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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _________
Commission file number 0-21309
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CENCOM CABLE INCOME PARTNERS II, L.P.
(Exact Name of Registrant as Specified in its Charter)
Delaware 43-1456575
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
12444 Powerscourt Drive Suite 400
St. Louis, Missouri 63131
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (314) 965-0555
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interests $1,000 per unit
(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
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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 the Form 10-K or any
amendment to this Form 10-K. [|X|]
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated into this Report by reference: None
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CENCOM CABLE INCOME PARTNERS II, L.P.
1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
<S> <C> <C>
Item 1. Business........................................................................................................3
Item 2. Properties.....................................................................................................12
Item 3. Legal Proceedings..............................................................................................13
Item 4. Submission of Matters to a Vote of Security Holders............................................................13
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters..........................................14
Item 6. Selected Financial Data........................................................................................15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..........................16
Item 8. Financial Statements and Supplementary Data....................................................................20
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........................20
PART III
Item 10. Directors and Executive Officers of the Registrant............................................................21
Item 11. Executive Compensation........................................................................................21
Item 12. Security Ownership of Certain Beneficial Owners and Management................................................22
Item 13. Certain Relationships and Related Transactions................................................................22
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K...............................................22
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Cencom Cable Income Partners II, L.P. (the "Partnership" or the "Registrant")
was formed as a Delaware limited partnership in 1987 pursuant to the terms of a
partnership agreement (the "Partnership Agreement"), to acquire, develop,
operate and ultimately sell cable television systems (the "Partnership Systems"
or the "Systems"). Cencom Properties II, Inc., a Delaware corporation, is the
general partner of the Registrant (the "General Partner") and acts as the
management company (the "Management Company") for the purpose of managing the
cable television systems. The principal executive offices of the General Partner
and the Partnership are located at 12444 Powerscourt Drive, Suite 400, St.
Louis, Missouri 63131 and their telephone number is (314) 965-0555.
As of December 31, 1998, the Partnership owned and operated cable television
systems in communities located in northeast Missouri and southwest Texas, and
served approximately 13,600 basic subscribers who subscribed to approximately
6,600 premium service subscriptions.
The Partnership also has invested in limited partnership interests of Cencom
Partners, L.P. ("CPLP"). The Partnership is allocated 84.03% of the net income
or losses of CPLP, based on its ownership interests. The Partnership accounts
for its investment in CPLP using the equity method.
PARTIAL LIQUIDATION OF ASSETS
The Partnership's term expired on December 31, 1995 and since that time, both
the Partnership and CPLP have been in the process of dissolution and winding up
through the sale of their respective assets. In March and April of 1997, the
Partnership sold certain of its cable television systems for an aggregate sales
price of approximately $66,000,000, and CPLP sold certain of its cable
television systems for an aggregate sales price of $52,500,000.
Each of the Partnership and CPLP have executed an Asset Purchase Agreement
providing for the sale of their respective Texas Systems, and it is anticipated
that these sales will close during the second quarter of 1999. The purchase
price for these systems will be $20,800,000 for the Partnership and $11,200,000
for CPLP.
CPLP will use the net proceeds from the sale of its Texas systems first to
satisfy the liabilities and expenses of CPLP with the remaining funds
distributed to its partners, of which 84.03% will be distributed to the
Partnership. The Partnership will use the net proceeds from the sale of its
Texas systems first to pay off outstanding indebtedness, and then to satisfy
other Partnership liabilities and expenses. The Partnership's remaining funds
received pursuant to the distribution from CPLP or as proceeds from the
Partnership's sale of its Texas systems, will be distributed to the partners in
accordance with the liquidation provisions of the Partnership Agreement.
Following these sales, the Partnership's only remaining cable assets will be the
Northeast Missouri systems and CPLP will have disposed of all of its cable
assets.
The Partnership entered into a non-binding letter of intent with an unaffiliated
third-party for the sale of its systems in northeast Missouri. Although
negotiations with respect to a sale agreement are on-going, there is no
assurance that a definitive sale agreement will be executed or that the sale
will be completed. If the General Partner does not execute a definitive
agreement to sell the Northeast Missouri systems as a result of this letter of
intent, it intends to continue to market and sell the systems.
It is also the General Partner's intention to repay the balance of the
Partnership's outstanding obligations, terminate the Partnership and distribute
all remaining proceeds thereof (subject to a holdback for contingencies) as
expeditiously as possible. At such time as all of the Partnership and the CPLP
systems are sold, and all available CPLP distributions are
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received by the Partnership, the Partnership's outstanding obligations will be
paid and the Partnership will be terminated. Upon its termination, the
Partnership will cease to be a public entity and will no longer be subject to
the informational reporting requirements of the Securities Exchange Act of 1934,
as amended.
THE CABLE TELEVISION INDUSTRY
Most cable television systems offer a variety of channels and programming and
are distinguished from competitive technologies because they bring a hard wire
connection to each subscriber over a wide area. In recent years, technological
improvements used in new construction or to upgrade existing plant of cable
television systems have improved signal quality as well as increased channel
capacity, which, in turn, has increased the potential number of programming
offerings available to subscribers. See "Item 1. Marketing, Programming and
Rates."
A cable television system consists of two principal operating components: one or
more signal origination points called "headends" and a signal distribution
system. It may also include program origination facilities. Each headend
includes a tower, antennae or other receiving equipment at a location favorable
for receiving broadcast signals and one or more earth stations that receive
signals transmitted by satellite. The headend facility also houses the
electronic equipment which amplifies, modifies and modulates the signals,
preparing them for passage over the system's network of cables.
The signal distribution system consists of amplifiers and trunk lines which
originate at the headend and carry the signal to various parts of the system,
smaller distribution cable and distribution amplifiers which carry the signal to
the immediate vicinity of the subscriber and drop lines which carry the signal
into the subscriber's home. In the past several years, many cable operators have
utilized fiber optic (in place of, or in combination with, coaxial) technology
to transmit signals through the primary trunk lines.
DESCRIPTION OF THE PARTNERSHIP SYSTEMS
The following table sets forth a summary of subscriber data (rounded to the
nearest hundred) of the Partnership's Systems as of the dates indicated:
<TABLE>
<CAPTION>
As of December 31,
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1998 1997
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<S> <C> <C>
Basic Subscribers:
Northeast Missouri Systems 1,700 1,800
Southeast Texas Systems 11,900 11,600
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13,600 13,400
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Premium Subscriptions:
Northeast Missouri Systems 700 800
Southeast Texas Systems 5,900 4,400
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6,600 5,200
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</TABLE>
The Northeast Missouri Systems
The Northeast Missouri Systems serve eight communities in the northeastern
section of Missouri. As of December 31, 1998, these systems consisted of seven
headends having approximately 70 miles of activated distribution plant passing
approximately 4,100 homes. The largest headend serves Canton and LaGrange,
Missouri. As of December 31, 1998, Canton and LaGrange subscribers accounted for
approximately 44.9% of the Northeast Missouri Systems' basic subscribers. The
remaining six headends each serve less than 400 basic subscribers. At December
31, 1998, the Partnership employed two full-time equivalent persons in
connection with the operation of the Northeast Missouri Systems.
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The Southeast Texas Systems
As of December 31, 1998, the Southeast Texas Systems served approximately 11,900
basic subscribers in the communities of Kingsville, Angleton, Aqua Dolce,
Driscoll, Belleville, Hempstead and Sealy. These cable television systems
consisted of seven headends, of which Angleton and Kingsville serve 34.9% and
46.8% of the basic subscribers, respectively. At December 31, 1998, the
Partnership employed 21 full-time equivalent persons in connection with the
operation of these systems.
DESCRIPTION OF CPLP SYSTEMS
As of December 31, 1998, CPLP owned cable television systems that serve
communities in and around LaGrange, Texas, consisting of approximately 170 miles
of activated distribution plant which passed approximately 10,400 homes and
served customers subscribing to approximately 6,400 basic and 2,700 premium
units. The monthly basic fees at December 31, 1998, were $12.25 for the basic
service tier and $16.87 for the expanded basic tier. CPLP employed 10 full-time
equivalent persons at December 31, 1998.
MARKETING, PROGRAMMING AND RATES
The Partnership's marketing program is based upon offering various packages of
cable services designed to appeal to different market segments. The General
Partner performs and utilizes market research on selected systems, compares the
data to national research and tailors a marketing program for each individual
market. The General Partner utilizes a coordinated array of marketing techniques
to attract and retain subscribers, including door-to-door solicitation,
telemarketing, media advertising and direct mail solicitations. The Partnership
implements in the Partnership Systems the marketing efforts instituted by the
General Partner to gain new subscribers and increase basic and premium
penetration in the communities served by the Systems.
Although services vary from system to system because of differences in channel
capacity, viewer interests and community demographics, each of the individual
Systems offers a "basic service tier," consisting of local television channels
(network and independent stations) available over-the-air, local public channels
and governmental and leased access channels. The individual Systems also offer
an expanded basic tier of television stations relayed from distant cities,
specialized programming delivered via satellite and various alpha-numeric
channels providing information on news, time, weather and the stock market. In
addition to these services, the Systems typically provide one or more premium
services purchased from independent suppliers and combined in different formats
to appeal to the various segments of the viewing audience, such as Home Box
Office, Cinemax, Showtime, The Movie Channel and the Disney Channel. A "premium
service unit" is a single premium service for which a subscriber must pay an
additional monthly fee in order to receive the service. Subscribers may
subscribe for one or more premium service units. The Systems also receive
revenues from the sale or monthly use of certain equipment (e.g., converters,
wireless remote control devices, etc.) and from cable programming guides, with
some Systems offering enhanced audio services. Certain of the Systems also
generate revenues from the sale of advertising spots on one or more channels,
from the distribution and sale of pay-per-view movies and events, and from
commissions resulting from subscribers participating in home shopping.
Rates to subscribers vary from market to market and in accordance with the type
of service selected. The Partnership Systems' monthly basic fees, at December
31, 1998, ranged from $8.95 to $15.95 for the basic service tier and $15.57 to
$19.95 for the expanded basic tier. A one-time installation fee, which may be
partially waived during a promotional period, is charged to new subscribers. The
practices of the Registrant regarding rates are consistent with the current
practices in the industry. See "Regulation and Legislation" for a discussion of
rate setting.
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MANAGEMENT AGREEMENT
Since July 15, 1994, the Partnership Systems have been managed by the General
Partner, which assumed the rights and obligations of the former manager under
the Management Agreement effective March 31, 1988, by and between the
Partnership and the Management Company (the "Management Agreement").
Consequently, the Management Company has the exclusive right, authorization and
responsibility to manage the Partnership Systems.
The Management Agreement provides that the Management Company will receive for
its services a management fee equal to 5% of the annual gross operating revenues
of the Partnership. Such fee is to be paid quarterly in arrears after the
Partnership pays quarterly distributions to the Limited Partners. Beginning in
1989, up to 50% of the management fee payment is subordinate to certain
quarterly distributions to the Limited Partners. Unpaid management fees accrue
without interest. During 1998, 1997 and 1996, the Registrant recorded
approximately $306,000, $462,000, and $905,000, respectively, of such management
fee expense although it ceased making such payments shortly thereafter.
Management fees of approximately $4,382,000, $4,076,000, and $3,614,000 were
included in Payables to General Partners and affiliates at December 31, 1998,
1997, and 1996, respectively. Although the General Partner is currently entitled
to collect 50% of its management fees pursuant to the terms of the Management
Agreement, the General Partner has decided to voluntarily defer receipt of such
fees (approximately $1,595,000 as of December 31, 1998) until such time as the
Partnership's outstanding indebtedness is reduced through a combination of
repayment and refinancing of such indebtedness.
Pursuant to its terms, the Management Agreement was to expire on the earlier of
December 31, 1995, or upon the dissolution of the Partnership. The General
Partner has agreed to extend the term of the Management Agreement through the
"winding-up" of the Partnership's business and affairs.
The Management Company manages all aspects of the daily operation of the
Partnership Systems including, but not limited to, providing the Registrant with
financial, marketing, engineering, technical and operational guidance;
negotiating programming and other contracts; reviewing, approving and processing
of accounting transactions; developing and maintaining administrative records,
Limited Partner investment and tax records, procedures and reports; developing
recommendations for, and negotiating the acquisition and maintenance of,
insurance coverage; reviewing and approving personnel and other management
policies and procedures; supervising the training of management personnel;
developing engineering strategies for the implementation of technical
improvements; reviewing and approving maintenance standards and capital
expenditures for plant and equipment; providing a centralized purchasing agent
to provide the benefit of quantity discounts; developing compensation policies
and maintaining individual personnel files with respect to employees; assisting
in the selection of, and consultation with, attorneys, consultants and
accountants; and providing in-house legal support and negotiating financing on
behalf of the Registrant. In addition, the Management Company is responsible for
preparing and monitoring annual operating budgets, Limited Partner
correspondence, cash management, monthly financial statements and such other
reports as may be required by the Registrant.
COMPETITION
Cable television systems compete with other providers of television signals and
other sources of home entertainment. The competitive environment has been
significantly affected both by technological developments as well as regulatory
changes enacted in the Telecommunications Act of 1996 ("1996 Telecom Act") which
were designed to enhance competition in the cable television and local telephone
markets (see "Regulation and Legislation" below). Key competitors today include:
Broadcast Television. Cable television has long competed with broadcast
television, which consists of television signals that the viewer is able to
receive without charge using a traditional "off-air" antenna. The extent of such
competition is dependent upon the quality and quantity of broadcast signals
available through "off-air" reception compared to the services provided by the
local cable system. Accordingly, cable operators in rural areas, where "off-air"
reception is more limited, generally achieve higher penetration rates than do
operators in major metropolitan areas, where numerous, high quality "off-air"
signals are available. The 1996 Telecom Act directed for digital television
("DTV") to incumbent television broadcast licenses. DTV is expected to deliver
high definition television pictures and multiple digital-quality programs
streams, as well as advanced digital services such as subscription video.
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DBS. DBS has emerged as significant competition to cable television systems. The
DBS industry has grown rapidly over the last several years, and now serves
approximately 10 million subscribers nationwide. DBS service allows the
subscriber to receive video services directly via satellite using a relatively
small dish antenna. Moreover, video compression technology allows DBS providers
to offer more than 100 digital channels, thereby surpassing the typical cable
system. DBS providers offer most of the same programming as cable television,
but also offer certain sports packages not available through cable television
systems and a wide array of pay-per-view movies. DBS currently faces technical
and legal obstacles to providing this programming in certain major markets, and
Congress and the FCC are considering proposals that would remove existing legal
obstacles. DirecTV, Inc. ("DirecTV"), United States Satellite Broadcasting
Corporation, Inc. ("USSB") and EchoStar Communications Corporation currently
offer DBS programming. In addition, there are several companies licensed to
operate a DBS system who have yet to begin service. PrimeStar, Inc.
("PrimeStar") offers a medium-powered fixed satellite service that shares many
of the attributes of DBS operators. Additionally, several DBS companies have
recently announced mergers which should strengthen their position, including
DirecTV, whose parent announced its intention to acquire USSB and PrimeStar,
subject to regulatory and other approvals. DirecTV estimates that the
combination of DirecTV, PrimeStar and USSB will result in DBS business serving
more than seven million subscribers with more than 370 entertainment channels.
Others may announce intentions to enter the DBS market and may offer DBS
services within our service areas.
Traditional Overbuild. Cable television franchises are not exclusive, so that
more than one cable television system may be built in the same area (known as an
"overbuild"), with potential loss of revenue to the operator of the original
system. Overbuilds historically have been relatively rare, as constructing and
developing a cable television system is capital-intensive, and it is difficult
for the new operator to gain a marketing advantage over the incumbent operator.
Although a private competitor ordinarily would require a franchise from local
jurisdiction, municipalities themselves have sometimes built and operated their
own overbuild.
Telephone. Federal cross-ownership restrictions historically limited entry by
local telephone companies into the cable television business. The 1996 Telecom
Act eliminated this cross-ownership restriction, making it possible for
companies with considerable resources to overbuild existing cable systems.
Several telephone companies have begun seeking cable television franchises from
local governmental authorities and constructing cable television systems. The
entry of telephone companies as direct competitors is likely to continue and
could adversely affect the profitability and valuation of the Partnership's
systems. The entry of electric utility companies into the cable television
business, as now authorized by the 1996 Telecom Act, could have a similar
adverse effect.
Private Cable. Additional competition is posed by private cable television
systems, known as Satellite Master Antenna Television (SMATV), serving
multi-unit dwellings such as condominiums, apartment complex, and private
residential communities. These private cable systems may enter into exclusive
agreements with apartment owners and homeowners associations, which may preclude
operators of franchised systems from serving residents of such private
complexes. Private cable systems that do not cross public rights of way are free
from the federal, state and local regulatory requirements imposed on franchised
cable television operators.
Wireless Distribution. Cable television systems also compete with wireless
program distribution services such MMDS. MMDS uses low-power microwave
frequencies to transmit television programming over-the-air to paying
subscribers. Wireless distribution services generally provide many of the
programming services provided by cable systems, and digital compression
technology is likely to increase significantly the channel capacity of their
systems. However, most MMDS operators continue to program in analog technology
due to the significant capital cost in upgrading to digital technology, combined
with a high disconnect ratio for this service. Analog MMDS is limited to
approximately 33 channels. Additionally, both analog and digital MMDS services
require unobstructed "line of sight" transmission paths.
Cable television systems are also in competition, in various degrees with other
communications and entertainment media, including motion pictures and home video
cassette recorders.
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REGULATION AND LEGISLATION.
The operation of a cable television system is extensively regulated by the
Federal Communications Commission ("FCC"), some state governments and most local
governments. The 1996 Telecom Act has altered 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 also reduces the scope of cable rate regulation and encourages
additional competition in the video programming industry by allowing local
telephone companies to provide video programming in their own telephone service.
The 1996 Telecom Act requires the FCC to undertake a host of implementing
rulemakings, the final outcome of which cannot yet be determined. Moreover,
Congress and the FCC have frequently revisited the subject of cable regulation.
Future legislative and regulatory changes could adversely affect the
Partnership's operations, and there have been calls in Congress and at the FCC
to maintain or even tighten cable regulation in absence of widespread effective
competition.
Cable Rate Regulation. The Cable Television Consumer Protection and Competition
Act of 1992 (the"1992 Cable Act") imposed an extensive rate regulation regime on
the cable television industry. Under that regime, all cable systems are subject
to rate regulation, unless they face "effective competition" in their local
franchise area. Federal law now defines "effective competition" on a
community-specific basis as requiring either low penetration (less than 30%) by
the incumbent cable operator, appreciable subscriber penetration (more than 15%)
by competing multichannel video providers ("MVPs"), or the presence of a
competing MVP affiliated with a local telephone company offering service to the
community.
Although the FCC has established the underlying regulatory scheme, local
government units (commonly referred to as local franchising authorities or
"LFA's") are primarily responsible for administering the regulation of the
lowest level of cable -- the basic service tier ("BST"), which typically
contains local broadcast stations and public, educational, and government
("PEG") access channels. Before an LFA begins BST rate regulation, it must
certify to the FCC that it will follow applicable federal rules. Many LFA's have
voluntarily declined to exercise their authority to regulate BST rates. LFA's
also have primary responsibility for regulating cable equipment rates. Under
federal law, charges for various types of cable equipment must be unbundled from
each other and from monthly charges for programming services.
The FCC itself directly administers rate regulation of any cable programming
service tiers ("CPST"), which typically contain satellite-delivered programming.
Under the 1996 Telecom Act, the FCC can regulate CPST rates only if an LFA first
receives at least two rate complaints from local subscribers and then files a
formal complaint with the FCC. When new CPST rate complaints are filed, the FCC
now considers only whether the incremental increase is justified and will not
reduce the previously established CPST rate.
Under the FCC's rate regulations, most cable systems were required to reduce
their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price cap scheme that allows for the
recovery of inflation and certain increased costs, as well as providing some
incentive for expanding channel carriage. The FCC has modified its rate
adjustment regulations to allow for annual rate increases and to minimize
previous problems associated with regulatory lag. Operators also have the
opportunity of bypassing this "benchmark" regulatory scheme in favor of
traditional "cost-of-service" regulation in cases where the latter methodology
appears favorable. Premium cable services offered on a per-channel or
per-program basis remain unregulated, as do affirmatively marketed packages
consisting entirely of new programming product. However, federal law requires
that the BST be offered to all cable subscribers and limits the ability of
operators to require purchase of any CPST if a customer seeks to purchase
premium services offered on a per-channel or per-program basis, subject to a
technology exception which sunsets in 2002.
At December 31, 1998, LFA's (covering approximately 30% of the Systems'
subscribers) were certified to regulate basic tier rates. The 1992 Cable Act
permits communities to certify and regulate rates at any time, so that
additional localities served by the systems may choose to certify and regulate
rates in the future.
The FCC and Congress have provided various forms of rate relief for smaller
cable systems owned by smaller operators. If requisite eligibility criteria are
satisfied, a cable operator may be allowed to rely on a vastly simplified
cost-of-service rate justification and/or may be allowed to avoid regulation of
CPST rates entirely. Under FCC regulations, cable systems
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serving 15,000 or fewer subscribers, which are owned by or affiliated with a
cable company serving in the aggregate no more than 400,0000 subscribers, can
submit a simplified cost-of-service filing under which the regulated rate
(including equipment charges) will be presumed reasonable if it equates to no
more than $1.24 per channel. Eligibility for this relief continues if the small
cable system is subsequently acquired by a larger cable operator, but is lost
when and if the individual system serves in excess of 15,000 subscribers. With
regards to cable systems owned by small operators, the 1996 Telecom Act
immediately deregulated the CPST rates of cable systems serving communities with
fewer than 50,000 subscribers, which are owned by or affiliated with entities
serving, in the aggregate, no more than one percent of the nation's cable
customers (approximately 617,000) and having no more than $250 million in annual
revenues.
Significantly, FCC regulation of CPST rates for all systems (regardless of size)
will sunset pursuant to the 1996 Telecom Act on March 31, 1999. Certain
legislators, however, have called for the delay in that regulatory sunset and
even urged more rigorous rate regulation in the interim, including limits on
operators passing through to their customers increased programming costs and
bundling together multiple programming services. The 1996 Telecom Act also
relaxes existing "uniform rate" requirements by specifying that uniform rate
requirements do not apply where the operator faces "effective competition," and
by exempting bulk discounts to multiple dwelling units, although complains about
predatory pricing still may be made to the FCC.
Cable Entry Into Telecommunications. 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 and may require reasonable, competitively
neutral compensation for management of the public rights-of-way when cable
operators provide telecommunications service. 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 operator provided
telecommunications service, as well as cable service, over its plant. The FCC
recently clarified that a cable operator's favorable pole rates are not
endangered by the provision of Internet access.
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. In July 1997, the Eighth Circuit Court of Appeals
vacated certain aspects of the FCC's initial interconnection obligation order
but most of that decision was reversed by the U.S. Supreme Court in January
1999. The Supreme Court upheld most of the FCC's interconnection regulations.
Internet Service. Although there is at present no significant federal
regulations of cable system delivery of Internet services, and the FCC recently
issued a report to Congress finding no immediate need to impose such regulation,
this situation may change as cable systems expand their broadband delivery of
Internet services. In particular, proposals have been advanced at the FCC and
Congress that would require cable operators to provide access to unaffiliated
Internet service provider and online service providers. Certain Internet service
providers also are attempting to use existing commercial leased access
provisions to gain access to cable system delivery. Finally, some local
franchising authorities are considering the imposition of mandatory Internet
access requirements as part of cable franchise renewals or transfers.
Telephone Company Entry Into Cable Television. The 1996 Telecom Act allows
telephone companies to compete directly with cable operators by repealing the
historic telephone company/cable cross-ownership ban. Local exchange carriers
("LECs"), including the Bell Operating Companies, can now compete with cable
operators both inside and outside their telephone service areas. Because of
their resources, LECs could be formidable competitors to traditional cable
operators, and certain LECs have begun offering cable service.
Various LECs currently are seeking to provide video programming services within
their telephone service areas through a variety of distribution methods,
including both the deployment of broadband wire facilities and the use of
wireless (MMDS) transmission.
Under the 1996 Telecom Act, a LEC (or any other cable competitor) providing
video programming to subscribers through broadband wire should be regulated as a
traditional cable operator (subject to local franchising and federal regulatory
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requirements), unless the LEC elects to deploy its broadband plant as an OVS. To
qualify for favorable OVS status, the competitor must reserve two-thirds of the
system's activated channels for unaffiliated entities. The Fifth Circuit Court
of Appeals recently reversed certain of the FCC's OVS rules, including the FCC's
preemption of local franchising. That decision may be subject to further appeal.
It is unclear what effect this ruling will have on the entities pursuing OVS
operation.
Although LECs and cable operators can now expand their offerings across
traditional service boundaries, the general prohibition remains on LEC buyouts
(i.e., any ownership interest exceeding 10 percent) of co-located cable systems,
cable operator buyouts of co-located LEC systems, and joint ventures between
cable operators and LEC in the same market. The 1996 Telecom Act provides a few
limited exceptions to this buyout prohibition, including a carefully
circumscribed "rural exemption." The 1996 Telecom Act also provides the FCC with
the limited authority to grant waivers of the buyout prohibition (subject to LFA
approval).
Electric Utility Entry Into Telecommunications/Cable Television. The 1996
Telecom Act provides that registered utility holding companies and subsidiaries
may provide telecommunications services (including cable television)
notwithstanding the Public Utility Holding Company Act. Electric utilities must
establish separate subsidiaries, known as "exempt telecommunications companies"
and must apply to the FCC for operating authority. Like telephone companies that
have substantial resources at their disposal, and could be formidable
competitors to traditional cable systems. Several such utilities have been
granted broad authority by the FCC to engage in activities which could include
the provision of video programming.
Additional Ownership Restrictions. 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 co-located television stations and
cable systems.
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 video program services. Although the 1992 Cable Act also
precluded any cable operator from serving more than 30% of all U.S. domestic
cable subscribers, this provision has been stayed pending further judicial
review and FCC rulemaking.
Must Carry/Retransmission Consent. The 1992 Cable Act contains broadcast signal
carriage requirements that, among other things, allow local commercial
television broadcast stations to elect once every three years between requiring
a cable system to carry the station ("must carry") or negotiating for payments
for granting permission to the cable operator to carry the station
("retransmission consent"). Less popular stations typically elect "must carry,"
and more popular stations (such as those affiliated with a national network)
typically elect "retransmission consent." Must carry requests can dilute the
appeal of a cable systems' programming offerings because a cable system with
limited channel capacity may be required to forego carriage of popular channels
in favor of less popular broadcasts stations electing must carry. Retransmission
consent demands may require substantial payments or other concessions. Either
option has a potentially adverse affect on the Partnership's business. The
burden associated with "must carry" may increase substantially if broadcasters
proceed with planned conversion to digital transmission and the FCC determines
that cable systems must carry all analog and digital broadcasts in their
entirety. A rulemaking is now pending at FCC shortly regarding the imposition of
dual digital and analog must carry.
Access Channels. LFA's can include franchise provisions requiring cable
operators to set aside certain channels for public, educational and governmental
access programming. Federal law also requires cable systems to designate a
portion of their channel capacity (up to 15% in some cases) for commercial
leased access by unaffiliated third parties. The FCC has adopted rules
regulating the terms, conditions and maximum rates a cable operator may charge
for commercial leased access use. We believe that requests for commercial leased
access carriages have been relatively limited.
Access to Programming. To spur the development of independent cable programmers
and competition to incumbent cable operators, the 1992 Cable Act imposed
restrictions on the dealings between cable operators and cable programmers. Of
special significance from a competitive business posture, the 1992 Cable Act
precludes video programmers affiliated with cable companies from favoring cable
operators over competitors and requires such programmers to sell their
programming to other multichannel video distributors. This provision limits the
ability of vertically integrated cable programmers to
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<PAGE> 11
offer exclusive programming arrangements to cable companies. Recently, there has
been increased interest in further restricting the marketing practices of cable
programmers, including subjecting programmers who are not affiliated with cable
operators to all of the existing program access requirements, and subjecting
terrestrially-delivered programming to the program access requirements.
Inside Wiring; Subscriber Access. In a 1997 Order, the FCC established rules
that require an incumbent cable operator upon expiration of an multiple dwelling
unit ("MDU") service contract to sell, abandon, or remove "home run" wiring that
was installed by the cable operator in a MDU building. These inside wiring rules
are expected to assist building owners in their attempts to replace existing
cable operators with new programming providers who are willing to pay the
building owner a higher fee, where such fee is permissible. The FCC has also
proposed abrogating all exclusive MDU service agreements held by incumbent cable
operators, but allowing such contracts when held by new entrants. In another
proceeding, the FCC preempted restrictions on the deployment of private antenna
on rental property within the exclusive use of a tenant (such as balconies and
patios). This FCC ruling may limit the extent to which the Partnership along
with MDU owners may enforce certain aspects of MDU agreements which otherwise
prohibit, for example, placement of DBS receiver antennae in MDU areas under the
exclusive occupancy of a renter.
Other FCC Regulations. In addition to the FCC regulations noted above, there are
other FCC regulations covering such areas as equal employment opportunity,
subscriber privacy, programming practices (including, among other things,
syndicated program exclusivity, network program nonduplication, local sports
blackouts, indecent programming, lottery programming, political programming,
sponsorship identification, children's programming advertisements, and closed
captioning, registration of cable systems and facilities licensing, maintenance
of various records and public inspection files, aeronautical frequency usage,
lockbox availability, antenna structure notification, tower marking and
lighting, consumer protection and customer service standards, technical
standards, consumer electronics equipment capability and Emergency Alert
Systems). The FCC recently ruled that cable customers must be allowed to
purchase cable converters from third parties and established a multi-year
phase-in during which security functions (which would remain in the operator's
exclusive control) would be unbundled from basic converter functions (which
could then be satisfied by third party vendors). The FCC has the authority to
enforce its regulations through the imposition of substantial fines, the
issuance of cease and desist orders and / or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities used in connection with cable
operations.
Copyright. Cable television systems are subject to federal copyright licensing
covering carriage of television and radio broadcast signals. In exchange for
filing certain reports and contributing a percentage of their revenues to a
federal copyright royalty pool (that varies depending on the size of the system
and the number of distant broadcast television signals carried, and the location
of the cable system), cable operators can obtain blanket permission to
retransmit copyrighted material included in broadcast signals. The possible
modification or elimination of this compulsory copyright license is the subject
of continuing legislative review and could adversely affect the Partnership's
ability to obtain desired broadcast programming. The Partnership cannot predict
the outcome of this legislative activity. Copyright clearances for nonbroadcast
programming services are arranged through private negotiations.
Cable operators distribute locally originated programming and advertising that
use music controlled by the two principal major music performing rights
organizations, the Association of Songwriters, Composers, Artists and Producers
("ASCAP") and Broadcast Music, Inc. ("BMI"). The cable industry and BMI have
reached a standard licensing agreement, and negotiations with ASCAP are ongoing.
Although the Partnership cannot predict the ultimate outcome of these industry
negotiations or the amount of any license fees it may be required to pay for
past and future use of ASCAP-controlled music, it does not believe such license
fees will be significant to the Partnership's business and operations.
State and Local Regulation. Cable television systems generally are operated
pursuant to nonexclusive franchises granted by a municipality or other state or
local government entity in order to cross public rights-of-way. Federal law now
prohibits LFAs from granting exclusive franchises or from unreasonably refusing
to award additional franchises. Cable franchises generally are granted for fixed
terms and in many cases include monetary penalties for non-compliance and may be
terminable if the franchisee failed to comply with material provisions.
The specific terms and conditions of franchises vary materially between
jurisdictions. Each franchise generally contains provisions governing cable
operations, service rates, franchise fees, system construction and maintenance
obligations,
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<PAGE> 12
system channel capacity, design and technical performance, customer service
standards, and indemnification protections. A number of states subject cable
television systems to the jurisdiction of centralized state governmental
agencies, some of which impose regulation of a character similar to that of a
public utility. Although local franchising authorities ("LFA's") have
considerable discretion in establishing franchise terms, there are certain
federal limitations. For example, LFA's cannot insist on franchise fees
exceeding 5% of the system's gross revenues, cannot dictate the particular
technology used by the system, and cannot specify video programming other than
identifying broad categories of programming.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the local franchise authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and service or increased
franchise fees as a condition of renewal. Similarly, if local franchise
authority's consent is required for the purchase or sale of a cable system or
franchise, such LFA may attempt to impose more burdensome or onerous franchise
requirements in connection with a request for consent. Historically, franchises
have been renewed for cable operators that have provided satisfactory services
and have complied with the terms of their franchise.
Under the 1996 Telecom Act, cable operators are not required to obtain
franchises for the provision of telecommunications services, and LFAs are
prohibited from limiting, restricting, or conditioning the provision of such
services. In addition, LFAs may not require a cable operator to provide any
telecommunications service or facilities, other than institutional networks
under certain circumstances, as a condition of an initial franchise grant, a
franchise renewal, or a franchise transfer. The 1996 Telecom Act also provides
that franchising fees are limited to an operator's cable-related revenues and do
not apply to revenues that a cable operator derives from providing new
telecommunications services.
EMPLOYEES
As of December 31, 1998, the Registrant employed a total of approximately 21
full-time equivalent persons in the operation of its cable television systems.
None of the employees are represented by a union. The Registrant has never
experienced a work stoppage. The Registrant believes its employee relations are
generally good.
OTHER MATTERS
The Partnership owns and operates cable television systems and does not engage
in any other identifiable industry segments. The Partnership does not believe
that changes of a seasonal nature are material to the cable television business.
The Partnership has not expended material amounts during the last two years on
research and development activities. As the Partnership is a service-related
organization, little or no raw materials are utilized by the Partnership. The
necessary hardware, coaxial cable and electronics required for construction of
new cable plant are available from a variety of vendors and are generally
available in ample supply. There is no one customer or affiliated group of
customers to whom sales are made in amounts which exceed ten percent (10%) of
the Partnership's revenues. The Partnership believes it is not affected by
inflation except to the extent that the economy in general is affected thereby.
ITEM 2. PROPERTIES
The Registrant's principal physical assets consist of the components of each of
its cable television systems, which include a central receiving apparatus,
distribution cables and local business offices. The receiving apparatus is
comprised of a tower and antennas for reception of over-the-air broadcast
television signals and one or more earth stations for reception of satellite
signals. Located near these receiving devices is a building that houses
associated electronic gear and processing equipment. The Registrant owns the
receiving and distribution equipment of each system and owns or leases small
parcels of real property for the receiving sites.
Cable is either buried in trenches or is attached to utility poles pursuant to
license agreements with the owners of the poles. As is typical in the cable
television industry, the Partnership maintains insurance on its above-ground
plant, but not for its
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<PAGE> 13
underground plant. The Registrant owns or leases the local business office of
each system from which it dispatches service employees, monitors the technical
quality of the system, handles customer service and billing inquiries and
administers marketing programs. The office facilities of some systems include
certain equipment for program production, as required under certain of the
Partnership's franchises.
The Registrant believes that its properties are generally in good condition and
fully utilized. The Systems currently operate at between 220 and 330 megahertz,
whereas the General Partner believes the standard in the cable television
industry for cable television systems similar to those operated by the
Partnership to generally be a minimum of 450 megahertz. The physical components
of the Systems require maintenance and periodic upgrading to keep pace with
technological advances.
ITEM 3. LEGAL PROCEEDINGS
Abeles v. Cencom Cable Entertainment, Inc., et. al.
On June 17, 1998, approximately 400 limited partners in CCIP II, filed a lawsuit
against the General, Cencom Cable Entertainment, Inc. (CCE), (collectively
"Cencom Defendants"), and three brokerage firms involved in the original sale of
limited partnership units in the Circuit Court of Jackson County, Missouri. CCE
provided management services to the Partnership and also owned all of the stock
of the General Partner prior to mid-1994.
Plaintiffs allege that the Cencom Defendants are liable for fraud, negligent
misrepresentation or omission, negligence, breach of fiduciary duty, breach of
implied covenants and violations of the Missouri Merchandising Practices Act in
connection with the sale of limited partnership interests in CCIP II commencing
in 1987. Plaintiffs seek recession of the purchase of the securities along with
ancillary damages, actual damages, punitive damages, costs and attorneys' fees.
On August 17, 1998, the Cencom Defendants filed a Motion to Dismiss. On November
5, 1998, the Court heard oral argument on that motion. Discovery has been stayed
during the pendency of the Motion to Dismiss.
Wallace v. Wood, et. al.
On June 10, 1997, four limited partners of the Partnership filed a putative
class action suit on behalf of the limited partners presently in Delaware
Chancery Court against the General Partner, Charter, certain other Charter
affiliates and four present or former officers of the General Partner. The
Plaintiffs subsequently amended their lawsuit and converted it to a Derivative
Action, thus adding the Partnership as a nominal defendant.
Plaintiffs allege that the Defendants breached the Partnership Agreement and
their fiduciary duties of loyalty and candor in connection with the management
of the Partnership and the sale of the Partnership assets to certain purchasing
affiliates. Plaintiffs seek a declaration that the distribution to the Limited
Partners is improper, request that defendants compensate the Partnership for all
damages suffered as a result of the actions and transactions, including
interest, costs, reasonable attorneys' fees, accountants' and experts' fees and
request an accounting for all monies earned by the properties after the
effective date of the sale to the purchasing affiliates.
On May 19, 1998, Defendants filed a Motion for Judgment on the Pleadings,
seeking dismissal of certain of the defendants from the lawsuit. That motion is
pending before the Court.
The Partnership is not a named defendant in the Jackson County litigation and is
a nominal defendant in the Delaware litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
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<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
As of December 31, 1998, there were approximately 8,829 holders of 90,915
Limited Partnership Units of the Partnership (the "Units" or the "LP Units").
There is a very limited trading market for the Units and all transfers are
subject to approval of the General Partner. In 1996, 1997 and 1998, several
tender offers have been conducted for the acquisition of limited partnership
interests. In 1998, an aggregate of 3,426 limited partnership units were traded
in tender offer transfers submitted to the General Partner.
Pursuant to the terms of the Partnership Agreement, the Partnership is required
to distribute all cash available for distribution to the Limited Partners within
60 days after the end of each calendar quarter and, with respect to certain
available refinancing proceeds and certain available sales proceeds, as soon as
possible following completion of the relevant transaction. The Partnership
suspended regular quarterly distributions to Limited Partners in the fourth
quarter of 1993 to provide the Partnership with greater financial flexibility in
meeting its debt covenants and in making capital expenditures. In June 1997,
following the Partnership's sale of assets and refinancing of its credit
facility, the Partnership made a special distribution of $314 per Limited
Partnership Unit. From this aggregate distribution, certain amounts were
withheld from certain of the Limited Partners due to applicable state income
taxes. Distributions in arrears will be distributed in accordance with the
Partnership Agreement.
During January 1995, Charter acquired 1,746 Units of the Partnership as part of
a negotiated transaction for a sale of securities and assets. As of December 31,
1998, Charter held 1,746 Units of the Partnership, representing approximately
1.9% of the total outstanding limited partnership interests of the Partnership.
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<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data has been derived from the audited
financial statements of the Partnership and should be read in conjunction with
the financial statements and notes thereto included pursuant to Item 8 of this
Form 10-K.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------------- ----------------- --------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service Revenues.................. $6,114,611 $9,246,156 $18,155,382 $17,046,419 $16,257,928
Net income (loss)................. 2,291383 44,548,950 (1,447,153) (2,292,563) (5,256,210)
Net income (loss) per LP Unit..... 25.20 458.90 (15.76) (24.96) (57.24)
Cash distributions per LP Unit.... -- 314.00 -- -- --
BALANCE SHEET DATA:
Total assets...................... 7,897,700 7,029,589 20,845,510 24,960,260 30,517,928
Long-term obligations, including
current maturities............. 3,800,000 4,600,000 36,700,000 40,400,000 44,700,000
Partners' (deficit) capital....... (3,534,984) (5,826,367) (21,828,007) (20,380,854) (18,088,291)
MISCELLANEOUS DATA:
Ratio of earnings to fixed
charges(1)...................... 6.66 34.52 -- -- --
Book value per LP Unit............ ($38.88) ($64.09) ($240.09) ($224.17) ($198.96)
</TABLE>
- ----------
(1) Ratio of earnings to fixed charges is calculated using income from
continuing operations adding back fixed charges; fixed charges include interest
expense and amortization expense for debt issuance costs. Earnings for the years
ended December 31, 1996, 1995 and 1994 were insufficient to cover the fixed
charges by $1,447,153, $2,292,563, and $5,256,210, respectively. As a result of
such insufficiencies, these ratios are not presented above.
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<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL INFORMATION
The following table summarizes the amounts and the percentage of total revenues
for certain items for the periods indicated:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
1998 1997 1996
----------------------- ----------------------- ---------------------------
Amt. % Amt. % Amt. %
<S> <C> <C> <C> <C> <C> <C>
Service Revenues:
Basic Service $ 4,688,399 76.7 $ 6,916,999 74.8 $ 13,485,981 74.3
Premium Service 697,063 11.4 1,070,210 11.6 2,241,316 12.3
Other Services 729,149 11.9 1,258,947 13.6 2,428,085 13.4
------------ ------- ------------ ------- ------------ -------
6,114,611 100.0 9,246,156 100.0 18,155,382 100.0
------------ ------- ------------ ------- ------------ -------
Operating Expenses:
Operating, General and
Administrative 3,346,674 54.7 5,674,812 61.4 10,572,015 58.2
Depreciation and
Amortization 652,437 10.7 2,278,705 24.6 6,235,182 34.4
------------ ------- ------------ ------- ------------ -------
3,999,111 65.4 7,953,517 86.0 16,807,197 92.6
------------ ------- ------------ ------- ------------ -------
Income from Operations 2,115,500 34.6 1,292,639 14.0 1,348,185 7.4
------------ ------- ------------ ------- ------------ -------
Other Income (Expenses):
Interest Income 39,632 0.6 216,190 2.3 39,909 0.2
Interest Expense (401,809) (6.6) (1,323,920) (14.3) (2,835,247) (15.6)
Equity in income of
unconsolidated limited
partnership 538,060 8.8 8,133,748 88.0 -- --
Gain on sale of cable
television systems -- -- 36,230,293 391.8 -- --
------------ ------- ------------ ------- ------------ -------
175,883 2.9 43,256,311 467.8 (2,795,338) (15.4)
------------ ------- ------------ ------- ------------ -------
Net income (loss) $ 2,291,383 37.5 $ 44,548,950 481.8 ($ 1,447,153) (8.0)
============ ======= ============ ======= ============ ========
</TABLE>
Operating results of the Registrant's investment in CPLP are not consolidated as
the Registrant owns only limited partnership units of CPLP. The Registrant's
investment in CPLP is accounted for under the equity method and losses in excess
of its investment are not recorded. The amount of unrecorded losses in excess of
the equity investment were approximately $4.0 million for the year ended
December 31, 1996. As of December 31, 1996, the cumulative unrecorded losses in
excess of investment were approximately $14.9 million. For the years ended
December 31, 1998 and 1997, the Partnership recorded income from its investment
in CPLP totaling approximately $0.5 and $8.1 million net of previously
unrecorded losses. Also, in May 1997, the Partnership received a cash
distribution from CPLP in the amount of $5.5 million.
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<PAGE> 17
COMPARISON OF YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996.
