subject to its
indemnification obligations hereunder exceeds $31,500,000 (the "Cap");
provided, however, that the Cap shall not apply to any Losses resulting or
arising from any Refund Obligations.
(b) Amounts payable by the Indemnifying Party to the
Indemnified Party in respect of any Losses under Sections 8.2 will be payable
by the Indemnifying Party within five business days after the Indemnifying
Party receives notice of the Losses incurred by the Indemnified Party, and will
bear interest at the rate publicly announced from time to time by The Bank of
New York as its prime rate plus two percent (2%) per annum (the "Bank Rate")
from the date the Indemnifying Party receives notice of the Losses for which
indemnification is sought until the date of payment of indemnification by the
Indemnifying Party, if such indemnification payment is not made by the
Indemnifying Party within five business days after receiving notice of the
Indemnified Party's request for indemnification.
SECTION 8.5 EXCULPATION. Any Partner and any partner, officer,
employee, agent or affiliate of a Partner or the Partnership shall not be
liable to any Partner or the Partnership for mistakes of judgment or for action
or inaction which such Partner or any such partner, officer, employee, agent or
affiliate of such Partner or the Partnership reasonably believed to be in the
best interests of the Partnership unless such action or inaction constitutes
willful misconduct, bad faith, gross negligence or reckless disregard of his or
its duties, or criminal intent. Each Partner may (on its own behalf or on the
behalf of any partner, officer, employee, agent or affiliate thereof) consult
with counsel, accountants and other experts in respect of the Partnership's
affairs and such Partner (or such partner, officer, employee, agent or
affiliate thereof) shall be fully protected and justified in any action or
inaction which is taken in accordance with the advice or opinion of such
counsel, accountants or other experts, provided that they shall have been
selected with reasonable care. Notwithstanding any of the foregoing to the
contrary, the provisions of this Section 8.4 shall not be construed so as to
relieve (or attempt to relieve) a Partner and any partner, officer, employee,
agent or affiliate of a Partner or the Partnership of any liability, to the
extent (but only to the extent) that such liability may
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not be waived, modified or limited under applicable law, but shall be construed
so as to effectuate the provisions of this Section 8.4 to the fullest extent
permitted by law.
ARTICLE IX.
TERMINATION AND DISSOLUTION
SECTION 9.1 EVENTS OF DISSOLUTION. The Partnership shall dissolve
upon (i) bankruptcy, insolvency or appointment of a trustee or receiver to
manage the affairs of a Partner, (ii) dissolution being required by operation
of law (including the occurrence of an event specified under the laws of
Delaware as one effecting a dissolution) or judicial decree, (iii) the
unanimous written consent of the Partners, (iv) the sale, transfer or other
disposition of substantially all of the assets of the Partnership or (v) the
expiration of the term of the Partnership. Without the unanimous consent of
the Partners, each Partner agrees not to voluntarily withdraw as a Partner and
if any of such Partners effects such withdrawal in violation of this Agreement,
the Partnership may recover damages for breach of this Agreement. Upon
dissolution of the Partnership, a statement shall be prepared by the
accountants for the Partnership which sets forth the assets and liabilities of
the Partnership and a copy shall be distributed to each of the Partners and
then the Partnership Committee shall wind up the affairs of the Partnership
and, subject to the provisions of Section 9.2, use its best efforts to reduce
to cash or cash equivalents such assets of the Partnership as it deems
advisable, discharge the liabilities of the Partnership and terminate the
Partnership as a partnership. Notwithstanding the foregoing, the Partnership
Committee may unanimously determine not to sell all or any portion of the
assets and properties of the Partnership, in which event such assets and
properties shall be distributed in kind pursuant to Section 9.2.
SECTION 9.2 ORDER OF DISSOLUTION. In settling accounts after
dissolution, the assets of the Partnership shall be applied and distributed as
expeditiously as possible in the following order of priority:
(a) to the payment of the costs of winding up the affairs of,
liquidating and dissolving the Partnership, including, without limitation,
expenses of selling assets of the Partnership, discharging the liabilities of
the Partnership, distributing the assets of the Partnership and terminating the
Partnership as a partnership in accordance with Section 9.1 hereof;
(b) to creditors, including a Partner to the extent of any
outstanding loan or advance;
(c) to the establishment of reasonable reserves to provide
for any contingent or unforeseen liabilities or obligations to creditors;
(d) to the payment of all amounts owed to any Partner other
than loans, and then to loans to the Partnership made by Partners in proportion
to each Partner's Partnership Interest, provided that if the aggregate amount
of each Partner's outstanding loans, including accrued interest, shall not be
in the same proportion to the total of all outstanding loans of Partners as
each Partner's
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Partnership Interest, then payments hereunder shall be first applied to reduce
the loan balance of the Partner whose proportion of the outstanding loans is in
excess of its Partnership Interest until the outstanding loans of each Partner
are in proportion to their respective Partnership Interests; and
(e) to those Partners with positive Capital Account balances
(in proportion to such Capital Account balances) provided, however that if
items of Partnership property ("Distributable Property") are proposed to be
distributed in kind pursuant to a determination of the Partnership Committee
described in Section 7.2(b), the following procedure shall govern the amount of
the distribution to the respective Partners:
(i) A calculation shall be made of the gain or
loss ("deemed gain or loss") which would be realized for federal income tax
purposes by the Partnership with respect to the Distributable Property if it
were sold at Fair Market Value. For purposes of the distribution described in
this Section 9.2, such deemed gain or loss shall be allocated among the
Partners in accordance with the provisions of Article 6, as if such gain or
loss had been realized by the Partnership upon an actual sale of the
Distributable Property, and the Capital Accounts of the Partners shall be
adjusted in accordance with the provisions of Section 4.1(a) to reflect such
allocations;
(ii) Items of Distributable Property and other
Partnership assets available for distribution to the Partners shall be
distributed to the Partners in accordance with the positive Capital Accounts
balances as adjusted, distributions of items of Distributable Property being
accounted for on the basis of their respective Fair Market Values;
(iii) The determination of what items of such
Distributable Property are distributed to which Partner shall be determined and
mutually agreed to by the Partners.
SECTION 9.3 TIMING REQUIREMENTS. In the event the Partnership is
"liquidated" within the meaning of Treasury Regulations, Section
1.704-1(b)(2)(ii) (g) distributions shall be made pursuant to Section 9.2 to
the Partners who have positive Capital Account balances in compliance with
Treasury Regulations, Section 1.704-1(b)(2)(ii)(b)(2). If all Partners agree
in their sole discretion, a portion of the distribution that would otherwise be
made pursuant to the preceding sentence may be:
(a) distributed to a trust established for the benefit of the
Partners for the purposes of liquidating Partnership assets, collecting amounts
owed to the Partnership, and paying any contingent or unforeseen liabilities or
obligations of the Partnership arising out of or in connection with the
Partnership. The assets of any such trust shall be distributed to the Partners
from time to time, in the reasonable discretion of the trustee, in the same
proportions as the amount distributed to such trust by the Partnership would
otherwise have been distributed to the Partners pursuant to this Agreement; or
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(b) withheld to provide a reasonable reserve for Partnership
liabilities (contingent or otherwise) and to reflect the unrealized portion of
any installment obligations owed to the Partnership, provided that such
withheld amounts shall be distributed to the Partners as soon as practicable
and the other requirements of Treasury Regulations, Section
1.704-1(b)(2)(ii)(b) shall be met.
ARTICLE X.
REPRESENTATIONS AND WARRANTIES
SECTION 10.1 REPRESENTATIONS AND WARRANTIES OF TCI PARTNER. Except
as set forth on the TCI Partner Disclosure Schedules, TCI Partner hereby
represents and warrants as of the date of this Agreement and as of the
Effective Date to TCA Partner as follows, and acknowledges that TCA Partner is
relying on such representations and warranties in entering into this Agreement:
(a) Organization. TCI Partner is a limited partnership duly
formed and validly existing under the laws of the State of Colorado, and has
the partnership power and authority to cause the TCI Partner Entities to convey
the TCI Partner Systems to the TCI Partner and to execute and deliver this
Agreement and to consummate the transactions contemplated hereby.
(b) Authority. The execution and delivery of, the
consummation of the transactions contemplated by, and the performance of its
obligations under, this Agreement have been duly authorized by all necessary
action on TCI Partner's behalf.
(c) Execution and Delivery. This Agreement and any other
agreements or instruments executed and delivered pursuant hereto to which TCI
Partner or the TCI Partner Entities are parties that have been (or, when
executed and delivered, will be) duly executed and delivered by, and constitute
(or, when executed and delivered, will constitute) legal, valid and binding
obligations of it enforceable against TCI Partner or the TCI Partner Entities
in accordance with their terms, subject as to enforcement to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application, both at law and in equity, affecting the rights of creditors
generally.
(d) No Violations. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby
will (i) violate, conflict with or result in any breach of any provision of the
certificate of incorporation, bylaws or partnership agreements of TCI Partner
or the TCI Partner Entities, (ii) violate, conflict with, result in a breach of
any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination or in a right of termination or cancellation of, or accelerate the
performance required by, any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, lease, contract, agreement or other instrument or
commitment or obligation to which TCI Partner or the TCI Partner Entities or
any of their properties may be bound or affected or to which they are party or
bound or result in the creation of any Lien upon any of the properties included
in the TCI Partner Assets or (iii) violate any order, writ, injunction, decree,
judgment, ruling, law,
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notice of violation, rule or regulation of any court, public body or authority
or any other restriction of any kind or character, applicable to TCI Partner or
the TCI Partner Entities or any of the TCI Partner Assets.
(e) Consents and Approvals. Except as set forth on Schedule
1.3 hereto, there is no requirement applicable to TCI Partner to make any
filing with, or to obtain any permit, authorization or consent or approval of,
any governmental or regulatory authority as a condition to the lawful
consummation of the transactions contemplated hereby.
(f) Title to Properties; Encumbrances.
(i) Schedule 10.1(f)(i) contains descriptions of all
owned Real Property and Schedule 1.1 contains description of all material items
of leased Real Property included in the TCI Partner Assets, which comprise all
material items of Real Property used by TCI Partner or the TCI Partner Entities
to operate the TCI Partner Systems. Except as described in the following
sentence or in Schedule 10.1(f)(i), TCI Partner or the TCI Partner Entities has
good title to (or in the case of leased assets, a valid leasehold interest in)
all of the property included in the TCI Partner Assets and validly holds all
necessary state, local and federal authorizations, including FCC licenses or
permits, and local franchises required to operate the TCI Partner Systems in
the manner in which they are currently being operated and the issuance of such
authorizations are no longer subject to administrative or judicial review. None
of such properties or assets is subject to any Lien of any kind (whether
absolute, accrued, contingent or otherwise), except (a) as set forth in
Schedule 10.1(f)(i) hereto ("TCI Permitted Liens"), and (b) minor imperfections
of title and encumbrances, if any, which are not substantial in amount, do not
materially detract from the value of the property or assets subject thereto and
do not impair the operation of the TCI Partner Systems. When considered as a
whole, the TCI Partner Assets are in good working condition. All items of
cable plant and headend equipment included in the TCI Partner Assets (a) have
been maintained in a manner consistent with generally accepted standards of
good engineering practice and (b) will permit the TCI Partner Systems to
operate in all material respects substantially as they are being operated on
the date of this Agreement and in accordance with the terms of all applicable
TCI Partner Franchises and Licenses.
(ii) Schedule 10.1(f)(ii) sets forth a true and
complete list of all of the TCI Partner Franchises and Licenses. Each of the
TCI Partner Franchises and Licenses listed on Schedule 10.1(f)(ii) is valid and
in full force and effect. No event has occurred with respect to any of the
authorizations which permits, or after notice or lapse of time would permit,
revocation or termination thereof or would result in any other material
impairment of the rights of the holder of such authorizations that would have a
material adverse effect on the business of the holder of such authorization.
With respect to the TCI Partner Franchises and Licenses, TCI Partner or the TCI
Partner Entities have duly and timely filed as required by the appropriate
franchising authorities all appropriate valid requests for renewal under the
Communications Act within 30 to 36 months prior to the expiration of each of
the TCI Partner Franchises and Licenses. Except as disclosed in
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Schedule 10.1(f)(ii) hereto, each of the TCI Partner Systems is currently in
compliance in all material respects with all of the TCI Partner Franchises and
Licenses.
(g) Financial Information. TCI Partner has delivered, or
caused to be delivered, to TCA Partner an unaudited balance sheet of each of
the TCI Partner Systems as of December 31, 1996 and unaudited statements of
operations of each of the TCI Partner Systems for the year ended December 31,
1996. The statements of operations and the balance sheet were prepared in
accordance with generally accepted accounting principles, consistent with past
practice and present fairly the results of operations and financial condition
of the TCI Partner Systems as of and for the periods indicated.