Revenues
Partnership revenues decreased 49.1% from $18.2 million in 1996 to $9.2 million
in 1997, primarily as a result of the decrease in subscribers following the sale
of the Anderson County System on April 7, 1997 and the sales of approximately
47% of the Southeast Texas Systems on March 31, 1997. Partnership revenue
decreased 33.9% from $9.2 million in 1997 to $6.1 million in 1998, primarily as
a result of the decrease in subscribers following the sale of the Anderson
County System on April 7, 1997 and the sales of approximately 47% of the
Southeast Texas Systems on March 31, 1997. Overall, revenue per basic subscriber
(as determined for the fourth quarter of each fiscal year) has increased from
$34.56 for 1996 to $36.11 for 1997 to $37.46 for 1998.
The ratio of premium subscriptions per basic subscriber has decreased from .42
at December 31, 1996, to .39 at December 31, 1997, and is indicative of
historical trends. The ratio of premium subscriptions per basic subscriber has
increased from .39 at December 31, 1997, to .48 at December 31, 1998, primarily
as a result of the Partnership offering premium services to customers in a
packaged format, providing subscribers a discount from the combined individual
retail rates of these services.
Operating Expenses
Operating, general and administrative expenses decreased 46.3% from $10.6
million in 1996 to $5.7 million in 1997. This decrease was primarily a result of
the elimination of costs associated with the Anderson County System and certain
of the Southwest Texas Systems which were sold April 7, 1997 and March 31, 1997,
respectively.
Operating, general and administrative expenses decreased 42.1% from $5.7 million
in 1997 to $3.3 million in 1998. This decrease was primarily a result of the
elimination of costs associated with the Anderson County System and certain of
the Southwest Texas Systems which were sold April 7, 1997 and March 31, 1997,
respectively. Operating, general and administrative costs have increased as a
percent of revenue from 58.2% in 1996 to 61.4% in 1997. In addition to
programming cost increases, the Partnership has experienced increases in
copyright expense, property tax expense and liquidation costs. Operating,
general and administrative costs have decreased as a percent of revenues from
61.4% in 1997 to 54.7% of revenues in 1998, as a result of a decrease in
liquidation costs incurred during 1998.
Depreciation and amortization, in terms of percent of revenues, decreased during
the 1996-1998 period. The decrease is primarily the result of the completion of
amortization for certain franchises and deferred costs.
Other Income and Expenses
Interest expense decreased from $2,835,000 in 1996 to $1,324,000 in 1997 to
$402,000 in 1998 as a result of a lower weighted average outstanding balance due
to the reduction of indebtedness from the proceeds of the sale of cable
television systems.
Because the Partnership accounts for its investment in CPLP under the equity
method, allocated losses from CPLP in excess of the Partnership's investment in
CPLP are not recorded. During 1996, the unrecorded loss in excess of investment
was $4.0 million. During 1997, the sale of certain cable television systems by
CPLP resulted in the recognition by the Partnership of equity in income of $8.1
million from this unconsolidated limited partnership, net of previously
unrecorded losses, which as of December 31, 1996 were approximately $14.9
million. During 1998, the Partnership recorded income from its investment in
CPLP totaling $0.5 million.
During 1997, the Partnership recorded a gain of approximately $36.2 million
related to the sales of certain of its cable television systems.
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<PAGE> 18
Net Loss
The Partnership recorded net income of $44.5 million in 1997 compared to a loss
of $1.4 million in 1996. The increase in net income was primarily due to the
$36.2 million gain on the sale of cable television systems and the recognition
of $8.1 million of equity in the income of CPLP, an unconsolidated limited
partnership. Net income was reduced by 94.9% from $44.5 million in 1997 to $2.3
million in 1998, primarily attributable to the $36.2 million gain on the sale of
cable television systems and the recognition of $8.1 million of equity in the
income of CPLP recorded in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's initial capital resources have included the aggregate of
approximately $81.6 million (net of related expenses) raised through the sale of
LP Units and approximately $918,000 in General Partner contributions of cash and
notes. These sources of capital were used to fund the purchase of the
Partnership Systems and have since been supplemented with borrowings to finance
capital expenditures.
On May 23, 1997, the Partnership terminated its existing secured revolving line
of credit agreement and entered into a new bank credit agreement (the "Credit
Agreement") for borrowings up to $8,500,000. The Credit Agreement also provides
for borrowings up to $7,500,000 by CPLP, with each partnership held jointly and
severally liable in the event of default. At December 31, 1998, the Partnership
had $3,800,000 of indebtedness outstanding under the Credit Agreement and CPLP
had $-0- of indebtedness outstanding under the Credit Agreement. The debt bears
interest at rates, at the Partnership's option, based on the higher of the prime
rate of the Canadian Imperial Bank of Commerce (the agent bank) or the Federal
Funds Rate plus 3/4 of 1%, or the LIBOR plus applicable margins based upon the
Partnership's leverage ratio at the time of the borrowings. At December 31,
1998, the interest rate on this outstanding indebtedness was 7.31%.
Borrowings under the Credit Agreement are subject to certain financial and
nonfinancial covenants and restrictions, including the maintenance of a ratio of
total debt to annualized operating cash flow of 4.0 to 1.0 at December 31, 1998.
A quarterly commitment fee of .375% per annum is payable on the unused portion
of the Credit Agreement. Commencing March 31, 1999, and at the end of each
calendar quarter thereafter, the borrowing capacity shall be reduced by
$800,000. Quarterly reductions will continue until March 31, 2002, at which time
the borrowing capacity shall be reduced by $1,600,000, quarterly until December
31, 2002. If the sale of the Partnership's Texas system, is consummated pursuant
to the terms of the Asset Purchase Agreement (see "Item 1. Business"), the
Partnership's Credit Agreement will be fully repaid.
The Partnership made capital expenditures of approximately $1,783,000,
$1,240,000 and $2,108,000 during 1998, 1997, and 1996, respectively, in
connection with the improvement and upgrading of the Partnership Systems.
Pursuant to the terms of the Partnership Agreement, the Partnership is required
to distribute all cash available for distribution to the Partners within 60 days
after the end of each calendar quarter and, with respect to certain available
refinancing proceeds and certain available sales proceeds, as soon as possible
following completion of the relevant transaction. However, the Partnership
suspended distributions to Limited Partners in the fourth quarter of 1993 to
provide greater financial flexibility in meeting its debt covenants and in
making capital expenditures necessary to maintain the Partnership's assets, and
no additional distributions were made until a special distribution in June 1997
following the sale of assets.
Each of the Partnership and CPLP have executed an Asset Purchase Agreement
providing for the sale of their respective Texas Systems, and it is anticipated
that these sales will close during the second quarter of 1999. The purchase
price for these systems will be $20,800,000 for the Partnership and $11,200,000
for CPLP.
CPLP will use the net proceeds from the sale of its Texas systems first to
satisfy the liabilities and expenses of CPLP with the remaining funds
distributed to its partners, of which 84.03% will be distributed to the
Partnership. The Partnership will use the net proceeds from the sale of its
Texas systems first to pay off outstanding indebtedness, and then to satisfy
other Partnership liabilities and expenses. The Partnership's remaining funds
received pursuant to the distribution from CPLP or
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<PAGE> 19
as proceeds from the Partnership's sale of its Texas systems, will be
distributed to the partners in accordance with the liquidation provisions of the
Partnership Agreement. Following these sales, the Partnership's only remaining
cable assets will be the Northeast Missouri systems and CPLP will have disposed
of all of its cable assets.
The Partnership entered into a non-binding letter of intent with an unaffiliated
third-party for the sale of its systems in northeast Missouri. Although
negotiations with respect to a sale agreement are on-going, there is no
assurance that a definitive sale agreement will be executed or that the sale
will be completed. If the General Partner does not execute a definitive
agreement to sell the Northeast Missouri systems as a result of this letter of
intent, it intends to continue to market and sell the systems.
After the remaining Partnership assets, including the Partnership's investment
in CPLP, have been sold or liquidated for cash, all outstanding indebtedness,
other liabilities, and expenses have been paid and any remaining cash has been
distributed to the partners in accordance with the liquidation provisions of the
Partnership, the Partnership's existence will terminate.
YEAR 2000 IMPACT
Many existing computer systems and applications, and other control devices and
embedded computer chips use only two digits (rather than four) to identify a
year in the date field, failing to consider the impact of the upcoming change in
the century. As a result, such systems, applications, devices, and chips could
create erroneous results or might fail altogether unless corrected to properly
interpret data related to the year 2000 and beyond (the "Year 2000 Problem").
These errors and failures may result, not only from a date recognition problem
in the particular part of a system failing, but may also result as systems,
applications, devices and chips receive erroneous or improper data from
third-parties suffering from the Year 2000 Problem. In addition, two interacting
systems, applications, devices or chips, each of which has individually been
fixed so that it will properly handle the Year 2000 Problem, could nonetheless
suffer "integration failure" because their method of dealing with the problem is
not compatible.
These problems are expected to increase in frequency and severity as the Year
2000 approaches. This issue impacts our owned and licensed computer systems and
equipment used in connection with internal operations, including
- information processing and financial reporting systems,
- customer billing systems, o customer service systems,
- telecommunication transmission and reception systems, and
- facility systems.
We also rely directly and indirectly, in the regular course of business, on the
proper operation and compatibility of third party systems. The Year 2000 Problem
could cause these systems to fail, err, or become incompatible with our systems.
If we or a significant third party on which we rely fails to become year 2000
ready, or if the Year 2000 Problem cause our systems to become internally
incompatible or incompatible with third party systems, our business could suffer
from material disruption, including the inability to process transactions, send
invoices, accept customer orders or provide customers with our cable services.
We could also face similar disruptions if the Year 2000 Problem causes general
widespread problems or an economic crisis. We cannot now estimate the extent of
these potential disruptions.
We are addressing the Year 2000 Problem with respect to our internal operations
in three stages: (1) inventory and evaluation of our systems, components and
other significant infrastructure to identify those elements that reasonably
could be expected to be affected by the Year 2000 Problem, (2) remediation and
replacement to address problems identified in stage one and (3) testing of the
remediation and replacement carried out in stage two. We formed an executive
Year 2000 Taskforce at the beginning of 1998, have completed stage one, and
anticipate that we will complete stages two and three by August 1999. We plan to
complete all stages for our existing systems by August 1999, but we cannot
determine when such stages would be completed in connection with systems we may
acquire in the near future.
-19-
<PAGE> 20
Much of our assessment efforts in stage one have involved, and depend on,
inquiries to third party service providers, who are the suppliers and vendors of
various parts or components of our systems. Certain of these third parties that
have certified the readiness of their products will not certify their
interoperability within our fully integrated systems. We cannot assure you that
these technologies of third parties, on which we rely, we be year 2000 ready or
timely converted into year 2000 compliant systems compatible with our systems.
Moreover, because a full test of our systems, on an integrated basis, would
require a complete shut down of our operations, it is not practicable to conduct
such testing. We have been advised that a plan has been developed to utilize a
third party, in cooperation with other cable operators, to begin testing a
"mock-up" of our major billing and plant components (including pay-per-view
systems) as an integrated system. We are also evaluating the potential impact of
third party failure and integration failure on our systems.
We have incurred only immaterial costs to date directly related to addressing
the Year 2000 Problem. We have redeployed internal resources and have
selectively engaged outside vendors to meet the goals of our year 2000 program.
We currently do not estimate the total cost of our year 2000 remediation program
to be material.
In June 1998, the Financial Accounting Standards Board (FASB) adopted SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value and that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the income
statement, and requires that a company must formally document, designate and
assess the effectiveness of transactions that receive hedge accounting. SFAS No.
133 is effective for fiscal years beginning after June 15, 1999. The Company has
not yet quantified the impacts of adopting SFAS No. 133 on its consolidated
financial statements nor has it determined the timing or method of its adoption
of SFAS No. 133.
However, SFAS No. 133 could increase volatility in earnings (loss).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Schedules on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-20-
<PAGE> 21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no officers or directors. The General Partner manages and
controls substantially all of the Partnership's affairs and has general
responsibility and ultimate authority in all matters affecting the Partnership's
business. In addition, the General Partner is responsible for operating and
managing the Partnership's cable television systems.
Set forth below is the present principal occupation or employment and employment
history of the executive officers and directors of the General Partner:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH GENERAL PARTNER
<S> <C> <C>
Howard L. Wood 58 President, Chief Executive Officer and
Director
Barry L. Babcock 51 Executive Vice President, Chief
Operating Officer and Director
Jerald L. Kent 42 Executive Vice President, Chief
Financial Officer and Director
</TABLE>
Mr. Wood has been affiliated with Charter Communications, Inc. (Charter), parent
of the General Partner, since 1993, now holding the position of Vice Chairman of
Charter, and has served as President of the General Partner since 1994. Mr. Wood
also co-founded Charter Communications Group ("CCG") in 1992. Prior to that
time, he was associated with Cencom Cable Associates, Inc. ("CCA"), which he
joined in July 1987 as Director; at CCA he held the position of President, Chief
Executive Officer and Director from January 1, 1989 to November 1992. Mr. Wood
also serves on the Board of Directors of Gaylord Entertainment Company, VanLiner
Group, Inc. and First State Bank.
Mr. Babcock has been affiliated with Charter since 1993 and now holds the
position of Vice Chairman of Charter, and has served as Executive Vice President
of the General Partner since 1994. Mr. Babcock also co-founded CCG in 1992.
Prior to that time, he was associated with CCA as the Executive Vice President
of CCA from February 1986 to November 1992, and as Chief Operating Officer of
CCA from May 1986 to November 1992. Mr. Babcock also serves on the Board of
Directors of the National Cable Television Association, Cable in the Classroom
and Mercantile Bank.
Mr. Kent has been affiliated with Charter since 1993 and now holds the position
of President and Chief Executive Officer and director of Charter, and has served
as Executive Vice President of the General Partner since 1994. Mr. Kent also
co-founded CCG in 1992. Prior to that time, he was associated with CCA as
Executive Vice President and Chief Financial Officer of CCA from 1987 through
November 1992. Mr. Kent also serves on the Board of Directors of HSAC and Cable
Television Laboratories.
ITEM 11. EXECUTIVE COMPENSATION
The General Partner does not currently pay any remuneration to any of its
officers or directors. See Item 13 herein.
-21-
<PAGE> 22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1998, no Limited Partner was known to the General Partner to
be the beneficial owner of more than five percent (5%) of the outstanding LP
Units issued by the Partnership. Charter owns 1,746 LP Units, constituting
approximately 1.9% of the LP Units. Charter has no right to acquire additional
LP Units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Item 1 - "Partial Liquidation of Assets"
See Item 1 - "Management Agreement"
The Registrant may be subject to various conflicts of interest arising out of
the relationships among it, the Management Company, their respective affiliates,
officers and directors (such persons shall hereinafter be collectively referred
to as the "Affiliates").
Affiliates have engaged and, in the future, will engage in other business
activities related to the cable television industry that may be in competition
with the business of the Registrant. Such activities may include the acquisition
of cable television systems. The Affiliates have no obligation to offer to the
Registrant the opportunity to participate in any other transactions in which
they participate.
The officers and directors of the Management Company will manage the Partnership
Systems, as well as other cable television systems currently owned or later
acquired by certain of its Affiliates. Conflicts of interest may arise in
managing the operations of more than one entity with respect to the allocation
of the Management Company's and its Affiliates' time, personnel, and other
resources among the Registrant. The Management Company will resolve such
conflicts in a manner deemed in its reasonable judgment to be fair and
appropriate.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
See Index to Financial Statements and Schedules on page F-1 of this
Report.
2. Financial Statement Schedules:
See Index to Financial Statements and Schedules on page F-1 of this
Report.
3. Exhibits:
See Index on Page E-1 of this Report.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of 1998.
-22-
<PAGE> 23
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.
CENCOM CABLE INCOME PARTNERS II, L.P.
By: Cencom Properties II, Inc.
General Partner
By: /s/ Howard L. Wood
-------------------------------
Howard L. Wood, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities (as to the General Partner) and on the date indicated.
<TABLE>
<CAPTION>
Signature and Title Date
- ------------------- ----
<S> <C>
By: /s/ Howard L. Wood March 29, 1999
---------------------------------------------------
Howard L. Wood
President, Chief Executive Officer and Director
(Principal Executive Officer)
By: /s/ Barry L. Babcock March 29, 1999
---------------------------------------------------
Barry L. Babcock
Executive Vice President, Chief Operating Officer and
Director
By: /s / Jerald L. Kent March 29, 1999
---------------------------------------------------
Jerald L. Kent
Executive Vice President, Chief Financial Officer and
Director
(Principal Financial Officer and Principal Accounting
Officer)
</TABLE>
S-1
<PAGE> 24
CENCOM CABLE INCOME PARTNERS II, L.P.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
<S> <C> <C>
3(a) Agreement of Limited Partnership, filed as Exhibit 3(b) to the N/A
Registrant's Registration N/A Statement on Form S-1 (Registration
No. 33-17174), incorporated herein by this reference.
3(b) Amended and Restated Agreement of Limited Partnership, filed as N/A
Exhibit 3(c) to the N/A Registrant's Registration Statement on
Form S-1 (Registration No. 33-17174), incorporated
herein by this reference.
10(a) Management Agreement between the Registrant and the Management N/A
Company filed as Exhibit 10(a) N/A to the Registrant's
Registration Statement on Form S-1 (Registration No. 33-17174),
incorporated herein by this reference.
10(j) Agreement of Limited Partnership of Cencom Partners, L.P., dated N/A
January 30, 1990, by and N/A between the Registrant and Cencom
Cable Associates, Inc., filed as Exhibit 10(j) to the
Registrant's Form 10-K for the year ended December 31, 1990,
incorporated herein by this reference.
10(r) Assignment of shares of common stock of the General Partner, N/A
dated July 15, 1994, filed as N/A Exhibit 10(r) to the
Registrant's Form 10-K for the year ended December 31, 1994,
incorporated herein by reference.
10(s) Assignment of the Management Agreement, dated July 15, 1994, N/A
between the General Partner and N/A Cencom Cable Associates,
Inc., filed as Exhibit 10(s) to the Registrant's Form 10-K for
the year ended December 31, 1994, incorporated herein by
reference.
10(t) Transfer of Limited Partnership Interest in the Registrant, dated N/A
January 18, 1995, filed as N/A Exhibit 10(t) to the Registrant's
Form 10-K for the year ended December 31, 1994, incorporated
herein by reference.
10(u) Assignment of Limited Partnership Interest in Cencom Partners, N/A
L.P., dated January 18, 1995, N/A filed as Exhibit 10(u) to the
Registrant's Form 10-K for the year ended December 31, 1994,
incorporated herein by reference.
10(y) Credit Agreement dated May 23, 1997 among Cencom Cable Income N/A
Partners II, L.P. and Cencom N/A Partners, L.P. as Borrowers and
Canadian Imperial Bank of Commerce as the Lender and Agent, filed
as Exhibit 10(y) to the Registrant's Form 10-Q for the quarter
ended March 31, 1996 and incorporated herein by reference.
*10(z) Asset Purchase Agreement dated December 18, 1998, between the
Registrant and Etan Industries, Inc.
*10(aa) Asset Purchase Agreement dated December 18, 1998, between Cencom
Partners, L.P. and Etan Industries, Inc.
*10(bb) Amendment Letter dated December 3, 1998 amending Credit Agreement
dated May 23, 1995
*12 Ratio of Earnings to Fixed Charges.
*27.1 Financial Data Schedule.
</TABLE>
E-1
<PAGE> 25
CENCOM CABLE INCOME PARTNERS II, L.P.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
REGISTRANT'S FINANCIAL STATEMENTS:
Report of Independent Public Accountants F-2
Balance Sheets as of December 31, 1998 and 1997 F-3
Statements of Operations for the years ended December 31, 1998, 1997 and 1996 F-4
Statements of Partners' Deficit for the years ended December 31, 1998,
1997 and 1996 F-5
Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 F-6
Notes to Financial Statements F-7
REGISTRANT'S FINANCIAL STATEMENT SCHEDULES:
None required
FINANCIAL STATEMENTS OF CENCOM PARTNERS, L.P.:
Report of Independent Public Accountants F-17
Balance Sheets as of December 31, 1998 and 1997 F-18
Statements of Operations for the years ended December 31, 1998, 1997 and 1996 F-19
Statements of Partners' Capital (Deficit) for the years ended December
31, 1998, 1997 and 1996 F-20
Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996 F-21
Notes to Financial Statements F-22
CENCOM PARTNERS, L.P. FINANCIAL STATEMENT SCHEDULES:
None required
</TABLE>
F-1
<PAGE> 26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cencom Cable Income Partners II, L.P.:
We have audited the accompanying balance sheets of Cencom Cable Income Partners
II, L.P. (a Delaware limited partnership) as of December 31, 1998 and 1997, and
the related statements of operations, partners' deficit and cash flows for each
of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Partnership'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.
As discussed in Note 2, the Partnership Agreement of Cencom Cable Income
Partners II, L.P. provides for the dissolution of the Partnership on or before
December 31, 1995. The General Partner is in the process of a complete and
orderly dissolution of the Partnership. Upon dissolution, the General Partner or
other authorized liquidating agent is required to liquidate the Partnership's
assets and distribute the proceeds thereof in accordance with the provisions of
the Partnership Agreement. Proceeds ultimately received upon liquidation could
differ substantially from the amounts recorded in the accompanying financial
statements.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cencom Cable Income Partners
II, L.P. as of December 31, 1998 and 1997, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP /s/
St. Louis, Missouri,
February 5, 1999
F-2
<PAGE> 27
CENCOM CABLE INCOME PARTNERS II, L.P.
BALANCE SHEETS - DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 267,002 $ 220,104
Accounts receivable, net of allowance for doubtful accounts of $14,387 and
$17,990, respectively 52,409 98,685
Prepaid expenses and other 30,844 29,458
------------ ------------
Total current assets 350,255 348,247
PROPERTY, PLANT AND EQUIPMENT, net 4,156,583 3,003,525
FRANCHISE COSTS, net of accumulated amortization of $1,285,846 and $1,262,965,
respectively 10,521 33,402
DEBT ISSUANCE COSTS, net of accumulated amortization of $82,545 and $30,411,
respectively 208,533 260,667
INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIP 3,171,808 2,633,748
RESTRICTED FUNDS HELD IN ESCROW -- 750,000
----------- -----------
$ 7,897,700 $ 7,029,589
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,310,831 $ 3,084,357
Payables to General Partner and affiliates 6,291,552 5,141,521
Subscriber deposits 10,527 11,542
----------- -----------
Total current liabilities 7,612,910 8,237,420
----------- -----------
DEFERRED REVENUE 19,774 18,536
----------- -----------
LONG-TERM DEBT 3,800,000 4,600,000
----------- -----------
PARTNERS' DEFICIT:
General Partner -- --
Limited Partners (250,000 units authorized; 90,915 units issued and outstanding) (3,075,817) (5,367,200)
Note receivable from General Partner (459,167) (459,167)
----------- -----------
Total Partners' deficit (3,534,984) (5,826,367)
----------- -----------
$ 7,897,700 $ 7,029,589
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE> 28
CENCOM CABLE INCOME PARTNERS II, L.P.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
SERVICE REVENUES:
Basic service $ 4,688,399 $ 6,916,999 $ 13,485,981
Premium service 697,063 1,070,210 2,241,316
Other 729,149 1,258,947 2,428,085
----------- ------------- ------------
6,114,611 9,246,156 18,155,382
----------- ------------- ------------
OPERATING EXPENSES:
Operating costs 2,335,126 3,886,725 7,864,914
General and administrative 705,967 991,383 1,560,430
Liquidation costs -- 334,655 241,600
Depreciation and amortization 652,437 2,278,705 6,235,182
Management fees - related party 305,581 462,049 905,071
----------- ------------- ------------
3,999,111 7,953,517 16,807,197
----------- ------------- ------------
Income from operations 2,115,500 1,292,639 1,348,185
----------- ------------- ------------
OTHER INCOME (EXPENSE):
Interest income 39,632 216,190 39,909
Interest expense (401,809) (1,323,920) (2,835,247)
Equity in income of unconsolidated limited partnership 538,060 8,133,748 --
Gain on sale of cable television systems -- 36,230,293 --
----------- ------------- ------------
175,883 43,256,311 (2,795,338)
----------- ------------- ------------
Net income (loss) $ 2,291,383 $ 44,548,950 $ (1,447,153)
=========== ============ ============
NET INCOME (LOSS) ALLOCATION TO PARTNERS' CAPITAL ACCOUNTS:
General Partner $ $ 2,828,374 $ (14,472)
Limited Partner 2,291,383 41,720,576 (1,432,681)
----------- ------------- ------------
$ 2,291,383 $ 44,548,950 $ (1,447,153)
=========== ============ ============
NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT $ 25.20 $ 458.90 $ (15.76)
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 29
CENCOM CABLE INCOME PARTNERS II, L.P.
STATEMENTS OF PARTNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Note
Receivable
From
General Limited General
Partner Partners Partner Total
----------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 $(2,813,902) $(17,107,785) $(459,167) $(20,380,854)
Net loss (14,472) (1,432,681) -- (1,447,153)
BALANCE, December 31, 1996 (2,828,374) (18,540,466) (459,167) (21,828,007)
Net income 2,828,374 41,720,576 -- 44,548,950
Distributions -- (28,547,310) -- (28,547,310)
----------- ------------ --------- ------------
BALANCE, December 31, 1997 -- (5,367,200) (459,167) (5,826,367)
Net income -- 2,291,383 -- 2,291,383
----------- ------------ --------- ------------
BALANCE, December 31, 1998 $ -- $ (3,075,817) $(459,167) $ (3,534,984)
=========== ============ ========= ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 30
CENCOM CABLE INCOME PARTNERS II, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,291,383 $ 44,548,950 $ (1,447,153)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities-
Depreciation and amortization 652,437 2,278,705 6,235,182
Amortization of debt issuance costs 52,134 380,411 --
Equity in income of unconsolidated limited partnership (538,060) (8,133,748) --
Gain on sale of cable television systems -- (36,230,293) --
Changes in assets and liabilities-
Accounts receivable, net 46,276 (207,812) (31,740)
Prepaid expenses and other (1,386) (29,421) 71,218
Accounts payable and accrued expenses (1,773,526) 1,428,145 236,758
Payables to General Partner and affiliates 1,150,031 1,608,941 800,961
Subscriber deposits (1,015) (1,225) (2,215)
Deferred revenue 1,238 (2,761) (3,101)
------------ ------------ ------------
Net cash provided by operating activities 1,879,512 5,639,892 5,859,910
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,782,614) (1,239,907) (2,108,233)
Proceeds from sale of cable television systems, net of cash sold -- 51,477,222 --
Distribution from investment in unconsolidated limited partnership -- 5,500,000 --
Restricted funds held in escrow 750,000 (750,000) --
------------ ------------ ------------
Net cash (used in) provided by investing activities (1,032,614) 54,987,315 (2,108,233)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to Limited Partners -- (26,330,542) --
Income taxes withheld related to distribution -- (2,216,768) --
Borrowings under revolving line of credit 2,500,000 6,125,000 200,000
Payments of revolving line of credit (3,300,000) (38,225,000) (3,900,000)
Payments of debt issuance costs -- (291,078) (456,250)
------------ ------------ ------------
Net cash used in financing activities (800,000) (60,938,388) (4,156,250)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
46,898 (311,181) (404,573)
CASH AND CASH EQUIVALENTS, beginning of year 220,104 531,285 935,858
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 267,002 $ 220,104 $ 531,285
============ ============ ============
CASH PAID FOR INTEREST $ 418,353 $ 932,499 $ 2,868,914
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 31
CENCOM CABLE INCOME PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Basis of Presentation
Cencom Cable Income Partners II, L.P. (the "Partnership" or "CCIP II"), was
formed on August 13, 1987, for the purpose of acquiring and operating existing
cable television systems. CC II Holdings, Inc. (CC II Holdings) acquired the
common stock of Cencom Properties II, Inc. (Cencom Properties II or the "General
Partner") from Cencom Cable Associates, Inc. in September 1994. CC II Holdings
is a wholly owned subsidiary of Charter Communications, Inc. (Charter). The
Partnership was to be dissolved no later than December 31, 1995, as provided in
the partnership agreement (the "Partnership Agreement"). As of December 31,
1998, the Partnership is in the process of a complete and orderly dissolution of
the Partnership (see Note 2).
Effective December 23, 1998, through a series of transactions, Paul G. Allen
acquired approximately 94% of Charter. No adjustments have been made to the
accompanying financial statements to reflect the push down and allocation of the
purchase price.
As of December 31, 1998, the Partnership provided cable television service to
approximately 17 franchises serving approximately 13,600 basic subscribers in
northeast Missouri and Texas.
Cash Equivalents
Cash equivalents consist primarily of repurchase agreements with original
maturities of 90 days or less. These investments are carried at cost, which
approximates market value.
Revenue Recognition
Cable service revenues are recognized in the period when the related services
are provided.
Installation revenues are recognized to the extent of direct selling costs
incurred. The remainder, if any, is deferred and amortized to income over the
average estimated period that customers are expected to remain connected to the
cable television system.
Fees collected from programmers to guarantee carriage are deferred and amortized
to income over the life of the contracts. Franchise fees collected from cable
subscribers and paid to local franchises are reported as revenues.
Depreciation and Amortization
The Partnership provides depreciation using the composite method of depreciation
on a straight-line basis over the estimated useful lives of the related
property, plant and equipment as follows:
<TABLE>
<CAPTION>
<S> <C>
Trunk and distribution systems 10 years
Subscriber installations 10 years
Buildings and headends 9-20 years
Converters 3-5 years
Vehicles and equipment 4-8 years
Office equipment 5-10 years
</TABLE>
F-7
<PAGE> 32
Franchise costs are being amortized using the straight-line method over the term
of the individual franchise agreements. Debt issuance costs are being amortized
over the term of the debt.
The Partnership periodically reviews the carrying value of its long-lived
assets, identifiable intangibles and franchise costs in relation to historical
financial results, current business conditions and trends (including the impact
of existing legislation and regulation) to identify potential situations in
which the carrying value of such assets may not be recoverable. If a review
indicates that the carrying value of such assets may not be recoverable, the
carrying value of such assets in excess of their fair value would be recorded as
a reduction of the assets' cost as if a permanent impairment has occurred. No
impairments have occurred and no adjustments to the financial statements of the
Partnership have been recorded.
Investment in Unconsolidated Limited Partnership
The Partnership owns Limited Partnership units of Cencom Partners, L.P. (CPLP)
which provide the Partnership an 84.03% ownership interest in CPLP. The
Partnership accounts for its investment in CPLP using the equity method (see
Note 4).
Liquidation Costs
Certain liquidation costs which are not directly attributed to the Partnership
(i.e., accounting, legal, etc.) have been allocated between the Partnership and
CPLP based upon the number of total basic subscribers prior to the sale of any
systems.
Income Taxes
Income taxes are the responsibility of the partners and as such are not provided
for in the accompanying financial statements.
Net Income (Loss) Per Limited Partnership Unit
The net income (loss) per Limited Partnership unit has been calculated based on
90,915 weighted average Limited Partnership units outstanding each year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. LIQUIDATION, DISTRIBUTIONS AND ALLOCATIONS:
Distributions and Allocations
Profits and losses are generally allocated in proportion to the partners'
capital contributions. The Partnership is required to distribute all cash
available for distribution. Distributions are made within 60 days after the end
of each calendar quarter. The Limited Partners receive 100% of all cash
available for distribution until they receive a cumulative 11% per annum
preference return on their adjusted capital contributions. After the Limited
Partners have received the 11% preferred return, the General Partner will
F-8
<PAGE> 33
receive 11% per annum on its capital contribution. Thereafter, the Limited
Partners will receive 99% and the General Partner will receive 1% of all
additional cash available for distribution. During the fourth quarter of 1993,
the Partnership suspended distributions to Limited Partners to meet its debt
covenants and allow for necessary capital expenditures. No distributions were
made in 1998 or 1996.
Liquidation of the Partnership and CPLP
The General Partner distributed a disclosure statement to the Limited Partners
on March 6, 1997, which described various transactions and requested consent for
certain proposed sales of cable television systems by the Partnership and CPLP
to affiliates of the General Partner. CPLP is seeking to dispose of its assets
to facilitate the liquidation of the Partnership. A majority of the Limited
Partners gave their consent for the sale of certain cable television systems to
affiliates of the General Partner. Following receipt of the Limited Partners'
consent, the Partnership and CPLP consummated the transactions with the
affiliates of the General Partner, in accordance with the disclosure statement.
On March 31, 1997, the Partnership consummated the sale of certain of the cable
television systems located in Texas in two separate asset sale transactions with
unaffiliated third parties. The sales price was approximately $15.3 million.
On April 7, 1997, the Partnership consummated the sale of certain cable
television systems serving Anderson County, South Carolina, to an affiliate of
Charter for approximately $36.7 million.
Proceeds from the sales of the Texas systems on March 31, 1997, and the South
Carolina systems on April 7, 1997, were used to reduce to zero the balance of
outstanding indebtedness, with the remaining funds of approximately $14.0
million placed in short-term investments.
Proceeds from the sale of certain cable television systems owned by CPLP on
April 7, 1997, to affiliates of the General Partner enabled CPLP to reduce the
balance of its outstanding indebtedness to zero and retire its special limited
partnership interests, with the remaining funds of approximately $6.6 million
placed in short-term investments. During May 1997, CPLP distributed $5.5 million
to the Partnership.
The Partnership utilized its short-term investments, the distribution received
from CPLP and funds available under its new credit facility (see Note 6) for the
purpose of making a distribution to the Limited Partners. During June 1997, the
Partnership made a total distribution to the Limited Partners of $314 per unit,
less $2.2 million withheld for state income taxes for a total net cash
distribution of approximately $26.3 million. No distribution was made by the
Partnership to the General Partner.
The General Partner has accepted a bid from a nonaffiliate for the Partnership's
remaining Southeast Texas systems for an aggregate purchase price of $20.8
million, subject to execution of the final sale agreement. CPLP's general
partner has accepted a bid from a nonaffiliate for CPLP's Texas systems for an
aggregate purchase price of $11.2 million, subject to execution of the final
sale agreement. The proceeds from the sale of the Partnership's Southeast Texas
systems will first be used to pay off the outstanding indebtedness of the
Partnership and to satisfy other liabilities and expenses with the remaining
funds to be distributed to the partners in accordance with the liquidation
provisions of the Partnership. The proceeds from the sale of CPLP's Texas
systems will first be used to satisfy its liabilities and expenses with the
remaining funds distributed to its partners, of which 84.03% will be distributed
to the Partnership. The Partnership will then distribute these funds to its
partners in accordance with the liquidation provisions of the Partnership
Agreement.
F-9
<PAGE> 34
The Partnership entered into a non-binding letter of intent with an unaffiliated
third-party for the sale of its systems in northeast Missouri. Although
negotiations with respect to a sale agreement are on-going, there is no
assurance that a definitive sale agreement will be executed or that the sale
will be completed.
Upon dissolution, the General Partner or other liquidating agent is required to
liquidate partnership assets and to distribute all available proceeds as soon as
practicable after their receipt by the Partnership. After payment of the
Partnership's liabilities, these sales proceeds will be distributed as set forth
in the Partnership Agreement.
Upon finalization of a complete plan of liquidation and the determination of net
proceeds (in accordance with that prescribed in the Partnership Agreement) from
sales of all assets, the Partnership will change its basis of accounting from
the going-concern basis to the liquidation basis. Under the liquidation basis of
accounting, assets are recorded at their realizable values and liabilities are
recorded at their estimated settlement amounts.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is stated at cost and consists of the following at
December 31:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Trunk and distribution systems $ 7,852,693 $ 6,434,524
Subscriber installations 2,747,376 2,520,807
Land, buildings and headends 2,102,725 2,068,982
Converters 1,425,690 1,349,536
Vehicles and equipment 811,152 797,913
Office equipment 381,078 366,338
------------- -------------
15,320,714 13,538,100
Less- Accumulated depreciation (11,164,131) (10,534,575)
------------- -------------
$ 4,156,583 $ 3,003,525
============= =============
</TABLE>
4. INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIP:
The Partnership has invested approximately $25.0 million in CPLP. CPLP utilized
these funds to purchase cable television systems in North Carolina, South
Carolina and Texas. The Partnership's equity contribution consisted of the
balance of funds which had previously been restricted for investment in cable
television systems, plus approximately $18.1 million of allowable borrowings as
specified by the Partnership Agreement. The Partnership is allocated 84.03%
(based on ownership interest) of CPLP's net income or losses and accounts for
its investment in CPLP under the equity method. Losses in excess of its
investment in CPLP are not recorded. For the years ended December 31, 1998 and
1997, the Partnership recorded income from its investment in CPLP totaling
approximately $0.5 million and $8.1 million net of previously unrecorded losses
of approximately $-0- and $15.8 million. Also, during May 1997, the Partnership
received a cash distribution from CPLP in the amount of $5.5 million.
F-10
<PAGE> 35
Summary financial information of CPLP as of December 31, 1998 and 1997, and for
each of the three years in the period ended December 31, 1998, which is not
consolidated with the operating results of the Partnership, is as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Current assets $2,047,167 $1,166,130
Noncurrent assets - primarily investment in cable television properties 2,489,572 2,448,493
---------- ----------
Total assets $4,536,739 $3,614,623
========== ==========
Current liabilities $ 729,318 $ 442,052
Deferred revenue 32,810 38,279
Partners' capital 3,774,611 3,134,292
---------- ----------
Total liabilities and partners' capital $4,536,739 $3,614,623
========== ==========
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Service revenues $ 2,602,921 $ 5,708,441 $ 13,748,224
============ ============ ============
Income (loss) from operations $ 650,456 $ (144,178) $ (1,776,152)
============ ============ ============
Gain on sale of cable television systems $ -- $ 32,614,343 $ --
============ ============ ============
Net income (loss) $ 640,319 $ 31,598,553 $ (4,756,897)
============ ============ ============
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Accounts payable $ 285,485 $ 84,943
Capital expenditures 192,226 17,634
Accrued liquidation costs -- 25,264
Accrued salaries and related benefits 23,891 52,011
Professional fees 62,614 63,457
Property taxes 160,154 68,489
Franchise fees 132,007 123,226
Programming expenses 171,169 176,609
Accrued withholdings tax -- 2,216,768
Other 283,285 255,956
----------- ------------
$ 1,310,831 $ 3,084,357
=========== ===========
</TABLE>
F-11
<PAGE> 36
6. LONG-TERM DEBT:
Prior to May 23, 1997, the Partnership maintained a secured revolving line of
credit agreement (the "Old Credit Agreement") with a consortium of banks for
borrowings up to $65,000,000. On December 31, 1996, the Partnership and the
banks amended the Old Credit Agreement to extend the maturity date to June 30,
1997. The Partnership paid $350,000 in amendment fees in connection with this
amendment which were recorded as debt issuance costs. Loans under the Old Credit
Agreement bore interest, with the base rate being at the Partnership's election,
at the Toronto Dominion's (the agent bank) prime rate of interest, Eurodollar or
certificates of deposit rate, plus a certain spread. The applicable spreads were
based on the ratio of debt to annualized operating cash flow. At December 31,
1996, the interest rates ranged from 6.81% to 8.50%. The weighted average
interest rates and borrowings for the period from January 1, 1997, to May 23,
1997, and for the year ended December 31, 1996, were 7.14% and 7.29%, and
approximately $24,108,000 and $38,889,000, respectively.
On May 23, 1997, the Partnership terminated its existing secured revolving line
of credit agreement and entered into a new credit agreement (the "Credit
Agreement") with a bank for borrowings up to $8,500,000. The Credit Agreement
also provides for borrowings up to $7,500,000 by CPLP, with each partnership
held jointly and severally liable in the event of default. At December 31, 1998
and 1997, CCIP II had $3,800,000 and $4,600,000, respectively, of indebtedness
outstanding under the Credit Agreement and CPLP had $-0- of indebtedness
outstanding under the Credit Agreement. The debt bears interest at rates, at the
Partnership's option, based on the higher of the prime rate of the Canadian
Imperial Bank of Commerce (the agent bank) or the Federal Funds Rate plus 0.75%,
or the LIBOR plus applicable margins based upon the Partnership's leverage ratio
at the time of the borrowings. At December 31, 1998 and 1997, the interest rates
on this outstanding indebtedness were 7.31% and 7.72%. The weighted average
interest rates and borrowings by CCIP II for the period from May 23, 1997, to
December 31, 1997, and for the year ended December 31, 1998, related to the
Credit Agreement were 8.68% and 8.89% and approximately $4,028,000 and
$4,509,000, respectively. As this debt instrument bears interest at current
market rates, its carrying amount approximates fair market value at December 31,
1998 and 1997.
Borrowings under the Credit Agreement are subject to certain financial and
nonfinancial covenants and restrictions, the most restrictive requires the
maintenance of a ratio of total debt to annualized operating cash flow of 4.0 to
1.0 at December 31, 1998. A quarterly commitment fee of 0.375% per annum is
payable on the unused portion of the Credit Agreement. Commencing March 31,
1999, and at the end of each calendar quarter thereafter, the borrowing capacity
shall be reduced by $800,000. Quarterly reductions will continue until March 31,
2002, at which time the borrowing capacity shall be reduced by $1,600,000,
quarterly until December 31, 2002.
7. RELATED-PARTY TRANSACTIONS:
During 1994, Cencom Cable Associates, Inc. assigned management services under
contract with the Partnership to the General Partner. The management service
contract provides for the payment of fees equal to 5% of the Partnership's
annual gross operating revenue. Expenses recorded under this contract by the
Partnership during 1998, 1997 and 1996 were $305,581, $462,049 and $905,071,
respectively. Up to 50% of the management fee payment is subordinated to certain
quarterly distributions to the Limited Partners. Since assumption of the
responsibilities under the contract, the General Partner has elected to defer
payment of all such management fees. Management fees of $4,381,881 and
$4,076,307 have been deferred and are included in Payables to General Partner
and Affiliates at December 31, 1998 and 1997, respectively. In addition to the
management fees, the Partnership reimburses the General Partner for expenses
incurred on behalf of the Partnership for performance of services under the
contract.
Payables to General Partner and Affiliates at December 31, 1998 and 1997,
include a $1,863,931 and $1,050,000, respectively, noninterest bearing payable
to CPLP.
The Partnership has a noninterest-bearing promissory note receivable due on
demand from the General Partner which represents one-half of its required
capital contribution.
F-12
<PAGE> 37
The Partnership and all entities affiliated with Charter collectively utilize a
combination of insurance coverage and self-insurance programs for medical,
dental and workers' compensation claims. The Partnership is allocated charges
monthly based upon its total number of employees, historical claims and medical
cost trend rates. Management considers this allocation to be reasonable for the
operations of the Partnership. During 1998, 1997 and 1996, the Partnership
expensed approximately $55,000, $89,300 and $150,700, respectively, relating to
insurance allocations.
Affiliated entities maintain several regional offices. The regional offices
perform certain operational services on behalf of the Partnership and other
affiliated entities. The cost of these services is allocated to the Partnership
based on its number of subscribers. Management considers this allocation to be
reasonable for the operations of the Partnership. During 1998, 1997 and 1996,
the Partnership expensed approximately $85,000, $112,000 and $189,000,
respectively, relating to this allocation.
8. COMMITMENTS AND CONTINGENCIES:
Leases
The Partnership leases certain facilities and equipment under noncancelable
operating leases. Rent expense incurred under these leases during 1998, 1997 and
1996 was approximately $41,400, $67,000 and $99,200, respectively.