(h) No Adverse Change. Since July 31, 1997, (i) there has
not been any material adverse change in the TCI Partner Assets or in the
financial condition or operation of the TCI Partner Systems, (ii) the TCI
Partner Assets and the financial condition and operations of the TCI Partner
Systems have not been materially and adversely affected as a result of any
fire, explosion, accident, casualty, labor trouble, flood, drought, riot,
storm, condemnation or otherwise and (iii) the TCI Partner Systems have been
conducted only in the ordinary course of business consistent with past
practices.
(i) Litigation. Except as set forth on Schedule 10.1(i)
hereto, there is no suit, action, charge, claim, inquiry, investigation or
proceeding pending or, to the best knowledge of TCI Partner, threatened against
or affecting the TCI Partner Systems or the ability of TCI Partner or the TCI
Partner Systems to perform their obligations under this Agreement, nor, to the
best knowledge of TCI Partner, is there any valid basis for any such suit,
action, charge, claim, inquiry, investigation or proceeding, nor is there any
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
affecting the TCI Partner Systems.
(j) Compliance with Legal Requirements. Each of TCI Partner
and the TCI Partner Entities own and operate, and have owned and operated,
their properties and assets, and carry on and conduct, and has carried on and
conducted, their business in material compliance with all current federal,
foreign, state or local laws, statutes, ordinances, rules or regulations
(including the Communications Act, the Copyright Act and the Cable Act and the
rules and regulations promulgated thereunder) or any court or administrative
order or process. Notwithstanding the foregoing, the TCI Partner has used
reasonable good faith efforts to comply in all material respects with the
provisions of the Cable Act as such Legal Requirements relate to the operation
of TCI Partner's Cable Business. TCI Partner and the TCI Partner Entities have
complied in all material respects with the must carry and retransmission
consent provisions of the Cable Act as they relate to the TCI Partner Systems.
TCI Partner and TCI Partner Entity have used reasonable good faith efforts to
establish rates charged to subscribers, effective since September 1, 1993, that
are or were allowable under the 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
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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 Cable Act other than the failure of any franchising authority
to have been certified to regulate rates. Notwithstanding the foregoing, TCI
Partner makes no representation or warranty that the rates charged to
subscribers would be allowable under any rules and regulations of the FCC or
any authoritative interpretation thereof, promulgated after the Effective Time.
TCI Partner has delivered, or caused to be delivered, to TCA Partner complete
and correct copies of all FCC Forms 393, 1200, 1205, 1210, 1215, 1220, 1225,
1235 and 1240 filed with respect to the TCI Partner Systems, copies of all
other FCC Forms filed by TCI Partner or any TCI Partner Entity and of all
correspondence with any Governmental Authority relating to rate regulation
generally or specific rates charged to subscribers with respect to TCI Partner
Systems, including copies of any complaints filed with the FCC with respect to
any rates charged to subscribers of the TCI Partner Systems, and any other
documentation supporting an exemption from the rate regulation provisions of
the Cable Act claimed by TCI Partner or the TCI Partner Entities with respect
to any of the TCI Partner Systems. Except as described on Schedule 10.1(j),
neither TCI Partner nor the TCI Partner Entities have received any notice from
any Governmental Authority with respect to an intention to enforce customer
service standards pursuant to the Cable Act and neither TCI Partner nor the TCI
Partner Entities has agreed with any Governmental Authority to establish
customer service standards that exceed the FCC standards promulgated pursuant
to the Cable Act. Neither TCI Partner nor the TCI Partner Entities has made
any Cost of Service Election with respect to any of the TCI Partner Systems.
(k) Environmental Matters.
(i) TCI Partner and the TCI Partner Entities are in
compliance in all material respects with all applicable Environmental Laws
applicable to the TCI Partner Systems. To the best knowledge of TCI Partner,
there are no circumstances that may prevent or interfere with compliance with
such Environmental Laws in all material respects in the future. Neither TCI
Partner nor the TCI Partner Entities have received any communication (written
or oral), whether from a governmental authority, citizens group, employee or
otherwise, that alleges that TCI Partner or any of the TCI Partner Entities is
not in full compliance with Environmental Laws applicable to the TCI Partner
Systems. All material permits and other governmental authorizations applicable
to the TCI Partner Systems currently held by TCI Partner pursuant to the
Environmental Laws are identified in Schedule 10.1(k)(i).
(ii) Except as set forth on Schedule 10.1(k)(ii)
hereto, there is no Environmental Claim pending or threatened against TCI
Partner or any of the TCI Partner Entities with respect to the TCI Partner
Systems or, to the best knowledge of TCI Partner, against any person or entity
whose liability for any Environmental Claims TCI Partner or any of the TCI
Partner Entities has or may have retained or assumed either contractually or by
operation of law.
(iii) Except as set forth on Schedule 10.1(k)(iii)
hereto, to the best knowledge of TCI Partner, there are no past or present
actions, activities, circumstances, conditions, events or
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incidents, including, without limitation, the release, emission, discharge or
disposal of any Material of Environmental Concern, that could form the basis of
any Environmental Claim against TCI Partner or any of the TCI Partner Entities
with respect to the TCI Partner Systems or against any person or entity whose
liability for any Environmental Claim TCI Partner has or may have retained or
assumed either contractually or by operation of law.
(iv) Without in any way limiting the generality of
the foregoing, (a) to the best knowledge of TCI Partner, all on-site and
off-site locations where TCI Partner or any of the TCI Partner Entities has
stored or disposed Materials of Environmental Concern in connection with the
TCI Partner Systems are identified in Schedule 10.1(k)(iv), (b) to the best
knowledge of TCI Partner, no underground storage tanks are located on property
owned or leased by TCI Partner with respect to the TCI Partner Systems, (c) to
the best knowledge of TCI Partner, except as set forth on Schedule 10.1(k)(iv),
there is no asbestos contained in or forming part of any building, building
component, structure or office space owned or leased by TCI Partner or any of
the TCI Partner Entities with respect to the TCI Partner Systems in violation
of any applicable Environmental Laws, and (d) to the best knowledge of TCI
Partner, except as set forth on Schedule 10.1(k)(iv), no polychlorinated
biphenyls (PCBs) are used or stored at any property owned or leased by TCI
Partner or any of the TCI Partner Entities with respect to the TCI Partner
Systems in violation of any applicable Environmental Laws.
(l) TCI Partner Assets Necessary to TCI Partner Systems. The
TCI Partner Assets include all rights, properties, leases, licenses, permits,
contracts and equipment and other assets necessary to permit the Partnership to
operate the TCI Partner Systems as presently operated, and other than the TCI
Partner Assets being transferred to the Partnership at the Effective Time and
the TCI Partner Excluded Assets, there are no other assets or properties owned
by TCI Partner or any affiliate, stockholder or third party which are
reasonably necessary to operate the TCI Partner Systems as presently operated.
(m) Taxes. TCI Partner and the TCI Partner Entities have
duly and timely filed or caused to be filed, or will file or cause to be filed,
in correct form, all federal, state, local and foreign tax returns required to
be filed by it with respect to or which include the TCI Partner Systems on or
prior to the Effective Time (all such returns being true correct and complete)
and has duly paid all Taxes due or claimed to be due from it from any taxing
authority with respect to or imposed upon the TCI Partner Systems for any
period on or prior to the Effective Time, other than Taxes that are being
contested in good faith through appropriate proceedings and for which an
adequate accrual has been established. Neither the TCI Partner nor the TCI
Partner Entities have received any notice of, nor does TCI Partner 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, any of the TCI Partner Assets.
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(n) ERISA.
(i) Schedule 10.1(n) hereto sets forth a true and
complete list of each employee benefit plan, program, arrangement or agreement
to which TCI Partner or any of the TCI Partner Entities has any liability or in
which any employees (current or former) of TCI Partner or any of the TCI
Partner Entities participate (the "TCI Partner Plans"). For purposes of the
foregoing, the TCI Partner Plan shall include those of any trade or business,
whether or not incorporated, which together with TCI Partner would be deemed a
"single employer" within the meaning of section 4001 of ERISA. A copy of each
TCI Partner Plan has been made available to TCA.
(ii) Each of the TCI Partner Plans has been written,
operated and administered in substantial compliance with all applicable laws
(including, without limitation, ERISA and the Code); each of the TCI Partner
Plans intended to be "qualified" within the meaning of section 401(a) of the
Code is so qualified; no TCI Partner Plan is subject to section 412 of the Code
or to Title IV of ERISA.
(iii) All contributions or other amounts due and
payable from TCI Partner or any of the TCI Partner Entities to (or under) any
TCI Partner Plan prior to the Effective Time have been, or will be, paid on or
before the Effective Time. There are no pending, threatened or anticipated
claims (other than routine claims for benefits) by, on behalf of or against any
of the TCI Partner Plans or any trusts related thereto.
(iv) No TCI Partner Plan provides benefits
(including, without limitation, death or medical benefits, whether or not
insured) to the current or former employees covered thereunder after their
retirement or other termination of service (other than (i) coverage mandated by
applicable law, (ii) death benefits or retirement benefits under any
tax-qualified retirement plan, or (iii) benefits the costs of which are borne
by the employee (or the employee's beneficiary)).
(v) The consummation of the transactions contemplated
by this Agreement will not accelerate the time of payment or vesting under any
TCI Partner Plan and will not increase the amount of compensation payable to
any employee covered thereunder.
(o) Employees.
(i) There are no collective bargaining agreements
applicable to any persons employed by TCI Partner or any of the TCI Partner
Entities that render services in connection with the TCI Partner Systems, and
neither TCI Partner nor the TCI Partner Entities has any duty to bargain with
any labor organization with respect to any such persons. There are not pending
any unfair labor practice charges against TCI Partner, nor any demand for
recognition, or any other request or demand from a labor organization for
representative status with respect to any persons employed by TCI Partner or
any of the TCI Partner Entities that render services in connection with the TCI
Partner Systems.
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(ii) TCI Partner is not a party to any employment
agreement, written or oral, relating to employees of the TCI Partner Systems
which cannot be terminated at will by TCI Partner and, except as set forth on
Schedule 10.1(o), TCI Partner has not had and does not currently have any
pension or profit sharing or other employee benefit plan relating to employees
of the Systems.
(p) TCI Partner Systems Information. Schedule 10.1(p) sets
forth a materially true and accurate description of the following information
relating to TCI Partner's Cable Business as of the date of the most recent
monthly report generated by TCI Partner in the ordinary course of business
containing the information required to prepare such Schedule 10.1(p) provided
that such date is no earlier than two months prior to the date of this
Agreement:
(i) the approximate number of miles of plant
included in the TCI Partner Assets;
(ii) the number of subscribers and subscriber
equivalents served by the TCI Partner Systems;
(iii) the approximate number of single family homes
and residential dwelling units passed by the TCI Partner Systems;
(iv) a description of basic and optional or tier
services available from the TCI Partner Systems, the rates charged for each and
the number of subscribers and subscriber equivalents receiving each optional or
tier service;
(v) the stations and signals carried by the TCI
Partner Systems and the channel position of each such signal and station;
(vi) the cities, towns, villages, boroughs and
counties served by the TCI Partner Systems; and
(vii) the MHZ capacity and channel capacity of each
of the TCI Partner Systems.
(q) Accounts Receivable. TCI Partner's and TCI Partner
Entities' accounts receivable are actual and bona fide receivables representing
obligations for the total dollar amount of such receivables, as shown on the
books of TCI Partner and TCI Partner Entities, that resulted from the regular
course of TCI Partner's Cable Business. Such receivables are fully collectible
in accordance with their terms and are subject to no offset or reduction of any
nature, except for a reserve for uncollectible amounts consistent with the
reserve established by TCI Partner and the TCI Partner Entities, as applicable
in TCI Partner's Financial Statements and those credits or reductions made to
such accounts in the ordinary course of business.
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(r) Bonds. Except as set forth on Schedule 10.1(r), there
are no franchise, construction, fidelity, performance, or other bonds or
letters of credit posted by TCI Partner in connection with its operation or
ownership of any of the TCI Partner Systems or TCI Partner Assets.
(s) Finders and Brokers. Except for Daniels & Associates,
neither TCI Partner nor any Affiliate thereof has 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 the Partnership or the
TCI Partner could be liable.
SECTION 10.2 REPRESENTATIONS AND WARRANTIES OF TCA PARTNER. Except
as set forth on the TCA Partner Disclosure Schedules, TCA Partner hereby
represents and warrants as of the date of this Agreement and as of the
Effective Date to TCI Partner as follows, and acknowledges that TCI Partner is
relying on such representations and warranties in entering into this Agreement:
(a) Organization. TCA Partner is a limited partnership duly
organized and validly existing under the laws of the State of Texas and has the
power and authority to convey the TCA Partner Systems to the Partnership
pursuant to Section 4.2 of this Agreement and to execute and deliver this
Agreement and to consummate the transactions contemplated hereby.
(b) Authority. The execution and delivery of this Agreement
and the consummation of the transactions contemplated by, and the performance
of its obligations under, this Agreement, have been duly authorized by all
necessary corporate action on TCA Partner's behalf.
(c) Execution and Delivery. This Agreement and any other
agreements or instruments executed and delivered pursuant hereto to which TCA,
TCA Partner or the TCA Partner Entities are parties have been (or, when
executed and delivered, will be) duly executed and delivered by, and constitute
(or, when executed and delivered, will constitute) legal, valid and binding
obligations of it enforceable against TCA, TCA Partner or the TCA Partner
Entities in accordance with their terms, subject as to enforcement to
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application, both at law and in equity, affecting the rights of
creditors generally.
(d) No Violations. Neither the execution and delivery of
this Agreement nor the consummation of the transactions contemplated hereby
will (i) violate, conflict with or result in any breach of any provision of the
certificate of incorporation, bylaws or partnership agreements of TCA, TCA
Partner and the TCA Partner Entities, (ii) violate, conflict with, result in a
breach of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result
in the termination or in a right of termination or cancellation of, or
accelerate the performance required by, any note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, lease, contract, agreement or other
instrument or commitment or obligation to which TCA, TCA Partner or the TCA
Partner Entities or any of their respective properties may be
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bound or affected or to which they are parties or are bound or result in the
creation of any Lien upon any of the properties included in the TCA Partner
Assets or (iii) violate any order, writ, injunction, decree, judgment, ruling,
law, notice of violation, rule or regulation of any court, public body or
authority or any other restriction of any kind or character, applicable to TCA,
TCA Partner or the TCA Partner Entities or any of the TCA Partner Assets.
(e) Consents and Approvals. Except as set forth on Schedule
1.3 hereto, there is no requirement applicable to TCA, TCA Partner or the TCA
Partner Entities to make any filing with, or to obtain any permit,
authorization or consent or approval of, any governmental or regulatory
authority as a condition to the lawful consummation of the transactions
contemplated hereby.
(f) Title to Properties; Encumbrances.
(i) Schedule 10.2(f)(i) contains descriptions of all
Owned Real Property and Schedule 1.1 contains description of all material items
of leased Real Property included in the TCA Partner Assets, which comprise all
material items of Tangible Personal Property and Real Property used by TCA, TCA
Partner or the TCA Partner Entities to operate the TCA Partner Systems. Except
as described in the following sentence, TCA, TCA Partner or the TCA Partner
Entities have good title to (or in the case of leased assets, a valid leasehold
interest in) all of the property included in the TCA Partner Assets and validly
hold all necessary state, local and federal authorizations, including FCC
licenses or permits, and local franchises required to operate the TCA Partner
Systems in the manner in which they are currently being operated and the
issuance of such authorizations are no longer subject to administrative or
judicial review. None of such properties or assets is subject to any Lien of
any kind (whether absolute, accrued, contingent or otherwise), except (a) as
set forth in Schedule 10.2(f)(i) hereto ("TCA Permitted Liens"), and (b) minor
imperfections of title and encumbrances, if any, which are not substantial in
amount, do not materially detract from the value of the property or assets
subject thereto and do not impair the operation of the TCA Partner Systems.
When considered as a whole the TCA Partner Assets are in good working
condition. All items of cable plant and headend equipment included in the TCA
Partner Assets (a) have been maintained in a manner consistent with generally
accepted standards of good engineering practice and (b) will permit the TCA
Partner Systems to operate in all material respects substantially as they are
being operated on the date of this Agreement and in accordance with the terms
of the TCA Partner Franchises and Licenses.
(ii) Schedule 10.2(f)(ii) sets forth a true and
complete list of all of the TCA Partner Franchises and Licenses. Each of the
TCA Partner Franchises and Licenses listed on Schedule 10.2(f)(ii) is valid and
in full force and effect. No event has occurred with respect to any of the
authorizations which permits, or after notice or lapse of time would permit,
revocation or termination thereof or would result in any other material
impairment of the rights of the holder of such authorizations that would have a
material adverse effect on the business of the holder of such authorization.
With respect to the TCA Partner Franchises and Licenses, TCA, TCA Partner or
the TCA Partner Entities have filed as required by the appropriate franchising
authorities all appropriate requests for
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renewal under the Communications Act, within 30 to 36 months prior to the
expiration of each of the TCA Partner Franchises and Licenses, with respect to
the TCA Partner Franchises and Licenses. Except as disclosed in Schedule
10.2(f)(ii) hereto, each of the TCA Partner Systems is currently in compliance
in all material respects with all of the TCA Partner Franchises and Licenses.
No party holding any such FCC authorization has any knowledge that any of its
authorizations listed on Schedule 10.2(f)(ii) will not be renewed in the
ordinary course or, where applicable, the facilities regulated by such
authorization will not be constructed and put into commercial service within
the applicable time period.
(g) Financial Information. TCA Partner has delivered, or
caused to be delivered, to TCI Partner an unaudited balance sheet of each of
the TCA Partner Systems as of December 31, 1996 and unaudited statements of
operations of each of the TCA Partner Systems for the year ended December 31,
1996. The statements of operations and the balance sheet were prepared in
accordance with generally accepted accounting principles, consistent with past
practice and present fairly the results of operations and financial condition
of the TCA Partner Systems as of and for the periods indicated.
(h) No Adverse Change. Since July 31, 1997, (i) there has not
been any material adverse change in the TCA Partner Assets or in the financial
condition or operation of the TCA Partner Systems, and (ii) the TCA Partner
Assets and the financial condition and operations of the TCA Partner Systems
have not been materially and adversely affected as a result of any fire,
explosion, accident, casualty, labor trouble, flood, drought, riot, storm,
condemnation or otherwise and (iii) the TCA Partner Systems have been conducted
only in the ordinary course of business consistent with past practices.
(i) Litigation. Except as set forth on Schedule 10.2(i)
hereto, there is no suit, action, charge, claim, inquiry, investigation or
proceeding pending or, to the best knowledge of TCA Partner, threatened against
or affecting the TCA Partner Systems or the ability of TCA, TCA Partner or the
TCA Partner Entities to perform their obligations under this Agreement, nor, to
the best knowledge of TCA Partner, is there any valid basis for any such suit,
action, charge, claim, inquiry, investigation or proceeding, nor is there any
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or arbitrator outstanding
affecting the TCA Partner Systems.
(j) Compliance with Legal Requirements. TCA, TCA Partner and
the TCA Partner Entities own and operate, and have owned and operated, their
properties and assets, and carry on and conduct, and have carried on and
conducted, their business in material compliance with all current federal,
foreign, state or local laws, statutes, ordinances, rules or regulations
(including the Communications Act, the Copyright Act and the Cable Act and the
rules and regulations promulgated thereunder) or any court or administrative
order or process. Notwithstanding the foregoing, the TCA Partner and each of
the TCA Partner Entities has used reasonable good faith efforts to comply in
all material respects with the provisions of the Cable Act as such Legal
Requirements relate to the
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operation of TCA Partner's Cable Business. TCA Partner and the TCA Partner
Entities have complied in all material respects with the must carry and
retransmission consent provisions of the Cable Act as they relate to the TCA
Partner Systems. TCA Partner and TCA Partner Entities have used reasonable
good faith efforts to establish rates charged to subscribers, effective since
September 1, 1993, that are or were allowable under the 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 Cable Act other than the failure of any
franchising authority to have been certified to regulate rates.
Notwithstanding the foregoing, TCA Partner makes no representation or warranty
that the rates charged to subscribers would be allowable under any rules and
regulations of the FCC or any authoritative interpretation thereof, promulgated
after the Effective Time. TCA Partner has delivered, or caused to be
delivered, to TCI Partner complete and correct copies of all FCC Forms 393,
1200, 1205, 1210, 1215, 1220, 1225, 1235 and 1240 filed with respect to the TCA
Partner Systems, copies of all other FCC Forms filed by TCA Partner or any TCA
Partner Entity and of all correspondence with any Governmental Authority
relating to rate regulation generally or specific rates charged to subscribers
with respect to TCA Partner Systems, including copies of any complaints filed
with the FCC with respect to any rates charged to subscribers of the TCA
Partner Systems, and any other documentation supporting an exemption from the
rate regulation provisions of the Cable Act claimed by TCA Partner or the TCA
Partner Entities with respect to any of the TCA Partner Systems. Except as
described on Schedule 10.1(j), neither TCA Partner nor the TCA Partner Entities
have received any notice from any Governmental Authority with respect to an
intention to enforce customer service standards pursuant to the Cable Act and
neither TCA Partner nor the TCA Partner Entities has agreed with any
Governmental Authority to establish customer service standards that exceed the
FCC standards promulgated pursuant to the Cable Act. TCA Partner has not made
any Cost of Service Election with respect to any of the TCA Partner Systems.
(k) Environmental Matters.
(i) TCA, TCA Partner and the TCA Partner Entities
are in compliance in all material respects with all applicable Environmental
Laws applicable to the TCA Partner Systems. To the best knowledge of TCA
Partner, there are no circumstances that may prevent or interfere with
compliance with such Environmental Laws in all material respects in the future.
None of TCA, TCA Partner or the TCA Partner Entities has received any
communication (written or oral), whether from a governmental authority,
citizens group, employee or otherwise, that alleges that TCA, TCA Partner or
the TCA Partner Entities are not in full compliance with Environmental Laws
applicable to the TCA Partner Systems. All material permits and other
governmental authorizations applicable to the TCA Partner Systems currently
held by TCA, TCA Partner and the TCA Partner Entities pursuant to the
Environmental Laws are identified in Schedule 10.2(k)(i).
(ii) Except as set forth on Schedule 10.2(k)(ii)
hereto, there is no Environmental Claim pending or threatened against TCA, TCA
Partner or the TCA Partner Entities with
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respect to the TCA Partner Systems or, to the best knowledge of TCA Partner,
against any person or entity whose liability for any Environmental Claims TCA,
TCA Partner or the TCA Partner Entities have or may have retained or assumed
either contractually or by operation of law.
(iii) Except as set forth on Schedule 10.2(k)(iii)
hereto, to the best knowledge of TCA Partner, there are no past or present
actions, activities, circumstances, conditions, events or incidents, including,
without limitation, the release, emission, discharge or disposal of any
Material of Environmental Concern, that could form the basis of any
Environmental Claim against TCA, TCA Partner or the TCA Partner Entities with
respect to the TCA Partner Systems or against any person or entity whose
liability for any Environmental Claim TCA, TCA Partner or the TCA Partner
Entities have or may have retained or assumed either contractually or by
operation of law.
(iv) Without in any way limiting the generality of
the foregoing, (a) to the best knowledge of TCA Partner, all on-site and
off-site locations where TCA, TCA Partner or the TCA Partner Entities have
stored or disposed Materials of Environmental Concern in connection with the
TCA Partner Systems are identified in Schedule 10.2(k)(iv), (b) to the best
knowledge of TCA Partner, no underground storage tanks are located on property
owned or leased by TCA, TCA Partner or the TCA Partner Entities with respect to
the TCA Partner Systems, (c) to the best knowledge of TCA Partner, except as
set forth on Schedule 10.2(k)(iv), there is no asbestos contained in or forming
part of any building, building component, structure or office space owned or
leased by TCA, TCA Partner or the TCA Partner Entities with respect to the TCA
Partner Systems in violation of any applicable Environmental Laws, and (d) to
the best knowledge of TCA Partner, except as set forth on Schedule 10.2(k)(iv),
no polychlorinated biphenyls (PCBs) are used or stored at any property owned or
leased by TCA, TCA Partner or the TCA Partner Entities with respect to the TCA
Partner Systems in violation of any applicable Environmental Laws.
(l) TCA Partner Assets Necessary to TCA Partner Systems. The
TCA Partner Assets include all rights, properties, leases, licenses, permits,
contracts and equipment and other assets necessary to permit the Partnership to
operate the TCA Partner Systems as presently operated, and other than the TCA
Partner Assets being transferred to the Partnership at the Effective Time and
the TCA Partner Excluded Assets, there are no other assets or properties owned
by TCA, TCA Partner or the TCA Partner Entities or any affiliate, stockholder
or third party which are reasonably necessary to operate the TCA Partner
Systems as presently operated.
(m) Taxes. TCA, TCA Partner or the TCA Partner Entities have
duly and timely filed or caused to be filed, or will file or cause to be filed,
in correct form, all federal, state, local and foreign tax returns required to
be filed by them with respect to or which include the TCA Partner Systems on or
prior to the Effective Time (all such returns being true correct and complete)
and have duly paid all Taxes due or claimed to be due from them from any taxing
authority with respect to or imposed upon the TCA Partner Systems for any
period on or prior to the Effective Time, other than Taxes that are being
contested in good faith through appropriate proceedings and for which an
adequate accrual has been established. TCA Partner has not received any notice
of, nor does TCA
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Partner 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, any of the TCA
Partner Assets.