Future minimum lease payments are as follows:
<TABLE>
<S> <C>
1999 $40,800
2000 37,500
2001 36,700
2002 31,200
2003 31,200
Thereafter 26,900
</TABLE>
The Partnership rents utility poles in its operations. Generally, pole rental
agreements are short term, but the Partnership anticipates that such rentals
will continue to recur. Rent expense for pole attachments during 1998, 1997 and
1996 was approximately $77,500, $151,000 and $317,000, respectively.
Litigation
Abeles v. Cencom Cable Entertainment, Inc., et. al.
On June 17, 1998, approximately 400 limited partners in CCIP II filed a lawsuit
against the General Partner, Cencom Cable Entertainment, Inc. (CCE),
(collectively "Cencom Defendants"), and three brokerage firms involved in the
original sale of limited partnership units in the Circuit Court of Jackson
County, Missouri. CCE provided management services to the Partnership and also
owned all of the stock of the General Partner prior to mid-1994.
Plaintiffs allege that the Cencom Defendants are liable for fraud, negligent
misrepresentation or omission, negligence, breach of fiduciary duty, breach of
implied covenants and violations of the Missouri Merchandising Practices Act in
connection with the sale of limited partnership interests in CCIP II commencing
in 1987. Plaintiffs seek recession of the purchase of the securities along with
ancillary damages, actual damages, punitive damages, costs and attorneys' fees.
On August 17, 1998, the Cencom Defendants filed a Motion to Dismiss. On November
5, 1998, the Court heard oral argument on that motion. Discovery has been stayed
during the pendency of the Motion to Dismiss.
F-13
<PAGE> 38
Wallace v. Wood, et. al.
On June 10, 1997, four limited partners of the Partnership filed a putative
class action suit on behalf of the limited partners presently in Delaware
Chancery Court against the General Partner, Charter, certain other Charter
affiliates and four present or former officers of the General Partner. The
Plaintiffs subsequently amended their lawsuit and converted it to a Derivative
Action, thus adding the Partnership as a nominal defendant.
Plaintiffs allege that the Defendants breached the Partnership Agreement and
their fiduciary duties of loyalty and candor in connection with the management
of the Partnership and the sale of the Partnership assets to certain purchasing
affiliates. Plaintiffs seek a declaration that the distribution to the Limited
Partners is improper, request that defendants compensate the Partnership for all
damages suffered as a result of the actions and transactions, including
interest, costs, reasonable attorneys' fees, accountants' and experts' fees and
request an accounting for all monies earned by the properties after the
effective date of the sale to the purchasing affiliates.
On May 19, 1998, Defendants filed a Motion for Judgment on the Pleadings,
seeking dismissal of certain of the defendants from the lawsuit. That motion is
pending before the Court.
The Partnership is not a named defendant in the Jackson County litigation and is
a nominal defendant in the Delaware litigation.
9. RATE REGULATION IN THE CABLE TELEVISION INDUSTRY:
The cable television industry is subject to extensive regulation at the federal,
local and, in some instances, state levels. The Cable Communications Policy Act
of 1984 (the "1984 Cable Act"), the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act" and together with the 1984 Cable
Act, the "Cable Acts"), and the Telecommunications Act of 1996 (the "1996
Telecom Act"), established a national policy to guide the development and
regulation of cable television systems. The Federal Communications Commission
(FCC) has principal responsibility for implementing the policies of the Cable
Acts. Many aspects of such regulation are currently the subject of judicial
proceedings and administrative or legislative proposals. Legislation and
regulations continue to change, and the Company cannot predict the impact of
future developments on the cable television industry.
The 1992 Cable Act and the FCC's rules implementing that act generally have
increased the administrative and operational expenses of cable television
systems and have resulted in additional regulatory oversight by the FCC and
local or state franchise authorities. The Cable Acts and the corresponding FCC
regulations have established rate regulations.
The 1992 Cable Act permits certified local franchising authorities to order
refunds of basic service tier rates paid in the previous twelve-month period
determined to be in excess of the maximum permitted rates. The Company may be
required to refund additional amounts in the future.
The Company believes that it has complied in all material respects with the
provisions of the 1992 Cable Act, including the rate setting provisions
promulgated by the FCC. However, in jurisdictions that have chosen not to
certify, refunds covering the previous twelve-month period may be ordered upon
certification if the Company is unable to justify its basic rates. The Company
is unable to estimate at this time the amount of refunds, if any, that may be
payable by the Company in the event certain of its rates are successfully
challenged by franchising authorities or found to be unreasonable by the FCC.
The Company does not believe that the amount of any such refunds would have a
material adverse effect on the financial position or results of operations of
the Company.
The 1996 Telecom Act, among other things, immediately deregulated the rates for
certain small cable operators and in certain limited circumstances rates on the
basic service tier, and as of March 31, 1999,
F-14
<PAGE> 39
deregulates rates on the cable programming service tier (CPST). The FCC is
currently developing permanent regulations to implement the rate deregulation
provisions of the 1996 Telecom Act. The Company cannot predict the ultimate
effect of the 1996 Telecom Act on the Company's financial position or results of
operations.
The FCC may further restrict the ability of cable television operators to
implement rate increases or the United States Congress may enact legislation
that could delay or suspend the scheduled March 1999 termination of CPST rate
regulation. This continued rate regulation, if adopted, could limit the rates
charged by the Company.
A number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. State governmental agencies are
required to follow FCC rules when prescribing rate regulation, and thus, state
regulation of cable television rates is not allowed to be more restrictive than
the federal or local regulation. The Company is subject to state regulation in
Connecticut.
10. 401(k) PLAN:
The Partnership's employees may participate in the Charter Communications, Inc.
401(k) Plan (the "Plan"). All employees who have attained age 21 and completed
two months of employment are eligible to participate in the Plan. The Plan is a
tax-qualified retirement savings plan to which employees may elect to make
pretax contributions up to the lesser of 10% of their compensation or dollar
thresholds established under the Internal Revenue Code. The Partnership
contributes an amount equal to 50% of the first 5% contributed by each employee.
During 1998, 1997 and 1996, the Partnership contributed approximately $7,200,
$13,100 and $26,200, respectively.
11. NET INCOME (LOSS) FOR INCOME TAX PURPOSES:
The following reconciliation summarizes the differences between the
Partnership's net in income (loss) for financial reporting purposes and net
income (loss) for federal income tax purposes for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Net income (loss) for financial reporting purposes $ 2,291,383 $ 44,548,950 $ (1,447,153)
Depreciation differences between financial reporting
and tax reporting (34,678) 754,902 1,728,352
Equity in income (loss) of unconsolidated Limited
Partnership differences between financial reporting
and tax reporting 54,641 14,365,012 (2,853,381)
Differences in expenses recorded for financial
reporting and for tax reporting 14,932 (493,029) 224,167
Differences in revenue reported for financial
reporting and tax reporting 1,239 (6,267) (3,100)
Difference in gain on sale of cable television
systems recorded for financial reporting and tax
reporting -- 5,933,357 --
Other 1,525 2,392 4,144
------------ ------------ ------------
Net income (loss) for federal income tax purposes
$ 2,329,042 $ 65,105,317 $ (2,346,971)
============ ============ ============
Net income (loss) per Limited Partnership unit for
federal income tax purposes $ 25.36 $ 695.44 $ (25.82)
============ ============ ============
</TABLE>
F-15
<PAGE> 40
The following summarizes the Partnership's financial reporting basis of net
assets (in excess of) less than its income tax reporting basis as of December
31:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Accounts receivable $ 14,387 $ 17,990
Accrued expenses 420,148 401,613
Franchises and other assets 4,074,354 4,107,755
Deferred revenue 19,775 18,536
Investment in unconsolidated Limited Partnership 2,701,803 2,647,162
------------ -----------
$ 7,230,467 $ 7,193,056
=========== ===========
Property, plant and equipment $(1,090,959) $(1,056,336)
=========== ===========
</TABLE>
F-16
<PAGE> 41
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cencom Partners, L.P.:
We have audited the accompanying balance sheets of Cencom Partners, L.P. (a
Delaware limited partnership) as of December 31, 1998 and 1997, and the related
statements of operations, partners' capital (deficit) and cash flows for each of
the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Partnership'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.
As discussed in Note 2, Cencom Cable Income Partners II, L.P., an affiliate who
owns 84.03% of the Limited Partner units of Cencom Partners, L.P., is in the
process of dissolving its partnership. In connection with this process, the
assets of Cencom Partners, L.P. will be liquidated, in accordance with the
provisions of the Partnership Agreement.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cencom Partners, L.P. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP /s/
St. Louis, Missouri,
February 5, 1999
F-17
<PAGE> 42
CENCOM PARTNERS, L.P.
BALANCE SHEETS - DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 164,676 $ 82,589
Accounts receivable, net of allowance for doubtful accounts of $4,102 and $5,166,
respectively 18,560 28,747
Receivable from affiliate 1,860,000 1,050,000
Prepaid expenses and other 3,931 4,794
-------------- -------------
Total current assets 2,047,167 1,166,130
PROPERTY, PLANT AND EQUIPMENT 1,985,093 1,812,830
FRANCHISE COSTS, net of accumulated amortization of $4,010,932 and $3,879,748,
respectively 504,479 635,663
-------------- -------------
$ 4,536,739 $ 3,614,623
============== =============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 504,830 $ 383,667
Payables to General Partner and affiliates 224,488 58,385
-------------- -------------
Total current liabilities 729,318 442,052
-------------- -------------
DEFERRED REVENUE 32,810 38,279
-------------- -------------
PARTNERS' CAPITAL:
General Partner 57,185 47,580
Limited Partners (293 units authorized, issued and outstanding) 3,717,426 3,086,712
-------------- -------------
Total Partners' capital 3,774,611 3,134,292
-------------- -------------
$ 4,536,739 $ 3,614,623
============== =============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-18
<PAGE> 43
CENCOM PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------- --------------- ---------------
<S> <C> <C> <C>
SERVICE REVENUES:
Basic service $ 2,051,268 $ 4,307,785 $ 10,176,306
Premium service 281,925 682,207 1,792,082
Other 269,728 718,449 1,779,836
-------------- --------------- ---------------
2,602,921 5,708,441 13,748,224
-------------- --------------- ---------------
OPERATING EXPENSES:
Operating costs 1,035,388 2,371,549 5,841,053
General and administrative 260,969 573,819 1,187,267
Liquidation costs -- 198,418 243,154
Depreciation and amortization 525,962 2,423,543 7,565,531
Management fees - related party 130,146 285,290 687,371
-------------- --------------- ---------------
1,952,465 5,852,619 15,524,376
-------------- --------------- ---------------
Income (loss) from operations 650,456 (144,178) (1,776,152)
-------------- --------------- ---------------
OTHER INCOME (EXPENSE):
Interest income 3,880 64,043 37,089
Interest expense -- (973,769) (2,634,834)
Loss from Hurricane Fran -- -- (383,000)
Gain on sale of cable television systems -- 32,614,343 --
Other, net (14,017) 38,114 --
-------------- --------------- ---------------
(10,137) 31,742,731 (2,980,745)
-------------- --------------- ---------------
Net income (loss) $ 640,319 $ 31,598,553 $ (4,756,897)
============== =============== ===============
NET INCOME (LOSS) ALLOCATION TO PARTNERS' CAPITAL ACCOUNTS:
General Partner $ 9,605 $ 415,294 $ (71,829)
Limited Partner 630,714 27,135,580 (4,685,068)
Special Limited Partner -- 4,047,679 --
-------------- --------------- ---------------
$ 640,319 $ 31,598,553 $ (4,756,897)
============== =============== ===============
NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT $ 2,153 $ 92,613 $ (15,990)
============== =============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE> 44
CENCOM PARTNERS, L.P.
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Special
General Limited Limited
Partner Partners Partner
Total
------------ ---------------- -------------- ---------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995 $(197,051) $(12,917,353) $ 2,000,000 $(11,114,404)
Net loss (71,829) (4,685,068) -- (4,756,897)
------------ ---------------- -------------- ---------------
BALANCE, December 31, 1996 (268,880) (17,602,421) 2,000,000 (15,871,301)
Net income 415,294 27,135,580 4,047,679 31,598,553
Distributions (98,834) (6,446,447) (6,047,679) (12,592,960)
------------ ---------------- -------------- ---------------
BALANCE, December 31, 1997 47,580 3,086,712 -- 3,134,292
Net income 9,605 630,714 -- 640,319
------------ ---------------- -------------- ---------------
BALANCE, December 31, 1998 $ 57,185 $ 3,717,426 $ -- $ 3,774,611
============ ================ ============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE> 45
CENCOM PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 640,319 $ 31,598,553 $ (4,756,897)
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities-
Depreciation and amortization 525,962 2,423,543 7,565,531
Amortization of debt issuance costs -- 199,800 --
Gain on sale of cable television systems -- (32,614,343) --
Changes in assets and liabilities-
Accounts receivable, net 10,187 (286,807) (32,101)
Insurance receivables -- 313,290 (313,290)
Receivable from affiliate (813,931) (1,050,000) --
Prepaid expenses and other 4,794 (21,913) 77,636
Accounts payable and accrued expenses 121,163 (244,574) (277,439)
Payables to General Partner and affiliates 166,103 (3,300,299) 615,459
Subscriber deposits -- 38,850 (11,905)
Deferred revenue (5,469) (7,765) (21,849)
------------ ------------ ------------
Net cash provided by (used in) operating activities 649,128 (2,951,665) 2,845,145
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (567,041) (1,972,836) (2,427,274)
Proceeds from sale of cable television systems, net of cash sold -- 52,014,251 --
------------ ------------ ------------
Net cash (used in) provided by investing activities (567,041) 50,041,415 (2,427,274)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners -- (12,592,960) --
Payments of long-term debt -- (34,957,500) --
Debt issuance costs -- -- (287,104)
------------ ------------ ------------
Net cash used in financing activities -- (47,550,460) (287,104)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 82,087 (460,710) 130,767
CASH AND CASH EQUIVALENTS, beginning of year 82,589 543,299 412,532
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 164,676 $ 82,589 $ 543,299
============ ============ ============
CASH PAID FOR INTEREST $ -- $ 766,668 $ 2,981,421
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-21
<PAGE> 46
CENCOM PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Basis of Presentation
Cencom Partners, L.P. (the "Partnership") was formed on January 30, 1990, for
the purpose of acquiring and operating existing cable television systems. The
Partnership commenced operations effective March 1990, through the acquisition
of a cable television system in South Carolina. The Partnership will terminate
no later than June 30, 2001, as provided in the partnership agreement (the
"Partnership Agreement") (see Note 2). CC III Holdings, Inc. (CC III Holdings)
acquired the common stock of Cencom Partners, Inc. (Cencom Partners or the
"General Partner") from Cencom Cable Associates, Inc. in September 1994. The
General Partner owns 1.51% of total partner units. CC III Holdings is a wholly
owned subsidiary of Charter Communications, Inc. (Charter). Cencom Cable Income
Partners II, L.P. (CCIP II), an affiliate, owns 84.03% of total partner units
with the remaining 14.46% owned by Charter.
Effective December 23, 1998, through a series of transactions, Paul G. Allen
acquired approximately 94% of Charter. No adjustments have been made to the
accompanying financial statements to reflect the push down and allocation of the
purchase price.
As of December 31, 1998, the Partnership provided cable television service to
approximately five franchises serving basic subscribers in Texas.
Cash Equivalents
Cash equivalents consist primarily of repurchase agreements with original
maturities of 90 days or less. These investments are carried at cost, which
approximates market value.
Revenue Recognition
Cable service revenues are recognized when the related services are provided.
Installation revenues are recognized to the extent of direct selling costs
incurred. The remainder, if any, is deferred and amortized to income over the
average estimated period that customers are expected to remain connected to the
cable television system.
Fees allocated from programmers to guarantee carriage are deferred and amortized
to income over the life of the contracts. Franchise fees collected from cable
subscribers and paid to local franchises are reported as revenues.
Depreciation and Amortization
The Partnership provides depreciation using the composite method on a
straight-line basis over the estimated useful lives of the related property,
plant and equipment as follows:
<TABLE>
<S> <C>
Trunk and distribution systems 10 years
Subscriber installations 10 years
Buildings and headends 9-20 years
Converters 3-5 years
Vehicles and equipment 4-8 years
Office equipment 5-10 years
</TABLE>
F-22
<PAGE> 47
Franchise costs are being amortized using the straight-line method over the term
of the individual franchise agreements. Subscriber lists were amortized using
the straight-line method over seven years. Debt issuance costs were amortized
over the term of the debt.
The Partnership periodically reviews the carrying value of its long-lived
assets, identifiable intangibles and franchise costs in relation to historical
financial results, current business conditions and trends (including the impact
of existing legislation and regulation) to identify potential situations in
which the carrying value of such assets may not be recoverable. If a review
indicates that the carrying value of such assets may not be recoverable, the
carrying value of such assets in excess of their fair value would be recorded as
a reduction of the assets' costs as if a permanent impairment has occurred. No
impairments have occurred and no adjustments to the financial statements of the
Partnership have been recorded.
Liquidation Costs
Certain liquidation costs which are not directly attributed to the Partnership
(i.e., accounting, legal, etc.) have been allocated between the Partnership and
CCIP II based upon the number of total basic subscribers prior to the sale of
any systems.
Income Taxes
Income taxes are the responsibility of the partners and as such are not provided
in the accompanying financial statements.
Net Income (Loss) Per Limited Partnership Unit
The net income (loss) per Limited Partnership unit has been calculated based on
293 weighted average Limited Partnership units outstanding in each year. In
accordance with the Partnership Agreement, no losses have been allocated to the
Special Limited Partner units.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. LIQUIDATION, DISTRIBUTIONS AND ALLOCATIONS:
The Partnership is comprised of the General Partner and 293 Limited Partnership
units. Under terms of the Partnership Agreement, allocation of Partnership
profits is as follows: (i) to partners with deficit capital balances, until such
deficits are reduced to zero; (ii) to the Special Limited Partner, until its
account has been allocated all unrecovered preference return amounts, as defined
in the Partnership Agreement; and (iii) to the General Partner and Limited
Partners in proportion to their capital contributions.
Partnership losses are allocated among the General Partner and Limited Partners
in proportion to their capital contributions. Any distributions made by the
Partnership are to be made as follows: (i) to all partners to the extent of any
tax liabilities; (ii) to the Special Limited Partner to the extent of any unpaid
preference returns as defined in the Partnership Agreement; and (iii) to the
General Partner and Limited Partners in proportion to their capital
contributions. The Special Limited Partner's preference return is equal to its
adjusted capital balance, as defined, plus an amount equal to 15% per annum,
compounded quarterly, on such amount through June 30, 1993. Thereafter, the
preference return shall increase to 18% per annum, compounded quarterly in
accordance with the Partnership Agreement. During 1997, the Special Limited
Partner units were redeemed at their accreted value.
F-23
<PAGE> 48
Liquidation of the Partnership
CCIP II's partnership agreement provides for the dissolution of CCIP II on or
before December 31, 1995. The general partner of CCIP II is in the process of a
complete and orderly dissolution of CCIP II.
Concurrent with the disposition of CCIP II's assets, including its entire
ownership interest in the Partnership, the Partnership has sought to dispose of
its assets through the sale of its cable television systems to facilitate the
liquidation of CCIP II. Additionally, the asset sale was being effected to
satisfy the requirements by the Partnership's senior bank lenders that the old
credit facility be repaid.
To dispose of the assets of the Partnership, the General Partner obtained
appraisals as of March 31, 1995, from Daniels & Associates ("Daniels") and
Western Cablesystems, Inc., who jointly reached a valuation of $60,900,000 for
all of the Partnership systems. Thereafter, Daniels was retained to market the
Partnership systems using an auction process. As a result of the auction
process, the General Partner executed sale agreements with two affiliated
entities of CCIP II for the Partnership's South Carolina and North Carolina
Systems for an aggregate price of $52,450,000. The accepted bids represented
approximately 83% of the Partnership's basic subscribers as of December 31,
1996.
Following the above sales, the Partnership used the available sale proceeds to
pay outstanding indebtedness and expenses (including the payment of accrued and
unpaid management fees, which were $3,087,053 as of the date of the sales, to
the General Partner and repayment of its senior bank credit facility), with the
remaining proceeds distributed in accordance with the terms of the Partnership
Agreement, which included distributions of $7,092,960 to Charter in its capacity
as parent of the General Partner, the Special Limited Partner and a Limited
Partner, and distributions of $5,500,000 to CCIP II in its capacity as a Limited
Partner of the Partnership.
The Partnership has accepted a bid from a nonaffiliate for the Partnership's
remaining Texas systems for an aggregate purchase price of $11.2 million,
subject to execution of the final sale agreement. The proceeds from the sale of
the Texas systems will first be used to satisfy the Partnership's liabilities
and expenses with the remaining proceeds distributed in accordance with the
terms of the Partnership Agreement.
Upon finalization of a plan of liquidation, the Partnership will change its
basis of accounting from the going-concern basis to the liquidation basis. Under
the liquidation basis of accounting, assets are recorded at their estimated
realizable values and liabilities are recorded at their estimated settlement
amounts.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is stated at cost and consists of the following at
December 31:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Trunk and distribution systems $ 2,796,563 $ 2,351,018
Subscriber installations 954,595 864,879
Land, buildings and headends 1,185,282 1,158,285
Converters 288,212 288,212
Vehicles and equipment 230,720 227,151
Office equipment 93,989 92,775
----------- -----------
5,549,361 4,982,320
Less- Accumulated depreciation (3,564,268) (3,169,490)
----------- -----------
$ 1,985,093 $ 1,812,830
=========== ===========
</TABLE>
F-24
<PAGE> 49
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Accounts payable $115,684 $ 41,206
Property taxes 9,877 5,559
Salaries and related benefits 23,694 17,518
Capital expenditures 81,254 23,034
Franchise fees 39,788 37,766
Professional fees 34,788 47,929
Programming expenses 93,514 99,192
Other 106,231 111,463
-------- --------
$504,830 $383,667
======== ========
</TABLE>
5. LONG-TERM DEBT:
Prior to May 23, 1997, the Partnership maintained a credit agreement (the "Old
Credit Agreement") in the form of a term loan with a consortium of banks. Loans
under the Old Credit Agreement bore interest, with the base rate being at the
Partnership's election, at the Toronto Dominion's (the agent bank) prime rate of
interest, Eurodollar or certificates of deposit rate, plus a certain spread. The
weighted average interest rate and borrowings for the period from January 1,
1997, to May 23, 1997, was 8.25% and approximately $23,712,000, respectively.
On May 23, 1997, the Partnership terminated its existing Old Credit Agreement
and entered into a new credit agreement (the "Credit Agreement") with a bank for
borrowings up to $7,500,000. The Credit Agreement also provides for borrowings
up to $8,500,000 by CCIP II, with each partner held jointly and severally liable
in the event of default. At December 31, 1998, the Partnership and CCIP II had
$-0- and $3,800,000 of indebtedness outstanding under the Credit Agreement,
respectively. The debt bears interest at rates, at the Partnership's option,
based on the higher of the prime rate of the Canadian Imperial Bank of Commerce
(the agent bank) or the Federal Funds Rate plus 0.75%, or the LIBOR plus
applicable margins based upon the Partnership's leverage ratio at the time of
the borrowings.
Borrowings under the Credit Agreement are subject to certain financial and
nonfinancial covenants and restrictions, the most restrictive requires the
maintenance of a ratio of total debt to annualized operating cash flow of 4.0 to
1.0 at December 31, 1998. A quarterly commitment fee of 0.375% per annum is
payable on the unused portion of the Credit Agreement. Commencing March 31,
1999, and at the end of each calendar quarter thereafter, the borrowing capacity
shall be reduced by $800,000. Quarterly reductions will continue until March 31,
2002, at which time the borrowing capacity shall be reduced by $1,600,000,
quarterly until December 31, 2002.
6. RELATED-PARTY TRANSACTIONS:
During 1994, Cencom Cable Associates, Inc. assigned management services under
contract with the Partnership to the General Partner. The management service
provides for the payment of fees equal to 5% of the Partnership's gross
operating revenues. The Partnership was allowed to defer 60% of all such fees
through December 31, 1995. Since the assumption of the responsibilities under
the contract, the General Partner deferred payment of all management fees until
the debt outstanding under the Old Credit Agreement was repaid. At which time,
all deferred management fees were paid. Currently, the General
F-25
<PAGE> 50
Partner continues to defer payment of all management fees. Expenses recognized
by the Partnership under this contract during 1998, 1997 and 1996 were $130,146,
$285,290 and $687,371, respectively. Management fees payable of $224,488 and
$94,442 are included in Payables to General Partner and affiliates at December
31, 1998 and 1997, respectively. In addition to the management fees, the
Partnership reimburses the General Partner for expenses incurred on behalf of
the Partnership for performance of services under the contract.
As of December 31, 1998 and 1997, receivable from affiliate is comprised
primarily of a noninterest receivable from CCIP II of $1,860,000 and $1,050,000,
respectively.
The Partnership and all entities affiliated with Charter collectively utilize a
combination of insurance coverage and self-insurance programs for medical,
dental and workers' compensation claims. The Partnership is allocated charges
monthly based upon its total number of employees, historical claims and medical
cost trend rates. During 1998, 1997 and 1996, the Partnership expensed
approximately $27,000, $59,300 and $144,600, respectively, relating to insurance
allocations.
Affiliated entities maintain several regional offices. The regional offices
perform certain operational services on behalf of the Partnership and other
affiliated entities. Generally, the costs of these services are allocated to the
Partnership based on the number of subscribers. During 1997 and 1996, certain
costs which should have been allocated to the Partnership were borne by Charter
on behalf of the Partnership. Charter is not obligated to make such payments in
the future. The amount of the costs which were paid by Charter during 1997 and
1996 was approximately $22,000 and $122,000, respectively.
7. COMMITMENTS AND CONTINGENCIES:
Leases
The Partnership leases certain facilities and equipment under noncancelable
operating leases. Rent expense incurred under these leases during 1998, 1997 and
1996 was approximately $4,000, $21,000 and $64,000, respectively.
Future minimum lease payments are as follows:
<TABLE>
<S> <C> <C>
1999 $3,800
2000 3,800
2001 3,800
2002 4,100
2003 4,100
Thereafter 24,800
</TABLE>
The Partnership rents utility poles in its operations. Generally, pole rental
agreements are short term, but the Partnership anticipates that such rentals
will recur. Rent expense for pole attachments during 1998, 1997 and 1996 was
approximately $16,000, $75,000 and $220,000, respectively.
Litigation
Abeles v. Cencom Cable Entertainment, Inc., et. al.
On June 17, 1998, approximately 400 limited partners in CCIP II filed a lawsuit
against its General Partner, Cencom Cable Entertainment, Inc. (CCE),
(collectively "Cencom Defendants"), and three brokerage firms involved in the
original sale of limited partnership units in CCIP in the Circuit Court of
Jackson County, Missouri. CCE provided management services to both CCIP II and
CPLP and also owned all of the stock of the Cencom Properties II, Inc.
prior to mid-1994.
F-26
<PAGE> 51
Plaintiffs allege that the Cencom Defendants are liable for fraud, negligent
misrepresentation or omission, negligence, breach of fiduciary duty, breach of
implied covenants and violations of the Missouri Merchandising Practices Act in
connection with the sale of limited partnership interests in CCIP II commencing
in 1987. Plaintiffs seek recession of the purchase of the securities along with
ancillary damages, actual damages, punitive damages, costs and
attorneys' fees.
On August 17, 1998, the Cencom Defendants filed a Motion to Dismiss. On November
5, 1998, the Court heard oral argument on that motion. Discovery has been stayed
during the pendency of the Motion to Dismiss.
Wallace v. Wood, et. al.
On June 10, 1997, four limited partners of CCIP II filed a putative class action
suit on behalf of the limited partners presently in Delaware Chancery Court
against CCIP II's General Partner, Charter, certain other Charter affiliates and
four present or former officers of the CCIP II. The Plaintiffs subsequently
amended their lawsuit and converted it to a Derivative Action, thus adding CCIP
II as a nominal defendant.
Plaintiffs allege that the Defendants breached the Partnership Agreement and
their fiduciary duties of loyalty and candor in connection with the management
of CCIP II and CPLP and the sale of the Partnership assets to certain Purchasing
Affiliates. Plaintiffs seek a declaration that the distribution to the Limited
Partners of CCIP II is improper, request that defendants compensate CCIP II for
all damages suffered as a result of the actions and transactions, including
interest, costs, reasonable attorneys' fees, accountants' and experts' fees and
request an accounting for all monies earned by the properties after the
effective date of the sale to the purchasing affiliates.
On May 19, 1998, Defendants filed a Motion for Judgment on the Pleadings,
seeking dismissal of certain of the defendants from the lawsuit. That motion is
pending before the Court.
The Partnership is not a named defendant in the Delaware litigation.
8. RATE REGULATION IN THE CABLE TELEVISION INDUSTRY:
The cable television industry is subject to extensive regulation at the federal,
local and, in some instances, state levels. The Cable Communications Policy Act
of 1984 (the "1984 Cable Act"), the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act" and together with the 1984 Cable
Act, the "Cable Acts"), and the Telecommunications Act of 1996 (the "1996
Telecom Act"), established a national policy to guide the development and
regulation of cable television systems. The Federal Communications Commission
(FCC) has principal responsibility for implementing the policies of the Cable
Acts. Many aspects of such regulation are currently the subject of judicial
proceedings and administrative or legislative proposals. Legislation and
regulations continue to change, and the Partnership cannot predict the impact of
future developments on the cable television industry.
The 1992 Cable Act and the FCC's rules implementing that act generally have
increased the administrative and operational expenses of cable television
systems and have resulted in additional regulatory oversight by the FCC and
local or state franchise authorities. The Cable Acts and the corresponding FCC
regulations have established rate regulations.
The 1992 Cable Act permits certified local franchising authorities to order
refunds of basic service tier rates paid in the previous twelve-month period
determined to be in excess of the maximum permitted rates. The Partnership may
be required to refund additional amounts in the future.
F-27
<PAGE> 52
The Partnership believes that it has complied in all material respects with the
provisions of the 1992 Cable Act, including the rate setting provisions
promulgated by the FCC. However, in jurisdictions that have chosen not to
certify, refunds covering the previous twelve-month period may be ordered upon
certification if the Partnership is unable to justify its basic rates. The
Partnership is unable to estimate at this time the amount of refunds, if any,
that may be payable by the Partnership in the event certain of its rates are
successfully challenged by franchising authorities or found to be unreasonable
by the FCC. The Partnership does not believe that the amount of any such refunds
would have a material adverse effect on the financial position or results of
operations of the Partnership.
The 1996 Telecom Act, among other things, immediately deregulated the rates for
certain small cable operators and in certain limited circumstances rates on the
basic service tier, and as of March 31, 1999, deregulates rates on the cable
programming service tier (CPST). The FCC is currently developing permanent
regulations to implement the rate deregulation provisions of the 1996 Telecom
Act. The Partnership cannot predict the ultimate effect of the 1996 Telecom Act
on the Partnership's financial position or results of operations.
The FCC may further restrict the ability of cable television operators to
implement rate increases or the United States Congress may enact legislation
that could delay or suspend the scheduled March 1999 termination of CPST rate
regulation. This continued rate regulation, if adopted, could limit the rates
charged by the Partnership.
A number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. State governmental agencies are
required to follow FCC rules when prescribing rate regulation, and thus, state
regulation of cable television rates is not allowed to be more restrictive than
the federal or local regulation. The Partnership is subject to state regulation
in Connecticut.
9. 401(k) PLAN:
The Partnership's employees may participate in the Charter Communications, Inc.
401(k) Plan (the "Plan"). All employees who have attained age 21 and completed
two months of employment are eligible to participate in the Plan. The Plan is a
tax-qualified retirement savings plan to which employees may elect to make
pretax contributions up to the lesser of 10% of their compensation or dollar
thresholds established under the Internal Revenue Code. The Partnership
contributes an amount equal to 50% of the first 5% contributed by each employee.
During 1998, 1997 and 1996, the Partnership contributed approximately $4,400,
$9,300 and $20,500, respectively.
F-28
<PAGE> 53
10. NET INCOME (LOSS) FOR INCOME TAX PURPOSES:
The following reconciliation summarizes the differences between the
Partnership's net income (loss) for financial reporting purposes and net income
(loss) for federal income tax purposes for the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss) for financial reporting purposes $ 640,319 $ 31,598,553 $ (4,756,897)
Depreciation differences between financial reporting
and tax reporting 84,434 (483,060) (302,210)
Amortization differences between financial reporting
and tax reporting 2,482 464,431 1,501,067
Difference in gain on sale of cable television systems
for financial reporting and tax reporting
-- (196,950) --
Differences in expenses recorded for financial
reporting and tax reporting (17,257) (423,984) 181,261
Differences in revenue reported financial reporting and
tax reporting (5,468) (136,513) (21,849)
Other 804 606 2,959
------------ ------------ ------------
Net income (loss) for federal income tax purposes $ 705,314 $ 30,823,083 $ (3,395,669)
------------ ------------ ------------
Net income (loss) per Limited Partnership unit for
federal income tax purposes $ 2,371 $ 90,005 $ (11,414)
============ ============ ============
</TABLE>
The following summarizes the Partnership's financial reporting basis of net
assets (in excess of) less than its income tax reporting basis as of December
31:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Accounts receivable $ 4,102 $ 5,166
Franchise costs and other assets 2,277,893 2,275,411
Accrued expenses 177,502 193,695
Deferred revenue 32,810 38,278
----------- -----------
$ 2,492,307 $ 2,512,550
=========== ===========
Property, plant and equipment $ (871,511) $ (955,946)
=========== ===========
</TABLE>
11. INSURANCE SETTLEMENT:
In September 1996, Hurricane Fran caused damage to certain of the Partnership's
North Carolina system. The estimated total damage to the system was
approximately $955,000. During 1997 and 1996, the Partnership incurred
approximately $214,000 and $855,000 in repairs, respectively. The Partnership
received insurance proceeds of approximately $536,000 and $150,000 during 1997
and 1996, respectively. In 1996, the Partnership recorded a $383,000
nonoperating loss for its portion of the insurance deductible.
F-29
<PAGE> 1
EXHIBIT 10(z)
ASSET PURCHASE AGREEMENT
BETWEEN
CENCOM CABLE INCOME PARTNERS II, L. P.,
AS SELLER
AND
ETAN INDUSTRIES, INC.
AS PURCHASER
DATED AS OF DECEMBER 18, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. PURCHASE AND SALE OF ASSETS.............................................................................1
1.1 Assets to be Sold..............................................................................1
1.2 Excluded Assets................................................................................2
2. CALCULATION AND PAYMENT OF PURCHASE PRICE...............................................................3
2.1 Purchase Price.................................................................................3
2.2 Payment of Purchase Price......................................................................4
2.3 Payment of Deposit.............................................................................4
2.4 Payment of Purchase Price......................................................................5
2.5 Assumption of Liabilities......................................................................5
2.6 Excluded Liabilities...........................................................................5
2.7 Allocation of Consideration....................................................................6
2.8 Adjustments....................................................................................6
3. CLOSING.................................................................................................7
3.1 Closing Date...................................................................................7
3.3 Deliveries by Purchaser........................................................................8
4. REPRESENTATIONS AND WARRANTIES BY SELLER................................................................9
4.1 Organization and Standing......................................................................9
4.2 Power and Authority............................................................................9
4.3 Authorization..................................................................................9
4.4 Financial Statements..........................................................................10
4.5 Legal Proceedings.............................................................................10
4.6 No Undisclosed Liabilities....................................................................11
4.7 Governmental Permits and Contracts............................................................11
4.8 Real Property.................................................................................11
4.9 Equipment.....................................................................................12
4.10 Title.........................................................................................12
4.11 Tax Matters...................................................................................12
4.12 Compliance; FCC and Copyright Matters.........................................................13
4.13 Consents......................................................................................14
4.14 Systems Data..................................................................................15
4.15 Environmental Compliance......................................................................15
4.16 Employment Matters............................................................................17
4.17 Insurance.....................................................................................18
4.18 Year 2000.....................................................................................18
5. REPRESENTATIONS AND WARRANTIES BY PURCHASER............................................................18
5.1 Organization and Standing.....................................................................18
5.2 Power and Authority...........................................................................18
5.3 Authorization.................................................................................19
5.4 Consents......................................................................................19
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
5.5 Legal Proceedings.............................................................................19
6. ADDITIONAL UNDERTAKINGS AND ACTIONS....................................................................19
6.1 Consents......................................................................................19
6.2 Access to Assets..............................................................................20
6.3 Operations Prior to Closing...................................................................20
6.4 Antitrust Laws Compliance.....................................................................20
6.5 Confidentiality...............................................................................21
6.6 Employees.....................................................................................21
6.7 Transfer Taxes................................................................................21
6.8 Rebuild Capital Expenditures..................................................................21
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER.......................................................21
7.1 HSR Act.......................................................................................21
7.2 Governmental or Legal Action..................................................................22
7.3 Representations; Performance of Agreements....................................................22
7.4 Consents and Approvals........................................................................22
7.5 Franchise Extension...........................................................................22
7.6 Transfer Documents............................................................................22
7.7 Ancillary Documents...........................................................................22
7.8 Opinions of Seller's Counsel..................................................................23
7.9 Discharge of Liens............................................................................23
7.10 No Default Under Documents....................................................................23
7.11 Additional Documents and Acts.................................................................23
7.12 Closing of Related Transaction................................................................23
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER..........................................................23
8.1 HSR Act.......................................................................................23
8.2 Governmental or Legal Actions.................................................................23
8.3 Representations; Performance of Agreements....................................................24
8.4 Consent and Approvals.........................................................................24
8.5 Payments......................................................................................24
8.6 Ancillary Documents...........................................................................24
8.7 Opinion of Purchaser's Counsel................................................................24
8.8 Additional Documents and Acts.................................................................24
8.9 Closing of Related Transaction................................................................24
9. REMEDIES...............................................................................................24
9.1 Costs.........................................................................................24
9.2 Termination Without Liability.................................................................25
9.3 Termination on Default........................................................................25
10. INDEMNIFICATION........................................................................................25
10.1 Seller's Indemnity............................................................................25
10.2 Purchaser's Indemnity.........................................................................25
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
10.3 Procedure.....................................................................................26
10.4 Limitation on Liability.......................................................................26
10.5 Survival......................................................................................26
11. MISCELLANEOUS PROVISIONS...............................................................................26
11.1 Entire Agreement, Modification and Waiver.....................................................26
11.2 Rights of Parties.............................................................................27
11.3 Assignment....................................................................................27
11.4 Construction..................................................................................27
11.5 Expenses of the Parties.......................................................................27
11.6 Further Assurances............................................................................27
11.7 Finders.......................................................................................27
11.8 Notices.......................................................................................28
11.9 Governing Law.................................................................................29
11.10 Severability..................................................................................29
11.11 Jurisdiction..................................................................................29
11.12 Counterparts..................................................................................29
11.13 Arbitration...................................................................................29
11.14 Knowledge.....................................................................................30
</TABLE>
-iii-
<PAGE> 5
LIST OF SCHEDULES AND EXHIBITS
Exhibit A Deposit Escrow Agreement
Exhibit B Indemnity Escrow Agreement
Exhibit C Assumption Agreement
Exhibit D Bill of Sale
Exhibit E Opinion of Seller's Counsel
Exhibit F Opinion of Seller's FCC Counsel
Exhibit G Opinion of Purchaser's Counsel
Exhibit H Consent of Franchisor
Exhibit I Lease Consent
Schedule 4.3 Authorizations: Conflicts
Schedule 4.4 Financial Statements: Material Adverse Changes
Schedule 4.5 Legal Proceedings
Schedule 4.6 No Undisclosed Liabilities
Schedule 4.7 Governmental Permits and Contracts
Schedule 4.8 Real Property
Schedule 4.9 Equipment
Schedule 4.10(a) Title: Permitted Encumbrances
Schedule 4.10(b) Title: Owned and Leased Property
Schedule 4.11 Tax Matters
Schedule 4.12 Compliance: FCC and Copyright Matters
Schedule 4.13 Consents
Schedule 4.14 Systems Data
Schedule 4.15 Environmental Matters
Schedule 4.16(a) Employment: Employee Benefit Plans
Schedule 4.16(b) Employment: Employees
Schedule 4.17 Insurance and Bonds
Schedule 5.4 Purchaser Consents
Schedule 5.5 Purchaser Legal Proceedings
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<PAGE> 6
ASSET PURCHASE AGREEMENT
(CCIP)
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made as of this
18th day of December, 1998 by and between Cencom Cable Income Partners II, L.P.,
a limited partnership organized and existing under the laws of the State of
Delaware ("Seller") and Etan Industries, Inc., a corporation organized and
existing under the laws of the State of Texas, ("Purchaser").
W I T N E S S E T H:
WHEREAS, Seller is the owner and operator of certain cable television
systems serving the communities of Kingsville, Belleville, Driscoll, Hempstead,
Angleton, Sealy, and Aqua Dulce, Texas (collectively, the "Systems"); and
WHEREAS, Seller desires to sell, and Purchaser desires to purchase,
pursuant to the terms and subject to the conditions of this Agreement, the
Systems together with all of the assets, property, interests, rights and
privileges of Seller used primarily in connection with the operation of the
Systems.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. PURCHASE AND SALE OF ASSETS
1.1 Assets to be Sold. Subject to the terms and conditions of this
Agreement, Seller hereby agrees to sell, convey, assign, transfer and deliver to
Purchaser at the Closing (as defined below) and Purchaser hereby agrees to
acquire, for the consideration hereinafter provided, all of the assets,
properties, rights, titles and privileges of Seller of every kind, character and
description, whether tangible, intangible, real, personal or mixed, of whatever
description and wherever located, involved in, related to, owned, used or held
for use primarily in connection with the ownership, use or operation of the
Systems, whether or not required to be listed on Seller's balance sheet in
accordance with generally accepted accounting principles ("GAAP"), including,
without limitation, all additions, accessions and substitutions made prior to
the Closing Date (as defined below) as permitted pursuant to the terms of this
Agreement (collectively, the "Assets"), but excluding the Excluded Assets
(defined below). The Assets include, without limitation, the following:
(a) all the rights of Seller under any and all
franchises, licenses (including those required by the Federal
Communications Commission (the "FCC")), permits, authorizations,
easements, registrations, leases, variances, consents and certificates
and similar rights which authorize or are required in connection with
the operation of the Systems including any applications for any of the
foregoing (collectively, the "Governmental Permits") that are obtained
from or are pending with any federal, state, county, municipal or local
government and any governmental agency, bureau, commission, authority,
body, court (or other judicial body), administrative or executive
<PAGE> 7
agency, legislative or quasi-legislative body, commission, council or
other agency, including any such agency, authority or body responsible
for the issuance or administration of any Governmental Permit or whose
consent is required for the sale and transfer of the Assets (each, a
"Governmental Authority");
(b) all the rights of Seller under any and all
subscription contracts with subscribers of Seller, pole attachment
agreements, access agreements and all other contracts, leases,
agreements or undertakings (other than those that are included in the
Excluded Assets or which constitute Governmental Permits or Real
Property), written or oral, relating primarily to the ownership,
operation, use or maintenance of the Systems or the Assets (the
"Contracts");
(c) all of the real property interests of Seller which
relate primarily to the ownership, use, or operation of the Systems,
including fee and office and other leasehold interests, and all
improvements thereon and rights related thereto, such as towers,
fixtures, distribution plant, head-end equipment, subscriber
installations, licenses, easements, right of way and other interests
therein (collectively, the "Real Property");
(d) all accounts receivable owed to Seller in connection
with the operation of the Systems and uncollected as of the Closing
Date (collectively, the "Accounts Receivable");
(e) all subscriber deposits (including converter
deposits), tenant deposits and other amounts collected by Seller for
services, materials or equipment to be supplied from and after and
prorated as of the Closing Date;
(f) all items of tangible personal property owned, used
or held for use by Seller primarily in connection with the operation of
the Systems, including, without limitation, all physical plant and
equipment, including electronic devices, distribution plant, head-end
equipment, reception sites and related equipment, vehicles and all
inventories of materials, supplies, traps, test equipment, spare parts,
converters, tools, and similar items (collectively, the "Equipment");
and
(g) all files, books, records and subscriber lists, and
similar documents owned, used or held for use by Seller primarily in
connection with the Systems that are maintained by Seller and all other
licenses, permits and operating documents that are owned, used or held
for use by Seller primarily in connection with the Systems wherever
located.