(n) ERISA
(i) Schedule 10.2(n) hereto sets forth a true and
complete list of each employee benefit plan, program, arrangement or agreement
to which TCA Partner has any liability or in which any employees (current or
former) of TCA Partner participate (the "TCA Partner Plans"). For the purposes
of the foregoing, the TCI Partner Plan shall include those of any trade or
business, whether or not incorporated, which together with TCA, TCA Partner or
the TCA Partner Entities would be deemed a "single employer" within the meaning
of section 4001 of ERISA. A copy of each TCA Partner Plan has been made
available to TCI Partner.
(ii) Each of the TCA Partner Plans has been written,
operated and administered in substantial compliance with all applicable laws
(including, without limitation, ERISA and the Code); each of the TCA Partner
Plans intended to be "qualified" within the meaning of Section 401(a) of the
Code is so qualified; no TCA Partner Plan is subject to section 412 of the Code
or to Title IV of ERISA.
(iii) All contributions or other amounts due and
payable from TCA, TCA Partner or the TCA Partner Entities to (or under) any TCA
Partner Plan prior to the Effective Time have been, or will be, paid on or
before the Effective Time. There are no pending, threatened or anticipated
claims (other than routine claims for benefits) by, on behalf of or against any
of the TCA Partner Plans or any trusts related thereto.
(iv) No TCA Partner Plan provides benefits
(including, without limitation, death or medical benefits, whether or not
insured) to the current or former employees covered thereunder after their
retirement or other termination of service (other than (i) coverage mandated by
applicable law, (ii) death benefits or retirement benefits under any
tax-qualified retirement plan, or (iii) benefits the costs of which are borne
by the employee (or the employee's beneficiary)).
(v) The consummation of the transactions
contemplated by this Agreement will not accelerate the time of payment or
vesting under any TCA Partner Plan and will not increase the amount of
compensation payable to any employee covered thereunder.
(vi) There are no collective bargaining agreements
applicable to any persons employed by TCA, TCA Partner or the TCA Partner
Entities that render services in connection with the TCA Partner Systems, and
none of TCA, TCA Partner or the TCA Partner Entities has any duty to bargain
with any labor organization with respect to any such persons. There are not
pending any unfair labor practice charges against TCA, TCA Partner or the TCA
Partner Entities, nor any demand for recognition, or any other request or
demand from a labor organization for representative status
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with respect to any persons employed by TCA, TCA Partner or the TCA Partner
Entities that render services in connection with the TCA Partner Systems.
(vii) Except as set forth on Schedule 10.2(n), none
of TCA, TCA Partner or the TCA Partner Entities is a party to any employment
agreement, written or oral, relating to employees of the TCA Partner Systems
which cannot be terminated at will by TCA, TCA Partner or the TCA Partner
Entities and, except as set forth on Schedule 10.2(n), none of TCA, TCA Partner
or the TCA Partner Entities has had or currently has any pension or profit
sharing or other employee benefit plan relating to employees of the Systems.
(o) Employees.
(i) There are no collective bargaining agreements
applicable to any persons employed by TCA Partner or any of the TCA Partner
Entities that render services in connection with the TCA Partner Systems, and
neither TCA Partner nor the TCA Partner Entities has any duty to bargain with
any labor organization with respect to any such persons. There are not pending
any unfair labor practice charges against TCA Partner, nor any demand for
recognition, or any other request or demand from a labor organization for
representative status with respect to any persons employed by TCA Partner or
any of the TCA Partner Entities that render services in connection with the TCA
Partner Systems.
(ii) TCA Partner is not a party to any employment
agreement, written or oral, relating to employees of the TCA Partner Systems
which cannot be terminated at will by TCA Partner and, except as set forth on
Schedule 10.2(o), TCI Partner has not had and does not currently have any
pension or profit sharing or other employee benefit plan relating to employees
of the Systems.
(p) TCI Partner Systems Information. Schedule 10.2(p) sets
forth a materially true and accurate description of the following information
relating to TCA Partner's Cable Business as of the date of the most recent
monthly report generated by TCA Partner in the ordinary course of business
containing the information required to prepare such Schedule 10.2(p) provided
that such date is no earlier than two months prior to the date of this
Agreement:
(i) the approximate number of miles of plant
included in the TCA Partner Assets;
(ii) the number of subscribers and subscriber
equivalents served by the TCA Partner Systems;
(iii) the approximate number of single family homes
and residential dwelling units passed by the TCA Partner Systems;
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(iv) a description of basic and optional or tier
services available from the TCA Partner Systems, the rates charged for each
and the number of subscribers and subscriber equivalents receiving each
optional or tier service;
(v) the stations and signals carried by the TCA
Partner Systems and the channel position of each such signal and station;
(vi) the cities, towns, villages, boroughs and
counties served by the TCA Partner Systems; and
(vii) the MHZ capacity and channel capacity of each
of the TCA Partner Systems.
(q) Accounts Receivable. TCA Partner's and each of the TCA
Partner Entities' accounts receivable are actual and bona fide receivables
representing obligations for the total dollar amount of such receivables, as
shown on the books of TCA Partner or TCA Partner Entities, that resulted from
the regular course of TCA Partner's Cable Business. Such receivables are fully
collectible in accordance with their terms and are subject to no offset or
reduction of any nature, except for a reserve for uncollectible amounts
consistent with the reserve established by TCA Partner or TCA Partner Entities,
as applicable, in TCA Partner's Financial Statements and those credits or
reductions made to such accounts in the ordinary course of business.
(r) Bonds. Except as set forth on Schedule 10.2(r), there
are no franchise, construction, fidelity, performance, or other bonds or
letters of credit posted by TCA Partner in connection with its operation or
ownership of any of the TCA Partner Systems or TCA Partner Assets.
(s) Finders and Brokers. Except for Daniels & Associates,
neither TCA Partner nor any Affiliate thereof has 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 the Partnership or the
TCA Partner could be liable.
SECTION 10.3 REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP. The
Partnership hereby represents and warrants to the Partners, and acknowledges
that the Partners are relying on such representations and warranties in
entering into this Agreement:
(a) Organization. As of Closing and after filing all necessary
filings, the Partnership will be a general partnership validly existing under
the laws of the State of Delaware, and will have the power and authority to own
and operate the Systems.
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(b) Telephony Restrictions. Upon the date of the contribution of
the Assets contemplated hereby, the Partnership will not own, manage or
otherwise control any business which engages in the wireless or wireline
business or provides wireless or wireline services.
ARTICLE XI.
COVENANTS
SECTION 11.1 ACCESS TO PREMISES AND RECORDS. Between the date of
this Agreement and the Effective Date, each Partner (a) will give or cause to
be given 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 of its Assets and Systems' personnel;
and (b) will furnish or cause to be furnished 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.
SECTION 11.2 CONTINUITY AND MAINTENANCE OF OPERATIONS; CERTAIN
DELIVERIES AND NOTICES. Except as the other Partner may otherwise consent in
writing, between the date of this Agreement and the Effective Time, each of TCI
Partner and the TCI Partner Entities with respect to TCI Partner's Cable
Business, the TCI Partner Systems and the TCI Partner Assets and each of TCA
Partner and the TCA Partner Entities with respect to TCA Partner's Cable
Business, the TCA Partner Systems and the TCA Partner Assets:
(a) will conduct its Cable Business and operate its
Systems only in the usual, regular and ordinary course and consistent with its
respective past practices (including 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 Partner requests
otherwise, (ii) use commercially reasonable efforts to keep available the
services of its employees and agents providing services in connection with its
Cable Business and (iii) continue making marketing, advertising and promotional
expenditures with respect to its Cable Business consistent with its respective
past practices;
(b) 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; 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 are currently in effect for 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;
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(c) will not (i) modify, terminate, renew, suspend or
abrogate any Assumed Contracts (other than retransmission consent or
programming Assumed Contracts) other than in the ordinary course of business;
(ii) modify, terminate, renew, suspend or abrogate any retransmission consent
(except on terms that are not materially different) or programming Assumed
Contract, Franchise and License, lease or document evidencing Real Property;
(iii) take or omit to take any action that would result in the condition of the
other Partner in Section 4.9(b) (with respect to TCA Partner) or Section 4.9(c)
(with respect to TCI Partner) not being satisfied at any time prior to or on
the Effective Time; (iv) engage in any marketing, promotional, subscriber
installation, collection or disconnection practices that are inconsistent with
its past practices; (v) make any Cost of Service Election; (vi) enter into any
agreement with or commitment to any competitive access providers with respect
to its Systems; (vii) 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
(other than Permitted Liens) on any of those Assets; (viii) engage in any
hiring or employee compensation practices that are inconsistent with past
practices except for changes in such practices implemented by such Partner and
its affiliates on a company-wide basis; (ix) decrease 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 Cable Act or any other Legal Requirement, except as provided on
Schedule 11.2(c)(ix); provided however that if rates are decreased in order to
so comply, the Partner decreasing the rates will provide the other with copies
of any FCC forms (even if not filed with any Governmental Authority) that such
Partner used to determine that the new rates were required;
(d) 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 its Systems or the operation of its Cable
Business prepared by or for such Partner at any time from the date of this
Agreement until the Effective Time;
(e) 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 at least 10 Business Days 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 Cable Act with respect to rates
and prepared with respect to any of its Systems, such forms to be reasonably
satisfactory in form and substance to the other;
(f) 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 Franchise and License that will expire within 36 months
after any date between the date of the Agreement and the Effective Time; and
(g) 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 by it in or
pursuant to this Agreement or (ii) the existence, occurrence or taking of which
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would result in the condition of the other Partner in Section 4.9(b) (with
respect to TCA Partner) or Section 4.9(c) (with respect to TCI Partner) not
being satisfied at any time prior to or on the Effective Time (subject to the
satisfaction of the Partnership's condition for employment), and, with respect
to clause (b), use its commercially reasonable efforts to remedy the same.
SECTION 11.3 EMPLOYEES.
(a) TCA Management Co. shall be responsible for
interviewing employees of each Partner's Cable Business. Within 90 days after
the date of execution of this Agreement, each Partner shall provide to TCA
Management Co. and the other Partner 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 Partner desires to retain as its employees (the
"Retained Employees"). Within 30 days after receipt of this list, TCA
Management Co. will provide to the Partners in writing a list of employees that
TCA Management Co. desires to employ following the Effective Time (subject to
the satisfaction of the Partnership's condition for employment), which list
shall not include any Retained Employees. As of the Effective Time, each
Partner shall terminate the employment of all its employees who were employed
incidental to the conduct of such Partner's Business other than Retained
Employees.
(b) Each Partner will pay to all employees employed in
their respective Cable Business all compensation, including salaries,
commissions, bonuses, deferred compensation, severance, insurance, vacation
(except for accrued vacation time included in the calculation of such Partner's
Adjustments), sick pay and other compensation or benefits to which they are
entitled for periods prior to the Effective Time, including, without
limitation, all amounts, if any, payable on account of the termination of their
employment. Each Partner agrees to cooperate in all reasonable respects with
TCA Management Co. to allow it to evaluate and interview employees of each
Partner's Cable Business to make hiring decisions.
(c) Each Partner will be responsible for maintenance and
distribution of benefits accrued under any employee benefit plan (as defined in
ERISA) maintained by such Partner pursuant to the provisions of such plan. The
Partnership will not assume any obligation or liability for any such accrued
benefits or any fiduciary or administrative responsibility to account for or
dispose of any such accrued benefits under any employee benefit plans
maintained by either Partner.
(d) All claims and obligations under, pursuant to or in
connection with any welfare, medical, insurance, disability or other employee
benefit plans of a Partner or arising under any Legal Requirement affecting
employees of such Partner incurred on or before the Effective Time or resulting
from or arising from events or occurrences occurring or commencing on or before
the Effective Time will remain the responsibility of such Partner, whether or
not such employees are hired by the other Partner after the Effective Time.
Neither Partner will have and assume any obligation or liability under or in
connection with any such plan.
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(e) Each Partner 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 (except for
accrued vacation time included in the calculation of such Partner's
Adjustments), 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 Partner, as a result of their
employment by it on or prior to the Effective Time, the termination of their
employment on the Effective Time, 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
Effective Time.
(f) Notwithstanding anything to the contrary herein, the
Partnership shall (i) credit each employee of each Partner (other than a
Retained Employee) who is offered employment by the Partnership on or prior the
Effective Time and becomes an employee of the Partnership after the Effective
Time (a "Hired Employee") (A) in the case of TCI Partner the lesser of the
amount of vacation accrued by him or her as an employee of TCI Partner through
and including the Effective Time or the amount of accrued vacation permitted to
be accrued by employees of the Partnership after the Effective Time in
accordance with the Partnership's standard practices or (B) in the case of TCA
Partner, the amount of vacation accrued by him or her as an employee of TCA
Partner through and including the Effective Time in accordance with TCA
Partner's standard practices; (ii) permit each Hired Employee to participate in
the Partnership employee benefit plans to the same extent as similarly situated
employees of TCA Partner and their dependents; (iii) continue to use the date
of hire that had been used prior to the Effective Time by TCI Partner or TCA
Partner, as the case may be, for each Hired Employee for purposes of
eligibility and vesting under the Partnership employee benefit and other plans
to the same extent as other similarly situated employees of TCA Partner; and
(iv) not subject any Hired Employee to any waiting periods or limitations on
benefits for pre-existing conditions under TCA Partner's employee benefit
plans, including any group health and disability plans; (v) give credit under
group health plans for any deductible previously met by such Hired Employee
under the group health plan of TCI Partner or TCA Partner, as applicable.
(g) The Partners shall share equally the cost of any
severance payable to any employees of either Partner on or prior to the
Effective Time. In addition, the Partnership discharges without cause within
90 days after the Effective Date any Hired Employee and such Hired Employee
would have been entitled to severance payments pursuant to either Partner's
severance benefits plan if such Hired Employee had been discharged without
cause by either Partner at the Effective Time in accordance with Section
11.3(a) and not hired by TCA Management Co. as of Effective Time, then the
Partnership shall pay severance benefits to such Hired Employee in accordance
with TCI Partner's severance benefit plan to the extent such plan would have
paid severance to such employee.
(h) Nothing in this Section 11.3 or elsewhere in this
Agreement shall be deemed to make any employee of either Partner a third
Partner beneficiary of this Agreement.
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SECTION 11.4 REQUIRED CONSENTS; FRANCHISE RENEWAL.
(a) Each Partner will use its commercially reasonable
efforts to obtain in writing as promptly as possible and at its expense, all of
the Material Contractual Consents and any other consent, authorization or
approval required to be obtained by such Partner in connection with the
transactions contemplated by this Agreement, and deliver to the other Partner
copies of such Material Contractual Consents and such other consents,
authorizations or approvals promptly after they are obtained by such Partner;
provided, however, that each Partner will afford the other Partner the
opportunity to review, approve and revise the form of Material Contractual
Consent prior to delivery to the third party whose consent is sought. Each
Partner will cooperate with the other Partner to obtain all Material
Contractual Consents. 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, each Partner will decide whether FCC Forms 394
shall be filed with respect to each Franchise and License as to which consent
to transfer is required and will cooperate with the Partnership to complete,
execute and deliver, or cause to be completed, executed and delivered to the
appropriate Governmental Authority, all such Form 394s.
(b) Each Partner will use commercially reasonable efforts
to obtain and cooperate with the Partnership to obtain renewals or extensions
of any Franchise and License 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 Effective Time.
(c) Notwithstanding the foregoing, no Partner will have
further obligation to obtain Material Contractual Consents: (a) with respect to
license agreements relating to pole attachments where the licensing authority
will not consent to an assignment of such license agreement but requires that
the Partnership enter into a new agreement with such licensing authority, in
which case the Partnership shall use its commercially reasonable efforts to
enter into such agreement prior to the Effective Time or as soon as practicable
thereafter and such Partner will cooperate with and assist the Partnership in
obtaining such agreements; and (b) for any business radio license which such
Partner reasonably expects can be obtained within 120 days after the Effective
Time and so long as a temporary authorization is available to the Partnership
under FCC rules with respect thereto;
(d) If and to the extent that either Partner shall have
waived satisfaction of the condition to the initial capital contribution,
subsequent to the Effective Time, each of TCI Partner with respect to its
Systems and Assets and TCA Partner with respect to its Systems and Assets will
continue to use commercially reasonable efforts to obtain in writing as
promptly as possible such Material Contractual Consent to be obtained by it in
connection with the transactions contemplated under this Agreement which was
not obtained on or before the Effective Time and will deliver copies of the
same, reasonably satisfactory in form and substance, to the other. The
obligations set forth
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in this Section will survive the Effective Time and will not be merged in the
consummation of the transactions contemplated hereby.
SECTION 11.5 SALES AND TRANSFER TAXES. All sales, use or excise
Taxes or transfer and similar Taxes or assessments arising from or payable by
reason of the transfer of any of the TCI Partner Assets shall be paid by the
TCI Partner and all sales, use or excise Taxes or transfer and similar Taxes or
assessments arising from or payable by reason of the transfer of any of the TCA
Partner Assets shall be paid by the TCA Partner.
SECTION 11.6 PROGRAMMING. Each Partner will execute and deliver such
documents and take such action as may be reasonably requested by the
Partnership to enable the other Partner to comply with the requirements of its
programming agreements with respect to joint ventures of cable television
systems.
SECTION 11.7 UPDATED SCHEDULES. Not less than ten Business Days
prior to Effective Time, each Partner will deliver to the other revised copies
of each of its Schedules, except for the Schedules relating to Employees
(regardless of whether the original Schedule is as of a certain date) 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 Partner'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 Partner which is to receive such Assets, at or before Closing, will
have the right (to be exercised by written notice to the other Partner) 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. Without
changing the result set forth in the preceding sentence that a Partner's
updated Schedules do not serve to update such Partner's representations and
warranties, the update Schedules delivered pursuant to this Section 11.7 shall
be accompanied by an officer's certificate of the Partner delivering such
Schedules, certifying that the information set forth in such Schedules is true
and accurate in all material respects as of the date of delivery thereof and
that all information required to be given in the Schedules "as of the date of
this Agreement" has been updated to the date of delivery of the updated
Schedules or other date permitted to be specified in such Schedules.
SECTION 11.8 TRANSITIONAL BILLING SERVICES. TCA Partner and TCI
Partner will each provide to the Partnership, upon request, access to and the
right to use its billing system computers, software and related fixed assets in
connection with the Systems acquired by the Partnership for a period of up to
180 days following the Effective Time to allow for conversion of existing
billing arrangements ("Transitional Billing Services"). The Partnership will
notify the Partners at least 10 days prior to the Effective Time as to whether
it desires Transitional Billing Services from either Partner. All Transitional
Billing Services, if any, that are requested by a Partner will be provided on
terms and
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conditions reasonably satisfactory to each Partner; provided, however, that the
amount to be paid by the Partner receiving Transitional Billing Services will
not exceed the out of pocket cost to the Partner of providing such Transitional
Billing Services. Each Partner will notify the Partnership, at least 45 days
prior to the Closing, of the cost to such Partner of providing such
Transitional Billing Services.
SECTION 11.9 CONFIDENTIALITY AND PUBLICITY.
(a) Each Partner will use commercially reasonable efforts
to assure that any non-public information that such Partner may obtain from the
other in connection with this Agreement with respect to the other's Cable
Business and Systems will be kept confidential and, unless and until the
Closing occurs, such Partner 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 Partner may use and disclose any such information once
it has been publicly disclosed (other than by such Partner in breach of its
obligations under this Section) or which rightfully has come into the
possession of such Partner (other than from the other Partner) and (ii) to the
extent that such Partner may, in the reasonable opinion of its counsel, be
compelled by Legal Requirements to disclose any of such information, such
Partner 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 Partner to hold information in confidence pursuant to this Section will
be satisfied if such Partner 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
Partner 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 Partner or on its behalf from the other, whether so obtained
before or after the execution hereof.
(b) Neither Partner will issue any press releases or make
any other public announcement 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.
SECTION 11.10 LIEN SEARCHES. Each Partner 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 any of its Real Property or
Tangible Personal Property, and in the state and county where such Partner'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.
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SECTION 11.11 AFFILIATION AGREEMENTS.
(a) Programming Supply Agreement. The Partnership shall
enter into, and the TCI Partner shall cause its Affiliate, Satellite Services,
Inc. ("SSI"), to enter into, the then current form of programming supply
agreement (the "Programming Supply Agreement"), pursuant to which the
Partnership shall receive the benefits of any programming or purchasing
agreements available to the TCI Partner to the extent the Partnership may
receive such benefits pursuant to SSI's programming or purchasing agreements.
(b) Starz, Encore and Other Programming Carriage
Requirements. The Partnership shall (i) commit to continued carriage of
"Starz"and Encore (including Encore Plex) for the TCI Systems on the same terms
and conditions set forth in the Agreement in Principle dated May 21, 1997
between Liberty Media Corporation and Tele-Communications, Inc.; (ii) for each
of the Systems, commit to continued carriage of any programming services listed
on Exhibit D to the Programming Supply Agreement which were carried by the
Systems on the Closing Date, on the same terms and conditions as set forth in
the respective programming agreement between TCI Partner or its Affiliates and
the applicable programmer, and (iii) use best efforts to launch "Starz" and
Encore (including Encore Plex) on the TCA Systems.
(c) @Home. When economically feasible, the Partnership
agrees to discuss the use of @Home as an internet provider for the TCI Systems
and TCA Systems.
SECTION 11.12 PURCHASE SYSTEMS. If the closing of the purchase with
the Purchasing Party does not occur prior to the Effective Time, TCA Management
Co. shall manage the Purchase Systems on mutually agreeable terms.
SECTION 11.13 MAINTENANCE OF DEBT. From the Effective Date through
and including the termination of this Agreement, TCA Partner and TCA Management
Co. will use their best efforts to maintain a sufficient amount of debt at the
Partnership so that TCI Partner's basis in the Partnership Interest is not
changed in such a manner that would trigger any adverse tax consequences to the
TCI Partner.
SECTION 11.14 FURTHER ASSURANCES. At or after the Effective Time,
each of TCA Partner and TCI Partner at the request of the Partnership, 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 Partner Assets or the TCI Partner Assets. Without
limiting the generality of the foregoing, TCA Partner and TCI Partner will
take, or cause to be taken, all actions consistent with the terms of this
Agreement.
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SECTION 11.15 TELEPHONY RESTRICTIONS.
(a) For so long as the TCI Partner (or its Affiliates)
holds an interest in Sprint Spectrum Holding Company, L.P., the Partnership
will not conduct or market (i.e., "engage in" in its broadest sense) a wireless
communications business.
(b) Prior to January 31, 1999, the Partnership will not
offer or promote, or package any of its products or services with, or act as a
sales agent for any wireline services (local or long distance) under the brand
name of an incumbent LEC (all RBOCs, Frontier Corporation and GTE Corporation)
or IXC (AT&T, Corp., MCI Communications Corporation, British Telecommunications
PLC, Worldcom, Inc., Cable & Wireless plc, LCI International Inc. and Frontier
Corporation).
(c) Prior to January 31, 1999, the Partnership will not
make its distribution facilities available to a third party in connection with
offering local phone service to residential customers without making the
facilities similarly available to Sprint Corporation ("Sprint"); however, the
Partnership itself may offer local phone service (subject to the restrictions
set forth in the preceding paragraph) without offering its distribution
facilities to Sprint.
(d) Prior to January 31, 1999, the Partnership will not
make its distribution facilities available to any incumbent LEC or IXC for high
speed data services without making its facilities similarly available to
Sprint; however, such facilities may be made available to other third parties,
including @Home, without such facilities being made available to Sprint.
SECTION 11.16 REFINANCING. The Partnership shall secure such
financing as shall be necessary for it to immediately pre-pay as of the Closing
Date the Assumed Debt, subject to adjustments pursuant to the terms hereof.
Such financing shall be obtained by the Partnership on terms that are mutually
satisfactory to both parties.
SECTION 11.17 KEEP WELL. TCI Partner shall cause its Affiliates to
execute a keep well agreement, in a form acceptable to TCI Partner in its sole
discretion.
SECTION 11.18 REFUNDS AND PASS-THROUGHS. The Partnership will
cooperate with the TCI Partner with respect to any refunds required to be made
to, or fees permitted to be collected from, any subscriber of the TCI Partner
prior to Closing pursuant to any Legal Requirement, settlement or otherwise.
Such cooperation will include, but not be limited to, refunding fees to, or
collecting fees from, subscribers on the terms agreed to by the TCI Partner
pursuant to such Legal Requirement, settlement or otherwise, and if receiving
fees from subscribers, remitting all such collected fees to the TCI Partner
within thirty (30) days after receipt thereof. All such payments received by
the Partnership shall be reported as income and all payments made to the TCI
Partner shall be reported as an expense of the Partnership.
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ARTICLE XII.
ARBITRATION
SECTION 12.1 ARBITRATION. Each of the Partners agrees to submit to
binding arbitration any and all differences and disputes which may arise out of
or are related to this Agreement, except for any dispute arising out of the
failure of a Partner to make a required Capital Contribution. Prior to
initiating arbitration, the Partners shall first meet face-to-face to effect a
resolution of the differences. Any differences which the Partners are unable
to resolve in such face-to-face meeting shall be heard and finally settled in
Tyler, Texas or in any other location mutually agreed upon by the parties, by
binding arbitration in accordance with the Commercial Rules of the American
Arbitration Association. Such arbitration shall be initiated in the Tyler,
Texas office of the American Arbitration Association. Any award entered in any
such arbitration shall be final, binding, and may be entered and enforced in
any court of competent jurisdiction. The arbitrator shall make such orders,
conduct and schedule all proceedings in connection with the arbitration so that
final arbitration commences no less than thirty (30) days and concludes no
later than seventy-five (75) days after a party files the initial notice of
arbitration, and so that the final arbitration award is made and delivered to
the parties within ninety (90) days after the filing of the initial notice of
arbitration. Nothing herein contained shall be construed as preventing any
party from instituting legal or equitable action in any jurisdiction against
any of the other parties for temporary or similar provisional relief to the
full extent permitted under the laws applicable to this Agreement, or any such
other written agreement between the parties or the performance hereof or
thereof or otherwise pending final settlement of any dispute, difference or
question by arbitration. Any such provisional relief may be modified or
amended in any way by the arbitrator at any time after his appointment. Each
Partner shall pay the expenses of their own representatives, if any, and shall
share all other costs of such arbitration, including the fees and expenses of
the arbitrators.