1.2 Excluded Assets. Notwithstanding anything to the contrary in
this Agreement, the following assets (collectively, the "Excluded Assets") are
expressly excluded from this sale, are not to be purchased or assumed by
Purchaser, and do not constitute part of the "Assets":
(a) all cash, certificates of deposit, commercial paper,
treasury bills and notes and all other marketable securities;
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<PAGE> 8
(b) all assets, properties, rights, titles and privileges
of Seller not involved in, related to, owned, used or held for use
primarily in connection with the ownership, use or operation of the
Systems;
(c) any insurance policies and rights and claims
thereunder;
(d) all rights to tax refunds and refunds of fees of any
nature, in either case relating to the period prior to the Closing
Date;
(e) Seller's rights under this Agreement, and the
Purchase Price (as defined below) payable pursuant hereto;
(f) Seller's organizational documents, partnership and
financial records, including tax returns and all documents and records
not pertaining primarily to the Systems;
(g) the trade names "Charter Communications" and "Cencom
Cable" and related logos;
(h) Seller's contracts with providers of television
programming and all other agreements of Seller that do not pertain
primarily to the Systems;
(i) Seller's Accounts Receivable in excess of forty-five
(45) days past date invoiced; and
(j) Seller's agreement for management services currently
affecting the Systems.
2. CALCULATION AND PAYMENT OF PURCHASE PRICE
2.1 Purchase Price. The Purchase Price to be paid by Purchaser to
Seller for the Assets shall be:
(a) an amount equal to Twenty Million Eight Hundred
Thousand Dollars ($20,800,000) (the "Purchase Price"), subject to
adjustment as provided in this Section 2.1.
(b) an amount equal to (i) one hundred (100%) of the
Accounts Receivable which, as of the Closing Date, are not more than
thirty (30) days past date invoiced and (ii) fifty percent (50%) of the
Accounts Receivable which, as of the Closing Date, are more than thirty
(30) but not more than forty-five (45) days past date invoiced (the
"Accounts Receivable Payment"); and
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<PAGE> 9
(c) the assumption by Purchaser of certain obligations of
Seller as contemplated in this Section 2.
2.2 Payment of Purchase Price. The Purchase Price and the Accounts
Receivable Payment shall be payable by wire transfer of immediately available
funds as follows:
(a) Four Hundred Sixteen Thousand Dollars ($416,000) (the
"Deposit") to be deposited upon the execution of this Agreement in an
interest bearing account, with interest accruing for Purchaser's
benefit (subject to Section 2.3), to be held in escrow by Thompson
Coburn, St. Louis, Missouri (the "Deposit Escrow Agent"), and governed
by the terms of an escrow agreement in a form attached as Exhibit A
(the "Deposit Escrow Agreement") to be executed simultaneously with the
execution of this Agreement;
(b) Nineteen Million Three Hundred Forty-Four Thousand
Dollars ($19,344,000), as adjusted pursuant to the terms of this
Agreement (the "Closing Payment"), plus, the Accounts Receivable
Payment, to be paid to Seller on the Closing Date.
(c) One Million Forty Thousand Dollars ($1,040,000) (the
"Holdback"), to be deposited on the Closing Date in an interest bearing
account, to be held in escrow by an escrow agent to be mutually agreed
upon by the parties (the "Indemnity Escrow Agent") for a twelve (12)
month period following the Closing Date and governed by the terms of an
escrow agreement in a form attached as Exhibit B (the "Indemnity Escrow
Agreement").
2.3 Payment of Deposit. If the purchase and sale of the Assets is
not consummated as a result of a material breach by Purchaser of any of its
obligations under this Agreement and Seller is not then in material breach of
any of its obligations under this Agreement, Seller shall be entitled to the
Deposit (together with all interest accrued thereon) promptly after termination
of this Agreement. The payment of the Deposit to Seller shall be liquidated
damages for the default by Purchaser and shall be in full settlement of any
damages of any nature or kind that Seller may suffer or allege to have suffered
as a result of any such breach by Purchaser. The receipt by Seller of the
Deposit (together with all interest accrued thereon) shall be Seller's sole and
exclusive remedy in the event of any such breach by Purchaser. If the purchase
and sale of the Assets is not consummated for any reason other than as set forth
above, Purchaser shall be entitled to a refund of the Deposit, and promptly
after the termination of this Agreement, the Deposit (together with all interest
accrued thereon) shall be paid to Purchaser.
2.4 Payment of Purchase Price. At the Closing, Purchaser shall
deliver or cause to be delivered by wire transfer of immediately available
funds: (a) to Seller, the Deposit, the Closing Payment and the Accounts
Receivable Payment; and (b) to the Indemnity Escrow Agent, the Holdback, to be
held pursuant to the terms of the Indemnity Escrow Agreement, which funds shall
be paid in whole or in part in accordance with the terms of the Indemnity Escrow
Agreement to (i) Purchaser if it is determined that Purchaser is entitled to
indemnification
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<PAGE> 10
payments under Section 10 of this Agreement or (ii) to Seller to the extent it
is determined that Purchaser is not entitled to any such payments.
2.5 Assumption of Liabilities. As additional consideration for the
Assets, Purchaser shall, from and after the Closing Date, and pursuant to an
Assignment and Assumption Agreement in a form attached as Exhibit C (the
"Assumption Agreement"), assume only those obligations of Seller for which
Purchaser has received an adjustment pursuant to this Section 2 and those
obligations of Seller arising under or in connection with all agreements,
franchises, leases, easements and other Contracts disclosed by Seller relating
to the operations of the Systems following the Closing Date. In addition,
Purchaser shall assume (i) all obligations relating to the Assets entered into
by Seller in the ordinary course of business consistent with past practices as
reflected in the Seller Financial Statements between the date hereof and the
Closing Date (other than obligations, if any, relating to the Excluded Assets),
to the extent such obligations continue after the Closing and (ii) all
liabilities incurred in the ordinary course of business consistent with past
practices as reflected in the Seller Financial Statements relating to (A) all
customer advance payments and deposits, prepaid advertising revenues and other
prepaid revenues or income received or held by Seller for services to be
rendered or obligations to be performed in connection with the Systems
subsequent to the Closing Date and (B) the performance of the Contracts from and
after the Closing Date.
2.6 Excluded Liabilities. Anything herein to the contrary
notwithstanding, there is excluded from the obligations being assumed by
Purchaser pursuant to this Section, and Seller hereby agrees to retain and
discharge and, subject to Section 10 hereof, to indemnify and hold harmless
Purchaser from and against, any and all liabilities of Seller not expressly
assumed by Purchaser pursuant to the terms hereof, including, without
limitation, (i) all obligations of Seller relating to the Systems and arising
prior to 11:59 p.m. on the Closing Date or arising after the Closing Date and
not expressly assumed by Purchaser hereunder, (ii) obligations of Seller arising
either before or after the Closing Date with respect to matters unrelated to the
Systems, (iii) indebtedness for money borrowed and obligations to Seller's
partners, attorneys, accountants, brokers, and other affiliates and service
providers, and (iv) obligations of Seller for federal, state and local taxes,
except for those taxes for which an adjustment has been made in favor of
Purchaser pursuant to this Agreement, and except that Purchaser shall be
responsible for all sales, transfer, excise and similar taxes relating to the
purchase of the Assets.
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<PAGE> 11
2.7 Allocation of Consideration. The parties agree that the
consideration payable for the Assets, consisting of the Purchase Price and the
liabilities of Seller to be assumed by Purchaser hereunder, shall be allocated
among the Assets in accordance with Section 1060 of the Internal Revenue Code of
1986, as amended, and the regulations thereunder, as set forth in a Schedule to
be agreed upon by the parties at Closing. The parties agree to cooperate in the
preparation, execution and filing with the Internal Revenue Service ("IRS") of
all information to be filed by the parties under Section 1060 and such
regulations, to file Form 8594 (or any substitute therefor) when required by
applicable law, to adopt the allocation of the Purchase Price among the Assets
as set forth in such Schedule and to refrain from taking any position
inconsistent therewith upon examination by the IRS of any such tax return, or in
any refund claim, litigation or otherwise.
2.8 Adjustments.
(a) At least three (3) calendar days prior to the Closing
Date, Seller shall deliver to Purchaser a certificate (the "Accounts
Receivable Certificate") setting forth as of the Closing Date Seller's
good faith estimate of the Accounts Receivable Payment, together with
an accounts receivable aging schedule as of the date of the Accounts
Receivable Certificate.
(b) Subscriber revenues, prepaid expenses (other than
insurance premiums), personal and real property ad valorem taxes,
privilege franchise or license taxes, franchise and copyright fees,
utility charges, payments under the Contracts, fees for transferable
licenses, equipment maintenance charges, accrued vacation of Seller's
employees as of the Closing Date who became employees of Purchaser and
all similar revenue and expense items as determined in accordance with
Seller's accounting methods consistently applied will be prorated on an
accrual basis between Purchaser and Seller as of the Closing Date
("Prorations Adjustment"), so that, as between Purchaser and Seller,
Seller shall receive the benefit of all revenues and be responsible for
all expenses and liabilities allocable to the period prior to and
including the Closing Date and Purchaser shall receive the benefit of
all revenues and be responsible for all expenses and liabilities
allocable to the period after the Closing Date. At least three (3)
calendar days prior to the Closing, Seller shall deliver to Purchaser a
certificate as to Seller's reasonable best estimate of the itemized
Prorations Adjustment ("Prorations Certificate") and, if such estimate
will result in an adjustment in the Purchase Price, then the Closing
Payment paid by Purchaser at the Closing shall be preliminarily
adjusted as required by such estimate unless such estimate is objected
to in writing by Purchaser. Prior to the Closing, Seller shall provide
Purchaser or Purchaser's representative with copies of or reasonable
access to all Seller's books and records as Purchaser may reasonably
request for purposes of verifying any adjustment set forth in such
Certificate, but without limiting Seller's obligations hereunder to
certify the accuracy of all adjustment. Seller and Purchaser agree to
work together in good faith to resolve on or before the Closing Date
any disagreement with respect to any matter set forth in the Prorations
Certificate.
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(c) As soon as practicable, but in any event within sixty
(60) days after the Closing Date, Purchaser shall prepare and deliver
to Seller a certificate setting forth Purchaser's computations of the
Accounts Receivable Payment and the Prorations Adjustment. After such
certificate has been delivered to Seller, Seller shall have a period of
fifteen (15) days to review such computations and to present its good
faith objections, if any, to Purchaser. Purchaser shall grant Seller or
Seller's representatives reasonable access to Purchaser's books and
records as Seller may reasonably request for purposes of verifying such
computations. Such certificate shall be final and conclusive unless
objected to by Seller in writing within such fifteen (15) day period.
During the ten (10) days after Purchaser's receipt of any such written
objection from Seller, Seller and Purchaser shall attempt in good faith
to reach agreement upon the actual amount of these adjustments. A
payment shall be made by Seller or Purchaser in cash to the other party
in accordance with such agreement within five (5) business days after
any such agreement as to the proper amounts, taking into account any
preliminary adjustment for such items made at the Closing. If Seller
and Purchaser are unable to agree upon the amount of such adjustment
within such ten (10) day period, then the matter shall be submitted to
a mutually agreeable nationally recognized independent accounting firm
which has not represented Purchaser, Seller or their affiliates in the
past five years, and such accounting firm shall render a written
decision to Seller and Purchaser within thirty (30) calendar days after
it has been retained, which decision shall be final and whose fees
shall be paid one-half by Purchaser and one-half by Seller.
3. CLOSING
3.1 Closing Date. The closing of the transactions contemplated
hereunder (the "Closing") shall take place at the offices of Bank of America,
N.A., Dallas, Texas, at 9:00 a.m. on the last day of the month following the
date on which all necessary consents are obtained and conditions satisfied (the
"Closing Date"); provided, however, that if the last day of such month shall
occur within five (5) business days of the date on which such consents are
obtained and conditions satisfied, then the Closing Date shall be the last day
of the next succeeding month; and, provided, further, that in no event shall the
Closing Date be later than March 31, 1999. Purchaser shall be entitled to
possession of the Assets upon the Closing.
3.2 Deliveries by Seller. At the Closing, Seller shall deliver the
following:
(a) a bill of sale in the form attached as Exhibit D, and
all such other general instruments of transfer, assignment and
conveyance, general warranty deeds, certificates of title, assignments,
evidences of consent or waiver, and other instruments or documents in
form and substance reasonably satisfactory to Purchaser and its counsel
as shall be necessary to evidence or perfect the sale, assignment,
transfer and conveyance of the Assets to Purchaser and effectively vest
in the Purchaser all right, title and interest in and to the Assets
free and clear of any and all liens, encumbrances and other
restrictions (other than liens and encumbrances agreed upon by the
parties and set forth in Schedule 4.10, such liens and encumbrances
being "Permitted Encumbrances") in
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<PAGE> 13
accordance with the terms of this Agreement, together with possession
(or constructive possession, in the case of intangibles) thereof;
(b) an executed Assumption Agreement;
(c) a Certificate of Non-Foreign Status which meets the
requirements of Treasury Regulation 1.1445-2, duly executed and
acknowledged, certifying under penalties of perjury that Seller is not
a foreign person for United States income tax purposes;
(d) originals or true and complete copies of all books
and records, memoranda and data relating to the Systems, other than
Excluded Assets; provided that Seller may retain such duplicate copies
as Seller reasonably deems appropriate;
(e) a certificate of the general partner of Seller that
(i) all appropriate action authorizing the execution and delivery of
the Transaction Documents (as defined below) and the transactions
contemplated hereunder and thereunder have been taken and (ii) Seller
has satisfied the conditions of Section 7.3 with respect to
representations and warranties and the performance of covenants,
obligations and agreements.
(f) an opinion of Thompson Coburn, counsel to Seller, in
the form attached as Exhibit E;
(g) an opinion of Cole, Raywid & Braverman, LLP, special
FCC counsel to Seller, in the form attached as Exhibit F;
(h) a certificate of good standing with respect to each
of Seller and Seller's general partner certified to by the Secretary of
the State of Delaware, a Certificate of Existence with respect to each
of Seller and Seller's general partner certified to by the Secretary of
State of Texas, and a Certificate of Good Standing with respect to each
of Seller and Seller's general partner certified to by the Comptroller
of Public Accounts of Texas;
(i) copies of all consents from Governmental Authorities,
franchises, licenses, leases, Contracts and other documents which are
included in the Assets and not previously delivered to Purchaser; and
(j) such other documents, opinions, instruments and
certificates, in form and substance reasonably satisfactory to
Purchaser, as Purchaser may reasonably request.
3.3 Deliveries by Purchaser. At the Closing, Purchaser shall deliver
the following:
(a) the payments described in Section 2.4;
(b) an executed Assumption Agreement;
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<PAGE> 14
(c) a certificate of a properly authorized officer of
Purchaser that (i) all appropriate actions authorizing the execution
and delivery of the Transaction Documents (as defined below) and
transactions contemplated hereunder and thereunder have been taken and
(ii) Purchaser has satisfied the conditions of Section 8.3 with respect
to representations and warranties and the performance of covenants,
obligations and agreements;
(d) an opinion of Prager, Metzger & Kroemer PLLC, counsel
to Purchaser, in the form attached as Exhibit G;
(e) a Certificate of Existence with respect to Purchaser,
certified to by the Secretary of the State of Texas, and a Certificate
of Good Standing with respect to Purchaser, certified to by the
Comptroller of Public Accounts of Texas; and
(f) such other documents, opinions, instruments and
certificates, in form and substance reasonably satisfactory to Seller,
as Seller may reasonably request.
4. REPRESENTATIONS AND WARRANTIES BY SELLER
Seller hereby represents and warrants to Purchaser that:
4.1 Organization and Standing. Seller is a limited partnership
duly formed, validly existing and in good standing as a limited partnership
under the laws of the jurisdiction of its formation. Seller is duly qualified to
transact business in each jurisdiction where the failure to so qualify would
have a material adverse effect on Seller's ability to conduct its business or
operations or to consummate the transactions to be consummated by it under this
Agreement and Seller is in good standing in each jurisdiction in which it is so
qualified.
4.2 Power and Authority. Seller has all requisite power and
authority to execute, deliver and perform this Agreement and to take any action
which it may be required to take hereunder. Seller further represents and
warrants that it has all requisite power to perform its business as now
conducted and to own its properties and assets.
4.3 Authorization. The execution, delivery and performance of this
Agreement by Seller has been duly and validly authorized by all partnership
action required to be taken. This Agreement has been, and on the Closing Date
all other documents, agreements and instruments to be executed and delivered at
the Closing by Seller pursuant hereto (together with all such documents,
agreements and instruments to be executed and delivered by each other party
hereto, the "Transaction Documents") will have been, duly and validly executed
by properly authorized officers or other authorized representatives of the
General Partner of Seller. This Agreement constitutes, and on the Closing Date
all other Transaction Documents to which Seller is or will be a signatory will
constitute, the valid and binding obligations of Seller, enforceable against
Seller in accordance with their respective terms, except as such enforceability
may be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights in general
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<PAGE> 15
or by principles of equity (regardless of whether such enforceability is
contested in a proceeding in equity or at law). Except as set forth on Schedule
4.3, neither the execution of this Agreement or any of the Transaction
Documents, nor the consummation of the transactions contemplated herein or
therein, nor the performance by Seller of its obligations under the Transaction
Documents, will violate, conflict with, or result in the acceleration or
termination of, any partnership instrument of Seller, or any agreement, permit,
order, judgment, decree, law or regulation to which Seller is a party or by
which it is, or the Assets and the Systems are bound.
4.4 Financial Statements.
(a) Seller has delivered to Purchaser correct and
complete copies of statements of revenues, billing records and direct
operating expenses such as salaries, copyright fees and property taxes
for the Systems for the year ended December 31, 1997 and the nine (9)
month period ended September 30, 1998 (collectively, the "Seller
Financial Statements"). The Seller Financial Statements (i) have been
prepared in accordance with the books and records of Seller and (ii)
fairly present, in all material respects, the results of operations of
the Systems as of and for the respective periods ended on such dates
consistently applied in accordance with generally accepted accounting
principles.
(b) Since the latest date of the Seller Financial
Statements generally, or as set forth in Schedule 4.4, there has been
no material adverse change in the assets, liabilities, revenues or
earnings of the Systems or otherwise in the business or condition,
financial or otherwise, of the Systems, nor any change that would
adversely affect the ability of the Systems to carry on its business as
previously conducted in any material respect. To the best of Seller's
knowledge and without notice to the contrary, no fact or condition
exists or is contemplated or threatened that might cause a material
adverse change in the Assets or business of the Systems.
4.5 Legal Proceedings. Except as set forth on Schedule 4.5, and
except for any judgments, orders, actions, suits, proceedings or investigations
as may affect the cable television industry (national or regional) generally,
there is no judgment or order outstanding, or any claim, action, suit,
arbitration, proceeding, controversy or investigation by or before any
Governmental Authority or any arbitrator pending, or to the best of Seller's
knowledge, threatened, involving or affecting any of the Assets or the Systems,
which, if adversely determined, would have a material adverse effect on the
Assets or the Systems or would materially impair the ability of Seller to
perform its obligations under the Transaction Documents. Seller is not in
default or violation, and, to the best of Seller's knowledge, no event or
condition exists which, with notice or lapse of time or both, would become or
result in a default under or violation of any judgment or order of any court or
Governmental Authority.
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<PAGE> 16
4.6 No Undisclosed Liabilities. Except as disclosed in this
Agreement or on Schedule 4.6 or as incurred in the ordinary course of business
since the latest date of the Seller Financial Statements, Seller has no material
liability or obligation (direct or indirect, fixed contingent or otherwise)
arising out of or in any way related to the Assets or the operation of the
Systems which is not properly reflected or reserved in the Seller Financial
Statements.
4.7 Governmental Permits and Contracts. Schedule 4.7 contains a
complete list of all Governmental Permits, Contracts, must carry elections and
retransmission consents as of the date hereof that are required for the
operation of the Systems in the manner and to the full extent as presently
conducted, with the parties agreeing that the list of must carry elections and
retransmission consents will be revised and updated by Seller within thirty (30)
days of the date of this Agreement with such update to indicate whether such
agreements will be assigned and whether prior consent to assign is required.
Except as set forth on Schedule 4.7, Seller has not given or received notice of
termination, cancellation, dispute or default or taken or become aware of any
action by any Governmental Authority or party to any Contract inconsistent with
the continuance of any Governmental Permit or Contract. Except as set forth on
Schedule 4.7, each of the Contracts is in full force and effect and current as
to the performance thereof by Seller, and, to the best of Seller's knowledge, by
the other parties thereto and Seller is not in default or violation in any
material respect, and, to the best of Seller's knowledge, no event or condition
exists which, with notice or lapse of time or both, could become a result in a
material default under or a violation of any judgment order, or any court or
Governmental Authority. Except for Contracts shown as oral contracts on Schedule
4.7, true and correct copies of each Governmental Permit and Contract being
assigned have been furnished to Purchaser.
4.8 Real Property. Schedule 4.8 contains a complete list and
description of all Real Property owned, leased, occupied, or used by Seller
primarily in the operation of the Systems as of the date hereof, which list
indicates the use made of such Real Property by Seller in the operation of the
Systems. Except as set forth in Schedule 4.8, Seller has unencumbered title in
fee simple, except for Permitted Encumbrances, or holds the leasehold to all
Real Property. There are not pending or, to the best of Seller's knowledge,
threatened in writing or orally, any condemnation actions or special assessments
or any pending proceedings for changes in the zoning with respect to such Real
Property or any part thereof, and Seller has not received any notice, written or
oral, of the desire or intent of any Governmental Authority or other entity to
take or use any Real Property or any part thereof. All structures on the Real
Property are structurally sound and in good operating condition and repair
(reasonable wear and tear excepted) and all Real Property and such structures
conform, including usage by Seller, in all material respects with all applicable
contractual requirements and zoning and other legal requirements pertaining to
or affecting such Real Property. All leases and subleases pursuant to which any
of the Real Property is occupied or used are set forth on Schedule 4.8, and such
leases and subleases are valid, binding and enforceable in accordance with their
respective terms, and there are no existing material defaults thereunder by
Seller or, to the best of Seller's knowledge, any other person or events that
with notice or lapse of time, or both, would constitute defaults thereunder by
Seller or, to the best of Seller's knowledge, any other person. Seller has
delivered to Purchaser a true and correct copy of each lease and sublease listed
on Schedule 4.8. All easements, rights-of-way and other rights which are
necessary in any material respect for Seller's
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current use of any Real Property are listed on Schedule 4.8 and are valid and in
full force and effect, and Seller has not received any notice with respect to
the termination or breach of any of these rights.
4.9 Equipment. Schedule 4.9 contains a list of all material
Equipment used or held for use by Seller primarily in the operation of the
Systems as of the date hereof. The Equipment is in good operating condition and
repair (reasonable wear and tear excepted), and usable and adequate for the
operations of the Systems in the manner as presently conducted. All leases
(including capital leases) pursuant to which any Equipment is used are set forth
on Schedule4.9. Copies of such leases have been delivered to Purchaser and,
assuming that consents to the transfer of such leases to Purchaser are obtained
from the respective lessors, such leases are fully assignable to Purchaser
without such assignment causing any change in the terms (including compensation)
of such leases.
4.10 Title.
(a) Seller has good and marketable title to the Assets
and at the Closing will sell, transfer and assign the Assets to
Purchaser, free and clear of any liens, security interests, pledges or
encumbrances or other adverse claims, other than Permitted Encumbrances
or as otherwise set forth on Schedule 4.10(a). Except as listed on
Schedule4.10(a), Seller has not signed any Uniform Commercial Code
financing statement (other than filings made only for informational
purposes and not relating to any security interest) or any security
agreement or mortgage or similar agreement authorizing any person to
file any financing statement or claim any security interest, pledge, or
encumbrance with respect to any of the Assets. Seller owns or leases
all tangible physical properties which are necessary to permit the
operation of the Systems by the Purchaser as currently operated and all
such properties are included within the Assets.
(b) (i) Seller has no properties or assets used or held
for use primarily in connection with the Systems which are not included
in the Assets, other than the Excluded Assets and (ii) the properties
and assets to be transferred to Purchaser at the Closing include all
Equipment, Contracts, Governmental Permits, Real Property and other
property and assets necessary for the operation of the Systems in all
material respects in the ordinary course of business as conducted prior
to the Closing Date. Schedule 4.10(b) identifies the ownership
interests and leasehold interests of Seller with respect to the Assets.
4.11 Tax Matters. Seller has as of the date hereof timely filed in
proper form all tax returns or reports with respect to the Assets or the Systems
that are required to be filed. All such tax returns or reports were prepared in
good faith and are accurate and complete in all material respects, and Seller
has no knowledge of any basis for assessment of any addition to any taxes shown
thereon. All taxes, charges, fees or other assessments due or payable by Seller
with respect to the Assets or the Systems have been paid, except to the extent
any such taxes, charges, fees or other assessments (as set forth as of the date
hereof on Schedule4.11) are being contested in good faith by appropriate
proceedings by Seller and for which adequate reserves for any
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disputed amounts shall have been established in accordance with GAAP. Except as
set forth on Schedule4.11, as of the date hereof, there are no pending or, to
the best of Seller's knowledge, threatened actions, audits, examinations,
proceedings or investigations by any relevant taxing authority with respect to
the Assets or the Systems. As of the date hereof, (i) there is no outstanding
request for an extension of time within which to pay any taxes with respect to
the Assets or the Systems, (ii) there has been no waiver or extension of any
applicable statute of limitations for the assessment or collection of any taxes
with respect to the Assets or the Systems, and (iii) Seller has withheld and
paid in a timely manner to all relevant taxing authorities all payments for
withholding taxes, unemployment insurance and other amounts required to be
withheld and paid. All taxes of or with respect to Seller and all taxes with
respect to the Assets and the Systems relating to the period prior to the
Closing Date shall be the responsibility of Seller, other than those that have
been assumed by Purchaser at the Closing and for which as adjustment to the
purchase price has been made and other than any sales, transfer, excise and
similar taxes relating to the purchase of the Assets, which taxes are the
responsibility of Purchaser.
4.12 Compliance; FCC and Copyright Matters.
(a) Subject to Section 4.12(b) Seller and the Systems
have complied, and are in compliance, in all material respects with the
Governmental Permits and all statutes, ordinances, codes, laws, rules,
regulations, orders or other requirements, standards or procedures
enacted, adopted or applied by any Governmental Authority including,
but not limited to, the National Electric Code and the National
Electric Safety Code.
(b) Seller has duly and timely filed all cable television
registrations and filings with respect to the Systems which are
required to be filed under The Communications Act of 1934, as amended
(which shall be deemed to include, but not limited to, the Cable
Communications Policy Act of 1984, the Cable Television Consumer
Protection and Competition Act of 1992 and the Telecommunications Act
of 1996), and the rules and regulations thereunder and as from time to
time in effect (collectively, the "Communications Act"), and at Closing
will be in compliance in all material respects with the Communications
Act. Seller has recorded or deposited with and paid or accrued for
payment to the United States Copyright Tribunal the royalty fees, and
has filed and recorded all notices (including those necessary to
qualify for the compulsory licenses for FM and TV stations), statements
of account, and other documents and instruments required under the
Copyright Act of 1976 with respect to the Systems. Seller has obtained
and is in material compliance with the authorizations required for the
operation of the Systems by the FCC, the Federal Aviation
Administration (the "FAA"), the Register of Copyrights and any other
Governmental Authority. The Systems monitors signal leakage, maintains
applicable signal leakage logs, conducts cumulative leakage tests,
demonstrates compliance with the cumulative leakage criteria, and at
Closing will be in material compliance with the frequency separation
standards, in compliance with the requirements set forth in 47 C.F.R.
76.610 through 76.619. Seller has filed with the FCC with respect to
the Systems all notifications of utilization of frequencies in the
108-137 Mhz and 225-400 Mhz bands and all other reports required to be
filed under such
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rules and regulations and has not received any notification of
objection thereto by the FCC which has not been promptly resolved by
Seller with no material adverse impact on the Systems. Seller is duly
authorized under FCC and FAA rules, regulations and orders to
distribute to subscribers of the Systems all the signals currently
being carried and is licensed to operate any business radio and cable
access relay service system being operated by the Systems, and the
operation by Seller of any facility licensed by the FCC or FAA used in
conjunction with the operation of the Systems is in material compliance
with the rules and regulations of the FCC and the FAA. Except as set
forth on Schedule 4.12, as of the date hereof, there is no application,
complaint or proceeding pending or, to the best of Seller's knowledge,
threatened before the FCC, FAA, the U.S. Copyright Office or any
Governmental Authority relating to the operation of the Systems. All
such proceedings relating to the period prior to the Closing Date shall
be the responsibility of Seller. Seller has complied in all material
respects with all requirements of the FCC with respect to the Systems
concerning, notifications to the FAA with respect to the construction
and/or alteration of its antenna structures and "no hazard"
determinations for each antenna structure have been obtained, where
required.
(c) At Closing, except as set forth on Schedule 4.12, the
operation of the Systems and all facilities used in conjunction with
the operation of the Systems will be in compliance in all material
respects with (i) the Communications Act, (ii) all customer service,
technical and engineering standards required to be met under the
Governmental Permits and applicable FCC rules and regulations, and
(iii) all other applicable rules, regulations, requirements and
policies of the FCC, including, but not limited to, Part 76 and Part 78
of the rules and regulations of the FCC and there are no existing
claims known to Seller to the contrary.
(d) Seller is in compliance in all material respects with
the Communications Act relating to the carriage of television signals
and customer service in those areas where Seller has received notice
pursuant to 47 C.F.R. 76.309 (a).
4.13 Consents. Except as set forth on Schedule 5.4, no consent,
authorization, approval, waiver, order, license, certificate or permit of or
from, or declaration or filing with any Governmental Authority, court or other
tribunal or any other person is required for Seller's execution or delivery of
this Agreement or any other Transaction Document, or the performance by Seller
in accordance with the terms hereof or thereof, or necessary to preclude any
cancellation, suspension, termination or reformation of any Governmental Permit
or Contract, other than filings and consents which, if not made or obtained,
would not have a material adverse effect on the Systems, or Purchaser's ability
to operate the Systems in the same manner in which it is currently being
conducted by Seller.
4.14 Systems Data. Schedule 4.14 sets forth for the Systems as of
September 30, 1998, the approximate number of plant miles (which approximation
is not less than 95% of the actual number of plant miles) and the approximate
number of homes passed (which approximation is not more than 105% of the actual
number of homes passed), the Systems' total revenue for the three (3) period
ended September 30, 1998, the number of Basic Subscribers (as defined below)
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number of tier subscribers, number of pay units, current rates for the lowest
level of basic or standard cable service offered by the Systems ("Basic
Service"), the level of cable service containing the majority of the Systems'
satellite programming or the CPS tier (as defined by the FCC), premium services,
the date and amount of the last rate change for each of these services and the
channel capacity of the Systems. For the purpose of this Agreement, "Basic
Subscriber" means the sum of (i) the aggregate number of persons (excluding
"second connections," as such term is commonly understood in the cable
television industry, any account duplication, any account which has a disconnect
request pending at, or which has had service terminated as of, the Closing Date,
any account obtained by offers made, promotions conducted or discounts given
outside the ordinary course of business and any account coming within the
definition of "Basic Subscriber" which has been compromised or written off other
than in the ordinary course of business consistent with past practice) who:
subscribe to Basic Service; have paid the applicable, full non-discounted rated
for at least one month's service (including deposit and installation charges
consistent with past practices); and have no outstanding balance more than
forty-five (45) days past due from the date invoiced, plus (ii) the aggregate
number of bulk rate equivalent subscribers of the Systems. With respect to the
Systems, the number of bulk rate equivalent subscribers shall equal the quotient
of (x) the aggregate monthly bulk rate revenues from the provision of Basic
Service for the Systems for the month proceeding Closing, divided by (y) the
standard rate for Basic Service and CPS tier service for the Systems; provided,
that the number of bulk rate equivalent subscribers shall not include any
subscriber (A) who has given notice on or before the Closing Date of its
intention to terminate service completely or who has had its service terminated
on or before the Closing Date or (B) who is explicitly excluded from the
definition of "Basic Subscriber" above.
4.15 Environmental Compliance.
(a) To the best of Seller's knowledge, except as set
forth on Schedule 4.15, no asbestos-containing materials, equipment
containing PCBs, underground storage tanks, or reportable quantities of
hazardous substances, wastes or other pollutants or contaminants [as
such terms are defined under applicable federal and state environmental
laws, including the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 and the rules and regulations thereunder, as
amended, 42 U.S.C. ss.9601(14)] are or have been located, released,
disposed of, installed, used or exposed on or in connection with any of
the Assets, including the Real Property ("Environmental Matters"),
except for such substances which are in such amounts of the type
typically found in commercial cleaning products or standard office
supplies of businesses similar to the operation of the Systems. Seller
has not disposed of or requested any person to dispose of any
asbestos-containing materials, equipment containing PCBs, underground
storage tanks, hazardous substances, wastes, pollutants or contaminants
at any site, except at a site duly licensed for the receipt and
disposal of such materials and except in compliance with all applicable
law.
(b) Except as set forth in Schedule 4.15, Seller has no
knowledge or information of the existence of any Environmental Matters
affecting any other property which would adversely affect any Real
Property.
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4.16 Employment Matters.
(a) Except as set forth on Schedule4.16(a), neither
Seller nor any affiliate of Seller maintains or sponsors, nor are they
required to make any contribution to, any pension, profit-sharing,
thrift or other retirement plan, medical, hospitalization, vision,
dental, life, disability or other insurance or benefit plan, deferred
compensation, bonus, fringe benefit, savings or other incentive plan,
severance plan or other similar plan, agreement, arrangement or
understanding with respect to any employee in connection with the
Systems, and none of such plans is or is intended to be subject to the
provisions of ERISA or qualified under Section 401(a) of the Code,
including, without limitation, an "employee welfare plan" within the
meaning of Section 3(1) of ERISA, an "employee benefit plan" within the
meaning of Section 3(3) of ERISA, a "defined benefit plan" within the
meaning of Section 3(35) of ERISA or any "multi-employer plan" within
the meaning of Section 3(37) of ERISA, with respect to the operation of
the Systems. Seller has not breached any of the fiduciary
responsibility provisions of Title I of ERISA nor engaged in a
transaction prohibited under Section 406 of ERISA or Section 4975 of
the Code which could result in material liability to Seller and for
which no exemption from the provisions thereof is available or was
obtained. Other than benefit claims and/or any contribution and
administration expenses arising under Seller's benefit plans in the
normal course, Seller has not incurred, and, to the best of Seller's
knowledge, no event has occurred which could cause Seller to incur, any
material liability under ERISA or the Code to any person, including the
Pension Benefit Guaranty Corporation, with respect to any employee
benefit plan maintained, or to which contributions are or were required
to be made, by any trade or business which is under common control with
Seller. Other than usual claims for benefits arising under Seller's
benefit plans in the normal course or as noted in Schedule 4.16(a),
there are no, and the transactions contemplated by this Agreement will
not give rise to, any claims, suits or proceedings which might cause
Seller to incur any material liability to any employee under any of its
benefit plans, including any liability for severance payments to any
employee or former employee of Seller. Purchaser shall have no
liability or obligation with respect to any of Seller's benefit plans,
or termination thereof, as to any employee who, after the Closing,
becomes an employee of Purchaser, and all such liabilities or
obligations relating to the period prior to the Closing Date shall be
the responsibility of Seller. Except as noted in Schedule 4.16(a), and
except as required by the provisions of Section 601 et seq. of ERISA,
Seller has not made any commitments to provide any health or welfare
benefits to any employee or former employee of the Systems after such
employee resigns or retires from employment with Seller. The Closing
will not result in any multi-employer plan liability which could be
assessed against Purchaser.
(b) Except as disclosed on Schedule 4.16(b), (i) Seller
is not a party to any contract with any labor organization, nor has it
agreed to recognize any union or other collective bargaining unit nor
has any union or other collective bargaining unit been certified as
representing any of its employees with respect to the operation of the
Systems, (ii) there is no representation or organizing effort pending
or to the best of
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Seller's knowledge threatened against, affecting or involving Seller or
the operation of the Systems, and (iii) Seller has experienced no
strikes, work stoppages, picketing, grievance proceedings,
arbitrations, lockouts, slowdowns, any other labor disputes, claims of
unfair labor practices filed or, to the best of Seller's knowledge
threatened to be filed, with respect to the operation of the Systems.
Neither Seller nor any agent, representative or employee of Seller has
committed any unfair labor practice as defined in the National Labor
Relations Act of 1974, as amended, and there is not now pending or, to
the best of Seller's knowledge, threatened, any charge or complaint
against Seller by the National Labor Relations Board or any
representative thereof. Purchaser shall have no liability or obligation
with respect to any unfair labor practices, charges and complaints
relating to Seller which occurred or arose prior to the Closing Date.
Schedule 4.16(b) sets forth each employment agreement to which Seller
is a party.
4.17 Insurance. Seller has in force policies of insurance with
respect to the Assets and the Systems, and all bonds required to be obtained by
Seller with respect to the Systems. All such bonds are set forth on
Schedule4.17. Such policies and bonds are in full force and effect.
4.18 Year 2000. Notwithstanding anything to the contrary contained
in this Agreement, Seller makes no representation or warranty of any kind with
respect to whether the Systems, the Assets or any part thereof, are Year 2000
Compliant. For purposes of this Section 4.18, an item is "Year 2000 Compliant"
if such item is designed to be used prior to, during and after the Gregorian
calendar year 2000 A.D. and will operate during each such time period without
error relating to date data, specifically including any error relating to, or
the product of, date data which represents or references different centuries or
more than one century.
5. REPRESENTATIONS AND WARRANTIES BY PURCHASER
Purchaser hereby represents and warrants to Seller that:
5.1 Organization and Standing. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation. Purchaser is duly qualified to transact business
in each jurisdiction where the failure to so qualify would have a material
adverse affect on Purchaser's ability to conduct its business or operations or
to consummate the transactions to be consummated by it under this Agreement and
Purchaser is in good standing in each jurisdiction in which it is so qualified.
5.2 Power and Authority. Purchaser has all requisite power and
authority to execute, deliver and perform this Agreement and to take any action
which it may be required to take hereunder.
5.3 Authorization. The execution, delivery and performance of this
Agreement by Purchaser has been duly and validly authorized by all corporate
action required to be taken. This Agreement has been, and on the Closing Date
all other of the Transaction Documents to which Purchaser is or will be a
signatory will have been, duly and validly executed by properly authorized
officers or other authorized representatives of Purchaser. This Agreement
constitutes,
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and on the Closing Date all other Transaction Documents to which Purchaser is or
will be a signatory will constitute, the valid and binding obligation of
Purchaser, enforceable against Purchaser in accordance with their respective
terms, except as such enforceability may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights in general or by
principles of equity (regardless of whether such enforceability is contested in
a proceeding in equity or at law). Neither the execution of this Agreement or
any of the Transaction Documents, nor the consummation of the transactions
contemplated herein or therein, will violate, conflict with, or result in the
acceleration or termination of, any corporate instrument of Purchaser, or any
agreement, permit, order, judgment, decree, law or regulation to which Purchaser
is a party or by which it is, or its assets and properties are bound, except
such violations, conflicts, accelerations or terminations which would not,
individually or in the aggregate, have a material adverse effect on Purchaser's
ability to perform its obligations under this Agreement or the Transaction
Documents.
5.4 Consents. Except as set forth on Schedule 5.4, no consent,
authorization, approval, waiver, order, license, certificate or permit of or
from, or declaration or filing with any Governmental Authority, court or other
tribunal or any other person is required for Purchaser's execution or delivery
of this Agreement or any other Transaction Document, or the performance by
Purchaser in accordance with the terms hereof or thereof.
5.5 Legal Proceedings. Except as set forth in Schedule 5.5, and
except for any judgment, order, actions, suits, proceedings or investigations as
may affect the cable television industry (national or regional) generally, there
is no judgment or order outstanding, or any claim, action, suit, arbitration,
proceeding, controversy or investigation by or before any Governmental Authority
or any arbitrator pending, or to the best of Purchaser's knowledge, threatened,
which, if adversely determined, would materially impair the ability of Purchaser
to perform its obligations under the Transaction Documents.
6. ADDITIONAL UNDERTAKINGS AND ACTIONS
6.1 Consents. As soon as possible after the execution of this
Agreement, Seller and Purchaser will commence making the applications and
filings required to obtain all approvals or consents required to be obtained to
effect the consummation of the transactions contemplated hereby (the
"Consents"). Seller will use its best efforts to obtain the Consents from the
appropriate Governmental Authorities and other persons at the earliest possible
date; provided, however, that Purchaser will use its best efforts to obtain
Consents with respect to the transfer of all franchises and FCC licenses.
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6.2 Access to Assets. On and after the date of this Agreement,
Purchaser and its counsel, accountants and other representatives shall have
reasonable access, during normal business hours and upon reasonable notice, to
all properties, books, accounts, contracts, commitments, and records, documents
or other data or information of Seller relating to the Systems. Seller shall
furnish to Purchaser such financial data, operating data, contracts and
documents relating to the Systems to which Seller is a party and other
information pertaining to the Systems as Purchaser reasonably requests.
6.3 Operations Prior to Closing. Except as otherwise expressly
contemplated by this Agreement, at all times from and after the date hereof and
up to and including the Closing Date, Seller shall:
(a) use its reasonable best efforts to conduct its
business relating to the Systems in accordance with past practices;
(b) use its reasonable best efforts to preserve and
protect the Assets;
(c) conduct its business in material compliance with all
applicable laws and regulations;
(d) not enter into any agreement or transaction extending
beyond the Closing Date in excess of $25,000 other than the renewal of
existing agreements in the ordinary course of business, without the
prior written consent of Purchaser;
(e) not dispose of any of the Assets in excess of $10,000
without the prior written consent of Purchaser, except such as are
retired in the ordinary course of business;
(f) not pay any bonuses or make any salary or wage
increases other than the ordinary course of business in accordance with
past practices; and
(g) pursue all regulatory matters in a timely fashion
providing copies of all correspondence received and sent to Seller with
respect thereto and promptly notifying the Purchaser of any material
regulatory developments.
6.4 Antitrust Laws Compliance. As soon as practicable after the
date of execution of this Agreement, Seller and Purchaser shall each make
filings if and as required under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and related acts and regulations (the "HSR Act"). Each
party shall keep the other party apprised of the status of any inquiries made of
such party by the Federal Trade Commission, the Antitrust Division of the United
States Department of Justice, or any other Governmental Authority with respect
to this Agreement or the transactions contemplated hereby and shall comply
promptly with all requests for further documents and information. Each party
shall use reasonable efforts to obtain the earliest termination or waiver of the
HSR Act waiting period possible.
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6.5 Confidentiality. Purchaser shall hold, and shall cause its
representatives to hold, all such information and documents and all other
information and documents delivered pursuant to this Agreement confidential and,
if the purchase and sale contemplated by this Agreement is not consummated for
any reason other than a default by Seller, upon Seller's request shall return to
Seller or destroy within ten (10) days, all such information and documents and
any copies as soon as practicable, and, in any event, shall not disclose any
such information (that has not previously been disclosed by a party other than
Purchaser or become public knowledge) to any third party unless required to do
so pursuant to a court order, subpoena or other legal process. Purchaser's
obligations under this Section shall survive the termination of this Agreement.
6.6 Employees. Purchaser shall not be obligated to hire any
employees of Seller. Purchaser shall notify Seller at least forty-five (45) days
prior to the Closing Date of those of Seller's employees with respect to the
Systems which Purchaser intends to offer employment; provided, however, that
such notification shall not be deemed to alter the employment at will nature of
the relationship between Purchaser and such individuals.
6.7 Transfer Taxes. All sales, transfer, excise and other taxes,
if any, payable by reason of the transactions contemplated hereunder shall be
paid by Purchaser.
6.8 Rebuild Capital Expenditures. During the period beginning on
September 1, 1998 and ending on the Closing Date, Seller shall make capital
expenditures (labor and materials cost) in the Systems toward rebuilding the
Systems, which expenditures shall be not less than $125,000. Seller agrees to
provide at Closing documentation regarding such expenditures.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser under this Agreement are subject to the
satisfaction at or prior to the Closing of each of the following conditions, any
one or more of which may be waived by Purchaser, in its sole discretion;
provided, however, that no such waiver of a condition shall constitute a waiver
by Purchaser of any of its other rights or remedies, at law or in equity, if
Seller shall be in default of any of its obligations under this Agreement.
7.1 HSR Act. All filings required under the HSR Act, if any, shall
have been made and the applicable waiting period shall have expired or been
earlier terminated without the receipt of any objection or the commencement or
threat of any litigation by a Governmental Authority of competent jurisdiction
to restrain or prevent the consummation of the transactions contemplated by this
Agreement.
7.2 Governmental or Legal Action. No action, suit or proceeding
shall be pending or threatened by any Governmental Authority or other person and
no law, rule or regulation or similar requirement shall have been enacted,
promulgated or issued or deemed applicable to any of the transactions
contemplated by this Agreement by any Governmental Authority or other person
that would (a) prohibit Purchaser's ownership or operation of all or a material
portion of the Systems or the Assets, (b) enjoin, prevent or make illegal the
consummation of the transactions contemplated by this Agreement or (c)
challenge, set aside or modify any
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authorization of the transactions provided for herein or any approvals,
consents, waivers or authorizations made or described hereunder.
7.3 Representations; Performance of Agreements. Seller shall have
delivered to Purchaser at Closing a certificate to the effect that (i) the
representations and warranties of Seller set forth in Section 4 hereof shall be
true in all material respects as of and at the Closing Date with the same effect
as though such representations and warranties had been made again at and as of
such time and (ii) Seller shall have performed, satisfied and complied in all
material respects with all covenants, obligations, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by Seller
at or prior to the Closing Date.
7.4 Consents and Approvals. Seller shall have delivered to
Purchaser evidence that all of the Consents have been obtained or given and all
such Consents shall be in the forms attached as Exhibits H and I.
7.5 Franchise Extension. Seller shall have obtained an extension
of the Franchise term granted by the community of Sealy, Texas, for a period of
not less than five (5) years from the Closing Date; provided, however, that
Seller shall use its reasonable best efforts to obtain such extension for a
period of ten (10) years from the Closing Date; and, provided further, that
nothing herein shall require Purchaser, as a condition to obtaining such
extension, to agree to make any payment that may not be passed through to the
subscribers of the Systems.
7.6 Transfer Documents. Seller shall have delivered to Purchaser
customary bills of sale, general warranty deeds, assignments and other
instruments of transfer sufficient to convey good and marketable title to the
Assets in accordance with the terms of this Agreement, including the documents
and instruments described under Section 3.2(a).
7.7 Ancillary Documents. Seller shall have executed and delivered
to Purchaser the Assumption Agreement and shall have delivered franchise
transfer documents in the form attached as Exhibit H.
7.8 Opinions of Seller's Counsel. Purchaser shall have received
the opinions of counsel for Seller in the forms attached as Exhibits E and F.
7.9 Discharge of Liens. Seller shall have secured the termination,
discharge and release of all encumbrances of any nature on the Assets, other
than Permitted Encumbrances.
7.10 No Default Under Documents. As of the Closing Date, Seller
shall not be in violation or default in any material respect under any statute,
rule, regulation, agreement, or other document to which Seller is a party or by
which Seller is bound in a manner which would materially adversely affect the
ownership, use or operation of the Systems, nor shall Seller have knowledge of
any condition or event which, with notice or lapse of time or both, would
constitute such a violation or default.
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7.11 Additional Documents and Acts. Seller shall have delivered or
caused to be delivered to Purchaser all such additional documents, instruments
and certificates, in form and content reasonably satisfactory to Purchaser and
its counsel, as Purchaser shall reasonably request, and shall have done all
other acts or things reasonably requested by Purchaser to evidence compliance
with the conditions set forth in this Section 7.
7.12 Closing of Related Transaction. The Asset Purchase Agreement
dated of even date herewith between Cencom Partners, L.P. and Purchaser shall
have closed before or simultaneously with the Closing hereunder.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of Seller under the Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions,
any one or more of which may be waived by Seller in its sole discretion;
provided, however, that no such waiver of a condition shall constitute a waiver
by Seller of any of its rights or remedies, at law or in equity, if Purchaser
shall be in default of any of their respective obligations under this Agreement.
8.1 HSR Act. All filings required under the HSR Act, if any, shall
have been made and the applicable waiting period shall have expired or been
earlier terminated without the receipt of any objection or the commencement or
threat of any litigation by a Governmental Authority of competent jurisdiction
to restrain or prevent the consummation of the transactions contemplated by this
Agreement.
8.2 Governmental or Legal Actions. No action, suit or proceeding
shall be pending or threatened by any Governmental Authority or other person and
no law, rule, regulation or other similar requirement shall have been enacted,
promulgated or issued or deemed applicable to any of the transactions
contemplated by this Agreement by any Governmental Authority or other person
that would (a) prohibit Purchaser's ownership or operation of all or any
material portion of the Systems or the Assets, (b) enjoin, prevent or make
illegal the consummation of the transactions contemplated by this Agreement, or
(c) challenge, set aside or modify any authorization of the transactions
provided for herein or any approvals, consents, waivers or authorizations made
or described hereunder.
8.3 Representations; Performance of Agreements. The
representations and warranties of Purchaser set forth in Section 5 hereof shall
be true in all material respects as of and at the Closing Date with the same
effect as though such representations and warranties had been made again at and
as of such time. Purchaser shall have performed, satisfied and complied in all
material respects with all covenants, obligations, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by
Purchaser at or prior to the Closing Date.
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8.4 Consent and Approvals. Purchaser shall have delivered to
Seller evidence that all consents and authorizations required to be obtained by
Purchaser shall have been obtained or given and such consents and authorizations
shall be in the forms attached as Exhibits H and I.
8.5 Payments. Purchaser shall have paid the Purchase Price as set
forth in Section 2.
8.6 Ancillary Documents. Purchaser shall have executed and
delivered to Seller the Assumption Agreement.
8.7 Opinion of Purchaser's Counsel. Seller shall have received the
opinion of counsel for Purchaser in the form attached as Exhibit G.
8.8 Additional Documents and Acts. Purchaser shall have delivered
or caused to be delivered to Seller all such additional documents, instruments
and certificates, in form and content reasonably satisfactory to Seller and its
counsel, as Seller shall reasonably request, and shall have done all other acts
or things reasonably requested by Seller to evidence compliance with the
conditions set forth in this Section 8.
8.9 Closing of Related Transaction. The Asset Purchase Agreement
dated of even date herewith between Cencom Partners, L.P. and Purchaser shall
have closed before or simultaneously with the Closing hereunder.
9. REMEDIES
9.1 Costs. If any legal action or other proceeding is brought for
the enforcement of this Agreement or any other instrument or document to be
executed, delivered or performed hereunder, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
this Agreement or any other instrument or document to be executed, delivered or
performed hereunder, the successful or prevailing party shall be entitled to
recover reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
9.2 Termination Without Liability. On the Closing Date, either
party may terminate this Agreement, without liability to the other, if any
conditions precedent to such party's performance shall not have been satisfied
on the Closing Date, unless the satisfaction of any one or more of the
conditions precedent to such party's performance was made impossible by the
action or failure to act of such party.
9.3 Termination on Default. Without limiting the provisions of
Sections 9.1, 9.2 and 10 hereof, if either party shall default in the due and
timely performance of any of the covenants or agreements under the Agreement,
the other party may, in addition to any other remedy available thereto, on the
Closing Date give notice of termination ("Termination Notice") of this
Agreement. The Termination Notice shall specify with particularity the default
or defaults on which it is based and state that this Agreement is terminated.
The Termination Notice shall be
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effective when given. The rights and remedies granted in this Section 9.3 are
cumulative and not exclusive of any other right or remedy granted herein or
provided by law or in equity.
10. INDEMNIFICATION
10.1 Seller's Indemnity. Seller shall indemnify and hold harmless
Purchaser and its officers, employees, controlling persons and representatives,
against and in respect of any and all claims, damages, losses, costs, expenses
(including reasonable legal, accounting and experts' fees and other fees and
expenses incurred in the investigation or defense of any of the following, and
any interest and penalties), obligations and liabilities which any such person
may incur or suffer, as a result of, (a) any misrepresentations by Seller or
breach by Seller of any warranties, covenants or other agreements contained in
this Agreement, (b) the failure of Seller to perform any of its obligations
under this Agreement, or (c) any liabilities arising in connection with the
operation of the Systems prior to the Closing Date, other than the liabilities
assumed under the Assumption Agreement; provided, however, that Seller shall not
be liable for any indemnification obligation under this Agreement, unless the
aggregate amount of the losses incurred with respect to such indemnification
obligation exceeds the sum of $52,000, in which event Purchaser shall be
entitled to receive indemnification for damages in excess of the $52,000
threshold.
10.2 Purchaser's Indemnity. Purchaser shall indemnify and hold
harmless Seller and its partners, officers, employees, controlling persons and
representatives against and in respect of any and all claims, damages, losses,
costs, expenses (including reasonable legal, accounting and experts' fees and
other fees and expenses incurred in the investigation or defense of any of the
following, and any interest and penalties), obligations and liabilities which
any such person may incur or suffer as a result of, (a) any misrepresentations
by Purchaser or breach by Purchaser of any warranties, covenants or other
agreements contained in this Agreement, (b) the failure of Purchaser to perform
any of its obligations under this Agreement, or (c) any liabilities assumed by
Purchaser under the Assumption Agreement or arising in connection with the
operation of the Systems following the Closing Date.
10.3 Procedure. In the event that any claim shall be asserted
against a party entitled to indemnification hereunder (the "Indemnitee"), the
Indemnitee shall promptly notify the other party (the "Indemnitor") of such
claim in writing, and shall extend to the Indemnitor an opportunity to defend
against such claim at the Indemnitor's sole expense. Within fifteen (15) days of
receiving any such notice from the Indemnitee, the Indemnitor shall notify the
Indemnitee as to whether or not the Indemnitor elects to assume the defense of
any such claim. In the event the Indemnitor does not so elect to assume such
defense, any costs incurred by the Indemnitee in defending such claim shall be
reimbursed to the Indemnitee, on an as-incurred basis, pursuant to this Section
10. In the event the Indemnitor elects to assume such defense, the Indemnitee
shall, at its option and expense, have the right to participate in any defense
undertaken by the Indemnitor with legal counsel of its own selection, provided
that such legal counsel is reasonably acceptable to Indemnitor. No settlement or
compromise of any claim that may result in indemnification liability may be made
by the Indemnitor without the prior written consent of the Indemnitee, which
consent shall not be unreasonably withheld or delayed.
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10.4 Limitation on Liability. Notwithstanding anything to the
contrary in this Agreement, the aggregate liability of Seller to Indemnitees for
indemnification or otherwise under this Agreement shall not exceed $4,160,000.
10.5 Survival. All representations and warranties in this Agreement
shall survive the Closing for a period extending until December 31, 1999 and
neither party shall have any liability to the other for any indemnification
obligation hereunder except to the extent that notice of a claim is asserted in
writing and delivered to Seller not later than December 31, 1999; provided,
however, that the covenants, representations and warranties of Purchaser
contained in Section 6.5 of this Agreement shall survive the Closing without
limitation.
11. MISCELLANEOUS PROVISIONS
11.1 Entire Agreement, Modification and Waiver. This Agreement,
including all Exhibits and Schedules hereto, constitutes the entire agreement
between the parties pertaining to the subject matter contained in it and
supersedes all prior and contemporaneous agreements, representations and
understandings of the parties. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by all the parties. No
waiver of any of the provisions of this Agreement shall be deemed, or shall
constitute a continuing waiver. No waiver shall be binding unless executed in
writing by the party making the waiver.
11.2 Rights of Parties. Nothing in this Agreement, whether express
or implied, is intended to confer any rights or remedies under or by reason of
this Agreement upon any persons other than the parties and their respective
permitted successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third person or any
party to this Agreement, nor shall any provision give any third person any right
of subrogation or action against any party to this Agreement.
11.3 Assignment. No assignment of any rights or obligations of any
party under this Agreement may be made without the prior written consent of all
of the other parties to this Agreement, which consent is not to be unreasonably
withheld; provided, however, that Purchaser may assign its rights and
obligations under this Agreement to an affiliate to be newly formed by Purchaser
for the purpose of consummating this transaction. Any attempted assignment of
rights or obligations in violation of this Section 11.3 shall be null and void.
Reference to any of the parties in this Agreement shall be deemed to include the
successors and assigns of such party.
11.4 Construction. The language in this Agreement shall, in all
cases, be construed as a whole according to its fair meaning and neither
strictly for nor against Seller or Purchaser.
11.5 Expenses of the Parties. Except as expressly provided in this
Agreement, all expenses incurred by or on behalf of the parties hereto in
connection with the authorization, preparation and consummation of this
Agreement including, without limitation, all fees and expenses of agents,
representatives, counsel and accountants employed by the parties hereto in
connection with the authorization, preparation, execution and consummation of
this Agreement
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shall be borne solely by the party who shall have incurred the same. The fees
and expenses connected with the Deposit Escrow Agent shall be borne equally by
Seller and Purchaser.
11.6 Further Assurances. Seller, at any time after the Closing
Date, will promptly execute, acknowledge and deliver any further deeds,
assignments, conveyances and other assurances, documents and instruments of
transfer, reasonably requested by Purchaser and necessary for Seller to comply
with its covenants contained herein and will take any other action consistent
with the terms of this Agreement that may reasonably be requested by Purchaser
for the purpose of assigning, transferring, granting, conveying, vesting and
confirming ownership in or to Purchaser, or reducing to Purchaser's possession,
any or all of the Assets.
11.7 Finders. Each of the Seller and Purchaser represents and
warrants to the other that it has not retained or dealt with any broker or
finder in connection with the transactions contemplated by this Agreement except
for Daniels & Associates, and that Seller will be responsible for any fee
payable to Daniels & Associates.
11.8 Notices. Any notice or other communication required or
permitted under this Agreement shall be in writing and shall be considered given
when delivered personally or by facsimile machine, one day after being given to
a nationally recognized overnight delivery service or four (4) days after being
mailed by registered mail, return receipt requested, to the parties at the
addresses set forth below (or at such other address as a party may specify by
notice to the other) in accordance with the terms of this Section.
If to Seller to:
Cencom Cable Income Partners II, L.P.
c/o Charter Communications
12444 Powerscourt Drive
Suite 400
St. Louis, Missouri 63131
Attn: Kent Kalkwarf
Vice President-Finance
and Acquisition
Facsimile: (314) 965-8793
with a copy to:
Thompson Coburn
34th Floor
One Mercantile Center
St. Louis, Missouri 63101
Attn: Benjamin H. Hulsey, Esq.
Facsimile: (314) 552-7000
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<PAGE> 32
If to Purchaser to:
Etan Industries, Inc.
One Galleria Tower
13355 Noel Road - 21st Floor
Dallas, Texas 75240
Attn: Nathan A. Levine
President
Facsimile: (214) 385-9601
with a copy to:
Prager, Metzger & Kroemer, PLLC
2626 Cole Avenue, Suite 900
Dallas, Texas 75204
Attn: Jerome L. Prager, Esq.
Facsimile: (214) 969-7635
11.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas applicable to
agreements made and to be performed in Texas.
11.10 Severability. If any provision of this Agreement is invalid or
unenforceable, the balance of this Agreement shall remain in effect.
11.11 Jurisdiction. The courts of the State of Texas in Dallas
County and the United States District Court for the Northern District of Texas,
Dallas Division, shall have non-exclusive jurisdiction over the parties with
respect to any dispute or controversy between them arising under or in
connection with this Agreement and, by execution and delivery of this Agreement,
each of the parties to this Agreement submits to the non-exclusive jurisdiction
of those courts, including, but not limited to, the in personam and subject
matter jurisdiction of those courts, waives any objection to such jurisdiction
on the grounds of venue or forum non conveniens the absence of in personam or
subject matter jurisdiction and any similar grounds, consents to service of
process by any manner permitted by law, and irrevocably agrees to be bound by
any judgment rendered thereby in connection with this Agreement. These consents
to jurisdiction shall not be deemed to confer rights on any person other than
the parties to this Agreement.
11.12 Counterparts. This Agreement may be executed in any number of
counterparts which together shall constitute one and the same instrument.
11.13 Arbitration. If any controversy shall arise between the
parties with respect to any of the matters set forth in this Agreement and such
dispute shall not be resolved by the parties within ten (10) days after either
of the parties shall notify the other of its desire to arbitrate the dispute,
then the dispute shall be settled by arbitration by the American Arbitration
Association
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(the "AAA") in accordance with its then prevailing rules, and judgment upon the
award may be entered in any court having jurisdiction. The arbitrator shall have
no power to change any of the provisions of this Agreement in any respect, nor
shall the arbitrator have any power to make an award of reformation, and the
jurisdiction of the arbitrator is hereby expressly limited accordingly. The
arbitration shall be by a single arbitrator who must be an attorney-at-law
actively engaged in the profession for at least ten (10) years. Each party shall
select a single arbitrator from the attorneys-at-law who are listed on the AAA's
panel of arbitrators. The two arbitrators selected by the parties shall select a
third attorney-at-law from the AAA panel, which third arbitrator shall serve as
the sole arbitrator for such arbitration. Neither party shall interrupt the
progress of its performance under the Agreement pending the determination of the
arbitration proceeding. Any arbitration shall be conducted in the City of St.
Louis, Missouri or Dallas, Texas at the election of the party initiating the
arbitration proceedings. The fees and expenses of arbitration shall be borne
equally by the parties, except that each party shall bear the expense of its own
counsel, experts, witnesses and preparation and presentation of proof.
11.14 Knowledge. For purposes hereof the phrase "to the best of
Seller's knowledge" shall mean to the knowledge of the executive officers of
Seller's general partner and of Jerry L. Smith, General Manager of the Systems.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound,
have executed this Asset Purchase Agreement as of the date first written above.
SELLER:
CENCOM CABLE INCOME PARTNERS II, L.P., a
Delaware limited partnership
By: Cencom Properties II, Inc., a Delaware
corporation and sole General Partner
By: Ralph G. Kelly
-----------------------------------------
Name: RALPH G. KELLY
--------------------------------------
Title: TREASURER
-------------------------------------
PURCHASER:
ETAN INDUSTRIES, INC., a Texas corporation
By: Nathan A. Levine
----------------------------------------
Nathan A. Levine
President
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<PAGE> 34
Exhibit A
Deposit Escrow Agreement
(CCIP II)
This Deposit Escrow Agreement ("Agreement") is dated as of December
___, 1998 and entered into among Thompson Coburn, a Missouri General Partnership
("Escrow Agent), Cencom Cable Income Partners II, L.P., a Delaware limited
partnership ("Seller"), and Etan Industries, Inc., a Texas corporation
("Purchaser"). Seller and Purchaser are collectively referred to in this
Agreement as the "Transaction Parties." Seller and Purchaser are parties to an
Asset Purchase Agreement dated of even date herewith (the "Asset Purchase
Agreement").
For valuable consideration, the parties agree as follows:
1. Escrow Agent. The Transaction Parties appoint and designate
Escrow Agent as escrow agent for the purposes set forth in this Agreement, and
Escrow Agent accepts such appointment on the terms provided in this Agreement.
2. Deposits with Escrow Agent. Escrow Agent will establish and
maintain an escrow account (which, together will all earnings thereon, is
referred to as the "Escrow Fund"). Simultaneously with the execution of the
Agreement, Purchaser will cause delivery to Escrow Agent for deposit in the
Escrow Fund of a total of $416,000 (the "Escrow Amount"). Escrow Agent will hold
and disburse the Escrow Fund in accordance with this Agreement.
3. Investment of Escrow Fund. Escrow Agent will deposit the
Escrow Amount, and the Interest (as defined in Section 5 below) from the Escrow
Amount in an interest bearing business prime account with Mercantile Bank NA.
4. Disbursement of Amounts Held in Escrow Fund.
(a) Escrow Agent will disburse the Escrow Amount (and related
interest):
(i) Upon Escrow Agent's receipt of joint written instructions
signed on behalf of Seller and Purchaser specifying the method for
disbursing the Escrow Amount, in which case such funds and Interest
thereon will be disbursed promptly by Escrow Agent in accordance with
such instructions; or
(ii) Upon Escrow Agent's receipt of an official copy of a
final, non-appealable order issued by a court of competent jurisdiction
specifying the method for disbursement of the Escrow Amount, in which
case such funds and related Interest thereon will be disbursed promptly
by Escrow Agent in accordance with such instructions.
(b) All disbursement of funds in the Escrow Fund pursuant to Section 4
will be by wire or interbank transfer of immediately available funds to the
account or accounts designated in writing by Seller or Purchaser, as applicable.
<PAGE> 35
5. Disbursement of Interest, Etc. The interest ("Interest")
received by Escrow Agent from the investment of the Escrow Amount will be held
by Escrow Agent as set forth in Section 3 above. With a disbursement of all or a
portion of the Escrow Amount pursuant to Section 4(a) above, Escrow Agent will
distribute to the Transaction Party receiving such disbursement a proportionate
share of the Interest earned from the Escrow Amount, unless Escrow Agent is
otherwise directed by joint written instructions signed by the Transaction
Parties.
6. Rights, Duties, and Liabilities of Escrow Agent.
(a) Escrow Agent will have no duty to know or determine the
performance or nonperformance of any provision of any agreement between the
Transaction Parties, including, but not limited to, the Asset Purchase
Agreement, which will not bind Escrow Agent in any manner. Escrow Agent assumes
no responsibility for the validity or sufficiency of any document or paper or
payment deposited or called for under this Agreement except as may be expressly
and specifically set forth in this Agreement, and the duties and
responsibilities of Escrow Agent under this Agreement are limited to those
expressly and specifically stated in this Agreement. Escrow Agent will not be
required to expend or risk its own funds or otherwise incur any financial
liability in the performance of its duties hereunder.
(b) Escrow Agent will not be personally liable for any act it
may do or omit to do under this Agreement as such agent while acting in good
faith and in the exercise of its own best judgment, and any such act or omission
by it will be conclusive evidence of such good faith unless, in any event, the
same constitutes gross negligence or willful misconduct. In no event will Escrow
Agent be liable (i) for acting in accordance with or relying upon any joint
written instruction, notice, demand, certificate or document signed by both
Transaction Parties, (ii) for any consequential, punitive or special damages,
(iii) for the acts or omissions of its nominees, correspondents, designees,
subagents or subcustodians, or (iv) for an amount in excess of the value of the
Escrow Amount, valued as of the date of deposit and actual Interest. If any
expenses or costs incurred by, or any obligations owed to, Escrow Agent
hereunder with respect to Escrow Amount are not promptly paid when due. Escrow
Agent may, upon prior written notice to Seller and Purchaser reimburse itself
therefor from the Escrow Amount (and Interest) for such purpose.
(c) Other than those notices or demands expressly provided in
this Agreement, Escrow Agent is expressly authorized to disregard any and all
notices or demands given by Seller or Purchaser, or by any other person, firm or
corporation, excepting only orders or process of court, and Escrow Agent is
expressly authorized to comply with and obey any and all final process, orders,
judgments, or decrees of any court, and to the extent Escrow Agent obeys or
complies with any thereof of any court, it will not be liable to any party to
this Agreement or to any other person, firm or corporation by reason of such
compliance.
(d) Escrow Agent will be under no duty or obligation to
ascertain the identity, authority or right of Seller or Purchaser (or their
agents) to execute or deliver or purport to execute or deliver this Agreement or
any certificates, documents or papers or payments deposited or called for or
given under this Agreement.
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<PAGE> 36
(e) Escrow Agent will not be liable for the outlawing of any
rights under any statute of limitation or by reason of laches in respect of this
Agreement or any documents or papers deposited with Escrow Agent.
(f) In the event of any dispute among the parties to this
Agreement as to the facts or as to the validity or meaning of any provision of
this Agreement, or any other fact or matter relating to this Agreement or to the
transactions between Seller and Purchaser, Escrow Agent is instructed that it
will be under no obligation to act, except in accordance with this Agreement or
under process or order of court or if there be no such process or order, until
it has filed or caused to be filed an appropriate action interpleading Seller
and Purchaser and delivering the Escrow Amount (or the portion of the Escrow
Amount in dispute) to such court, and Escrow Agent will sustain no liability for
its failure to act pending such process of court or order or interpleader of
action. Escrow Agent will be entitled to refuse to act until, in its sole
discretion, either (i) such conflicting or adverse claims or demands have been
determined by a final nonappealable order, judgment or decree of a court of
competent jurisdiction, or settled by agreement between the conflicting parties
as evidenced in writing satisfactory to it sufficient to hold it harmless from
and against any and all losses which it may incur by reason of so acting. The
costs and expenses (including reasonable attorneys' fees and expenses) incurred
in connection with such proceeding will be paid by and will be deemed a joint
and several obligation of, the Purchaser and Seller.
7. Modification of Agreement. The provisions of this Agreement
may be supplemented, altered, amended, modified, or revoked by writing only,
signed by Purchaser and Seller and approved in writing by Escrow Agent, and upon
payment of all fees, costs and expenses incident thereto, and no waiver of any
provisions hereof will be effective unless expressed in a writing signed by the
party to be charged.
8. Assignment of Agreement. No assignment, transfer,
conveyance or hypothecation of any right, title or interest in and to the
subject matter of this Agreement will be binding upon any party, including
Escrow Agent, unless all cost and expenses incident thereto have been paid and
then only upon the assent thereto by all parties in writing.
9. Miscellaneous.
(a) All notices and communications under this Agreement will
be in writing and will be deemed to be duly given if sent by registered mail,
return receipt requested, personal delivery or telecopier, as follows:
To Escrow Agent: Thompson Coburn
One Mercantile Center, Suite 3400
St. Louis, Missouri 63101
Attention: Benjamin H. Hulsey, Esq.
Telecopy: (314) 552-7000
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<PAGE> 37
To Seller at: Cencom Cable Income Partners II, L.P.
c/o Charter Communications
12444 Powerscourt Drive, Suite 400
St. Louis, Missouri 63131
Attention: Kent Kalkwarf
Telecopy: (314) 965-6640
With a copy (which shall not constitute notice) to:
Thompson Coburn
One Mercantile Center, Suite 3400
St. Louis, Missouri 63101
Attention: Benjamin H. Hulsey, Esq.
Telecopy: (314) 552-7000
To Purchaser at: Etan Industries, Inc.
One Galleria Tower
13355 Noel Road - 21st Floor
Dallas, Texas 75240
Attention: Nathan A. Levine
Telecopy: (214) 385-9601
With a copy (which shall not constitute notice) to:
Prager, Metzger & Kroemer PLLC
2626 Cole Avenue, Suite 900
Dallas, Texas 75204
Attention: Jerome L. Prager, Esq.
Telecopy: (214) 969-7635
or at such other address or telecopy number as any of the above may have
furnished to the other parties in writing and any notice or communication given
in the manner specified in this Section 9(a) will be deemed to have been given
as of the date received. In the event that Escrow Agent, in its sole discretion,
determines that an emergency exists, Escrow Agent may use such other means of
communications as Escrow Agent reasonably deems advisable.
(b) The undertakings and agreements contained in this
Agreement will bind and inure to the benefit of the parties to this Agreement
and their respective successors and permitted assigns.
(c) This Agreement may be executed in one or more
counterparts, each of which will be deemed an original. Whenever pursuant to
this Agreement Purchaser and Seller are to deliver a jointly signed writing to
Escrow Agent or jointly advise Escrow Agent in writing,
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<PAGE> 38
such writing may in each and all cases be signed jointly or in counterparts and
such counterparts will be deemed to be one instrument.
(d) Escrow Agent may resign and be discharged from its duties
or obligations under this Agreement by giving notice in writing of such
resignation to the Transaction Parties at least 30 days in advance of such
resignation (unless waived in writing by the Transaction Parties). Such
resignation will be effective upon the appointment by Purchaser and Seller of a
successor escrow agent, which will be a federally chartered bank having combined
capital and surplus of at least $250,000,000; provided, that if any such
appointment of any successor agent is not effectuated within 30 days of such
written notice, Escrow Agent may file an action for interpleader and deposit all
funds with a court of competent jurisdiction, all as provided for in Section
6(g) above. Any such successor escrow agent will be appointed by a written
instrument mutually satisfactory to and executed by Purchaser, Seller, Escrow
Agent and the successor escrow agent. Any successor escrow agent appointed under
the provisions of this Agreement will have all of the same rights, powers,
privileges, immunities and authority with respect to the matters contemplated
herein as are granted herein to the original Escrow Agent. Upon delivery of the
Escrow Fund to a successor Escrow Agent, Escrow Agent will have no further
duties, responsibilities or obligations hereunder.
(e) Purchaser and Seller hereby jointly and severally agree to
indemnify Escrow Agent for, and to hold it harmless against, any loss, liability
or reasonable out-of-pocket expense arising out of or in connection with this
Agreement and carrying out its duties hereunder, including the reasonable
out-of-pocket costs and expenses of defending itself against any claim of
liability, except in those cases where Escrow Agent has been guilty of gross
negligence or willful misconduct (provided, that in no event will the
Transaction Parties be liable for any allocated cost or expense of persons
regularly employed by Escrow Agent). Anything in this Agreement to the contrary
notwithstanding, in no event will Escrow Agent be liable for special, indirect
or consequential loss or damage of any kind whatsoever (including but not
limited to lost profits), even if Escrow Agent has been advised of the
likelihood of such loss or damage and regardless of the form of action.
(f) The Transaction Parties are providing Escrow Agent with
their Tax Identification Numbers (TIN) as assigned by the Internal Revenue
Service below their signatures to this Agreement. All Interest will be allocated
and paid as provided herein and reported by the recipient to the Internal
Revenue Service as having been so allocated and paid.
(g) In the event funds transfer instructions are given (other
than in writing at the time of execution of the Agreement), whether in writing
or telecopier, Escrow Agent is authorized to seek confirmation of such
instructions by telephone call-back to the person or persons designated on
Schedule 1 to this Agreement, and Escrow Agent may rely upon the confirmations
of anyone purporting to be the person or persons so designated. The persons and
telephone numbers for call-backs may be changed only in writing actually
received and acknowledged by Escrow Agent. The parties to this Agreement
acknowledge that such security procedure is commercially reasonable.
(h) This Agreement will be governed by and construed in
accordance with the
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<PAGE> 39
laws of the State of Missouri without regard to its principles of conflicts
of laws. Each of Purchaser and Seller hereby submits to the personal
jurisdiction of and each agrees that all proceedings relating to any dispute
with Escrow Agent under this Agreement will be brought in courts located within
the County of St. Louis County and the State of Missouri or elsewhere as Escrow
Agent my select: provided, however, any dispute between Purchaser and Seller
will not be governed by the preceding. Each of Escrow Agent, Purchaser and
Seller hereby waives the right to trial by jury and to assert counterclaims in
any such proceeding relating to disputes with the Escrow Agent under this
Agreement. To the extent that in any jurisdiction Purchaser or Seller may be
entitled to claim, for itself or its assets, immunity from suit, execution,
attachment (whether before or after judgment) or other legal process, each
hereby irrevocably agrees not to claim, and hereby waives, such immunity.
Purchaser, Seller and Escrow Agent each waives personal service of process and
consents to service of process by certified or registered mail, return receipt
requested, directed to it at the address last specified for notices hereunder,
and such service will be deemed completed ten (10) calendar days after the same
is so mailed.
(i) Except as otherwise specified herein, each of the
Transaction Parties will pay all costs and expenses incurred or to be incurred
by it in negotiating and preparing this Agreement and in closing and carrying
out the transactions contemplated by this Agreement.
(j) If any legal action or proceeding is brought for the
enforcement of this Agreement, or because of an alleged dispute, breach, default
or misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties will be entitled to recover
reasonable attorney's fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
(k) Each party to this Agreement hereby represents and
warrants (i) that this Agreement has been duly authorized, executed and
delivered on its behalf and constitutes its legal, valid and binding obligation,
and (ii) that the execution, delivery and performance of this Agreement does not
and will not violate any applicable law or regulation applicable to such party.
(l) This Agreement will terminate upon the distribution of the
Escrow Fund by Escrow Agent. The provisions of Sections 6 and 9 of this
Agreement will survive termination of this Agreement and/or the resignation or
removal of Escrow Agent.
[Signatures on next page]
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<PAGE> 40
The parties have caused this Agreement to be signed effective as of the
day and year first above written.
ESCROW AGENT: THOMPSON COBURN
By:
-------------------------------
Title:
-------------------------------
SELLER: CENCOM CABLE INCOME PARTNERS II, L.P.
By: Cencom Properties II, Inc.
its General Partner
By:
-------------------------------
Name:
-------------------------------
Title:
-------------------------------
TIN:
-------------------------------
PURCHASER: ETAN INDUSTRIES, INC.
By:
--------------------------------
Name:
--------------------------------
TIN:
--------------------------------
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<PAGE> 41
Schedule 1 to Deposit Escrow Agreement
Telephone Number(s) for Call-Backs and Person(s)
designated to Confirm Funds Transfer Instructions
If to Seller:
Name Telephone Number
1. Eloise Engman 314-965-0555
2. Ralph Kelly 314-965-0555
If to Purchaser:
1. Nathan A. Levine 972-233-9614
2. Douglas K. Bridges 972-233-9614
Telephone call-backs will be made to each of Purchaser and Seller if joint
instructions are required pursuant to the Deposit Escrow Agreement.
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<PAGE> 42
Exhibit B
Indemnity Escrow Agreement
(CCIP II)
AGREEMENT made as of this _________ day of December, 1998, by and
between Cencom Cable Income Partners II, L.P., a Delaware limited partnership
("Seller"), Etan Industries, Inc., a Texas corporation ("Purchaser") and PNC
Bank, National Association as escrow agent (the "Escrow Agent").
W I T N E S S E T H :
WHEREAS, Seller and Purchaser are parties to an Asset Purchase
Agreement dated November , 1998 (the "Purchase Agreement"), and
WHEREAS, the transactions contemplated under the Purchase Agreement
were consummated on _________, 1999 (the "Closing Date").
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. Acceptance by Escrow Agent
The Escrow Agent hereby accepts the appointment as escrow agent
hereunder and agrees to act on the terms and conditions hereinafter set forth.
Simultaneously with the execution of this Agreement, Purchaser will cause
delivery to the Escrow Agent for deposit in an escrow account $1,040,000 in
principal, together with all interest accrued as of the date hereof (which
together with all Income (as hereinafter defined) thereafter accrued thereon, is
referred to as the "Escrow Fund").
2. Investment of Escrow Fund
<PAGE> 43
The Escrow Agent shall invest the Escrow Fund in one or more of the
following investments or in other investments upon the express joint written
direction of Seller and Purchaser:
(i) United States government securities or securities of
agencies of the United States government which are guaranteed
by the United States government;
(ii) commercial paper issued by corporations, each of which
will have a consolidated net worth of at least $250,000,000
and each of which conducts a substantial part of its business
in the United States of America, maturing within 180 days from
the date of the original issue thereof but in no event later
than December 31, 1999 (the "Outside Date") and carrying the
highest rating by Moody's Investors Service, Inc. ("Moody's")
or Standard and Poor's Corporation ("S&P");
(iii) certificates of deposit maturing within 180 days of the
date of purchase but in no event later than the Outside Date,
which are issued by any United States national or state bank
whose long term debt rating is rated A3 or better by Moody's
or A- or better by S&P and which has capital, surplus and
undivided profits totaling more than $250,000,000; and
(iv) mutual funds investing exclusively in investments listed
in (i), (ii) and (iii) above.
Temporarily uninvested funds will be held in an interest bearing
business prime account maintained by the Escrow Agent (or in other investments)
if directed by the joint written instructions of Seller and Purchaser.
3. Rights and Responsibilities of Escrow Agent
The acceptance by the Escrow Agent of its duties hereunder is subject
to the following terms and conditions, which the parties to this Agreement
hereby agree shall govern and control with respect to the Escrow Agent's rights,
duties, liabilities and immunities.
(a) The Escrow Agent shall act hereunder as a depository only, and it
shall not be responsible or liable in any manner whatever for the sufficiency,
correctness, genuineness or validity of any document furnished to the Escrow
agent or any asset deposited with it.
(b) The Escrow Agent shall be protected in acting upon written
instructions from
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<PAGE> 44
Seller or Purchaser if it, in good faith, believes such written instruction to
be genuine and what it purports to be.
Each of Seller and Purchaser shall, upon the execution of this
Agreement and from time to time as appropriate, file with the Escrow Agent a
certified copy of each resolution of its General Partner or Board of Directors,
as the case may be, authorizing the person or persons to give written
instructions. Such resolution shall specify the class of instructions that may
be given by each person to the Escrow Agent, under this Agreement, together with
certified signatures of such persons authorized to sign. This shall constitute
conclusive evidence of the authority of the signatories designated therein to
act. It shall be considered in full force and effect with the Escrow Agent fully
protected in acting in reliance thereon unless and until it receives written
notice to the contrary.
(c) The Escrow Agent shall not be liable for any error of judgment or
for any action taken or omitted by it in good faith, for any mistake of fact or
law, or for anything which it may do or refrain from doing in connection
herewith except its own gross negligence or willful misconduct.
(d) Seller and Purchaser agree to indemnify the Escrow Agent and hold
it harmless from and against any loss, liability, expenses (including reasonable
attorneys' fees and expenses), claim or demand arising out of or in connection
with the performance of its obligations in accordance with the provisions of
this Escrow Agreement, except for the gross negligence or willful misconduct of
the Escrow Agent (provided, that in no event will Seller and Purchaser be liable
for any allocated cost or expense of persons regularly employed by the Escrow
Agent). These indemnities shall survive the resignation of the Escrow Agent or
the termination of this Escrow Agreement.
-3-
<PAGE> 45
(e) The Escrow Agent shall have no duties except those specifically set
forth in this Agreement. This Agreement represents the entire understanding of
the parties hereto with respect to the subject matter contained herein and
supersedes any and all other and prior agreements between them.
(f) The Escrow Agent shall have the right at any time it deems
appropriate to seek an adjudication in a court of competent jurisdiction as to
the respective rights of the parties hereto and shall not be held liable by any
party hereto for any delay or the consequences of any delay occasioned by such
resort to court.
(g) The fee of the Escrow Agent for its services hereunder in the
amount of $1,000.00 shall be paid jointly by Seller and Purchaser. Each of
Seller and Purchaser shall be responsible for one-half of such fee.
(h) In addition to the fee described in Section 3(g), the Escrow Agent
shall be entitled to reimbursement for all reasonable expenses, disbursements
and advances made by it in the performance of its duties hereunder, including
counsel fees and court costs. Escrow Agent shall have a lien on the Escrow Fund
to insure payment of such expenses, disbursements and advances.
4. Statements
During the term of this Agreement, the Escrow Agent shall provide
Seller and Purchaser with monthly statements containing the beginning balance in
the escrow account as well as all principal and income transactions for the
statement period. Seller and Purchaser shall be responsible for reconciling such
statements. The Escrow Agent shall be forever released and discharged from all
liability with respect to the accuracy of such statements, except with respect
to any such act or transaction as to which Seller or Purchaser shall, within 90
days after the
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<PAGE> 46
furnishing of the statement, file written objections with the
Escrow Agent.
5. Claims
In the event that at any time prior to the Outside Date Purchaser shall
give written notice (a "Claim Notice") to the Escrow Agent of any claim in
respect of which indemnity may be sought from Seller pursuant to Section 10 of
the Purchase Agreement (a "Claim"), the Claim Notice shall contain the amount of
the Claim (the "Losses"), and a demand for payment, certified in good faith by
an officer of Purchaser. The Escrow Agent promptly shall deliver a copy of such
Claim Notice to Seller. Unless within 30 days after giving the Claim Notice to
Seller the Escrow Agent receives from Seller a notice disputing Purchaser's
right to all or any portion of the Claim (a "Dispute Notice"), the Escrow Agent
shall pay to Purchaser promptly after expiration of that 30-day period the full
amount of the Claim demanded by Purchaser in the Claim Notice. Any Claim Notice
given after the Outside Date shall be given no effect under this Agreement.
6. Distributions
(a) The Escrow Agent shall distribute the Escrow Fund from time to
time, as follows:
(i) Upon the Escrow Agent's receipt of
joint written instructions signed on behalf of Seller
and Purchaser specifying the method for disbursing
the Escrow Fund, in which case such funds will be
disbursed promptly by the Escrow Agent in accordance
with such instructions;
(ii) Upon termination of the 30-day period
following the receipt of a Claim Notice the Escrow
Agent shall pay to Purchaser any portion of the Claim
for which a Dispute Notice has not been received. The
Escrow Agent shall continue to hold, as a part of the
Escrow Fund, all or a portion of such Claim subject
to dispute, until the earlier of (A) a receipt of
written instructions signed by the Seller and the
Purchaser pursuant to paragraph (a)(i) above or (B) a
Court Order pursuant to paragraph (a)(iii) below; or
(iii) Upon the Escrow Agent's receipt of an
official copy
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<PAGE> 47
of a final, non-appealable order issued
by a court of competent jurisdiction (a "Court
Order") specifying the method for disbursement of the
Escrow Fund, in which case such funds will be
disbursed promptly by the Escrow Agent in accordance
with such instructions.