ARTICLE XIII.
MISCELLANEOUS
SECTION 13.1 NOTICES. Each Partner shall promptly give written
notice to the other Partner upon becoming aware of the occurrence or, to its
knowledge, a pending or threatened occurrence, of any event which would cause
or constitute a breach of any of its representations, warranties or covenants
contained or referenced in this Agreement and will use its best efforts to
prevent or promptly remedy the same. All notices or other communications to
parties under this Agreement shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by
cable, telegram, telex, facsimile transmission or other standard form of
telecommunications, or by registered or certified mail or Federal Express
delivery, postage prepaid, return receipt requested, addressed as follows:
68
<PAGE> 69
If to TCI Partner:
TCI American Cable Holdings IV, L.P.
5619 DTC Parkway
Englewood, CO 80111
Attention: William Fitzgerald
With copies similarly addressed
to the attention of Karla L. Tartz.
If to TCA Partner:
TCA Partner Financial Corporation
c/o TCA Cable TV, Inc.
3015 SSE Loop 323
Tyler, Texas 75713
Attention: Randall L. Clark
With a copy to:
Jackson & Walker, L.L.P.
901 Main Street
Suite 6000
Dallas, Texas 75202
Attention: James S. Ryan, III
or to such other address as any party may have furnished to the other parties
in writing in accordance with this Section 13.1.
SECTION 13.2 GOVERNING LAW. This Agreement and the Partnership
created hereby shall be governed by and construed accordance with the laws of
the State of Delaware. The parties further agree that any action relating to
this Agreement shall be instituted and prosecuted in the Courts of the County
of New Castle in the State of Delaware, and each party hereto hereby consents
to the jurisdiction of said Courts and waives any right or defense relating to
such jurisdiction and venue.
SECTION 13.3 AMENDMENTS. This Agreement may be modified or amended
only by an instrument in writing signed by all of the Partners.
SECTION 13.4 ENTIRE AGREEMENT. Except as provided herein, this
instrument and the Management Agreement constitute the entire agreement between
the Partners with respect to the Partnership and supersede all prior
agreements, understandings, offers and negotiations, oral or written.
69
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SECTION 13.5 WAIVER OF PARTITION. Each Partner hereby irrevocably
waives any and all rights that it may have to maintain an action for partition
of any of the Partnership property.
SECTION 13.6 CONSENTS. All consents, agreements and approvals
required or permitted by this Agreement shall be in writing and a signed copy
thereof shall be filed and kept with the books of the Partnership.
SECTION 13.7 SUCCESSORS; NO THIRD PARTY BENEFICIARIES. Subject to
Section 5.4, all rights and duties of the Partners hereunder shall inure to the
benefit of and be binding upon their respective successors and assigns other
than as contemplated by Article VIII hereof, neither this Agreement nor any
other agreement contemplated hereby shall be deemed to confer upon any person
not a party hereto thereto any rights or remedies hereunder or thereunder.
SECTION 13.8 FURTHER ASSURANCES. Each party hereto agrees to execute
and deliver all such other and additional instruments and documents and to do
such other acts and things as may be necessary or expedient to create the
Partnership, carry out the business of the Partnership or effectuate this
Agreement.
SECTION 13.9 HEADINGS. The Article and Section headings herein are
for convenience of reference only and shall not affect the meaning or
interpretation of any provision hereof.
SECTION 13.10 SEVERABILITY. Each provision of this Agreement shall
be considered severable and if for any reason any provision which is not
essential to the effectuation of the basic purposes of the Agreement is
determined by a court of competent jurisdiction to be invalid or unenforceable
and contrary to the Act or existing or future applicable law, such invalidity
shall not impair the operation of or affect those provisions of this Agreement
which are valid. In that case, this Agreement shall be construed so as to
limit any term or provision so as to make it enforceable or valid within the
requirements of any applicable law, and in the event such term or provision
cannot be so limited, this Agreement shall be construed to omit such invalid or
unenforceable provisions.
SECTION 13.11 SURVIVAL. Except as expressly provided in this
Agreement, (a) all obligations, covenants and warranties shall survive Closing
until and unless specifically terminated pursuant to the terms hereof or
thereof, and (b) all indemnities and reimbursement obligations made pursuant to
this Agreement shall survive dissolution and liquidation of the Partnership
until expiration of the longest applicable statute of limitations (including
extensions and waivers) with respect to the matter for which a party would be
entitled to be indemnified or reimbursed, as the case may be.
SECTION 13.12 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument.
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SECTION 13.13 EXPENSES. Each Partner will bear its own costs and
expenses arising in connection with the preparation, execution, delivery and
performance of this Agreement. To the extent expenses are incurred in
connection with arranging financing for consummation of the transactions
contemplated hereby or other expenses related to the formation of the
Partnership (excluding those referred to in the first sentence), such expenses
shall be borne by the Partnership if the transaction contemplated hereby is
consummated and, if not consummated, shall be borne equally by the Partners.
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<PAGE> 72
IN WITNESS WHEREOF, the Partners have executed this General
Partnership Agreement as of the date first above written.
TCI AMERICAN CABLE HOLDINGS IV, L.P.
By: Cablevision of Texas Partner, Inc., its
general partner
/s/ Willian R. Fitzgerald
-------------------------
By: William R. Fitzgerald
Title: Vice President
TCA HOLDINGS II, L.P.
By: Telecable Associates, Inc., its general
partner
By: /s/ Fred R. Nichols
-----------------------
Title: President
Name: Fred R. Nichols
72
<PAGE> 1
Exhibit 3.5
AMENDED and RESTATED
BYLAWS
OF
TCA Cable TV, Inc.
ARTICLE I
OFFICES
Section 1. Registered Office. The initial registered office and
registered agent of TCA Cable TV, Inc. (the "Corporation") shall be as from
time to time set forth in the Corporation's Articles of Incorporation (the
"Articles of Incorporation").
Section 2. Other Offices. The Corporation may also have offices
at such other places, both within and without the State of Texas, as the Board
of Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
SHAREHOLDERS
Section 1. Place of Meetings. All meetings of the shareholders
for the election of Directors shall be held at the office of the Corporation in
the City of Tyler, State of Texas, or at such other place, within or without
the State of Texas as may be fixed from time to time by the Board of Directors.
Meetings of shareholders for any other purpose may be held at such time and
place, within or without the State of Texas, as shall be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meeting. An annual meeting of the
shareholders commencing with the year 1983 shall be held on the third Tuesday
of each February, if not a legal holiday and if a legal holiday then on the
next secular day following, or at such other time as may be determined by the
Board of Directors, at which meeting the shareholders shall elect a Board of
Directors, and transact such other business as may properly be brought before
the meeting.
Section 3. List of Shareholders. At least ten (10) days before
each meeting of shareholders, a complete list of the shareholders entitled to
vote at said meeting, arranged in alphabetical order, with the address of and
the number of voting shares held by each, shall be prepared by the officer or
agent having charge of the stock transfer books. Such list shall be kept on
file at the registered office of the corporation for a period of ten (10) days
prior to such meeting and shall be subject to inspection by any shareholder at
any time during usual business
<PAGE> 2
hours. Such list shall be produced and kept open at the time and place of the
meeting during the whole time thereof, and shall be subject to the inspection
of any shareholder who may be present.
Section 4. Special Meeting. Special meetings of the
shareholders, for any purpose or purposes, unless otherwise prescribed by law,
by the Articles of Incorporation or by these Bylaws, may be called by the
Chairman of the Board, the President or the Board of Directors, or shall be
called by the Chairman of the Board, the President or Secretary at the request
in writing of the holders of not less than one-tenth (1/10th) of all the shares
issued, outstanding and entitled to vote. Business transacted at all special
meetings shall be confined to the purposes stated in the notice of the meeting.
Section 5. Notice. Written or printed notice stating the place,
day and hour of any meeting of the shareholders and, in case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
delivered not less than ten (10) nor more than fifty (50) days before the date
of the meeting, either personally or by mail, by or at the direction of the
Chairman of the Board, the President, the Secretary, or the officer or person
calling the meeting, to each shareholder of record entitled to vote at the
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail, addressed to the shareholder at his address as it
appears on the stock transfer books of the Corporation, with postage thereon
prepaid.
Section 6. Notice of Shareholder Proposals and Nominations. The
nomination of directors or other business at an annual meeting or special
meeting requires, respectively, compliance with the following:
(a) Annual Meetings. (1) Nominations of persons for election to
the Board of Directors of the Corporation and the proposal of business to be
considered by the shareholders may be made at a meeting of shareholders (A) by
or at the direction of the Board of Directors or (B) by any shareholder of the
Corporation who is entitled to vote at the meeting, who complied with the
notice procedures set forth in clauses (2) and (3) of this paragraph (a) and
this Bylaw and who was a shareholder of record at the time such notice is
delivered to the Secretary of the Corporation.
(2) For director nominations or other business to be
properly brought before an annual meeting by a shareholder pursuant to
clause (B) of paragraph (a)(1) of this Bylaw, the shareholder must
have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice shall be delivered
to the Secretary at the principal executive offices of the Corporation
not less than sixty days (thirty days, in the case of the 1998 annual
meeting) nor more than ninety days prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the
event that the date of the annual meeting is advanced by more than
thirty days or delayed by more than sixty days from such anniversary
date, notice by the shareholder to be timely must be so delivered not
earlier than the ninetieth day prior to such annual meeting and not
later than the close of business on the later of the sixtieth day
prior to such annual meeting or the tenth day following the day on
which public announcement of the date of such meeting is first made.
Such shareholder's notice shall set forth (A) as to each person
<PAGE> 3
whom the shareholder proposes to nominate for election or reelection
as a director all information relating to such person that is required
to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (including such person's written consent to being named in the
proxy statement as a nominee and to serving as a director if elected);
(B) as to any other business that the shareholder proposes to bring
before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business
at the meeting and any material interest in such business of such
shareholder and the beneficial owner, if any, on whose behalf the
proposal is made; and (C) as to the shareholder giving the notice and
the beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such shareholder, as they
appear on the Corporation's books, and of such beneficial owner and
(ii) the class and number of shares of the Corporation which are owned
beneficially and of record by such shareholder and such beneficial
owner.
(3) Notwithstanding anything in the second sentence of
paragraph (a)(2) of this Bylaw to the contrary, in the event that the
number of directors to be elected to the Board of Directors of the
Corporation is increased and there is no public announcement naming
all of the nominees for director or specifying the size of the
increased Board of Directors made by the Corporation at least seventy
days prior to the first anniversary of the preceding year's annual
meeting, a shareholder's notice required by this Bylaw shall also be
considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the Corporation not
later than the close of business on the tenth day following the day on
which such public announcement is first made by the Corporation.
(b) Special Meetings. Nominations of persons for election to the
Board of Directors or other business to be properly brought before a special
meeting may be made at such a special meeting of shareholders (A) by or at the
direction of the Board of Directors or (B) by any shareholder of the
Corporation who is entitled to vote at the meeting, who complies with the
notice procedures set forth in this Bylaw and who is a stockholder of record at
the time such notice is delivered to the Secretary of the Corporation. To be
timely, a shareholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not earlier than the ninetieth
day prior to such special meeting and not later than the close of business on
the later of the sixtieth day prior to such special meeting or the tenth day
following the day on which public announcement is first made of the date of the
special meeting and shall include the information with respect to the director
nominees or other business to be brought before the special meeting as would be
required to be provided in such a notice in connection with an annual meeting
pursuant to paragraph (a)(2) of this Bylaw.