(b) On the first business day following the Outside Date, the Escrow
Agent shall distribute to Seller from the Escrow Fund the amount of the Escrow
Fund less the sum of (i) all amounts owed to Purchaser on such date pursuant to
Section 5 and (ii) the aggregate amount of Losses contained in Claim Notices in
respect of Claims that have not been resolved in accordance with Section 5. On
the first business day following the Outside Date on which all Claims have been
resolved (whether by agreement of the parties, by failure of Seller to dispute a
Claim or by Court Order) the Escrow Agent shall distribute the Escrow Fund (i)
to Purchaser to the extent of all amounts owed Purchaser pursuant to Section 5
and (ii) to Seller the balance of the amount in the Escrow Fund.
(c) All disbursement of funds in the Escrow Fund pursuant to Section 5
will be by wire or interbank transfer of immediately available funds to the
account or accounts designated in writing by Seller or Purchaser, as applicable.
7. Income
All income, including interest and dividends, earned on the Escrow Fund
deposited hereunder ("Income") shall be added to, held and reinvested in the
Escrow Fund created hereunder. With a disbursement of all or a portion of the
Escrow Fund pursuant to Section 6 above, the Escrow Agent will distribute to the
party receiving such disbursement a proportionate share of the Income from the
investment of the Escrow Fund, unless the Escrow Agent is otherwise directed by
joint written instructions signed by Seller and Purchaser.
8. Tax Identification Number
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<PAGE> 48
All Income accrued in the Escrow Fund shall be for the account of
Seller or Purchaser as set forth in Section 7 and shall be reported under
applicable federal regulations using the tax identification number of Seller,
which is #43-1456575, or Purchaser, which is #75-1546158, as applicable.
9. Indemnification as to Taxes, Penalties and Interest
Seller and Purchaser shall indemnify and hold harmless the Escrow Agent
against and in respect of any liability for taxes and for any penalties or
interest in respect of taxes attributable to the investment of funds held in
escrow by the Escrow Agent pursuant to this Agreement.
10. Amendment
This Agreement may not be amended or supplemented and no provision
hereof may be modified or waived, except by an instrument in writing, signed by
all of the parties hereto.
11. Termination
The purpose of this Escrow Agreement and the terms hereof shall
terminate upon the disbursement of amounts constituting the Escrow Fund. Upon
the termination of this Agreement and upon the delivery of all the Escrow Fund
by the Escrow Agent, in accordance with the terms hereof, the Escrow Agent shall
be relieved of any and all further obligations hereunder.
12. Resignation
The Escrow Agent may resign at any time by giving 30 days written
notice of such resignation to Seller and Purchaser. If no successor escrow agent
has been named at the expiration of the 30 day period, the Escrow Agent shall
have no further obligation hereunder except to hold the Escrow Fund as a
depository. Upon notification by Seller and Purchaser of the appointment of the
successor the Escrow Agent shall promptly deliver the Escrow Fund and all
materials in its possession relating to the Escrow Fund to such successor, and
the duties of the
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<PAGE> 49
resigning Escrow Agent shall thereupon in all respects terminate, and it shall
be released and discharged from all further obligations hereunder. Any such
successor agent, which will be a federally chartered bank having combined
capital and surplus of at least $250,000,000, will be appointed by a written
instrument mutually satisfactory to and executed by Seller, Purchaser and the
successor escrow agent which will have the same rights, powers, privileges,
immunities and authorities as are granted herein to the original Escrow Agent.
Similarly, the Escrow Agent may be discharged from its duties as Escrow
Agent under this Agreement upon 30 days written notice from Seller and Purchaser
and upon payment of any and all fees due to the Escrow Agent. In such event, the
Escrow Agent shall be entitled to rely on joint written instructions from Seller
and Purchaser as to the disposition and delivery of the Escrow Fund.
13. Execution
This Agreement may be executed in several counterparts, each of which
shall be deemed an original, but such counterparts together shall constitute one
and the same instrument. The effective date of this Agreement shall be the date
it is executed by the last party to do so. Whenever Seller and Purchaser are to
deliver a jointly signed writing to the Escrow Agent, such writing may be signed
jointly or in counterparts and such counterparts will be deemed to be one
instrument.
14. Miscellaneous
All covenants and agreements contained in this Agreement by or on
behalf of the parties hereto shall bind and inure to the benefit of such parties
and their respective heirs, administrators, legal representatives, successors
and assigns, as the case may be. The headings in this Agreement are for
convenience of reference only and shall neither be considered as part of
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<PAGE> 50
this Agreement, nor limit or otherwise affect the meaning hereof. This Agreement
shall be construed and enforced in accordance with the laws of the Commonwealth
of Pennsylvania without regard to its principles of conflicts of laws.
15. Notices
All instructions, notices and other communications hereunder must be in
writing and shall be deemed to have been duly given if delivered by hand or
mailed by first class, registered mail, return receipt requested, postage
prepaid or confirmed telecopy and addressed as follows: If to Seller at:
Cencom Cable Income Partners II, L.P.
c/o Charter Communications
12444 Powerscourt Drive, Suite 400
St. Louis, Missouri 63131
Attention: Kent Kalkwarf
Telecopy: (314) 965-6640
With a copy similarly addressed to the attention of: Marcy Lifton,
Esq. and with a copy (which shall not constitute notice) to:
Thompson Coburn
One Mercantile Center, Suite 3400
St. Louis, Missouri 63101
Attention: Benjamin H. Hulsey, Esq.
Telecopy: (314) 552-7000
If to Purchaser at:
Etan Industries, Inc.
One Galleria Tower
13355 Noel Road - 21st Floor
Dallas, Texas 75240
Attention: Nathan A. Levine
Telecopy: (214) 385-9601
With a copy (which shall not constitute notice) to:
Prager, Metzger & Kroemer PLLC
2626 Cole Avenue, Suite 900
Dallas, Texas 75204
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<PAGE> 51
Attention: Jerome L. Prager, Esq.
Telecopy: (214) 969-7635
If to the Escrow Agent:
PNC Bank, National Association
ATTN: Corporate Trust Administration
1600 Market Street - 30th Floor
Philadelphia, PA 19103
Telecopy: (215) 585-8872
or at such other address or telecopy number as any of the above may have
furnished to the other parties in writing and any notice or communication given
in the manner specified in this Section 15 will be deemed to have been given as
of the date received. In the event that the Escrow Agent, in its sole
discretion, determines that an emergency exists, the Escrow Agent may use such
other means of communications as the Escrow Agent reasonably deems advisable.
16. Costs and Expenses
Except as otherwise specified herein, each of Seller and Purchaser will
pay all costs and expenses incurred or to be incurred by each of them in
negotiating and preparing this Agreement and in carrying out the transactions
contemplated hereby. If any legal action or proceeding is brought for the
enforcement of, or because of a dispute, breach or misrepresentation in
connection with this Agreement, the successful or prevailing party will be
entitled to recover reasonable attorneys' fees and other costs incurred in such
action or proceeding, in addition to any other relief to which it may be
entitled.
17. Authorization
Each party to this Agreement hereby represents and warrants (i) that
this Agreement has been duly authorized, executed and delivered on its behalf
and constitutes its legal, valid and binding obligation and (ii) that the
execution, delivery and performance of this Agreement does not and will not
violate any law or regulation applicable to such party.
-10-
<PAGE> 52
IN WITNESS THEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
CENCOM CABLE INCOME PARTNERS II, L.P.
By: Cencom Properties II, Inc.,
General Partner
By:
------------------------------------
Name:
------------------------
Title:
------------------------
ETAN INDUSTRIES, INC.
By:
------------------------------------
Name:
------------------------
Title:
------------------------
PNC BANK, NATIONAL ASSOCIATION,
as Escrow Agent
By:
----------------------------------
Name:
-----------------------
Title:
-----------------------
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<PAGE> 53
Exhibit C
Assignment and Assumption Agreement
(CCIP II)
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT is made as of the
___________ day of ____________, 1999, by and among ETAN INDUSTRIES, INC., a
Texas corporation ("Purchaser") and CENCOM CABLE INCOME PARTNERS II, L.P., a
Delaware limited partnership ("Seller").
WHEREAS, pursuant to an Asset Purchase Agreement dated _______the day
of December, 1998 (the "Purchase Agreement"), made between Purchaser and Seller,
Seller agreed to sell, and Purchaser agreed to purchase certain of the assets
owned by Seller, as more fully described in the Purchase Agreement;
WHEREAS, Section 2.5 of the Purchase Agreement provides that the
Purchaser shall, as of the Closing Date, assume certain of Seller's obligations
and liabilities as described therein; and
WHEREAS, Section 2.5 of the Purchase Agreement contemplates that this
Assignment and Assumption Agreement be entered into and delivered at Closing.
NOW, THEREFORE, in consideration of the promises, covenants and
agreements contained in the Purchase Agreement, the closing of the transactions
contemplated by the Purchase Agreement and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
each of the parties, Seller and Purchaser agree as follows:
1. Capitalized terms used but not otherwise defined herein shall have
the meanings given to such terms in the Purchase Agreement.
2. Seller hereby assigns and transfers to Purchaser all of the
agreements, franchises, leases, easements and other Contracts disclosed by
Seller in the Schedules to the Purchase Agreement relating to the operations of
the Systems (other than Excluded Assets) (collectively, the "Assumed
Obligations").
3. Subject to the terms of Section 2.5 and the other terms and
provisions of the Purchase Agreement, Purchaser hereby assumes and agrees to
perform only those obligations of Seller for which Purchaser has received an
adjustment pursuant to Section 2 of the Purchase Agreement and those obligations
of Seller arising under or in connection with the Assumed Obligations. In
addition, Purchaser shall assume (i) all obligations relating to the Assets
entered into by Seller in the ordinary course of business consistent with past
practices as reflected in the Seller Financial Statements between the date
hereof and the Closing Date (other than obligations, if any, relating to the
Excluded Assets), to the extent such obligations continue after the Closing and
(ii) all liabilities incurred in the ordinary course of business consistent with
past practices as reflected in the Seller Financial Statements relating to (A)
all customer advance payments and deposits, prepaid advertising revenues and
other prepaid revenues or income received or held by Seller for services to be
rendered or obligations to be performed in connection with the Systems
subsequent to the Closing Date and (B) the performance of the Contracts from and
after the Closing Date.
<PAGE> 54
4. Seller and Purchaser shall execute and deliver from time to time
hereafter, upon reasonable request, all such further documents and instruments,
and shall do and perform all such acts as may be necessary, to give full effect
to the intent and meaning of the Purchase Agreement and this Assignment and
Assumption Agreement.
5. This Assignment and Assumption Agreement is executed and delivered
by Seller and Purchaser pursuant to the Purchase Agreement, subject to the
covenants, representations and warranties thereof. No provisions set forth
herein shall be deemed to enlarge, alter or amend the terms or provisions of the
Purchase Agreement. In the event of any conflict between the provisions herein
and the Purchase Agreement, the provisions of the Purchase Agreement shall
control.
6. This Assignment and Assumption Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
7. This Assignment and Assumption Agreement may be executed in several
counterparts, all of which taken together shall constitute one instrument.
IN WITNESS WHEREOF, the parties have caused this Assignment and
Assumption Agreement to be executed and delivered by their duly authorized
partners or officers as of the day and year first written above.
SELLER:
CENCOM CABLE INCOME PARTNERS II, L.P.
By: Cencom Properties II, Inc., its general
partner
By:
-----------------------------------------
Name:
----------------------------------------
Title:
--------------------------------------
PURCHASER:
ETAN INDUSTRIES, INC.
By:
------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
<PAGE> 55
STATE OF __________________ )
)
COUNTY OF _________________ )
On this ______ day of _______________, 1998, before me, _____________,
a Notary Public in and for said state, personally appeared ___________________,
______________________ of Cencom Properties II, Inc., a Delaware corporation,
known to me to be the person who executed the within instrument in behalf of
said corporation, which corporation was acting as the general partner of Cencom
Cable Income Partners II, L.P., a Delaware limited partnership, and
acknowledged to me that (s)he executed the same for the purposes therein stated.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal in the County and State aforesaid, the day and year first above
written.
____________________________
Notary Public
My Commission Expires:
_______________________________
STATE OF _________________________ )
)
COUNTY OF ________________________ )
On this _______ day of _______________, 1998, before me _____________,
a Notary Public in and for said state, personally appeared __________________,
______________ of Etan Industries, Inc., a Texas corporation, known to me to be
the person who executed the within instrument in behalf of said corporation,
and acknowledged to me that (s)he executed the same for the purposes therein
stated.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal in the County and State aforesaid, the day and year first above
written.
____________________________
Notary Public
My Commission Expires:
_______________________________
<PAGE> 56
Exhibit D
Bill of Sale
(CCIP II)
KNOW ALL MEN BY THESE PRESENTS THAT:
CENCOM CABLE INCOME PARTNERS II, L.P., a Delaware limited partnership
("Seller"), for and in consideration of Ten Dollars ($10.00) paid to Seller by
ETAN INDUSTRIES, INC., a Texas corporation ("Purchaser") pursuant to that
certain Asset Purchase Agreement, dated December ____, 1998 between Seller and
Purchaser (the "Purchase Agreement"), and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, does
hereby GRANT, BARGAIN, SELL, TRANSFER, CONVEY and DELIVER unto Purchaser, its
successors and assigns, good and marketable title to all of the assets,
properties, rights, titles and privileges of Seller of every kind, character and
description, whether tangible, intangible, real personal or mixed, of whatever
description and wherever located, involved in, related to, owned, used or held
for use previously in connection with the ownership, use or operation of the
Systems, whether or not required to be listed on Seller's balance sheet in
accordance with GAAP, including, without limitation, all additions, accessions
and substitutions made prior to the Closing Date as permitted pursuant to the
terms of the Purchase Agreement (the "Assets"), but excluding the Excluded
Assets, free and clear of all defaults, liens, claims, charges, encumbrances,
security interests, pledges, restrictions, deeds of trust, mortgages and title
impediments, except for the Permitted Encumbrances, as defined in Section 3.2 of
the Purchase Agreement.
Capitalized terms used but not otherwise defined herein shall have the
meanings given to such terms in the Purchase Agreement.
The Assets shall include (not by way of limitation) the following:
(a) all the rights of Seller under any and all franchises,
licenses (including those required by the FCC, permits, authorizations,
easements, registrations, leases, variances, consents and certificates
and similar rights which authorize or are required in connection with
the operation of the Systems including any applications for any of the
foregoing (collectively, the "Governmental Permits") that are obtained
from or are pending with any federal, state, county, municipal or local
government and any governmental agency, bureau, commission, authority,
body, court (or other judicial body), administrative or executive
agency, legislative or quasi-legislative body, commission, council or
other agency, including any such agency, authority or body responsible
for the issuance or administration of any Governmental Permit or whose
consent is required for the sale and transfer of the Assets (each, a
"Governmental Authority");
(b) all the rights of Seller under any and all subscription
contracts with
<PAGE> 57
subscribers of Seller, pole attachment agreements, access agreements
and all other contracts, leases, agreements or undertakings (other than
those that are included in the Excluded Assets or which constitute
Governmental Permits or Real Property), written or oral, relating
primarily to the ownership, operation, use or maintenance of the
Systems or the Assets (the "Contracts").
(c) all of the real property interests of Seller which relate
primarily to the ownership, use, or operation of the Systems, including
fee and office and other leasehold interests, and all improvements
thereon and rights related thereto, such as towers, fixtures,
distribution plant, head-end equipment, subscriber installations,
licenses, easements, right of way and other interests therein
(collectively, the "Real Property");
(d) all accounts receivable owed to Seller in connection with
the operation of the Systems and uncollected as of the Closing Date
(collectively, the "Accounts Receivable");
(e) all subscriber deposits (including converter deposits),
tenant deposits and other amounts collected by Seller for services,
materials or equipment to be supplied from and after and prorated as of
the Closing Date;
(f) all items of tangible personal property owned, used or
held for use by Seller primarily in connection with the operation of
the Systems, including, without limitation, all physical plant and
equipment, including electronic devices, distribution plant, head-end
equipment, reception sites and related equipment, vehicles and all
inventories of materials, supplies, traps, test equipment, spare parts,
converters and tools (collectively, the "Equipment"); and
(g) all files, books, records and subscriber lists owned, used
or held for use by Seller primarily in connection with the Systems that
are maintained by Seller on the premises of the Systems and all other
licenses, permits and operating documents that are owned, used or held
for use by Seller exclusively in connection with the Systems wherever
located;
but, shall not include the Excluded Assets.
Notwithstanding the foregoing, Seller is not transferring any of the
Excluded Assets, as defined in Section 1.2 of the Purchase Agreement, which term
shall mean those items described in Section 1.2 to the Purchase Agreement.
TO HAVE AND TO HOLD, all and singular, the Assets, together with the
rights, titles, and interests thereto in anyway belonging to Purchaser, its
successors and assigns, for their own use forever, free and clear of all
defaults, liens, claims, charges, security interests, mortgages, deeds of trust,
encumbrances, pledges, restrictions and title impediments, other than Permitted
Encumbrances, and Seller does hereby bind itself, its successors and assigns, to
warrant and defend the title to the Assets unto the Purchaser, its successors
and assigns, to the extent
-2-
<PAGE> 58
provided in the Purchase Agreement.
Seller shall execute and deliver from time to time hereafter, upon
reasonable request, all such further documents and instruments as may be
necessary to deliver and transfer title in the Assets to Purchaser.
This Bill of Sale is executed and delivered by Seller pursuant to the
Purchase Agreement, subject to the covenants, representations and warranties
thereof. No provisions set forth in this Bill of Sale shall be deemed to
enlarge, alter or amend the terms or provisions of the Purchase Agreement. In
the event of any conflict between the provisions of this Bill of Sale and the
Purchase Agreement, the provisions of the Purchase Agreement shall control.
This Bill of Sale shall be governed by and construed in accordance with
the laws of the State of Texas, without regard to the conflict of law provisions
thereof.
IN WITNESS WHEREOF, CENCOM CABLE INCOME PARTNERS II, L.P., by a duly
authorized officer has executed this Bill of Sale as of the ___ day of
_____________, 1999.
CENCOM CABLE INCOME PARTNERS II, L.P.
By: Cencom Properties II, Inc., its
general partner
By:
--------------------------------
Title:
-----------------------------
-3-
<PAGE> 59
Exhibit E
Opinion of Seller's Counsel
(CCIP II)
_________, 1999
Etan Industries, Inc.
One Galleria Tower
13355 Noel Road - 21st Floor
Dallas, Texas 75240
Ladies and Gentlemen:
We have acted as counsel for _______ (the "Partnership"), in connection
with (i) the preparation, execution and delivery of (a) the Asset Purchase
Agreement, dated ________________, ____ (the "Purchase Agreement"), between
Etan Industries, Inc. ("Purchaser"), and the Partnership, (b) the Indemnity
Escrow Agreement, dated _________________, _______________, among Purchaser,
the Partnership, and NationsBank of Texas, N.A. (the "Escrow Agreement"), and
(c) the Bill of Sale and Assignment and Assumption Agreement, each of even date
herewith (collectively, the "Assignment Documents") (the Purchase Agreement,
the Escrow Agreement and the Assignment Documents being hereinafter sometimes
collectively referred to as the "Agreements"); and (ii) the transactions
contemplated thereby. We are rendering this opinion at the request of our
clients pursuant to Sections 3.2(f) and 7.8 of the Purchase Agreement.
Capitalized terms used and not otherwise defined herein have the same meanings
herein as in the Purchase Agreement.
In our capacity as counsel to the Partnership, we have made such
factual inquiries and examined such documents, records and certificates as we
have deemed necessary or appropriate for issuing this opinion letter, including
but not limited to the following:
(A-1) The Partnership Agreement ("Partnership Agreement") and
Certificate of Limited Partnership ("Certificate of Limited Partnership") of the
Partnership, as amended to date, certified to us on this date as true and
complete by the general partner of the Partnership;
(A-2) Certificate dated ________, 1999, from the Delaware Secretary of
State and oral confirmation as of the date hereof as the Partnership's
partnership existence;
(A-3) Certificates dated as of a recent date, from the Secretary of
State and Comptroller of Public Accounts of the State of Texas and oral
confirmation as of the date hereof as to the Partnership's qualification to
transact business in such jurisdiction;
(A-4) The written consent of the Board of Directors of ___________,
Inc., the corporate general partner of the Partnership,
dated ______________, 19__
<PAGE> 60
Etan Industries, Inc.
, 19
- ------------------- --
Page 2
________, as certified to us on this date by an officer of the corporate general
partner of the Partnership;
(A-5) The factual representations, warranties and certifications made
by or on behalf of the Partnership in the Agreements or in any certificate,
document or other written communication delivered by or on behalf of the
Partnership in connection with the transactions contemplated by the Agreements;
and
(A-6) The Agreements,
For purpose of rendering the opinions expressed herein, we have
assumed: (i) the genuineness of all signatures (other than signatures by or on
behalf of the Partnership on documents submitted to us as originals and the
conformity to original documents furnished to us; (ii) the authenticity of all
documents submitted to us as originals and the conformity to original documents
of all copies furnished to us; (iii) the due power and authority of each party
(other than the Partnership) to each document reviewed by us; (iv) the due
authorization of each document reviewed by us by each party thereto (other than
the Partnership); (v) the due execution and delivery of each of the Agreements
executed by or on behalf of any person other than the Partnership; and (vi) that
the Agreements executed by or on behalf of any person (other than signatures by
or on behalf of the Partnership) constitute the legal, valid and binding
obligations of each such person, enforceable against each such person in
accordance with their respective terms.
The opinions expressed herein are also subject to the following:
(B-1) The opinions expressed by us herein are limited to the laws of
the State of Missouri, the Delaware Revised Uniform Limited Partnership Act
(Title 6) and, where applicable, to Federal laws. We note that the Agreements
recite that they are governed by the laws of the State of Texas. For purposes of
this opinion letter, we have assumed, without inquiry, that the laws of the
State of Texas are the same as the laws of the State of Missouri in all
pertinent respects.
(B-2) We express no opinion with respect to any law, rule or regulation
regarding: (i) the issuance, purchase or sale of securities or with respect to
securities generally; (ii) the environment, toxic or hazardous substances; (iii)
occupational safety or health; (iv) federal, state or local taxation; (v) any
matter subject to the review or jurisdiction of the Copyright Office, the
Copyright Royalty Tribunal, the Federal Communications Commission or the Federal
Aviation Administration, including, without limitation, matters within the
jurisdiction of any such body relating to whether the Partnership has all
requisite franchises, is required to file copyright
<PAGE> 61
Etan Industries, Inc.
, 19
- ------------------------- --
Page 3
statements of account or is required to comply with any law, rule or regulation
relating to the use of aeronautical frequencies or signal leakage; (vi) zoning,
land use, subdivision matters or other matters governed by county, municipality
or other local laws or regulations; (vii) antitrust (except with respect to the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended); (viii) unfair
competition; and (ix) labor matters.
(B-3) Our opinions are subject to the effect of bankruptcy, insolvency,
reorganization, fraudulent conveyance, arrangement, moratorium, and other laws
relating to or affecting the rights of creditors generally.
(B-4) Our opinions are subject to limitations imposed by general
principles of equity upon: (i) the specific enforceability of any of the
remedies, covenants or other provisions of the Agreements; (ii) the general
availability of injunctive relief or other equitable remedies; and (iii) the
application of principles of equity (regardless of whether enforcement is
considered in proceedings in law or in equity) in regard to certain covenants
and provisions where (y) the breach of such covenants or provisions imposes
restrictions or burdens upon an obligor, and a court determines that such breach
is not material to the obligee or (z) the obligee's enforcement of covenants or
provisions of the Agreements would violate the obligee's implied covenant of
good faith and fair dealing or would be commercially unreasonable.
(B-5) We express no opinion as to the enforceability of any provisions
of the Agreements that: (i) purport to specify that provisions may be waived or
amended only in writing; or (ii) purport to indemnify or would have the effect
of indemnifying any person for such person's gross negligence, reckless or
willful misconduct or intentional wrongs, or to exculpate any person as to
liability for wrongs committed to persons other than a party to the instrument
purporting to create such exculpation.
(B-6) Whenever any opinion stated herein with respect to the existence
or absence of facts is indicated to be based on our knowledge or the best of our
knowledge, it is limited to (i) the current actual knowledge of the attorney who
signed this opinion, any attorney of our firm who had active involvement in
negotiating the Purchase Agreement, preparing the Purchase Agreement or
preparing this opinion letter and, solely as to information, relevant to an
opinion issue, any attorney of our firm who was primarily responsible for
providing the response concerning the particular issue; (ii) a review of our
internal litigation docket; (iii) inquiry of representatives of the Partnership
in connection with preparation of the Agreements and the schedules thereto; and
(iv) our review of the items listed in subparagraphs (A-1) through (A-6) above.
We rely on the factual representations and warranties referred to in
subparagraphs (A-5), except to the extent of any knowledge to the contrary or to
the extent reliance thereon would be unreasonable. Except to the extent
expressly set forth herein, we have not undertaken any
<PAGE> 62
Etan Industries, Inc.
, 19
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Page 4
independent investigation to determine the existence or absence of such facts
and no inference as to our knowledge of existence or absence of such facts
should be drawn from our representation of the Partnership.
Based upon the foregoing and subject to the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that, as of this date:
1. The Partnership is a Delaware limited partnership, validly existing
under the laws of the State of Delaware with full partnership power and
authority required to owns its properties and conduct its business as presently
conducted by it and as contemplated to be conducted by it under the Agreements,
including the power and authority to enter into and perform the Agreements and
to carry out its obligations thereunder and as contemplated therein. The
Partnership is duly authorized to transact business as a foreign limited
partnership in the State of Texas.
2. The execution, delivery and performance by the Partnership of each
of the Agreements to which it is a party and the transactions contemplated
thereby have been duly authorized by all necessary partnership action, and each
such agreement, when executed and delivered by the parties thereto pursuant to
due authorization will be, the legal, valid and binding obligation of the
Partnership, enforceable against it in accordance with its terms.
3. To the best of our knowledge, there are no actions, suits,
investigations or proceedings ("Actions") pending or threatened against or
affecting the Partnership or any of its properties or rights with respect to the
Systems, by or before any court, arbitrator or administrative tribunal or
Governmental Authority, except Actions that may affect the cable television or
telecommunications business generally.
This opinion letter is rendered as of the date hereof and we assume no
responsibility to supplement the opinions set forth herein in light of any
matters occurring after the date hereof.
This opinion letter is issued solely for the benefit and information of
Purchaser and is in no respect to be quoted by, or otherwise referred to by, or
relied upon by, or filed with, any Governmental Authority or other person or
entity without our prior written consent, except that Purchaser may provide a
copy of this opinion to persons who provide financing to Purchaser, and such
person may rely thereon in connection with providing such financing to
Purchaser.
Very truly yours,
<PAGE> 63
Exhibit F
Opinion of Seller's FCC Counsel
(CCIP II)
, 1999
-------------
Etan Industries, Inc.
14001 Parkway, Suite 1050
Dallas, Texas 75240
Ladies and Gentlemen:
This letter is furnished to you pursuant to Section of the
----------
Asset Purchase Agreement dated as of the (the "Agreement") between
-------------
("Seller") and Etan Industries, Inc. ("Purchaser").
- ------------------------
We have acted as special communications counsel to Seller in connection
with its cable television business in the communities identified in Attachment A
hereto the "Systems"). This opinion is based, as to matters of law, solely on
the Communications Act of 1934, as amended (the "Act"), the rules and
regulations of the Federal Communications Commission ("FCC"), Section 111 of the
Copyright Act of 1976, as amended (17 U.S.C. Section 111) (the "Copyright Act"),
the rules and regulations of the United States Copyright Office ("Copyright
Office") pertaining to 17 U.S.C. Section 111, and the rules and regulations of
the Federal Aviation Administration ("FAA").
For purposes of this opinion, we have examined files made available to
us by Seller, our own files, and have examined available records at the FCC and
the Copyright Office, and have considered such questions and issues under the
above-referenced laws and regulations as relate to Seller or the Systems as we
have deemed necessary or appropriate for the purposes of this opinion. In making
such examinations, we have assumed the genuineness of all signatures on all of
the original or certified, conformed or reproduced copies of all documents of
all parties, the authenticity of all documents submitted to us as originals, and
the conformity to original documents of all documents submitted to us as
certified or photostatic copies.
We have not conducted an independent field investigation of the
Systems, and we have not examined the actual day-to-day operations of the
Systems. We have thus relied upon information provided to us by Seller
concerning the day-to-day operations and actual signal carriage of the Systems.
As to certain questions of fact, we have relied upon statements and certificates
of certain officers, directors, employees and representatives of Seller as well
as the
<PAGE> 64
Etan Industries, Inc.
, 1999
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Page 2
statements of certain government officials. We have no reason to believe
that such statements are not accurate. This opinion is limited to the matters
expressly addressed herein. We note in particular that we have no knowledge and
express no opinion as to the Systems' compliance in the field with FCC technical
and engineering regulations or their compliance with local franchising
obligations. We have undertaken no investigation and accordingly render no
opinion concerning compliance with the FCC's children's television advertising
rules, public file and record keeping requirements, complaint procedures, or
political advertising rules. Furthermore, we have no knowledge and express no
opinion as to the Systems' regulatory compliance for any periods predating
Seller's ownership of the Systems.
Based upon and limited by the foregoing, and subject to the exceptions
set forth in Attachment F, we are of the opinion that:
1. (a) Seller holds the licenses listed in Attachment A hereto (the
"FCC Licenses"). Based on information provided by Seller, these are the only FCC
licenses required to continue operating the Systems as presently operated. Each
such license was validly issued by the FCC and remain in full force and effect.
Except as noted in Attachment A, the assignment of these licenses to Buyer has
been approved by the FCC, to the extent such approval is required, and such
assignment authorizations are in full force and effect.
(b) The execution, delivery and performance by Seller of the
Agreement will not result in any violation of the Communications Act or the
FCC's rules, regulations or policies and will not cause any forfeiture or
impairment of any FCC authorizations held by the Systems, provided that Buyer
complies with all FCC rules, regulations and policies relating to transfers of
ownership including cross-ownership restrictions.
2. The Systems have authorization to use the frequencies in the
aeronautical and navigational bands (108-137 and 225-240 MHz) set forth in
Attachment B. Based on information provided to us by Seller, these are the only
aeronautical authorizations necessary at this time to enable the Systems to
operate in compliance with FCC regulations.
3. To the extent required, (i) registration statements for the Systems'
communities, (ii) the most recent FCC Forms 320 (showing complying index scores)
required to be filed, (iii) the most recent Forms 325 required to be filed, (iv)
1990-1998 Form 395A reports, (v) FCC Form 854, Antenna Structure Registrations,
and (vi) all regulatory fee forms, are on file with the FCC. The Systems have
received EEO certification from the FCC for 1990 through 1997.
4. To the best of our knowledge, based on information provided by
Seller, as set forth in Attachment C, the Systems is carrying all of the
commercial "must-carry" signals
<PAGE> 65
Etan Industries, Inc.
, 1999
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Page 3
required to be carried pursuant to Federal Law. To the best of our knowledge,
there are no "must-carry" complaints pending against the Systems.
5. To the best of our knowledge, based on information provided by
Seller, as set forth in Attachment C, all necessary retransmission consents for
the television broadcast signals currently carried on the Systems have been
obtained.
6. To the best of our knowledge, based on information provided by
Seller and our review of unofficial logs compiled by the FCC or its independent
contractor, Garcia Consulting, Inc. of Forms 328 and 329 filed with the FCC as
of August 31, 1998, Attachment D identifies all of the Systems' franchising
authorities that have sought certification from the FCC to regulate basic
service and equipment rates and all complaints filed at the FCC with respect to
rates for cable programming service.
7. Based on information provided by Seller, the Systems have
established procedures to provide privacy notices annually to their subscribers
and to each new subscriber upon commencement of service, to prevent unauthorized
access to personally identifiable information, and to make available lockboxes
upon request, pursuant to the provisions of the Act. We express no opinion as to
the adequacy or legal sufficiency of the content of such privacy notices or as
to the Systems' internal procedures for the distribution of lockboxes, privacy
notices or the protection of subscriber privacy in accordance with the Act.
8. All Statements of Account required under Section 111 of the
Copyright Act, together with all royalty fees reported as due thereunder, have
been filed by the Systems for the semi-annual accounting periods of 1995/1
through the date hereof, to the extent due. We have not verified the Systems'
historic signal carriage, nor have we verified the royalty fee treatment,
calculation or figures, and we express no opinion as to the accuracy thereof.
9. To the best of our knowledge after due inquiry, there have been no
inquiries, which have not been resolved, received from the U.S. Copyright Office
or any other party which question the 1995/1-1998/1 Statements of Account or any
copyright payment made by the Systems for those accounting periods, nor are we
aware of any claim, action, or demand, other than matters relating to the cable
television industry generally, for copyright infringement or for non-payment for
royalties pending or threatened against the Systems.
10. To the best of our knowledge after due inquiry, and except as
identified in Attachment D and with respect to general rulemakings and similar
matters relating to the cable television industry generally, there is no FCC
order, writ, injunction, or decree which has been
<PAGE> 66
Etan Industries, Inc.
, 1999
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Page 4
issued against the ongoing operations of the Systems, nor are we aware of any
FCC action, suit or proceeding pending or threatened against the Systems.
11. Based solely upon the information provided by Seller as to antenna
structure height, location and proximity to any aircraft landing areas, all
antenna structures utilized by Seller in connection with its operation of the
Systems are in compliance with the requirements for notification to the FAA
contained in Part 17 of the FCC's rules. These antenna structures are listed in
Attachment E hereto. We express no opinion as to compliance with any
requirements of Part 17 of the FCC's rules (such as antenna structure marking
and lighting requirements) other than those delineating the circumstances under
which notification to the FAA is required prior to the construction or
alteration of certain antenna structures.
Opinions are expressed herein only as of the date hereof, and we assume
no obligation to advise you of any future changes in the foregoing. Except as
noted below, this opinion has been prepared solely for your use in connection
with the closing under the Agreement as of the date hereof and should not be
quoted in whole or in part or otherwise be referred to, nor filed with or
furnished to any governmental agency or other person or entity without the prior
written consent of this firm. Each of Buyer's lenders is authorized to rely on
this opinion to the same extent as if it had been addressed to them.
Very truly yours,
<PAGE> 67
Exhibit G
Opinion of Purchaser's Counsel
(CCIP II)
, 1999
------------
Cencom Cable Income Partners II, L.P.
c/o Charter Communications
12444 Powerscourt Drive
Suite 400
St. Louis, Missouri 63131
Ladies and Gentlemen:
We have acted as counsel for Etan Industries, Inc. (the "Company"), in
connection with (i) the preparation, execution and delivery of (a) the Asset
Purchase Agreement, dated , (the "Purchase Agreement"), between
---------------
the Company and Cencom Cable Income Partners II, L.P. ("Seller"), (b) the
Indemnity Escrow Agreement, dated , , among the Company, Seller and Fleet
---- ----
National Bank (the "Escrow Agreement"), and (c) the Assignment and Assumption
Agreement, of even date herewith (the "Assignment Document") (the Purchase
Agreement, the Escrow Agreement and the Assignment Document being hereinafter
sometimes collectively referred to as the "Agreements"); and (ii) the
transactions contemplated thereby. We are rendering this opinion at the request
of our clients pursuant to Sections 3.3(d) and 8.7 of the Purchase Agreement.
Capitalized terms used and not otherwise defined herein have the same meanings
herein as in the Purchase Agreement.
In our capacity as counsel to the Company, we have made such factual
inquiries and examined such documents, records and certificates as we have
deemed necessary or appropriate for issuing this opinion letter, including but
not limited to the following:
A-1) The Articles of Incorporation and Bylaws of the Company, as
amended to date, certified to us on this date as true and complete by a duly
appointed officer of the Company;
A-2) Certificates dated as of and , from the Secretary of State
----- ----
and Comptroller of Public Accounts of the State of Texas and verbal confirmation
as of the date hereof as to the Company's qualification to transact business in
such jurisdiction;
(A-3) The written consent of the Board of Directors of the Company
dated , 19 , as certified to us on this date by a duly appointed officer
---- ---
of the Company;
(A-4) The factual representations, warranties and certifications made
by or on behalf of the Company in the Agreements or in any certificate, document
or other written communication
<PAGE> 68
Cencom Cable Income Parnters II, L.P.
19
- ----------------------------- --
Page 2
delivered by or on behalf of the Company in connection with the transactions
contemplated by the Agreements; and
(A-5) The Agreements.
For purpose of rendering the opinions expressed herein, we have
assumed: (i) the genuineness of all signatures (other than signatures by or on
behalf of the Company on documents submitted to us as originals and the
conformity to original documents furnished to us; (ii) the authenticity of all
documents submitted to us as originals and the conformity to original documents
of all copies furnished to us; (iii) the due power and authority of each party
(other than the Company) to each document reviewed by us; (iv) the due
authorization of each document reviewed by us by each party thereto (other than
the Company); (v) the due execution and delivery of each of the Agreements
executed by or on behalf of any person other than the Company; and (vi) that the
Agreements executed by or on behalf of any person (other than signatures by or
on behalf of the Company) constitute the legal, valid and binding obligations of
each such person, enforceable against each such person in accordance with their
respective terms.
The opinions expressed herein are also subject to the following:
(B-1) The opinions expressed by us herein are limited to the laws of
the State of Texas, and, where applicable, to Federal laws.
(B-2) Our opinions are subject to the effect of bankruptcy, insolvency,
reorganization, fraudulent conveyance, arrangement, moratorium, and other laws
relating to or affecting the rights of creditors generally.
(B-3) Our opinions are subject to limitations imposed by general
principles of equity upon: (i) the specific enforceability of any of the
remedies, covenants or other provisions of the Agreement; (ii) the general
availability of injunctive relieve or other equitable remedies; and (iii) the
application of principles of equity (regardless of whether enforcement in
considered in proceedings in law or in equity) in regard to certain covenants
and provisions where (y) the breach of such covenants or provisions imposes
restrictions or burdens upon an obligor, and a court determines that such breach
is not material to the obligee or (z) the obligee's enforcement of covenants or
provisions of the Agreements would violate the obligee's implied covenants of
good faith and fair dealing or would be commercially unreasonable.
(B-4) We express no opinion as to the enforceability of any provisions
of the Agreements that: (i) purport to specify that provisions may be waived or
amended only in writing; or (ii) purport to indemnify or would have the effect
of indemnifying any person for
<PAGE> 69
Cencom Cable Income Partners II, L.P.
19
- ----------------------------- --
Page 3
such person's gross negligence, reckless or willful misconduct or intentional
wrongs, or to exculpate any person as to liability for wrongs committed to
persons other than a party to the instrument purporting to create such
exculpation.
(B-5) Whenever any opinion stated herein with respect to the existence
or absence of facts is indicated to be based on our knowledge or the best of our
knowledge, it is limited to (i) the current actual knowledge of the attorney who
signed this opinion, any attorney of our firm who had active involvements in
negotiating the Purchase Agreement, preparing the Purchase Agreement or
preparing this opinion letter and, solely as to information, relevant to an
opinion issue, any attorney of our firm who was primarily responsible for
providing the response concerning the particular issue; (ii) inquiry of
representatives of the Company in connection with preparation of the Agreements;
and (iii) our review of the items listed in subparagraphs (A-1) through (A-5)
above. We rely on the factual representations and warranties referred to in
subparagraph (A-4), except to the extent of any knowledge to the contrary or to
the extent reliance thereon would be unreasonable. Except to the extent
expressly set forth herein, we have not undertaken any independent investigation
to determine the existence or absence of such facts and no inference as to our
knowledge of existence or absence of such facts should be drawn from our
representation of the Company.
Based upon the foregoing and subject to the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that, as of this date:
1. The Company is a Texas corporation, validly existing under the laws
of the State of Texas with full corporate power and authority required to own
its properties and conduct its business as presently conducted by it and as
contemplated to be conducted by it under the Agreements, including the power and
authority to enter into and perform the Agreements and to carry out its
obligations thereunder and as contemplated therein.
2. The execution, delivery and performance by the Company of each of
the Agreements to which it is a party and the transactions contemplated thereby
have been duly authorized by all necessary corporate action, and each such
agreement, when executed and delivered by the parties thereto pursuant to due
authorization will be, the legal, valid and binding obligation of the Company,
enforceable against it in accordance with its terms.
3. To the best of our knowledge, neither the execution or delivery of
the Agreements or any agreement contemplated thereby, nor fulfillment of or
compliance with the terms and provisions of the Agreements will result in a
breach of the terms, conditions, or provisions of, or constitute a default
under, or result in any material violation of the Articles of Incorporation or
Bylaws of the Company, any award known to us of any arbitrator or any agreement,
instrument,
<PAGE> 70
Cencom Cable Income Partner II, L.P.
19
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Page 4
order, judgment or decree known to us or any law, rule or regulation
that, based upon the exercise of customary professional diligence, would be
recognized as being directly applicable to the Company.
This opinion letter is rendered as of the date hereof and we assume no
responsibility to supplement the opinions set forth herein in light of any
matters occurring after the date hereof.
This opinion letter is issued solely for the benefit and information of
Seller and is in no respect to be quoted by, or otherwise referred to by, or
relied upon by, or filed with, any Governmental Authority or other person or
entity without our prior written consent.
Very truly yours,
<PAGE> 71
Exhibit H
Consent of Franchisor
(CCIP II)
RESOLUTION NO. [NO]
A RESOLUTION OF THE [authority] OF THE
[municipality], [state], CONSENTING TO THE ASSIGNMENT
OF THE CABLE TELEVISION SYSTEM FRANCHISE
FROM [seller] TO [purchaser]
WHEREAS, on [date], the [authority], (the "[authority]") granted to
[seller] ("Seller"), a franchise as set forth in Ordinance No. [number], to own
and operate a cable television system in the [municipality], [state] (the
"Franchise");
WHEREAS, Seller has executed an asset purchase agreement (the "Purchase
Agreement") whereby Seller has committed to transfer and convey the
[municipality] cable television system and related assets (the "System") to
[purchaser] ("Purchaser"), including all right, title and interest of Seller in
the Franchise to Purchaser;
WHEREAS, the [authority] has investigated the background of Purchaser
and finds Purchaser to be a suitable transferee; and
WHEREAS, FCC Form 394 has been filed with [municipality].
NOW THEREFORE, BE IT RESOLVED BY THE [authority] OF THE [municipality],
AS FOLLOWS:
Section 1. The [authority] hereby consents to and approves the
assignment by Seller of its right, title and interest in the Franchise to
Purchaser and assumption by Purchaser of the obligations of Seller under the
Franchise, subject to applicable law, which accrue from and after the date of
closing of the purchase of the System by Purchaser.
Section 2. The [authority] hereby consents to and approves the
assignment, mortgage, pledge or other encumbrance, if any, of the Franchise,
System or assets relating thereto, or of the interests in Purchaser, as
collateral for a loan.
Section 3. Upon such assignment, Seller shall be released of all
obligations under the Franchise.
Section 4. This Resolution shall not become effective until Purchaser
purchases the System from Seller and assumes the obligations of Seller under the
Franchise.
<PAGE> 72
Section 5. This Resolution shall have the force of a continuing
agreement with Purchaser, and the [authority] shall not amend or otherwise alter
this Resolution without the consent of Purchaser and Seller.
PASSED, ADOPTED AND APPROVED by the [authority] of the [municipality],
[state], this [date].
--------------------------------
ATTEST: APPROVED AS TO FORM:
- ------------------------ --------------------------------
<PAGE> 73
Exhibit I
Lease Consent
(CCIP II)
________________________
_________________________
_________________________
_________________________
_________________________
Re: Lease of property located at _______________________ (the
"Lease Property") pursuant to that certain lease dated
______________ between you as Lessor and [seller] ("Lessee")
Dear ______________:
Lessee has entered into an agreement to transfer certain of its cable
television systems to [transferor] (the "Assignee"). At the closing of that
sale, Lessee will assign its right, title, and interest in and to the Lease to
the Assignee, effective on the day of closing. The Assignee will assume, and
Lessee will be released from, Lessee's obligations under the Lease which accrue
from and after the day of closing.
Please acknowledge your consent to the assignment by Lessee of the
Lease to the Assignee and confirm that the following information is true and
correct. Please do so by signing this letter and returning it to the Lessee at
the address indicated on the self-addressed, stamped envelope provided with this
letter.
1. __________________________ is the legal owner of the
Leased Property and Lessor under the Lease.
2. To the best of my knowledge, Lessee is in compliance with
all of the terms and provisions of the Lease.
3. The Lease is in full force and effect as of the date
hereof.
<PAGE> 74
We expect to close this transaction in the near future. Your assistance
is greatly appreciated.
Very truly yours,
-----------------------
----------------------
Enclosure
The undersigned, as Assignee under the Lease, hereby accepts the
foregoing assignment and agrees to perform and be bound by all of the terms and
conditions of the Lease, effective as of the closing of the sale by Assignor of
its cable television stations to Assignee.
- ---------------------
Assignee
The undersigned, as Lessor under the Lease, hereby consents to the
assignment by Lessee of Lessee's right, title and interest in and to the Lease
to the Assignee, the assumption by Assignee of Lessee's obligations that accrue
from and after the date of closing, the release of Lessee from such obligations
and represents that the information contained in this letter is true and
correct.
- --------------------
Lessor
<PAGE> 1
EXHIBIT 10(aa)
ASSET PURCHASE AGREEMENT
BETWEEN
CENCOM PARTNERS, L. P.,
AS SELLER
AND
ETAN INDUSTRIES, INC.
AS PURCHASER
DATED AS OF DECEMBER 18, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. PURCHASE AND SALE OF ASSETS.............................................................................1
1.1 Assets to be Sold..............................................................................1
1.2 Excluded Assets................................................................................2
2. CALCULATION AND PAYMENT OF PURCHASE PRICE...............................................................3
2.1 Purchase Price.................................................................................3
2.2 Payment of Purchase Price......................................................................4
2.3 Payment of Deposit.............................................................................4
2.4 Payment of Purchase Price......................................................................5
2.5 Assumption of Liabilities......................................................................5
2.6 Excluded Liabilities...........................................................................5
2.7 Allocation of Consideration....................................................................6
2.8 Adjustments....................................................................................6
3. CLOSING.................................................................................................7
3.1 Closing Date...................................................................................7
3.3 Deliveries by Purchaser........................................................................8
4. REPRESENTATIONS AND WARRANTIES BY SELLER................................................................9
4.1 Organization and Standing......................................................................9
4.2 Power and Authority............................................................................9
4.3 Authorization..................................................................................9
4.4 Financial Statements..........................................................................10
4.5 Legal Proceedings.............................................................................10
4.6 No Undisclosed Liabilities....................................................................11
4.7 Governmental Permits and Contracts............................................................11
4.8 Real Property.................................................................................11
4.9 Equipment.....................................................................................12
4.10 Title.........................................................................................12
4.11 Tax Matters...................................................................................13
4.12 Compliance; FCC and Copyright Matters.........................................................13
4.13 Consents......................................................................................14
4.14 Systems Data..................................................................................15
4.15 Environmental Compliance......................................................................15
4.16 Employment Matters............................................................................16
4.17 Insurance.....................................................................................17
4.18 Year 2000.....................................................................................17
5. REPRESENTATIONS AND WARRANTIES BY PURCHASER............................................................17
5.1 Organization and Standing.....................................................................18
5.2 Power and Authority...........................................................................18
5.3 Authorization.................................................................................18
5.4 Consents......................................................................................18
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
Page
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<S> <C>
5.5 Legal Proceedings.............................................................................18
6. ADDITIONAL UNDERTAKINGS AND ACTIONS....................................................................19
6.1 Consents......................................................................................19
6.2 Access to Assets..............................................................................19
6.3 Operations Prior to Closing...................................................................19
6.4 Antitrust Laws Compliance.....................................................................20
6.5 Confidentiality...............................................................................20
6.6 Employees.....................................................................................20
6.7 Transfer Taxes................................................................................20
6.8 Rebuild Capital Expenditures..................................................................20
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER.......................................................21
7.1 HSR Act.......................................................................................21
7.2 Governmental or Legal Action..................................................................21
7.3 Representations; Performance of Agreements....................................................21
7.4 Consents and Approvals........................................................................21
7.5 Franchise Extension...........................................................................21
7.6 Transfer Documents............................................................................22
7.7 Ancillary Documents...........................................................................22
7.8 Opinions of Seller's Counsel..................................................................22
7.9 Discharge of Liens............................................................................22
7.10 No Default Under Documents....................................................................22
7.11 Additional Documents and Acts.................................................................22
7.12 Closing of Related Transaction................................................................22
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER..........................................................22
8.1 HSR Act.......................................................................................23
8.2 Governmental or Legal Actions.................................................................23
8.3 Representations; Performance of Agreements....................................................23
8.4 Consent and Approvals.........................................................................23
8.5 Payments......................................................................................23
8.6 Ancillary Documents...........................................................................23
8.7 Opinion of Purchaser's Counsel................................................................23
8.8 Additional Documents and Acts.................................................................23
8.9 Closing of Related Transaction................................................................24
9. REMEDIES...............................................................................................24
9.1 Costs.........................................................................................24
9.2 Termination Without Liability.................................................................24
9.3 Termination on Default........................................................................24
10. INDEMNIFICATION........................................................................................24
10.1 Seller's Indemnity............................................................................24
10.2 Purchaser's Indemnity.........................................................................25
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
Page
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<S> <C>
10.3 Procedure.....................................................................................25
10.4 Limitation on Liability.......................................................................25
10.5 Survival......................................................................................25
11. MISCELLANEOUS PROVISIONS...............................................................................26
11.1 Entire Agreement, Modification and Waiver.....................................................26
11.2 Rights of Parties.............................................................................26
11.3 Assignment....................................................................................26
11.4 Construction..................................................................................26
11.5 Expenses of the Parties.......................................................................26
11.6 Further Assurances............................................................................27
11.7 Finders.......................................................................................27
11.8 Notices.......................................................................................27
11.9 Governing Law.................................................................................28
11.10 Severability..................................................................................28
11.11 Jurisdiction..................................................................................28
11.12 Counterparts..................................................................................28
11.13 Arbitration...................................................................................29
11.14 Knowledge.....................................................................................29
</TABLE>
-iii-
<PAGE> 5
LIST OF SCHEDULES AND EXHIBITS
Exhibit A Deposit Escrow Agreement
Exhibit B Indemnity Escrow Agreement
Exhibit C Assumption Agreement
Exhibit D Bill of Sale
Exhibit E Opinion of Seller's Counsel
Exhibit F Opinion of Seller's FCC Counsel
Exhibit G Opinion of Purchaser's Counsel
Exhibit H Consent of Franchisor
Exhibit I Lease Consent
Schedule 4.3 Authorizations: Conflicts
Schedule 4.4 Financial Statements: Material Adverse Changes
Schedule 4.5 Legal Proceedings
Schedule 4.6 No Undisclosed Liabilities
Schedule 4.7 Governmental Permits and Contracts
Schedule 4.8 Real Property
Schedule 4.9 Equipment
Schedule 4.10(a) Title: Permitted Encumbrances
Schedule 4.10(b) Title: Owned and Leased Property
Schedule 4.11 Tax Matters
Schedule 4.12 Compliance: FCC and Copyright Matters
Schedule 4.13 Consents
Schedule 4.14 Systems Data
Schedule 4.15 Environmental Matters
Schedule 4.16(a) Employment: Employee Benefit Plans
Schedule 4.16(b) Employment: Employees
Schedule 4.17 Insurance and Bonds
Schedule 5.4 Purchaser Consents
Schedule 5.5 Purchaser Legal Proceedings
-iv-
<PAGE> 6
ASSET PURCHASE AGREEMENT
(CPLP)
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is made as of this
18th day of December, 1998 by and between Cencom Partners, L.P., a limited
partnership organized and existing under the laws of the State of Delaware
("Seller") and Etan Industries, Inc., a corporation organized and existing under
the laws of the State of Texas, ("Purchaser").
W I T N E S S E T H:
WHEREAS, Seller is the owner and operator of certain cable television
systems serving the communities of Schulenburg, LaGrange, Hallettsville, Weimer,
and Giddings, Texas (collectively, the "Systems"); and
WHEREAS, Seller desires to sell, and Purchaser desires to purchase,
pursuant to the terms and subject to the conditions of this Agreement, the
Systems together with all of the assets, property, interests, rights and
privileges of Seller used primarily in connection with the operation of the
Systems.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. PURCHASE AND SALE OF ASSETS
1.1 Assets to be Sold. Subject to the terms and conditions of this
Agreement, Seller hereby agrees to sell, convey, assign, transfer and deliver to
Purchaser at the Closing (as defined below) and Purchaser hereby agrees to
acquire, for the consideration hereinafter provided, all of the assets,
properties, rights, titles and privileges of Seller of every kind, character and
description, whether tangible, intangible, real, personal or mixed, of whatever
description and wherever located, involved in, related to, owned, used or held
for use primarily in connection with the ownership, use or operation of the
Systems, whether or not required to be listed on Seller's balance sheet in
accordance with generally accepted accounting principles ("GAAP"), including,
without limitation, all additions, accessions and substitutions made prior to
the Closing Date (as defined below) as permitted pursuant to the terms of this
Agreement (collectively, the "Assets"), but excluding the Excluded Assets
(defined below). The Assets include, without limitation, the following:
(a) all the rights of Seller under any and all
franchises, licenses (including those required by the Federal
Communications Commission (the "FCC")), permits, authorizations,
easements, registrations, leases, variances, consents and certificates
and similar rights which authorize or are required in connection with
the operation of the Systems including any applications for any of the
foregoing (collectively, the "Governmental Permits") that are obtained
from or are pending with any federal, state, county, municipal or local
government and any governmental agency, bureau, commission, authority,
body, court (or other judicial body), administrative or executive
agency, legislative or quasi-legislative body, commission, council or
other agency,
<PAGE> 7
including any such agency, authority or body responsible for the
issuance or administration of any Governmental Permit or whose consent
is required for the sale and transfer of the Assets (each, a
"Governmental Authority");
(b) all the rights of Seller under any and all
subscription contracts with subscribers of Seller, pole attachment
agreements, access agreements and all other contracts, leases,
agreements or undertakings (other than those that are included in the
Excluded Assets or which constitute Governmental Permits or Real
Property), written or oral, relating primarily to the ownership,
operation, use or maintenance of the Systems or the Assets (the
"Contracts");
(c) all of the real property interests of Seller which
relate primarily to the ownership, use, or operation of the Systems,
including fee and office and other leasehold interests, and all
improvements thereon and rights related thereto, such as towers,
fixtures, distribution plant, head-end equipment, subscriber
installations, licenses, easements, right of way and other interests
therein (collectively, the "Real Property");
(d) all accounts receivable owed to Seller in connection
with the operation of the Systems and uncollected as of the Closing
Date (collectively, the "Accounts Receivable");
(e) all subscriber deposits (including converter
deposits), tenant deposits and other amounts collected by Seller for
services, materials or equipment to be supplied from and after and
prorated as of the Closing Date;
(f) all items of tangible personal property owned, used
or held for use by Seller primarily in connection with the operation of
the Systems, including, without limitation, all physical plant and
equipment, including electronic devices, distribution plant, head-end
equipment, reception sites and related equipment, vehicles and all
inventories of materials, supplies, traps, test equipment, spare parts,
converters, tools, and similar items (collectively, the "Equipment");
and
(g) all files, books, records and subscriber lists, and
similar documents owned, used or held for use by Seller primarily in
connection with the Systems that are maintained by Seller and all other
licenses, permits and operating documents that are owned, used or held
for use by Seller primarily in connection with the Systems wherever
located.
1.2 Excluded Assets. Notwithstanding anything to the contrary in
this Agreement, the following assets (collectively, the "Excluded Assets") are
expressly excluded from this sale, are not to be purchased or assumed by
Purchaser, and do not constitute part of the "Assets":
(a) all cash, certificates of deposit, commercial paper,
treasury bills and notes and all other marketable securities;
-2-
<PAGE> 8
(b) all assets, properties, rights, titles and privileges
of Seller not involved in, related to, owned, used or held for use
primarily in connection with the ownership, use or operation of the
Systems;
(c) any insurance policies and rights and claims
thereunder;
(d) all rights to tax refunds and refunds of fees of any
nature, in either case relating to the period prior to the Closing
Date;
(e) Seller's rights under this Agreement, and the
Purchase Price (as defined below) payable pursuant hereto;
(f) Seller's organizational documents, partnership and
financial records, including tax returns and all documents and records
not pertaining primarily to the Systems;
(g) the trade names "Charter Communications" and "Cencom
Cable" and related logos;
(h) Seller's contracts with providers of television
programming and all other agreements of Seller that do not pertain
primarily to the Systems;
(i) Seller's Accounts Receivable in excess of forty-five
(45) days past date invoiced; and
(j) Seller's agreement for management services currently
affecting the Systems.
2. CALCULATION AND PAYMENT OF PURCHASE PRICE
2.1 Purchase Price. The Purchase Price to be paid by Purchaser to
Seller for the Assets shall be:
(a) an amount equal to Eleven Million Two Hundred
Thousand Dollars ($11,200,000) (the "Purchase Price"), subject to
adjustment as provided in this Section 2;
(b) an amount equal to (i) one hundred (100%) of the
Accounts Receivable which, as of the Closing Date, are not more than
thirty (30) days past date invoiced and (ii) fifty percent (50%) of the
Accounts Receivable which, as of the Closing Date, are more than thirty
(30) but not more than forty-five (45) days past date invoiced (the
"Accounts Receivable Payment"); and
-3-
<PAGE> 9
(c) the assumption by Purchaser of certain obligations of
Seller as contemplated in this Section 2.
2.2 Payment of Purchase Price. The Purchase Price and the Accounts
Receivable Payment shall be payable by wire transfer of immediately available
funds as follows:
(a) Two Hundred Twenty-Four Thousand Dollars ($224,000)
(the "Deposit") to be deposited upon the execution of this Agreement in
an interest bearing account, with interest accruing for Purchaser's
benefit (subject to Section 2.3), to be held in escrow by Thompson
Coburn, St. Louis, Missouri (the "Deposit Escrow Agent"), and governed
by the terms of an escrow agreement in a form attached as Exhibit A
(the "Deposit Escrow Agreement") to be executed simultaneously with the
execution of this Agreement;
(b) Ten Million Four Hundred Sixteen Thousand Dollars
($10,416,000), as adjusted pursuant to the terms of this Agreement (the
"Closing Payment"), plus, the Accounts Receivable Payment, to be paid
to Seller on the Closing Date.
(c) Five Hundred Sixty Thousand Dollars ($560,000) (the
"Holdback"), to be deposited on the Closing Date in an interest bearing
account, to be held in escrow by an escrow agent to be mutually agreed
upon by the parties (the "Indemnity Escrow Agent") for a twelve (12)
month period following the Closing Date and governed by the terms of an
escrow agreement in a form attached as Exhibit B (the "Indemnity Escrow
Agreement").
2.3 Payment of Deposit. If the purchase and sale of the Assets is
not consummated as a result of a material breach by Purchaser of any of its
obligations under this Agreement and Seller is not then in material breach of
any of its obligations under this Agreement, Seller shall be entitled to the
Deposit (together with all interest accrued thereon) promptly after termination
of this Agreement. The payment of the Deposit to Seller shall be liquidated
damages for the default by Purchaser and shall be in full settlement of any
damages of any nature or kind that Seller may suffer or allege to have suffered
as a result of any such breach by Purchaser. The receipt by Seller of the
Deposit (together with all interest accrued thereon) shall be Seller's sole and
exclusive remedy in the event of any such breach by Purchaser. If the purchase
and sale of the Assets is not consummated for any reason other than as set forth
above, Purchaser shall be entitled to a refund of the Deposit, and promptly
after the termination of this Agreement, the Deposit (together with all interest
accrued thereon) shall be paid to Purchaser.
2.4 Payment of Purchase Price. At the Closing, Purchaser shall
deliver or cause to be delivered by wire transfer of immediately available
funds: (a) to Seller, the Deposit, the Closing Payment and the Accounts
Receivable Payment; and (b) to the Indemnity Escrow Agent, the Holdback, to be
held pursuant to the terms of the Indemnity Escrow Agreement, which funds shall
be paid in whole or in part in accordance with the terms of the Indemnity Escrow
Agreement to (i) Purchaser if it is determined that Purchaser is entitled to
indemnification
-4-
<PAGE> 10
payments under Section 10 of this Agreement or (ii) to Seller to the extent it
is determined that Purchaser is not entitled to any such payments.
2.5 Assumption of Liabilities. As additional consideration for the
Assets, Purchaser shall, from and after the Closing Date, and pursuant to an
Assignment and Assumption Agreement in a form attached as Exhibit C (the
"Assumption Agreement"), assume only those obligations of Seller for which
Purchaser has received an adjustment pursuant to this Section 2 and those
obligations of Seller arising under or in connection with all agreements,
franchises, leases, easements and other Contracts disclosed by Seller relating
to the operations of the Systems following the Closing Date. In addition,
Purchaser shall assume (i) all obligations relating to the Assets entered into
by Seller in the ordinary course of business consistent with past practices as
reflected in the Seller Financial Statements between the date hereof and the
Closing Date (other than obligations, if any, relating to the Excluded Assets),
to the extent such obligations continue after the Closing and (ii) all
liabilities incurred in the ordinary course of business consistent with past
practices as reflected in the Seller Financial Statements relating to (A) all
customer advance payments and deposits, prepaid advertising revenues and other
prepaid revenues or income received or held by Seller for services to be
rendered or obligations to be performed in connection with the Systems
subsequent to the Closing Date and (B) the performance of the Contracts from and
after the Closing Date.
2.6 Excluded Liabilities. Anything herein to the contrary
notwithstanding, there is excluded from the obligations being assumed by
Purchaser pursuant to this Section, and Seller hereby agrees to retain and
discharge and, subject to Section 10 hereof, to indemnify and hold harmless
Purchaser from and against, any and all liabilities of Seller not expressly
assumed by Purchaser pursuant to the terms hereof, including, without
limitation, (i) all obligations of Seller relating to the Systems and arising
prior to 11:59 p.m. on the Closing Date or arising after the Closing Date and
not expressly assumed by Purchaser hereunder, (ii) obligations of Seller arising
either before or after the Closing Date with respect to matters unrelated to the
Systems, (iii) indebtedness for money borrowed and obligations to Seller's
partners, attorneys, accountants, brokers, and other affiliates and service
providers, and (iv) obligations of Seller for federal, state and local taxes,
except for those taxes for which an adjustment has been made in favor of
Purchaser pursuant to this Agreement, and except that Purchaser shall be
responsible for all sales, transfer, excise and similar taxes relating to the
purchase of the Assets.
-5-
<PAGE> 11
2.7 Allocation of Consideration. The parties agree that the
consideration payable for the Assets, consisting of the Purchase Price and the
liabilities of Seller to be assumed by Purchaser hereunder, shall be allocated
among the Assets in accordance with Section 1060 of the Internal Revenue Code of
1986, as amended, and the regulations thereunder, as set forth in a Schedule to
be agreed upon by the parties at Closing. The parties agree to cooperate in the
preparation, execution and filing with the Internal Revenue Service ("IRS") of
all information to be filed by the parties under Section 1060 and such
regulations, to file Form 8594 (or any substitute therefor) when required by
applicable law, to adopt the allocation of the Purchase Price among the Assets
as set forth in such Schedule and to refrain from taking any position
inconsistent therewith upon examination by the IRS of any such tax return, or in
any refund claim, litigation or otherwise.
2.8 Adjustments.
(a) At least three (3) calendar days prior to the Closing
Date, Seller shall deliver to Purchaser a certificate (the "Accounts
Receivable Certificate") setting forth as of the Closing Date Seller's
good faith estimate of the Accounts Receivable Payment, together with
an accounts receivable aging schedule as of the date of the Accounts
Receivable Certificate.
(b) Subscriber revenues, prepaid expenses (other than
insurance premiums), personal and real property ad valorem taxes,
privilege franchise or license taxes, franchise and copyright fees,
utility charges, payments under the Contracts, fees for transferable
licenses, equipment maintenance charges, accrued vacation of Seller's
employees as of the Closing Date who became employees of Purchaser and
all similar revenue and expense items as determined in accordance with
Seller's accounting methods consistently applied will be prorated on an
accrual basis between Purchaser and Seller as of the Closing Date
("Prorations Adjustment"), so that, as between Purchaser and Seller,
Seller shall receive the benefit of all revenues and be responsible for
all expenses and liabilities allocable to the period prior to and
including the Closing Date and Purchaser shall receive the benefit of
all revenues and be responsible for all expenses and liabilities
allocable to the period after the Closing Date. At least three (3)
calendar days prior to the Closing, Seller shall deliver to Purchaser a
certificate as to Seller's reasonable best estimate of the itemized
Prorations Adjustment ("Prorations Certificate") and, if such estimate
will result in an adjustment in the Purchase Price, then the Closing
Payment paid by Purchaser at the Closing shall be preliminarily
adjusted as required by such estimate unless such estimate is objected
to in writing by Purchaser. Prior to the Closing, Seller shall provide
Purchaser or Purchaser's representative with copies of or reasonable
access to all Seller's books and records as Purchaser may reasonably
request for purposes of verifying any adjustment set forth in such
Certificate, but without limiting Seller's obligations hereunder to
certify the accuracy of all adjustment. Seller and Purchaser agree to
work together in good faith to resolve on or before the Closing Date
any disagreement with respect to any matter set forth in the Prorations
Certificate.
(c) As soon as practicable, but in any event within sixty
(60) days after the Closing Date, Purchaser shall prepare and deliver
to Seller a certificate setting forth
-6-
<PAGE> 12
Purchaser's computations of the Accounts Receivable Payment and the
Prorations Adjustment. After such certificate has been delivered to
Seller, Seller shall have a period of fifteen (15) days to review such
computations and to present its good faith objections, if any, to
Purchaser. Purchaser shall grant Seller or Seller's representatives
reasonable access to Purchaser's books and records as Seller may
reasonably request for purposes of verifying such computations. Such
certificate shall be final and conclusive unless objected to by Seller
in writing within such fifteen (15) day period. During the ten (10)
days after Purchaser's receipt of any such written objection from
Seller, Seller and Purchaser shall attempt in good faith to reach
agreement upon the actual amount of these adjustments. A payment shall
be made by Seller or Purchaser in cash to the other party in accordance
with such agreement within five (5) business days after any such
agreement as to the proper amounts, taking into account any preliminary
adjustment for such items made at the Closing. If Seller and Purchaser
are unable to agree upon the amount of such adjustment within such ten
(10) day period, then the matter shall be submitted to a mutually
agreeable nationally recognized independent accounting firm which has
not represented Purchaser, Seller or their affiliates in the past five
years, and such accounting firm shall render a written decision to
Seller and Purchaser within thirty (30) calendar days after it has been
retained, which decision shall be final and whose fees shall be paid
one-half by Purchaser and one-half by Seller.
3. CLOSING
3.1 Closing Date. The closing of the transactions contemplated
hereunder (the "Closing") shall take place at the offices of Bank of America,
N.A., Dallas, Texas, at 9:00 a.m. on the last day of the month following the
date on which all necessary consents are obtained and conditions satisfied (the
"Closing Date"); provided, however, that if the last day of such month shall
occur within five (5) business days of the date on which such consents are
obtained and conditions satisfied, then the Closing Date shall be the last day
of the next succeeding month; and, provided, further, that in no event shall the
Closing Date be later than March 31, 1999. Purchaser shall be entitled to
possession of the Assets upon the Closing.
3.2 Deliveries by Seller. At the Closing, Seller shall deliver the
following:
(a) a bill of sale in the form attached as Exhibit D, and
all such other general instruments of transfer, assignment and
conveyance, general warranty deeds, certificates of title, assignments,
evidences of consent or waiver, and other instruments or documents in
form and substance reasonably satisfactory to Purchaser and its counsel
as shall be necessary to evidence or perfect the sale, assignment,
transfer and conveyance of the Assets to Purchaser and effectively vest
in the Purchaser all right, title and interest in and to the Assets
free and clear of any and all liens, encumbrances and other
restrictions (other than liens and encumbrances agreed upon by the
parties and set forth in Schedule 4.10, such liens and encumbrances
being "Permitted Encumbrances") in accordance with the terms of this
Agreement, together with possession (or constructive possession, in the
case of intangibles) thereof;
-7-
<PAGE> 13
(b) an executed Assumption Agreement;
(c) a Certificate of Non-Foreign Status which meets the
requirements of Treasury Regulation 1.1445-2, duly executed and
acknowledged, certifying under penalties of perjury that Seller is not
a foreign person for United States income tax purposes;
(d) originals or true and complete copies of all books
and records, memoranda and data relating to the Systems, other than
Excluded Assets; provided that Seller may retain such duplicate copies
as Seller reasonably deems appropriate;
(e) a certificate of the general partner of Seller that
(i) all appropriate action authorizing the execution and delivery of
the Transaction Documents (as defined below) and the transactions
contemplated hereunder and thereunder have been taken and (ii) Seller
has satisfied the conditions of Section 7.3 with respect to
representations and warranties and the performance of covenants,
obligations and agreements.
(f) an opinion of Thompson Coburn, counsel to Seller, in
the form attached as Exhibit E;
(g) an opinion of Cole, Raywid & Braverman, LLP, special
FCC counsel to Seller, in the form attached as Exhibit F;
(h) a certificate of good standing with respect to each
of Seller and Seller's general partner certified to by the Secretary of
the State of Delaware, a Certificate of Existence with respect to each
of Seller and Seller's general partner certified to by the Secretary of
State of Texas, and a Certificate of Good Standing with respect to each
of Seller and Seller's general partner certified to by the Comptroller
of Public Accounts of Texas;
(i) copies of all consents from Governmental Authorities,
franchises, licenses, leases, Contracts and other documents which are
included in the Assets and not previously delivered to Purchaser; and
(j) such other documents, opinions, instruments and
certificates, in form and substance reasonably satisfactory to
Purchaser, as Purchaser may reasonably request.
3.3 Deliveries by Purchaser. At the Closing, Purchaser shall
deliver the following:
(a) the payments described in Section 2.4;
(b) an executed Assumption Agreement;
(c) a certificate of a properly authorized officer of
Purchaser that (i) all appropriate actions authorizing the execution
and delivery of the Transaction Documents
-8-
<PAGE> 14
(as defined below) and transactions contemplated hereunder and
thereunder have been taken and (ii) Purchaser has satisfied the
conditions of Section 8.3 with respect to representations and
warranties and the performance of covenants, obligations and
agreements;
(d) an opinion of Prager, Metzger & Kroemer PLLC, counsel
to Purchaser, in the form attached as Exhibit G;
(e) a Certificate of Existence with respect to Purchaser,
certified to by the Secretary of the State of Texas, and a Certificate
of Good Standing with respect to Purchaser, certified to by the
Comptroller of Public Accounts of Texas; and
(f) such other documents, opinions, instruments and
certificates, in form and substance reasonably satisfactory to Seller,
as Seller may reasonably request.
4. REPRESENTATIONS AND WARRANTIES BY SELLER
Seller hereby represents and warrants to Purchaser that:
4.1 Organization and Standing. Seller is a limited partnership
duly formed, validly existing and in good standing as a limited partnership
under the laws of the jurisdiction of its formation. Seller is duly qualified to
transact business in each jurisdiction where the failure to so qualify would
have a material adverse effect on Seller's ability to conduct its business or
operations or to consummate the transactions to be consummated by it under this
Agreement and Seller is in good standing in each jurisdiction in which it is so
qualified.
4.2 Power and Authority. Seller has all requisite power and
authority to execute, deliver and perform this Agreement and to take any action
which it may be required to take hereunder. Seller further represents and
warrants that it has all requisite power to perform its business as now
conducted and to own its properties and assets.
4.3 Authorization. The execution, delivery and performance of this
Agreement by Seller has been duly and validly authorized by all partnership
action required to be taken. This Agreement has been, and on the Closing Date
all other documents, agreements and instruments to be executed and delivered at
the Closing by Seller pursuant hereto (together with all such documents,
agreements and instruments to be executed and delivered by each other party
hereto, the "Transaction Documents") will have been, duly and validly executed
by properly authorized officers or other authorized representatives of the
General Partner of Seller. This Agreement constitutes, and on the Closing Date
all other Transaction Documents to which Seller is or will be a signatory will
constitute, the valid and binding obligations of Seller, enforceable against
Seller in accordance with their respective terms, except as such enforceability
may be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights in general or by principles of equity
(regardless of whether such enforceability is contested in a proceeding in
equity or at law). Except as set forth on Schedule 4.3, neither the execution of
this Agreement or any of the Transaction Documents, nor the consummation of the
transactions contemplated
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herein or therein, nor the performance by Seller of its obligations under the
Transaction Documents, will violate, conflict with, or result in the
acceleration or termination of, any partnership instrument of Seller, or any
agreement, permit, order, judgment, decree, law or regulation to which Seller is
a party or by which it is, or the Assets and the Systems are bound.
4.4 Financial Statements.
(a) Seller has delivered to Purchaser correct and
complete copies of statements of revenues, billing records and direct
operating expenses such as salaries, copyright fees and property taxes
for the Systems for the year ended December 31, 1997 and the nine (9)
month period ended September 30, 1998 (collectively, the "Seller
Financial Statements"). The Seller Financial Statements (i) have been
prepared in accordance with the books and records of Seller and (ii)
fairly present, in all material respects, the results of operations of
the Systems as of and for the respective periods ended on such dates
consistently applied in accordance with generally accepted accounting
principles.
(b) Since the latest date of the Seller Financial
Statements generally, or as set forth in Schedule 4.4, there has been
no material adverse change in the assets, liabilities, revenues or
earnings of the Systems or otherwise in the business or condition,
financial or otherwise, of the Systems, nor any change that would
adversely affect the ability of the Systems to carry on its business as
previously conducted in any material respect. To the best of Seller's
knowledge and without notice to the contrary, no fact or condition
exists or is contemplated or threatened that might cause a material
adverse change in the Assets or business of the Systems.
4.5 Legal Proceedings. Except as set forth on Schedule 4.5, and
except for any judgments, orders, actions, suits, proceedings or investigations
as may affect the cable television industry (national or regional) generally,
there is no judgment or order outstanding, or any claim, action, suit,
arbitration, proceeding, controversy or investigation by or before any
Governmental Authority or any arbitrator pending, or to the best of Seller's
knowledge, threatened, involving or affecting any of the Assets or the Systems,
which, if adversely determined, would have a material adverse effect on the
Assets or the Systems or would materially impair the ability of Seller to
perform its obligations under the Transaction Documents. Seller is not in
default or violation, and, to the best of Seller's knowledge, no event or
condition exists which, with notice or lapse of time or both, would become or
result in a default under or violation of any judgment or order of any court or
Governmental Authority.
4.6 No Undisclosed Liabilities. Except as disclosed in this
Agreement or on Schedule 4.6 or as incurred in the ordinary course of business
since the latest date of the Seller Financial Statements, Seller has no material
liability or obligation (direct or indirect, fixed contingent or otherwise)
arising out of or in any way related to the Assets or the operation of the
Systems which is not properly reflected or reserved in the Seller Financial
Statements.
4.7 Governmental Permits and Contracts. Schedule 4.7 contains a
complete list of all Governmental Permits, Contracts, must carry elections and
retransmission consents as of the date
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<PAGE> 16
hereof that are required for the operation of the Systems in the manner and to
the full extent as presently conducted, with the parties agreeing that the list
of must carry elections and retransmission consents will be revised and updated
by Seller within thirty (30) days of the date of this Agreement with such update
to indicate whether such agreements will be assigned and whether prior consent
to assign is required. Except as set forth on Schedule 4.7, Seller has not given
or received notice of termination, cancellation, dispute or default or taken or
become aware of any action by any Governmental Authority or party to any
Contract inconsistent with the continuance of any Governmental Permit or
Contract. Except as set forth on Schedule 4.7, each of the Contracts is in full
force and effect and current as to the performance thereof by Seller, and, to
the best of Seller's knowledge, by the other parties thereto and Seller is not
in default or violation in any material respect, and, to the best of Seller's
knowledge, no event or condition exists which, with notice or lapse of time or
both, could become a result in a material default under or a violation of any
judgment order, or any court or Governmental Authority. Except for Contracts
shown as oral contracts on Schedule 4.7, true and correct copies of each
Governmental Permit and Contract being assigned have been furnished to
Purchaser.
4.8 Real Property. Schedule 4.8 contains a complete list and
description of all Real Property owned, leased, occupied, or used by Seller
primarily in the operation of the Systems as of the date hereof, which list
indicates the use made of such Real Property by Seller in the operation of the
Systems. Except as set forth in Schedule 4.8, Seller has unencumbered title in
fee simple, except for Permitted Encumbrances, or holds the leasehold to all
Real Property. There are not pending or, to the best of Seller's knowledge,
threatened in writing or orally, any condemnation actions or special assessments
or any pending proceedings for changes in the zoning with respect to such Real
Property or any part thereof, and Seller has not received any notice, written or
oral, of the desire or intent of any Governmental Authority or other entity to
take or use any Real Property or any part thereof. All structures on the Real
Property are structurally sound and in good operating condition and repair
(reasonable wear and tear excepted) and all Real Property and such structures
conform, including usage by Seller, in all material respects with all applicable
contractual requirements and zoning and other legal requirements pertaining to
or affecting such Real Property. All leases and subleases pursuant to which any
of the Real Property is occupied or used are set forth on Schedule 4.8, and such
leases and subleases are valid, binding and enforceable in accordance with their
respective terms, and there are no existing material defaults thereunder by
Seller or, to the best of Seller's knowledge, any other person or events that
with notice or lapse of time, or both, would constitute defaults thereunder by
Seller or, to the best of Seller's knowledge, any other person. Seller has
delivered to Purchaser a true and correct copy of each lease and sublease listed
on Schedule 4.8. All easements, rights-of-way and other rights which are
necessary in any material respect for Seller's current use of any Real Property
are listed on Schedule 4.8 and are valid and in full force and effect, and
Seller has not received any notice with respect to the termination or breach of
any of these rights.
4.9 Equipment. Schedule 4.9 contains a list of all material
Equipment used or held for use by Seller primarily in the operation of the
Systems as of the date hereof. The Equipment is in good operating condition and
repair (reasonable wear and tear excepted), and usable and adequate for the
operations of the Systems in the manner as presently conducted. All leases
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<PAGE> 17
(including capital leases) pursuant to which any Equipment is used are set forth
on Schedule4.9. Copies of such leases have been delivered to Purchaser and,
assuming that consents to the transfer of such leases to Purchaser are obtained
from the respective lessors, such leases are fully assignable to Purchaser
without such assignment causing any change in the terms (including compensation)
of such leases.
4.10 Title.
(a) Seller has good and marketable title to the Assets
and at the Closing will sell, transfer and assign the Assets to
Purchaser, free and clear of any liens, security interests, pledges or
encumbrances or other adverse claims, other than Permitted Encumbrances
or as otherwise set forth on Schedule 4.10(a). Except as listed on
Schedule4.10(a), Seller has not signed any Uniform Commercial Code
financing statement (other than filings made only for informational
purposes and not relating to any security interest) or any security
agreement or mortgage or similar agreement authorizing any person to
file any financing statement or claim any security interest, pledge, or
encumbrance with respect to any of the Assets. Seller owns or leases
all tangible physical properties which are necessary to permit the
operation of the Systems by the Purchaser as currently operated and all
such properties are included within the Assets.
(b) (i) Seller has no properties or assets used or held
for use primarily in connection with the Systems which are not included
in the Assets, other than the Excluded Assets and (ii) the properties
and assets to be transferred to Purchaser at the Closing include all
Equipment, Contracts, Governmental Permits, Real Property and other
property and assets necessary for the operation of the Systems in all
material respects in the ordinary course of business as conducted prior
to the Closing Date. Schedule 4.10(b) identifies the ownership
interests and leasehold interests of Seller with respect to the Assets.
4.11 Tax Matters. Seller has as of the date hereof timely filed in
proper form all tax returns or reports with respect to the Assets or the Systems
that are required to be filed. All such tax returns or reports were prepared in
good faith and are accurate and complete in all material respects, and Seller
has no knowledge of any basis for assessment of any addition to any taxes shown
thereon. All taxes, charges, fees or other assessments due or payable by Seller
with respect to the Assets or the Systems have been paid, except to the extent
any such taxes, charges, fees or other assessments (as set forth as of the date
hereof on Schedule 4.11) are being contested in good faith by appropriate
proceedings by Seller and for which adequate reserves for any disputed amounts
shall have been established in accordance with GAAP. Except as set forth on
Schedule4.11, as of the date hereof, there are no pending or, to the best of
Seller's knowledge, threatened actions, audits, examinations, proceedings or
investigations by any relevant taxing authority with respect to the Assets or
the Systems. As of the date hereof, (i) there is no outstanding request for an
extension of time within which to pay any taxes with respect to the Assets or
the Systems, (ii) there has been no waiver or extension of any applicable
statute of limitations for the assessment or collection of any taxes with
respect to the Assets or the Systems, and (iii) Seller has withheld and paid in
a timely manner to all relevant taxing
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<PAGE> 18
authorities all payments for withholding taxes, unemployment insurance and other
amounts required to be withheld and paid. All taxes of or with respect to Seller
and all taxes with respect to the Assets and the Systems relating to the period
prior to the Closing Date shall be the responsibility of Seller, other than
those that have been assumed by Purchaser at the Closing and for which as
adjustment to the purchase price has been made and other than any sales,
transfer, excise and similar taxes relating to the purchase of the Assets, which
taxes are the responsibility of Purchaser.
4.12 Compliance; FCC and Copyright Matters.
(a) Subject to Section 4.12(b) Seller and the Systems
have complied, and are in compliance, in all material respects with the
Governmental Permits and all statutes, ordinances, codes, laws, rules,
regulations, orders or other requirements, standards or procedures
enacted, adopted or applied by any Governmental Authority including,
but not limited to, the National Electric Code and the National
Electric Safety Code.
(b) Seller has duly and timely filed all cable television
registrations and filings with respect to the Systems which are
required to be filed under The Communications Act of 1934, as amended
(which shall be deemed to include, but not limited to, the Cable
Communications Policy Act of 1984, the Cable Television Consumer
Protection and Competition Act of 1992 and the Telecommunications Act
of 1996), and the rules and regulations thereunder and as from time to
time in effect (collectively, the "Communications Act"), and at Closing
will be in compliance in all material respects with the Communications
Act. Seller has recorded or deposited with and paid or accrued for
payment to the United States Copyright Tribunal the royalty fees, and
has filed and recorded all notices (including those necessary to
qualify for the compulsory licenses for FM and TV stations), statements
of account, and other documents and instruments required under the
Copyright Act of 1976 with respect to the Systems. Seller has obtained
and is in material compliance with the authorizations required for the
operation of the Systems by the FCC, the Federal Aviation
Administration (the "FAA"), the Register of Copyrights and any other
Governmental Authority. The Systems monitors signal leakage, maintains
applicable signal leakage logs, conducts cumulative leakage tests,
demonstrates compliance with the cumulative leakage criteria, and at
Closing will be in material compliance with the frequency separation
standards, in compliance with the requirements set forth in 47 C.F.R.
76.610 through 76.619. Seller has filed with the FCC with respect to
the Systems all notifications of utilization of frequencies in the
108-137 Mhz and 225-400 Mhz bands and all other reports required to be
filed under such rules and regulations and has not received any
notification of objection thereto by the FCC which has not been
promptly resolved by Seller with no material adverse impact on the
Systems. Seller is duly authorized under FCC and FAA rules, regulations
and orders to distribute to subscribers of the Systems all the signals
currently being carried and is licensed to operate any business radio
and cable access relay service system being operated by the Systems,
and the operation by Seller of any facility licensed by the FCC or FAA
used in conjunction with the operation of the Systems is in material
compliance with the rules and regulations of the FCC and the FAA.
Except as set forth on Schedule
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<PAGE> 19
4.12, as of the date hereof, there is no application, complaint or
proceeding pending or, to the best of Seller's knowledge, threatened
before the FCC, FAA, the U.S. Copyright Office or any Governmental
Authority relating to the operation of the Systems. All such
proceedings relating to the period prior to the Closing Date shall be
the responsibility of Seller. Seller has complied in all material
respects with all requirements of the FCC with respect to the Systems
concerning, notifications to the FAA with respect to the construction
and/or alteration of its antenna structures and "no hazard"
determinations for each antenna structure have been obtained, where
required.
(c) At Closing, except as set forth on Schedule 4.12, the
operation of the Systems and all facilities used in conjunction with
the operation of the Systems will be in compliance in all material
respects with (i) the Communications Act, (ii) all customer service,
technical and engineering standards required to be met under the
Governmental Permits and applicable FCC rules and regulations, and
(iii) all other applicable rules, regulations, requirements and
policies of the FCC, including, but not limited to, Part 76 and Part 78
of the rules and regulations of the FCC and there are no existing
claims known to Seller to the contrary.
(d) Seller is in compliance in all material respects with
the Communications Act relating to the carriage of television signals
and customer service in those areas where Seller has received notice
pursuant to 47 C.F.R. 76.309 (a).
4.13 Consents. Except as set forth on Schedule 5.4, no consent,
authorization, approval, waiver, order, license, certificate or permit of or
from, or declaration or filing with any Governmental Authority, court or other
tribunal or any other person is required for Seller's execution or delivery of
this Agreement or any other Transaction Document, or the performance by Seller
in accordance with the terms hereof or thereof, or necessary to preclude any
cancellation, suspension, termination or reformation of any Governmental Permit
or Contract, other than filings and consents which, if not made or obtained,
would not have a material adverse effect on the Systems, or Purchaser's ability
to operate the Systems in the same manner in which it is currently being
conducted by Seller.
4.14 Systems Data. Schedule 4.14 sets forth for the Systems as of
September 30, 1998, the approximate number of plant miles (which approximation
is not less than 95% of the actual number of plant miles) and the approximate
number of homes passed (which approximation is not more than 105% of the actual
number of homes passed), the Systems' total revenue for the three (3) period
ended September 30, 1998, the number of Basic Subscribers (as defined below)
number of tier subscribers, number of pay units, current rates for the lowest
level of basic or standard cable service offered by the Systems ("Basic
Service"), the level of cable service containing the majority of the Systems'
satellite programming or the CPS tier (as defined by the FCC), premium services,
the date and amount of the last rate change for each of these services and the
channel capacity of the Systems. For the purpose of this Agreement, "Basic
Subscriber" means the sum of (i) the aggregate number of persons (excluding
"second connections," as such term is commonly understood in the cable
television industry, any account duplication, any account which has a disconnect
request pending at, or which has had service terminated as of, the
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Closing Date, any account obtained by offers made, promotions conducted or
discounts given outside the ordinary course of business and any account coming
within the definition of "Basic Subscriber" which has been compromised or
written off other than in the ordinary course of business consistent with past
practice) who: subscribe to Basic Service; have paid the applicable, full
non-discounted rated for at least one month's service (including deposit and
installation charges consistent with past practices); and have no outstanding
balance more than forty-five (45) days past due from the date invoiced, plus
(ii) the aggregate number of bulk rate equivalent subscribers of the Systems.