Section 7. Quorum. At all meetings of the shareholders, the
presence in person or by proxy of the holders of a majority of the shares
issued and outstanding and entitled to vote shall be necessary and sufficient
to constitute a quorum for the transaction of business except as otherwise
provided by law, by the Articles of Incorporation or by these Bylaws. If,
however,
<PAGE> 4
such quorum shall not be present or represented at any meeting of the
shareholders, the shareholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the meeting. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 8. Voting. When a quorum is present at any meeting of
the Corporation's shareholders, the vote of the holders of a majority of the
shares having voting power present in person or represented by proxy at such
meeting shall decide any questions brought before such meeting, unless the
question is one upon which, by express provision of law, the Articles of
Incorporation or these Bylaws, a different vote is required, in which case such
express provision shall govern and control the decision of such question. The
shareholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
Section 9. Method of Voting. Each outstanding share of the
Corporation's capital stock, regardless of class, shall be entitled to one (1)
vote on each matter submitted to a vote at a meeting of shareholders, except to
the extent that the voting rights of the shares of any class or classes are
limited or denied by the Articles of Incorporation, as amended from time to
time. At any meeting of the shareholders, every shareholder having the right
to vote shall be entitled to vote in person or by proxy appointed by an
instrument in writing subscribed by such shareholder or by his duly authorized
attorney-in-fact and bearing a date not more than eleven (11) months prior to
such meeting, unless said instrument provides for a longer period. Each proxy
shall be revocable unless expressly provided therein to be irrevocable and
unless otherwise made irrevocable by law. Such proxy shall be filed with the
Secretary of the Corporation prior to or at the time of the meeting. Voting
for directors shall be in accordance with Article III of these Bylaws.
Section 10. Oral and Written Voting. Voting on any question or
in any election may be by voice vote or show of hands unless the presiding
officer shall order or any shareholder shall demand that voting be by written
ballot.
Section 11. Record Date; Closing Transfer Books. The Board of
Directors may fix in advance a record date for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders,
such record date to be not less than ten (10) nor more than fifty (50) days
prior to such meeting, or the Board of Directors may close the stock transfer
books for such purpose for a period of not less than ten (10) nor more than
fifty (5O) days prior to such meeting. In the absence of any action by the
Board of Directors, the date upon which the notice of the meeting is mailed
shall be the record date.
<PAGE> 5
Section 12. Action Without Meeting. Any action required by
statute to be taken at a meeting of the shareholders of this Corporation, or
any action which may be taken at a meeting of the shareholders, may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the shareholders entitled to vote with respect to the
subject matter thereof and such consent shall have the same force and effect as
a unanimous vote of the shareholders. Such signed consent shall be delivered
to the Secretary for inclusion in the Minute Book of the Corporation.
Section 13. Telephone and Similar Meetings. Shareholders,
directors and committee members may participate in and hold a meeting by means
of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Participation in
such a meeting shall constitute presence in person at the meeting, except where
a person participates in the meeting for the express purpose of objecting to
the transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE III
BOARD OF DIRECTORS
Section 1. Management. The business and affairs of the
Corporation shall be managed by the Board of Directors who may exercise all
such powers of the Corporation and do all such lawful acts and things as are
not by law, the Articles of Incorporation or these Bylaws directed or required
to be exercised or done by the shareholders.
Section 2. Qualification; Election; Term. None of the directors
need be a shareholder of the Corporation or a resident of the State of Texas.
The directors shall be elected at the annual meeting of the shareholders,
except as hereinafter provided, and each director elected shall hold office
until his successor shall be elected and qualified.
Section 3. Number. The number of directors of the Corporation
shall be at least three (3) and not more than eleven (11). The number of
directors authorized shall be fixed as the Board of Directors may from time to
time designate.
Section 4. Change in Number. The number of directors may be
increased or decreased from time to time as follows:
(a) Increase in Number. Any directorship to be filled by reason
of an increase in the number of directors serving shall be filled by
appointment at an annual or regular meeting of the directors or at a
special meeting of directors called for that purpose as provided
herein and as may be required by law or the Articles of Incorporation.
(b) Decrease in Number. No decrease in the number of the
directors serving shall have the effect of shortening the term of any
incumbent director.
<PAGE> 6
Section 5. Removal. At any meeting of shareholders called
expressly for that purpose any director may be removed, with or without cause,
by a vote of the holders of at least a majority of the shares then entitled to
vote at an election of directors; provided, however, that notice of intention
to act upon such matter shall have been given in the notice calling such
meeting.
Section 6. Vacancies. Any vacancy occurring in the Board of
Directors (by death, resignation, removal or otherwise) may be filled by an
affirmative vote of at least a majority of the remaining directors though less
than a quorum of the Board of Directors. A director elected to fill a vacancy
shall be elected for the unexpired term of his predecessor in office.
Section 7. Election of Directors. Directors shall be elected by
plurality vote in person or by proxy. Cumulative voting shall not be
permitted.
Section 8. Place of Meetings. Meetings of the Board of
Directors, regular or special, may be held either within or without the State
of Texas.
Section 9. First Meeting. The first meeting of each newly
elected Board of Directors shall be held without further notice immediately
following the meeting of shareholders at which such directors or any of them
were elected, and at the same place, unless by unanimous consent, the directors
then elected and serving shall change such time or place.
Section 10. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and place, as shall from time
to time be determined by resolution or the Board of Directors.
Section 11. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board of the President on two
(2) days' oral or written notice to each director, given either personally, by
telephone, by telegram or by mail; special meetings shall be called by the
Chairman of the Board, the President or the Secretary in like manner and on
like notice on the written request of at least two directors. Except as may be
otherwise expressly provide by law, the Articles of Incorporation or these
Bylaws, neither the business to be transacted at, nor the purpose of, any
special meeting need be specified in a notice or waiver of notice; provided,
however, that the nature of any proposed amendment to the Bylaws shall be
included in the notice of any meeting at which the Bylaws are proposed to be
amended.
Section 12. Quorum. At all meetings of the Board of Directors
the presence of a majority of the number of directors fixed by these Bylaws
shall be necessary and sufficient to constitute a quorum for the transaction of
business, and the affirmative vote of at least a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors, except as may be otherwise specifically provided by law, the
Articles of Incorporation or these Bylaws. If a quorum shall not be present at
any meeting of Directors, the Directors present thereat may adjourn the meeting
from time to time without notice other than announcement at the meeting, until
a quorum shall be present.
<PAGE> 7
Section 13. Procedure. The Board of Directors shall keep regular
minutes of its proceedings. The minutes shall be placed in the Minute Book of
the Corporation.
Section 14. Interested Directors. Any contract or other
transaction between the Corporation and any of its directors (or any
corporation or firm in which any of its directors is directly or indirectly
interested) shall be valid for all purposes notwithstanding the presence of
such director at the meeting authorizing such contract or transaction, or his
participation in such meeting. The foregoing shall, however, apply only if the
interest of each such director is known or disclosed to the Board of Directors
and it shall nevertheless authorize or ratify such contract or transaction by
the vote of at least a majority of the directors present, each such interested
director to be counted in determining whether a quorum is present but not in
calculating the majority necessary to carry such vote. This section shall not
be construed to invalidate any contract or transaction which would be valid in
the absence of this section.
Section 15. Executive Committee. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate an Executive
Committee, to consist of two or more directors of the Corporation, one of whom
shall be designated as chairman, who shall preside at all meetings of such
Committee. To the extent provided in the resolution of the Board of Directors,
the Executive Committee shall have and may exercise all of the authority of the
Board of Directors in the management of the business and affairs of the
Corporation, except where action of the Board of Directors is expressly
required by the Act or by the Articles of Incorporation, and shall have power
to authorize the seal of the corporation to be affixed to all papers which may
require it. The Executive Committee shall keep regular minutes of its
proceedings and report the same to the Board of Directors when required. Any
member of the Executive Committee may be removed, for or without cause, by the
affirmative vote of a majority of the whole Board of Directors. If any vacancy
or vacancies occur in the Executive Committee caused by death, resignation,
retirement, disqualification, removal from office or otherwise, the vacancy
shall be filled by the affirmative vote of a majority of the whole Board of
Directors.
Section 16. Other Committees. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate other committees,
each committee to consist of two or more directors of the Corporation, which
committees shall have such power and authority and shall perform such functions
as may be provided in such resolution. Such committee or committees shall have
such name or names as may be designated by the Board and shall keep regular
minutes of their proceedings and report the same to the Board of Directors when
required.
Section 17. Action by Consent. Any action required or permitted
to be taken at any meeting of the Board of Directors, the Executive Committee
or any other committee of the Board of Directors, may be taken without such a
meeting if a consent in writing, setting forth the action so taken, is signed
by all the members of the Board of Directors or the Executive Committee or such
other committee, as the case may be.
Section 18. Compensation of Directors. By resolution of the
Board, a fixed sum and expenses of attendance, if any, may be allowed for
attendance by each Director at each regular or special of the Board and a fixed
sum per annum may be allowed to some or all Directors, in
<PAGE> 8
addition to or in lieu of the aforementioned fees and expenses, regardless of
the meetings actually attended. Nothing herein contained shall be construed to
preclude any Director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of any committee of the Board may, by
resolution of the Board of Directors, be allowed like compensation for
attending committee meetings and serving on committees.
ARTICLE IV
OFFICERS AND AGENTS
Section 1. In General. The officers of the Corporation shall be
elected by the Board of Directors and shall be a Chairman of the Board, a
President, a Vice-President, a Secretary and a Treasurer. The Board of
Directors may also elect a Vice-Chairman of the Board, additional
Vice-Presidents, Assistant Vice-Presidents, a Controller, and one or more
Assistant Secretaries and Assistant Treasurers. Any two or more offices may be
held by the same person, except that the offices of the President and Secretary
shall not be held by the same person.
Section 2. Election. The Board of Directors, at its first
meeting after each annual meeting of shareholders, shall elect a Chairman of
the Board and a President from its members and shall, by resolution, designate
one of such officers to be the Chief Executive Officer of the Corporation. At
such meeting the Board of Directors shall also elect one or more
Vice-Presidents, a Secretary and a Treasurer, none of whom need be a member of
the Board of Directors.
Section 3. Other Officers and Agents. The Board of Directors
may also elect and appoint such other officers and agents as it shall deem
necessary, who shall be elected and appointed for such terms and shall exercise
such powers and perform such duties as shall be determined from time to time by
the Board.
Section 4. Salaries. The salaries of all officers and agents of
the corporation shall be fixed by the Board of Directors or by the Executive
Committee, if so authorized by the Board.
Section 5. Term of Office and Removal. Each officer of the
Corporation shall hold office until his death, or his resignation or removal
from office, or the election and qualification of his successor, whichever
shall first occur. Any officer or agent elected or appointed by the Board of
Directors may be removed at any time, for or without cause, by the affirmative
vote of a majority of the whole Board of Directors, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed. If
the office of any officer becomes vacant for any reason, the vacancy may be
filled by the Board of Directors.
Section 6. Employment and Other Contracts. The Board of
Directors may authorize any officer or officers or agent or agents, to enter
into any contract or execute and deliver any instrument in the name or on
behalf of the Corporation, and such authority may be general or confined to
specific instances. The Board of Directors may, when it believes the interest
of the Corporation will best be served thereby, authorize executive employment
contracts which will
<PAGE> 9
have terms no longer than ten (10) years and contain such other terms and
conditions as the Board of Directors deem appropriate. Nothing herein shall
limit the authority of the Board of Directors to authorize employment contracts
for shorter terms.
Section 7. Chairman of the Board. The Chairman of the Board
shall preside at all meetings of the Board of Director at which he may be
present and shall be ex officio a member of all standing committees and shall
perform such other duties as may be assigned to him by the Board of Directors.
Section 8. President. The President shall be the chief
administrative officer of the Corporation and shall preside at all meetings of
the shareholders. In the absence of the Chairman of the Board of the Directors
he shall preside at all meetings of the Board of Directors. He shall be ex
officio a member of all standing committees and shall execute bonds, mortgages,
and all other contracts or instruments requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed, and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent of
the Corporation. The President shall perform such other duties as from time to
time may be assigned to him by the Board of Directors of the Corporation.
Section 9. Chief Executive Officer. The Chief Executive Officer
of the Corporation, if any other than the President, shall have, subject only
to the Board of Directors and the Executive Committee, general and active
management and supervision of the business and affairs of the Corporation and
shall see that all orders and resolutions of the Board of Directors and the
Executive Committee are carried into effect. He shall have all powers and
duties of supervision and management fully vested in the general manager of a
Corporation, including the supervision and direction of all other officers of
the Corporation and the power to appoint and discharge agents and employees.
Section 10. Vice Presidents. Each Vice President shall have such
powers and perform such duties as the Board of Directors or the Executive
Committee may from time to time prescribe, or as the Chief Executive Officer
may from time to time delegate to him. In the absence or disability of the
President, a Vice-President designated by the Board of Directors shall perform
the duties and exercise the powers of the President.
Section 11. Secretary. The Secretary shall attend all meetings
of the shareholders and record all votes and the minutes of all proceedings in
a book to be kept for that purpose. The Secretary shall perform like duties
for the Board of Directors when required. He shall give, or cause to be given,
notice of all meetings of the shareholders and special meetings of the Board of
Directors and shall perform such other duties as may be prescribed by the Board
of Directors under whose supervision he shall be. He shall keep in safe
custody the seal of the Corporation, and, when authorized by the Board of
Directors, affix the same to any instrument requiring it and, when so affixed,
it shall be attested by his signature or by the signature of the Treasurer or
an Assistant Secretary. He shall be under the supervision of the President.
He shall perform such other duties and have such other authority and powers as
the Board of Directors may from time to time prescribe or as the President may
from time to time delegate.
<PAGE> 10
Section 12. Assistant Secretaries. Each Assistant Secretary
shall have such powers and perform such duties as the Board of Directors may
from time to time prescribe or as the Chief Executive Officer may from time to
time delegate to him.
Section 13. Treasurer. The Treasurer shall have the custody of
all corporate funds and securities, shall keep full and accurate accounts of
receipts and disbursements of the Corporation, and shall deposit all moneys and
other valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. He shall disburse
the funds of the Corporation as may be ordered by the Board of Directors,
taking proper vouchers for such disbursements, shall render to the Directors,
at the regular meetings of the Board of Directors, or whenever they may require
it, an account of all his transactions as Treasurer and of the financial
condition of the Corporation, and shall perform such other duties as the Board
of Directors may prescribe or the President may from time to time delegate.
Section 14. Assistant Treasurers. Each Assistant Treasurer shall
have such powers and perform such duties as the Board of Directors may from
time to time prescribe.
Section 15. Controller. The Controller shall share with the
Treasurer responsibility for the financial and accounting books and records of
the Corporation, shall report to the Treasurer, and shall perform such other
duties as the Board of Directors or the Executive Committee or the Chief
Executive Officer may from time to time prescribe.
Section 16. Bonding. If required by the Board of Directors, all
or certain of the officers shall give the Corporation a bond, in such form, in
such sum, and with such surety or sureties as shall be satisfactory to the
Board of Directors, for the faithful performance of the duties of their office
and for the restoration to the Corporation, in case of their death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in their possession or under their
control belonging to the Corporation.
ARTICLE V
CERTIFICATES OF SHARES
Section 1. Form of Certificates. Certificates, in such form as
may be determined by the Board of Directors, representing shares to which
shareholders are entitled, shall be delivered to each shareholder. Such
certificates shall be consecutively numbered and shall be entered in the stock
book of the Corporation as they are issued. Each certificate shall state on
the face thereof the holder's name, the number, class of shares, and the par
value of such shares or a statement that such shares are without par value.
They shall be signed by the President or a Vice President and the Secretary or
an Assistant Secretary, and may be sealed with the seal of the Corporation or a
facsimile thereof. If any certificate is countersigned by a transfer agent, or
an assistant transfer agent or registered by a registrar, either of which is
other than the Corporation or an employee of the Corporation, the signatures of
the Corporation's officers may be facsimiles. In case any officer or officers
who have signed, or whose facsimile signature or signatures have been used on
such certificate or certificates, shall cease to be such officer or officers of
the Corporation,
<PAGE> 11
whether because of death, resignation or otherwise, before such certificate or
certificates have been delivered by the Corporation or its agents, such
certificate or certificates may nevertheless be adopted by the Corporation and
be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures have
been used thereon had not ceased to be such officer or officers of the
Corporation.
Section 2. Lost Certificates. The Board of Directors may direct
that a new certificate be issued in place of an certificate theretofore issued
by the Corporation alleged to have been lost or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing such issue of a new certificate, the Board of
Directors, in its discretion and as a condition precedent to the issuance
thereof, may require the owner of such lost or destroyed certificate, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the Corporation a bond, in such form, in such sum, and with such
surety or sureties as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost or destroyed. When a certificate has been lost, apparently destroyed
or wrongfully taken, and the holder of record fails to notify the Corporation
within a reasonable time after he has notice of it, and the Corporation
registers transfer of the shares represented by the certificate before
receiving such notification, the holder of record is precluded from making any
claim against the Corporation for the transfer or a new certificate.
Section 3. Transfer of Shares. Shares of stock shall be
transferable only on the books of the Corporation by the holder thereof in
person or by his duly authorized attorney. Upon surrender to the Corporation
or the transfer agent of the Corporation of a certificate representing shares
duly endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation or the transfer
agent of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 4. Registered Shareholders. The Corporation shall be
entitled to treat the holder of record of any share or shares of stock as the
holder in fact thereof and, accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by law.
<PAGE> 12
ARTICLE VI
NOTICE
Section 1. Method. Whenever required by law, the Articles of
Incorporation or these Bylaws, notice is to be given to any director or
shareholder, and no provision is made as to how such notice shall be given, it
shall not be construed to mean personal notice, but any such notice may be
given: (a) in writing, by mail, postage prepaid, addressed to such director or
shareholder at such address as appears on the books of the Corporation; or (b)
in any other method permitted by law. Any notice required or permitted to be
given by mail shall be deemed to be given at the time when the same shall be
thus deposited in the United States mail.
Section 2. Waiver. Whenever any notice is required to be given
to any shareholder or director of the Corporation as required by law, the
Articles of Incorporation or these Bylaws, a waiver thereof in writing signed
by the person or persons entitled to such notice, whether before or after the
time stated in such notice, shall be equivalent to the giving of such notice.
Attendance of a shareholder or director at a meeting shall constitute a waiver
of notice of such meeting, except where such shareholder or director attends
for the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the outstanding shares of
the Corporation, subject to the provisions of the Articles of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting. Dividends may be declared and paid in cash, in property or in shares
of the Corporation, subject to the provisions of the Texas Business Corporation
Act and the Articles of Incorporation. The Board of Directors may fix in
advance a record date for the purpose of determining shareholders entitled to
receive payment of any dividend, such record date to be not more than fifty
(50) days prior to the payment date of such dividend, or the Board of Directors
may close the stock transfer books for such purpose for a period of not more
than fifty (50) days prior to the payment date of such dividend. In the
absence of any action by the Board of Directors, the date upon which the Board
of Directors adopts the resolution declaring such dividend shall be the record
date.
Section 2. Reserves. There may be created by resolution of the
Board of Directors out of the earned surplus of the Corporation such reserve or
reserves as the directors from time to time, in their discretion, think proper
to provide for contingencies, or to equalize dividends, or to repair or
maintain any property of the Corporation, or for such other purpose as the
directors shall think beneficial to the Corporation, and the directors may
modify or abolish any such reserve in the manner in which it was created.
<PAGE> 13
Section 3. Books and Records. The Corporation shall keep
correct and complete books and records of account and minutes of the
proceedings of its shareholders and Board of Directors, and shall keep at its
registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its shareholders, giving the names and
addresses of all shareholders and the number and class of the shares held by
each.
Section 4. Checks and Notes. Demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate. All checks
shall be valid upon the signature of any officer being placed thereon.
Section 5. Loans. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined.
Section 6. Fiscal Year. The fiscal year of the Corporation
shall be fixed as the Board of Directors may from time to time designate.
Section 7. Seal. The Corporation shall have a seal, and said
seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise. Any officer of the Corporation shall have
authority to affix the seal to any document requiring it.
Section 8. Indemnification.
(a) The Corporation shall indemnify, to the extent provided in
paragraphs (b), (c) or (d) of this Section 8 of Article VII:
(1) any person who is or was a director, officer, agent
or employee of the Corporation; and
(2) any person who serves or served at the Corporation's
request as a director, officer, agent, employee, partner or trustee of
another corporation or of a partnership, joint venture, trust or other
enterprise.
(b) In case of a suit by or in the right of the Corporation
against a person named in paragraph (a) of this Section 8 by reason of his
holding a position specified in such paragraph (a), the Corporation shall
indemnify him for expenses (including attorneys' fees but excluding amounts
paid in settlement) actually and reasonably incurred by him in connection with
the defense or settlement of the suit, if:
(1) he is successful on the merits or otherwise; or
(2) he acted in good faith in the transaction which is
the subject of the suit, and in a manner he reasonably believed to be
in, or not opposed to, the best interests of the Corporation; he shall
not, however, be indemnified in respect of any claim, issue or matter
<PAGE> 14
as to which he has been adjudged liable for negligence or misconduct
in the performance of his duty to the Corporation unless (and only to
the extent that) the court in which the suit was brought shall
determine, upon application, that despite the adjudication but in view
of all circumstances he is fairly and reasonably entitled to indemnity
for such expenses as the court shall deem proper.
(c) In case of a suit, action or proceeding (whether civil,
criminal, administrative or investigative), other than a suit by or in the
right of the Corporation, together hereinafter referred to as a "nonderivative
suit", against a person named in paragraph (a) of this Section 8 by reason of
his holding a position specified in such paragraph (a), the Corporation shall
indemnify him in connection with the defense or settlement of the nonderivative
suit as expenses (including attorneys' fees), amounts paid in settlement,
amounts paid in judgments, and amounts paid as penalties or fines:
(1) if he is successful on the merits or otherwise;
(2) if he acted in good faith in the transaction which is
the subject of the nonderivative suit, and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the
Corporation and, with respect to any criminal action or proceeding, he
had no reason to believe his conduct was unlawful; or
(3) the termination of a nonderivative suit by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent shall not, of itself, create a presumption that the
person failed to satisfy the standard of paragraph (c)(2) of this
Section 8.
(d) A determination that the standard of paragraph (b) or (c) of
this Section 8 has been satisfied may be made by a court, or subject to the
provisions of paragraph (c)(3) of this Section 8, by:
(1) a majority of the directors of the Corporation
(whether or not a quorum) who were not parties to the action, suit or
proceeding;
(2) independent legal counsel in a written opinion; or
(3) the shareholders of the Corporation.
(e) Anyone making a determination under paragraph (d) of this
Section 8 may determine that a person has met the standard as to some matters
but not as to others and may reasonably prorate amounts to be indemnified.
(f) The Corporation may pay in advance any expenses (including
attorneys' fees) which may become subject to indemnification
under paragraphs (a)-(e) of this Section 8 if:
<PAGE> 15
(1) the Board of Directors authorizes the specific
payment; and
(2) the person receiving the payment undertakes in
writing to repay unless it is ultimately determined that he is
entitled to indemnification by the Corporation under paragraphs
(a)-(e) of this Section 8.
(g) The indemnification provided by paragraphs (a)-(e) of this
Section 8 shall not be exclusive of any other rights to which a person may be
entitled by law, bylaw, agreement, vote of shareholders or directors, or
otherwise.
(h) The indemnification and advance payment provided by paragraphs
(a)-(f) of this Section 8 shall continue as to a person who has ceased to hold
a position named in paragraph (a) of this Section 8 and shall inure to his
heirs, executors and administrators.
(i) The Corporation may purchase and maintain insurance on behalf
of any person who holds or who has held any position named in paragraph (a)
against any liability incurred by him or in any such position, or arising out
of his status as such, whether or not the Corporation would have power to
indemnify him against such liability under paragraphs (a)-(f) of this Section
8.
(j) Indemnification payments, advance payments and insurance
payments made under paragraphs (a)-(i) of this Section 8 shall be reported in
writing to the shareholders of the Corporation with the next notice of annual
meeting, or within six months, whichever is sooner.
Section 9. Resignation. Any director, officer or agent may
resign by giving written notice to the President or the Secretary. Such
resignation shall take effect at the time specified therein or immediately if
no time is specified therein. Unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 10. Amendment of Bylaws. These Bylaws may be altered,
amended or repealed at any meeting of the Board of Directors at which a
quorum is present, by the affirmative vote of a majority of the Directors
present at such meeting.
Section 11. Invalid Provisions. If any part of these Bylaws
shall be held invalid or inoperative for any reason, the remaining parts, so
far as possible and reasonable, shall be valid and operative.
Section 12. Relation to Articles of Incorporation. These Bylaws
are subject to, and governed by, the Articles of Incorporation.
These Amended and Restated Bylaws were duly adopted at the
Board of Directors meeting January 15, 1998.
<PAGE> 1
EXHIBIT 21
Subsidiaries
TAL Financial Corporation
TCA Management Company
Teleservice Corporation of America
Texas Community Antennas, Inc.
Texas Telecable, Inc.
TCA Cable of Amarillo, Inc.
Telecable Associates, Inc.
Sun Valley Cablevision, Inc.
VPI Communications, Inc.
TCA Communications, Inc.
M.T. Associates, Inc.
TCA Interests, L.L.C.
TCA Holdings, L.P.
TCA Interests II, Inc.
TCA Holdings II, L.P.
<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, 333-1487, 333-26723 and 333-26721) and
Form S-3 (File Nos. 33-61616, 33-44289, 33-40273, 333-23541, 333-32015, and No.
333-44447) and the inclusion in the Prospectus Supplement to the Registration
Statement on Form S-3 (File No. 333-44447) of our report dated January 15, 1998,
on our audits of the consolidated financial statements of TCA Cable TV, Inc. and
Subsidiaries as of October 31, 1997 and 1996, and for the years ended October
31, 1997, 1996 and 1995, which report is included in this Annual Report on Form
10-K. We also consent to the reference to our firm under the caption "Summary
Financial Information."
COOPERS & LYBRAND L.L.P.
Dallas, Texas
January 26, 1998
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