With respect to the Systems, the number of bulk rate equivalent subscribers
shall equal the quotient of (x) the aggregate monthly bulk rate revenues from
the provision of Basic Service for the Systems for the month proceeding Closing,
divided by (y) the standard rate for Basic Service and CPS tier service for the
Systems; provided, that the number of bulk rate equivalent subscribers shall not
include any subscriber (A) who has given notice on or before the Closing Date of
its intention to terminate service completely or who has had its service
terminated on or before the Closing Date or (B) who is explicitly excluded from
the definition of "Basic Subscriber" above.
4.15 Environmental Compliance.
(a) To the best of Seller's knowledge, except as set
forth on Schedule 4.15, no asbestos-containing materials, equipment
containing PCBs, underground storage tanks, or reportable quantities of
hazardous substances, wastes or other pollutants or contaminants [as
such terms are defined under applicable federal and state environmental
laws, including the Comprehensive Environmental Response, Compensation
and Liability Act of 1980 and the rules and regulations thereunder, as
amended, 42 U.S.C. ss.9601(14)] are or have been located, released,
disposed of, installed, used or exposed on or in connection with any of
the Assets, including the Real Property ("Environmental Matters"),
except for such substances which are in such amounts of the type
typically found in commercial cleaning products or standard office
supplies of businesses similar to the operation of the Systems. Seller
has not disposed of or requested any person to dispose of any
asbestos-containing materials, equipment containing PCBs, underground
storage tanks, hazardous substances, wastes, pollutants or contaminants
at any site, except at a site duly licensed for the receipt and
disposal of such materials and except in compliance with all applicable
law.
(b) Except as set forth in Schedule 4.15, Seller has no
knowledge or information of the existence of any Environmental Matters
affecting any other property which would adversely affect any Real
Property.
4.16 Employment Matters.
(a) Except as set forth on Schedule4.16(a), neither
Seller nor any affiliate of Seller maintains or sponsors, nor are they
required to make any contribution to, any pension, profit-sharing,
thrift or other retirement plan, medical, hospitalization, vision,
dental, life, disability or other insurance or benefit plan, deferred
compensation, bonus, fringe benefit, savings or other incentive plan,
severance plan or other similar plan,
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agreement, arrangement or understanding with respect to any employee in
connection with the Systems, and none of such plans is or is intended
to be subject to the provisions of ERISA or qualified under Section
401(a) of the Code, including, without limitation, an "employee welfare
plan" within the meaning of Section 3(1) of ERISA, an "employee benefit
plan" within the meaning of Section 3(3) of ERISA, a "defined benefit
plan" within the meaning of Section 3(35) of ERISA or any
"multi-employer plan" within the meaning of Section 3(37) of ERISA,
with respect to the operation of the Systems. Seller has not breached
any of the fiduciary responsibility provisions of Title I of ERISA nor
engaged in a transaction prohibited under Section 406 of ERISA or
Section 4975 of the Code which could result in material liability to
Seller and for which no exemption from the provisions thereof is
available or was obtained. Other than benefit claims and/or any
contribution and administration expenses arising under Seller's benefit
plans in the normal course, Seller has not incurred, and, to the best
of Seller's knowledge, no event has occurred which could cause Seller
to incur, any material liability under ERISA or the Code to any person,
including the Pension Benefit Guaranty Corporation, with respect to any
employee benefit plan maintained, or to which contributions are or were
required to be made, by any trade or business which is under common
control with Seller. Other than usual claims for benefits arising under
Seller's benefit plans in the normal course or as noted in Schedule
4.16(a), there are no, and the transactions contemplated by this
Agreement will not give rise to, any claims, suits or proceedings which
might cause Seller to incur any material liability to any employee
under any of its benefit plans, including any liability for severance
payments to any employee or former employee of Seller. Purchaser shall
have no liability or obligation with respect to any of Seller's benefit
plans, or termination thereof, as to any employee who, after the
Closing, becomes an employee of Purchaser, and all such liabilities or
obligations relating to the period prior to the Closing Date shall be
the responsibility of Seller. Except as noted in Schedule 4.16(a), and
except as required by the provisions of Section 601 et seq. of ERISA,
Seller has not made any commitments to provide any health or welfare
benefits to any employee or former employee of the Systems after such
employee resigns or retires from employment with Seller. The Closing
will not result in any multi-employer plan liability which could be
assessed against Purchaser.
(b) Except as disclosed on Schedule 4.16(b), (i) Seller
is not a party to any contract with any labor organization, nor has it
agreed to recognize any union or other collective bargaining unit nor
has any union or other collective bargaining unit been certified as
representing any of its employees with respect to the operation of the
Systems, (ii) there is no representation or organizing effort pending
or to the best of Seller's knowledge threatened against, affecting or
involving Seller or the operation of the Systems, and (iii) Seller has
experienced no strikes, work stoppages, picketing, grievance
proceedings, arbitrations, lockouts, slowdowns, any other labor
disputes, claims of unfair labor practices filed or, to the best of
Seller's knowledge threatened to be filed, with respect to the
operation of the Systems. Neither Seller nor any agent, representative
or employee of Seller has committed any unfair labor practice as
defined in the National Labor Relations Act of 1974, as amended, and
there is not now pending or, to the best of Seller's knowledge,
threatened, any charge or complaint against Seller
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<PAGE> 22
by the National Labor Relations Board or any representative thereof.
Purchaser shall have no liability or obligation with respect to any
unfair labor practices, charges and complaints relating to Seller which
occurred or arose prior to the Closing Date. Schedule 4.16(b) sets
forth each employment agreement to which Seller is a party.
4.17 Insurance. Seller has in force policies of insurance with
respect to the Assets and the Systems, and all bonds required to be obtained by
Seller with respect to the Systems. All such bonds are set forth on
Schedule4.17. Such policies and bonds are in full force and effect.
4.18 Year 2000. Notwithstanding anything to the contrary contained
in this Agreement, Seller makes no representation or warranty of any kind with
respect to whether the Systems, the Assets or any part thereof, are Year 2000
Compliant. For purposes of this Section 4.18, an item is "Year 2000 Compliant"
if such item is designed to be used prior to, during and after the Gregorian
calendar year 2000 A.D. and will operate during each such time period without
error relating to date data, specifically including any error relating to, or
the product of, date data which represents or references different centuries or
more than one century.
5. REPRESENTATIONS AND WARRANTIES BY PURCHASER
Purchaser hereby represents and warrants to Seller that:
5.1 Organization and Standing. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation. Purchaser is duly qualified to transact business
in each jurisdiction where the failure to so qualify would have a material
adverse affect on Purchaser's ability to conduct its business or operations or
to consummate the transactions to be consummated by it under this Agreement and
Purchaser is in good standing in each jurisdiction in which it is so qualified.
5.2 Power and Authority. Purchaser has all requisite power and
authority to execute, deliver and perform this Agreement and to take any action
which it may be required to take hereunder.
5.3 Authorization. The execution, delivery and performance of this
Agreement by Purchaser has been duly and validly authorized by all corporate
action required to be taken. This Agreement has been, and on the Closing Date
all other of the Transaction Documents to which Purchaser is or will be a
signatory will have been, duly and validly executed by properly authorized
officers or other authorized representatives of Purchaser. This Agreement
constitutes, and on the Closing Date all other Transaction Documents to which
Purchaser is or will be a signatory will constitute, the valid and binding
obligation of Purchaser, enforceable against Purchaser in accordance with their
respective terms, except as such enforceability may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights in
general or by principles of equity (regardless of whether such enforceability is
contested in a proceeding in equity or at law). Neither the execution of this
Agreement or any of the Transaction Documents, nor the consummation of the
transactions contemplated herein or therein, will violate, conflict with, or
result in the acceleration or termination of, any corporate
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<PAGE> 23
instrument of Purchaser, or any agreement, permit, order, judgment, decree, law
or regulation to which Purchaser is a party or by which it is, or its assets and
properties are bound, except such violations, conflicts, accelerations or
terminations which would not, individually or in the aggregate, have a material
adverse effect on Purchaser's ability to perform its obligations under this
Agreement or the Transaction Documents.
5.4 Consents. Except as set forth on Schedule 5.4, no consent,
authorization, approval, waiver, order, license, certificate or permit of or
from, or declaration or filing with any Governmental Authority, court or other
tribunal or any other person is required for Purchaser's execution or delivery
of this Agreement or any other Transaction Document, or the performance by
Purchaser in accordance with the terms hereof or thereof.
5.5 Legal Proceedings. Except as set forth in Schedule 5.5, and
except for any judgment, order, actions, suits, proceedings or investigations as
may affect the cable television industry (national or regional) generally, there
is no judgment or order outstanding, or any claim, action, suit, arbitration,
proceeding, controversy or investigation by or before any Governmental Authority
or any arbitrator pending, or to the best of Purchaser's knowledge, threatened,
which, if adversely determined, would materially impair the ability of Purchaser
to perform its obligations under the Transaction Documents.
6. ADDITIONAL UNDERTAKINGS AND ACTIONS
6.1 Consents. As soon as possible after the execution of this
Agreement, Seller and Purchaser will commence making the applications and
filings required to obtain all approvals or consents required to be obtained to
effect the consummation of the transactions contemplated hereby (the
"Consents"). Seller will use its best efforts to obtain the Consents from the
appropriate Governmental Authorities and other persons at the earliest possible
date; provided, however, that Purchaser will use its best efforts to obtain
Consents with respect to the transfer of all franchises and FCC licenses.
6.2 Access to Assets. On and after the date of this Agreement,
Purchaser and its counsel, accountants and other representatives shall have
reasonable access, during normal business hours and upon reasonable notice, to
all properties, books, accounts, contracts, commitments, and records, documents
or other data or information of Seller relating to the Systems. Seller shall
furnish to Purchaser such financial data, operating data, contracts and
documents relating to the Systems to which Seller is a party and other
information pertaining to the Systems as Purchaser reasonably requests.
6.3 Operations Prior to Closing. Except as otherwise expressly
contemplated by this Agreement, at all times from and after the date hereof and
up to and including the Closing Date, Seller shall:
(a) use its reasonable best efforts to conduct its
business relating to the Systems in accordance with past practices;
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<PAGE> 24
(b) use its reasonable best efforts to preserve and
protect the Assets;
(c) conduct its business in material compliance with all
applicable laws and regulations;
(d) not enter into any agreement or transaction extending
beyond the Closing Date in excess of $25,000 other than the renewal of
existing agreements in the ordinary course of business, without the
prior written consent of Purchaser;
(e) not dispose of any of the Assets in excess of $10,000
without the prior written consent of Purchaser, except such as are
retired in the ordinary course of business;
(f) not pay any bonuses or make any salary or wage
increases other than the ordinary course of business in accordance with
past practices; and
(g) pursue all regulatory matters in a timely fashion
providing copies of all correspondence received and sent to Seller with
respect thereto and promptly notifying the Purchaser of any material
regulatory developments.
6.4 Antitrust Laws Compliance. As soon as practicable after the
date of execution of this Agreement, Seller and Purchaser shall each make
filings if and as required under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, and related acts and regulations (the "HSR Act"). Each
party shall keep the other party apprised of the status of any inquiries made of
such party by the Federal Trade Commission, the Antitrust Division of the United
States Department of Justice, or any other Governmental Authority with respect
to this Agreement or the transactions contemplated hereby and shall comply
promptly with all requests for further documents and information. Each party
shall use reasonable efforts to obtain the earliest termination or waiver of the
HSR Act waiting period possible.
6.5 Confidentiality. Purchaser shall hold, and shall cause its
representatives to hold, all such information and documents and all other
information and documents delivered pursuant to this Agreement confidential and,
if the purchase and sale contemplated by this Agreement is not consummated for
any reason other than a default by Seller, upon Seller's request shall return to
Seller or destroy within ten (10) days, all such information and documents and
any copies as soon as practicable, and, in any event, shall not disclose any
such information (that has not previously been disclosed by a party other than
Purchaser or become public knowledge) to any third party unless required to do
so pursuant to a court order, subpoena or other legal process. Purchaser's
obligations under this Section shall survive the termination of this Agreement.
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6.6 Employees. Purchaser shall not be obligated to hire any
employees of Seller. Purchaser shall notify Seller at least forty-five (45) days
prior to the Closing Date of those of Seller's employees with respect to the
Systems which Purchaser intends to offer employment; provided, however, that
such notification shall not be deemed to alter the employment at will nature of
the relationship between Purchaser and such individuals.
6.7 Transfer Taxes. All sales, transfer, excise and other taxes,
if any, payable by reason of the transactions contemplated hereunder shall be
paid by Purchaser.
6.8 Rebuild Capital Expenditures. During the period beginning on
September 1, 1998 and ending on the Closing Date, Seller shall make capital
expenditures (labor and materials cost) in the Systems toward rebuilding the
Systems, which expenditures shall be not less than $125,000. Seller agrees to
provide at Closing documentation regarding such expenditures.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
The obligations of Purchaser under this Agreement are subject to the
satisfaction at or prior to the Closing of each of the following conditions, any
one or more of which may be waived by Purchaser, in its sole discretion;
provided, however, that no such waiver of a condition shall constitute a waiver
by Purchaser of any of its other rights or remedies, at law or in equity, if
Seller shall be in default of any of its obligations under this Agreement.
7.1 HSR Act. All filings required under the HSR Act, if any, shall
have been made and the applicable waiting period shall have expired or been
earlier terminated without the receipt of any objection or the commencement or
threat of any litigation by a Governmental Authority of competent jurisdiction
to restrain or prevent the consummation of the transactions contemplated by this
Agreement.
7.2 Governmental or Legal Action. No action, suit or proceeding
shall be pending or threatened by any Governmental Authority or other person and
no law, rule or regulation or similar requirement shall have been enacted,
promulgated or issued or deemed applicable to any of the transactions
contemplated by this Agreement by any Governmental Authority or other person
that would (a) prohibit Purchaser's ownership or operation of all or a material
portion of the Systems or the Assets, (b) enjoin, prevent or make illegal the
consummation of the transactions contemplated by this Agreement or (c)
challenge, set aside or modify any authorization of the transactions provided
for herein or any approvals, consents, waivers or authorizations made or
described hereunder.
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7.3 Representations; Performance of Agreements. Seller shall have
delivered to Purchaser at Closing a certificate to the effect that (i) the
representations and warranties of Seller set forth in Section 4 hereof shall be
true in all material respects as of and at the Closing Date with the same
effect as though such representations and warranties had been made again at and
as of such time and (ii) Seller shall have performed, satisfied and complied in
all material respects with all covenants, obligations, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by Seller at or prior to the Closing Date.
7.4 Consents and Approvals. Seller shall have delivered to
Purchaser evidence that all of the Consents have been obtained or given and all
such Consents shall be in the forms attached as Exhibits H and I.
7.5 Franchise Extension. Seller shall have obtained an extension
of the Franchise term granted by the communities of Hallettsville and Giddings,
Texas, for a period of not less than five (5) years from the Closing Date;
provided, however, that Seller shall use its reasonable best efforts to obtain
such extension for a period of ten (10) years from the Closing Date; and,
provided further, that nothing herein shall require Purchaser, as a condition to
obtaining such extension, to agree to make any payment that may not be passed
through to the subscribers of the Systems.
7.6 Transfer Documents. Seller shall have delivered to Purchaser
customary bills of sale, general warranty deeds, assignments and other
instruments of transfer sufficient to convey good and marketable title to the
Assets in accordance with the terms of this Agreement, including the documents
and instruments described under Section 3.2(a).
7.7 Ancillary Documents. Seller shall have executed and delivered
to Purchaser the Assumption Agreement and shall have delivered franchise
transfer documents in the form attached as Exhibit H.
7.8 Opinions of Seller's Counsel. Purchaser shall have received
the opinions of counsel for Seller in the forms attached as Exhibits E and F.
7.9 Discharge of Liens. Seller shall have secured the termination,
discharge and release of all encumbrances of any nature on the Assets, other
than Permitted Encumbrances.
7.10 No Default Under Documents. As of the Closing Date, Seller
shall not be in violation or default in any material respect under any statute,
rule, regulation, agreement, or other document to which Seller is a party or by
which Seller is bound in a manner which would materially adversely affect the
ownership, use or operation of the Systems, nor shall Seller have knowledge of
any condition or event which, with notice or lapse of time or both, would
constitute such a violation or default.
7.11 Additional Documents and Acts. Seller shall have delivered or
caused to be delivered to Purchaser all such additional documents, instruments
and certificates, in form and content reasonably satisfactory to Purchaser and
its counsel, as Purchaser shall reasonably
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request, and shall have done all other acts or things reasonably requested by
Purchaser to evidence compliance with the conditions set forth in this Section
7.
7.12 Closing of Related Transaction. The Asset Purchase Agreement
dated of even date herewith between Cencom Income Partners II, L.P. and
Purchaser shall have closed before or simultaneously with the Closing hereunder.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of Seller under the Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions,
any one or more of which may be waived by Seller in its sole discretion;
provided, however, that no such waiver of a condition shall constitute a waiver
by Seller of any of its rights or remedies, at law or in equity, if Purchaser
shall be in default of any of their respective obligations under this Agreement.
8.1 HSR Act. All filings required under the HSR Act, if any, shall
have been made and the applicable waiting period shall have expired or been
earlier terminated without the receipt of any objection or the commencement or
threat of any litigation by a Governmental Authority of competent jurisdiction
to restrain or prevent the consummation of the transactions contemplated by this
Agreement.
8.2 Governmental or Legal Actions. No action, suit or proceeding
shall be pending or threatened by any Governmental Authority or other person and
no law, rule, regulation or other similar requirement shall have been enacted,
promulgated or issued or deemed applicable to any of the transactions
contemplated by this Agreement by any Governmental Authority or other person
that would (a) prohibit Purchaser's ownership or operation of all or any
material portion of the Systems or the Assets, (b) enjoin, prevent or make
illegal the consummation of the transactions contemplated by this Agreement, or
(c) challenge, set aside or modify any authorization of the transactions
provided for herein or any approvals, consents, waivers or authorizations made
or described hereunder.
8.3 Representations; Performance of Agreements. The
representations and warranties of Purchaser set forth in Section 5 hereof shall
be true in all material respects as of and at the Closing Date with the same
effect as though such representations and warranties had been made again at and
as of such time. Purchaser shall have performed, satisfied and complied in all
material respects with all covenants, obligations, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by
Purchaser at or prior to the Closing Date.
8.4 Consent and Approvals. Purchaser shall have delivered to
Seller evidence that all consents and authorizations required to be obtained by
Purchaser shall have been obtained or given and such consents and authorizations
shall be in the forms attached as Exhibits H and I.
8.5 Payments. Purchaser shall have paid the Purchase Price as set
forth in Section 2.
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8.6 Ancillary Documents. Purchaser shall have executed and
delivered to Seller the Assumption Agreement.
8.7 Opinion of Purchaser's Counsel. Seller shall have received the
opinion of counsel for Purchaser in the form attached as Exhibit G.
8.8 Additional Documents and Acts. Purchaser shall have delivered
or caused to be delivered to Seller all such additional documents, instruments
and certificates, in form and content reasonably satisfactory to Seller and its
counsel, as Seller shall reasonably request, and shall have done all other acts
or things reasonably requested by Seller to evidence compliance with the
conditions set forth in this Section 8.
8.9 Closing of Related Transaction. The Asset Purchase Agreement
dated of even date herewith between Cencom Cable Income Partners II, L.P. and
Purchaser shall have closed before or simultaneously with the Closing hereunder.
9. REMEDIES
9.1 Costs. If any legal action or other proceeding is brought for
the enforcement of this Agreement or any other instrument or document to be
executed, delivered or performed hereunder, or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of
this Agreement or any other instrument or document to be executed, delivered or
performed hereunder, the successful or prevailing party shall be entitled to
recover reasonable attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
9.2 Termination Without Liability. On the Closing Date, either
party may terminate this Agreement, without liability to the other, if any
conditions precedent to such party's performance shall not have been satisfied
on the Closing Date, unless the satisfaction of any one or more of the
conditions precedent to such party's performance was made impossible by the
action or failure to act of such party.
9.3 Termination on Default. Without limiting the provisions of
Sections 9.1, 9.2 and 10 hereof, if either party shall default in the due and
timely performance of any of the covenants or agreements under the Agreement,
the other party may, in addition to any other remedy available thereto, on the
Closing Date give notice of termination ("Termination Notice") of this
Agreement. The Termination Notice shall specify with particularity the default
or defaults on which it is based and state that this Agreement is terminated.
The Termination Notice shall be effective when given. The rights and remedies
granted in this Section 9.3 are cumulative and not exclusive of any other right
or remedy granted herein or provided by law or in equity.
10. INDEMNIFICATION
10.1 Seller's Indemnity. Seller shall indemnify and hold harmless
Purchaser and its officers, employees, controlling persons and representatives,
against and in respect of any and all
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claims, damages, losses, costs, expenses (including reasonable legal, accounting
and experts' fees and other fees and expenses incurred in the investigation or
defense of any of the following, and any interest and penalties), obligations
and liabilities which any such person may incur or suffer, as a result of, (a)
any misrepresentations by Seller or breach by Seller of any warranties,
covenants or other agreements contained in this Agreement, (b) the failure of
Seller to perform any of its obligations under this Agreement, or (c) any
liabilities arising in connection with the operation of the Systems prior to the
Closing Date, other than the liabilities assumed under the Assumption Agreement;
provided, however, that Seller shall not be liable for any indemnification
obligation under this Agreement, unless the aggregate amount of the losses
incurred with respect to such indemnification obligation exceeds the sum of
$28,000, in which event Purchaser shall be entitled to receive indemnification
for damages in excess of the $28,000 threshold.
10.2 Purchaser's Indemnity. Purchaser shall indemnify and hold
harmless Seller and its partners, officers, employees, controlling persons and
representatives against and in respect of any and all claims, damages, losses,
costs, expenses (including reasonable legal, accounting and experts' fees and
other fees and expenses incurred in the investigation or defense of any of the
following, and any interest and penalties), obligations and liabilities which
any such person may incur or suffer as a result of, (a) any misrepresentations
by Purchaser or breach by Purchaser of any warranties, covenants or other
agreements contained in this Agreement, (b) the failure of Purchaser to perform
any of its obligations under this Agreement, or (c) any liabilities assumed by
Purchaser under the Assumption Agreement or arising in connection with the
operation of the Systems following the Closing Date.
10.3 Procedure. In the event that any claim shall be asserted
against a party entitled to indemnification hereunder (the "Indemnitee"), the
Indemnitee shall promptly notify the other party (the "Indemnitor") of such
claim in writing, and shall extend to the Indemnitor an opportunity to defend
against such claim at the Indemnitor's sole expense. Within fifteen (15) days of
receiving any such notice from the Indemnitee, the Indemnitor shall notify the
Indemnitee as to whether or not the Indemnitor elects to assume the defense of
any such claim. In the event the Indemnitor does not so elect to assume such
defense, any costs incurred by the Indemnitee in defending such claim shall be
reimbursed to the Indemnitee, on an as-incurred basis, pursuant to this Section
10. In the event the Indemnitor elects to assume such defense, the Indemnitee
shall, at its option and expense, have the right to participate in any defense
undertaken by the Indemnitor with legal counsel of its own selection, provided
that such legal counsel is reasonably acceptable to Indemnitor. No settlement or
compromise of any claim that may result in indemnification liability may be made
by the Indemnitor without the prior written consent of the Indemnitee, which
consent shall not be unreasonably withheld or delayed.
10.4 Limitation on Liability. Notwithstanding anything to the
contrary in this Agreement, the aggregate liability of Seller to Indemnitees for
indemnification or otherwise under this Agreement shall not exceed $2,240,000.
10.5 Survival. All representations and warranties in this Agreement
shall survive the Closing for a period extending until December 31, 1999 and
neither party shall have any liability
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to the other for any indemnification obligation hereunder except to the extent
that notice of a claim is asserted in writing and delivered to Seller not later
than December 31, 1999; provided, however, that the covenants, representations
and warranties of Purchaser contained in Section 6.5 of this Agreement shall
survive the Closing without limitation.
11. MISCELLANEOUS PROVISIONS
11.1 Entire Agreement, Modification and Waiver. This Agreement,
including all Exhibits and Schedules hereto, constitutes the entire agreement
between the parties pertaining to the subject matter contained in it and
supersedes all prior and contemporaneous agreements, representations and
understandings of the parties. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by all the parties. No
waiver of any of the provisions of this Agreement shall be deemed, or shall
constitute a continuing waiver. No waiver shall be binding unless executed in
writing by the party making the waiver.
11.2 Rights of Parties. Nothing in this Agreement, whether express
or implied, is intended to confer any rights or remedies under or by reason of
this Agreement upon any persons other than the parties and their respective
permitted successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third person or any
party to this Agreement, nor shall any provision give any third person any right
of subrogation or action against any party to this Agreement.
11.3 Assignment. No assignment of any rights or obligations of any
party under this Agreement may be made without the prior written consent of all
of the other parties to this Agreement, which consent is not to be unreasonably
withheld; provided, however, that Purchaser may assign its rights and
obligations under this Agreement to an affiliate to be newly formed by Purchaser
for the purpose of consummating this transaction. Any attempted assignment of
rights or obligations in violation of this Section 11.3 shall be null and void.
Reference to any of the parties in this Agreement shall be deemed to include the
successors and assigns of such party.
11.4 Construction. The language in this Agreement shall, in all
cases, be construed as a whole according to its fair meaning and neither
strictly for nor against Seller or Purchaser.
11.5 Expenses of the Parties. Except as expressly provided in this
Agreement, all expenses incurred by or on behalf of the parties hereto in
connection with the authorization, preparation and consummation of this
Agreement including, without limitation, all fees and expenses of agents,
representatives, counsel and accountants employed by the parties hereto in
connection with the authorization, preparation, execution and consummation of
this Agreement shall be borne solely by the party who shall have incurred the
same. The fees and expenses connected with the Deposit Escrow Agent shall be
borne equally by Seller and Purchaser.
11.6 Further Assurances. Seller, at any time after the Closing
Date, will promptly execute, acknowledge and deliver any further deeds,
assignments, conveyances and other assurances, documents and instruments of
transfer, reasonably requested by Purchaser and necessary for Seller to comply
with its covenants contained herein and will take any other action
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consistent with the terms of this Agreement that may reasonably be requested by
Purchaser for the purpose of assigning, transferring, granting, conveying,
vesting and confirming ownership in or to Purchaser, or reducing to Purchaser's
possession, any or all of the Assets.
11.7 Finders. Each of the Seller and Purchaser represents and
warrants to the other that it has not retained or dealt with any broker or
finder in connection with the transactions contemplated by this Agreement except
for Daniels & Associates, and that Seller will be responsible for any fee
payable to Daniels & Associates.
11.8 Notices. Any notice or other communication required or
permitted under this Agreement shall be in writing and shall be considered given
when delivered personally or by facsimile machine, one day after being given to
a nationally recognized overnight delivery service or four (4) days after being
mailed by registered mail, return receipt requested, to the parties at the
addresses set forth below (or at such other address as a party may specify by
notice to the other) in accordance with the terms of this Section.
If to Seller to:
Cencom Partners, L.P.
c/o Charter Communications
12444 Powerscourt Drive
Suite 400
St. Louis, Missouri 63131
Attn: Kent Kalkwarf
Vice President-Finance
and Acquisition
Facsimile: (314) 965-8793
with a copy to:
Thompson Coburn
34th Floor
One Mercantile Center
St. Louis, Missouri 63101
Attn: Benjamin H. Hulsey, Esq.
Facsimile: (314) 552-7000
If to Purchaser to:
Etan Industries, Inc.
One Galleria Tower
13355 Noel Road - 21st Floor
Dallas, Texas 75240
Attn: Nathan A. Levine
President
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<PAGE> 32
Facsimile: (214) 385-9601
with a copy to:
Prager, Metzger & Kroemer PLLC
2626 Cole Avenue, Suite 900
Dallas, Texas 75204
Attn: Jerome L. Prager, Esq.
Facsimile: (214) 969-7635
11.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas applicable to
agreements made and to be performed in Texas.
11.10 Severability. If any provision of this Agreement is invalid or
unenforceable, the balance of this Agreement shall remain in effect.
11.11 Jurisdiction. The courts of the State of Texas in Dallas
County and the United States District Court for the Northern District of Texas,
Dallas Division, shall have non-exclusive jurisdiction over the parties with
respect to any dispute or controversy between them arising under or in
connection with this Agreement and, by execution and delivery of this Agreement,
each of the parties to this Agreement submits to the non-exclusive jurisdiction
of those courts, including, but not limited to, the in personam and subject
matter jurisdiction of those courts, waives any objection to such jurisdiction
on the grounds of venue or forum non conveniens the absence of in personam or
subject matter jurisdiction and any similar grounds, consents to service of
process by any manner permitted by law, and irrevocably agrees to be bound by
any judgment rendered thereby in connection with this Agreement. These consents
to jurisdiction shall not be deemed to confer rights on any person other than
the parties to this Agreement.
11.12 Counterparts. This Agreement may be executed in any number of
counterparts which together shall constitute one and the same instrument.
11.13 Arbitration. If any controversy shall arise between the
parties with respect to any of the matters set forth in this Agreement and such
dispute shall not be resolved by the parties within ten (10) days after either
of the parties shall notify the other of its desire to arbitrate the dispute,
then the dispute shall be settled by arbitration by the American Arbitration
Association (the "AAA") in accordance with its then prevailing rules, and
judgment upon the award may be entered in any court having jurisdiction. The
arbitrator shall have no power to change any of the provisions of this Agreement
in any respect, nor shall the arbitrator have any power to make an award of
reformation, and the jurisdiction of the arbitrator is hereby expressly limited
accordingly. The arbitration shall be by a single arbitrator who must be an
attorney-at-law actively engaged in the profession for at least ten (10) years.
Each party shall select a single arbitrator from the attorneys-at-law who are
listed on the AAA's panel of arbitrators. The two arbitrators selected by the
parties shall select a third attorney-at-law from the AAA panel, which
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third arbitrator shall serve as the sole arbitrator for such arbitration.
Neither party shall interrupt the progress of its performance under the
Agreement pending the determination of the arbitration proceeding. Any
arbitration shall be conducted in the City of St. Louis, Missouri or Dallas,
Texas at the election of the party initiating the arbitration proceedings. The
fees and expenses of arbitration shall be borne equally by the parties, except
that each party shall bear the expense of its own counsel, experts, witnesses
and preparation and presentation of proof.
11.14 Knowledge. For purposes hereof the phrase "to the best of
Seller's knowledge" shall mean to the knowledge of the executive officers of
Seller's general partner and of Jerry L. Smith, General Manager of the Systems.
[ signatures on next page ]
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<PAGE> 34
IN WITNESS WHEREOF, the undersigned, intending to be legally bound,
have executed this Asset Purchase Agreement as of the date first written above.
SELLER:
CENCOM PARTNERS, L.P., a Delaware limited
partnership
By: Cencom Partners, Inc., a Delaware
corporation and sole General Partner
By: Ralph G. Kelly
---------------------------------------
Name: RALPH G. KELLY
---------------------------------------
Title: Treasurer
---------------------------------------
PURCHASER:
ETAN INDUSTRIES, INC., a Texas corporation
By: Nathan A. Levine
---------------------------------------
Nathan A. Levine
President
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<PAGE> 35
Exhibit A
Deposit Escrow Agreement
(CPLP)
This Deposit Escrow Agreement ("Agreement") is dated as of December
___, 1998 and entered into among Thompson Coburn, a Missouri General Partnership
("Escrow Agent), Cencom Partners, L.P., a Delaware limited partnership
("Seller"), and Etan Industries, Inc., a Texas corporation ("Purchaser"). Seller
and Purchaser are collectively referred to in this Agreement as the "Transaction
Parties." Seller and Purchaser are parties to an Asset Purchase Agreement dated
of even date herewith (the "Asset Purchase Agreement").
For valuable consideration, the parties agree as follows:
1. Escrow Agent. The Transaction Parties appoint and
designate Escrow Agent as escrow agent for the purposes set forth in this
Agreement, and Escrow Agent accepts such appointment on the terms provided in
this Agreement.
2. Deposits with Escrow Agent. Escrow Agent will establish
and maintain an escrow account (which, together will all earnings thereon, is
referred to as the "Escrow Fund"). Simultaneously with the execution of the
Agreement, Purchaser will cause delivery to Escrow Agent for deposit in the
Escrow Fund of a total of $224,000 (the "Escrow Amount"). Escrow Agent will hold
and disburse the Escrow Fund in accordance with this Agreement.
3. Investment of Escrow Fund. Escrow Agent will deposit the
Escrow Amount, and the Interest (as defined in Section 5 below) from the Escrow
Amount in an interest bearing business prime account with Mercantile Bank NA.
4. Disbursement of Amounts Held in Escrow Fund.
(a) Escrow Agent will disburse the Escrow Amount (and related
interest):
(i) Upon Escrow Agent's receipt of joint written
instructions signed on behalf of Seller and Purchaser specifying the
method for disbursing the Escrow Amount, in which case such funds and
Interest thereon will be disbursed promptly by Escrow Agent in
accordance with such instructions; or
(ii) Upon Escrow Agent's receipt of an official copy of a
final, non-appealable order issued by a court of competent jurisdiction
specifying the method for disbursement of the Escrow Amount, in which
case such funds and related Interest thereon will be disbursed promptly
by Escrow Agent in accordance with such instructions.
(b) All disbursement of funds in the Escrow Fund pursuant to
Section 4 will be by wire or interbank transfer of immediately available funds
to the account or accounts designated
<PAGE> 36
in writing by Seller or Purchaser, as applicable.
5. Disbursement of Interest, Etc. The interest ("Interest") received
by Escrow Agent from the investment of the Escrow Amount will be held by Escrow
Agent as set forth in Section 3 above. With a disbursement of all or a portion
of the Escrow Amount pursuant to Section 4(a) above, Escrow Agent will
distribute to the Transaction Party receiving such disbursement a proportionate
share of the Interest earned from the Escrow Amount, unless Escrow Agent is
otherwise directed by joint written instructions signed by the Transaction
Parties.
6. Rights, Duties, and Liabilities of Escrow Agent.
(a) Escrow Agent will have no duty to know or determine the
performance or nonperformance of any provision of any agreement between the
Transaction Parties, including, but not limited to, the Asset Purchase
Agreement, which will not bind Escrow Agent in any manner. Escrow Agent assumes
no responsibility for the validity or sufficiency of any document or paper or
payment deposited or called for under this Agreement except as may be expressly
and specifically set forth in this Agreement, and the duties and
responsibilities of Escrow Agent under this Agreement are limited to those
expressly and specifically stated in this Agreement. Escrow Agent will not be
required to expend or risk its own funds or otherwise incur any financial
liability in the performance of its duties hereunder.
(b) Escrow Agent will not be personally liable for any act it may do
or omit to do under this Agreement as such agent while acting in good faith and
in the exercise of its own best judgment, and any such act or omission by it
will be conclusive evidence of such good faith unless, in any event, the same
constitutes gross negligence or willful misconduct. In no event will Escrow
Agent be liable (i) for acting in accordance with or relying upon any joint
written instruction, notice, demand, certificate or document signed by both
Transaction Parties, (ii) for any consequential, punitive or special damages,
(iii) for the acts or omissions of its nominees, correspondents, designees,
subagents or subcustodians, or (iv) for an amount in excess of the value of the
Escrow Amount, valued as of the date of deposit and actual Interest. If any
expenses or costs incurred by, or any obligations owed to, Escrow Agent
hereunder with respect to Escrow Amount are not promptly paid when due. Escrow
Agent may, upon prior written notice to Seller and Purchaser reimburse itself
therefor from the Escrow Amount (and Interest) for such purpose.
(c) Other than those notices or demands expressly provided in this
Agreement, Escrow Agent is expressly authorized to disregard any and all notices
or demands given by Seller or Purchaser, or by any other person, firm or
corporation, excepting only orders or process of court, and Escrow Agent is
expressly authorized to comply with and obey any and all final process, orders,
judgments, or decrees of any court, and to the extent Escrow Agent obeys or
complies with any thereof of any court, it will not be liable to any party to
this Agreement or to any other person, firm or corporation by reason of such
compliance.
(d) Escrow Agent will be under no duty or obligation to ascertain the
identity, authority or right of Seller or Purchaser (or their agents) to execute
or deliver or purport to execute or deliver this Agreement or any certificates,
documents or papers or payments deposited
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or called for or given under this Agreement.
(e) Escrow Agent will not be liable for the outlawing of any rights
under any statute of limitation or by reason of laches in respect of this
Agreement or any documents or papers deposited with Escrow Agent.
(f) In the event of any dispute among the parties to this Agreement
as to the facts or as to the validity or meaning of any provision of this
Agreement, or any other fact or matter relating to this Agreement or to the
transactions between Seller and Purchaser, Escrow Agent is instructed that it
will be under no obligation to act, except in accordance with this Agreement or
under process or order of court or if there be no such process or order, until
it has filed or caused to be filed an appropriate action interpleading Seller
and Purchaser and delivering the Escrow Amount (or the portion of the Escrow
Amount in dispute) to such court, and Escrow Agent will sustain no liability for
its failure to act pending such process of court or order or interpleader of
action. Escrow Agent will be entitled to refuse to act until, in its sole
discretion, either (i) such conflicting or adverse claims or demands have been
determined by a final nonappealable order, judgment or decree of a court of
competent jurisdiction, or settled by agreement between the conflicting parties
as evidenced in writing satisfactory to it sufficient to hold it harmless from
and against any and all losses which it may incur by reason of so acting. The
costs and expenses (including reasonable attorneys' fees and expenses) incurred
in connection with such proceeding will be paid by and will be deemed a joint
and several obligation of, the Purchaser and Seller.
7. Modification of Agreement. The provisions of this Agreement may
be supplemented, altered, amended, modified, or revoked by writing only, signed
by Purchaser and Seller and approved in writing by Escrow Agent, and upon
payment of all fees, costs and expenses incident thereto, and no waiver of any
provisions hereof will be effective unless expressed in a writing signed by the
party to be charged.
8. Assignment of Agreement. No assignment, transfer, conveyance or
hypothecation of any right, title or interest in and to the subject matter of
this Agreement will be binding upon any party, including Escrow Agent, unless
all cost and expenses incident thereto have been paid and then only upon the
assent thereto by all parties in writing.
9. Miscellaneous.
(a) All notices and communications under this Agreement will be in
writing and will be deemed to be duly given if sent by registered mail, return
receipt requested, personal delivery or telecopier, as follows:
To Escrow Agent: Thompson Coburn
One Mercantile Center, Suite 3400
St. Louis, Missouri 63101
Attention: Benjamin H. Hulsey, Esq.
Telecopy: (314) 552-7000
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<PAGE> 38
To Seller at: Cencom Partners, L.P.
c/o Charter Communications
12444 Powerscourt Drive, Suite 400
St. Louis, Missouri 63131
Attention: Kent Kalkwarf
Telecopy: (314) 965-6640
With a copy (which shall not constitute notice) to:
Thompson Coburn
One Mercantile Center, Suite 3400
St. Louis, Missouri 63101
Attention: Benjamin H. Hulsey, Esq.
Telecopy: (314) 552-7000
To Purchaser at: Etan Industries, Inc.
One Galleria Tower
13355 Noel Road - 21st Floor
Dallas, Texas 75240
Attention: Nathan A. Levine
Telecopy: (214) 385-9601
With a copy (which shall not constitute notice) to:
Prager, Metzger & Kroemer PLLC
2626 Cole Avenue, Suite 900
Dallas, Texas 75204
Attention: Jerome L. Prager, Esq.
Telecopy: (214) 969-7635
or at such other address or telecopy number as any of the above may have
furnished to the other parties in writing and any notice or communication given
in the manner specified in this Section 9(a) will be deemed to have been given
as of the date received. In the event that Escrow Agent, in its sole discretion,
determines that an emergency exists, Escrow Agent may use such other means of
communications as Escrow Agent reasonably deems advisable.
(b) The undertakings and agreements contained in this
Agreement will bind and inure to the benefit of the parties to this Agreement
and their respective successors and permitted assigns.
(c) This Agreement may be executed in one or more
counterparts, each of which will be deemed an original. Whenever pursuant to
this Agreement Purchaser and Seller are to deliver a jointly signed writing to
Escrow Agent or jointly advise Escrow Agent in writing,
-4-
<PAGE> 39
such writing may in each and all cases be signed jointly or in counterparts and
such counterparts will be deemed to be one instrument.
(d) Escrow Agent may resign and be discharged from its
duties or obligations under this Agreement by giving notice in writing of such
resignation to the Transaction Parties at least 30 days in advance of such
resignation (unless waived in writing by the Transaction Parties). Such
resignation will be effective upon the appointment by Purchaser and Seller of a
successor escrow agent, which will be a federally chartered bank having combined
capital and surplus of at least $250,000,000; provided, that if any such
appointment of any successor agent is not effectuated within 30 days of such
written notice, Escrow Agent may file an action for interpleader and deposit all
funds with a court of competent jurisdiction, all as provided for in Section
6(g) above. Any such successor escrow agent will be appointed by a written
instrument mutually satisfactory to and executed by Purchaser, Seller, Escrow
Agent and the successor escrow agent. Any successor escrow agent appointed under
the provisions of this Agreement will have all of the same rights, powers,
privileges, immunities and authority with respect to the matters contemplated
herein as are granted herein to the original Escrow Agent. Upon delivery of the
Escrow Fund to a successor Escrow Agent, Escrow Agent will have no further
duties, responsibilities or obligations hereunder.
(e) Purchaser and Seller hereby jointly and severally agree
to indemnify Escrow Agent for, and to hold it harmless against, any loss,
liability or reasonable out-of-pocket expense arising out of or in connection
with this Agreement and carrying out its duties hereunder, including the
reasonable out-of-pocket costs and expenses of defending itself against any
claim of liability, except in those cases where Escrow Agent has been guilty of
gross negligence or willful misconduct (provided, that in no event will the
Transaction Parties be liable for any allocated cost or expense of persons
regularly employed by Escrow Agent). Anything in this Agreement to the contrary
notwithstanding, in no event will Escrow Agent be liable for special, indirect
or consequential loss or damage of any kind whatsoever (including but not
limited to lost profits), even if Escrow Agent has been advised of the
likelihood of such loss or damage and regardless of the form of action.
(f) The Transaction Parties are providing Escrow Agent with
their Tax Identification Numbers (TIN) as assigned by the Internal Revenue
Service below their signatures to this Agreement. All Interest will be allocated
and paid as provided herein and reported by the recipient to the Internal
Revenue Service as having been so allocated and paid.
(g) In the event funds transfer instructions are given
(other than in writing at the time of execution of the Agreement), whether in
writing or telecopier, Escrow Agent is authorized to seek confirmation of such
instructions by telephone call-back to the person or persons designated on
Schedule 1 to this Agreement, and Escrow Agent may rely upon the confirmations
of anyone purporting to be the person or persons so designated. The persons and
telephone numbers for call-backs may be changed only in writing actually
received and acknowledged by Escrow Agent. The parties to this Agreement
acknowledge that such security procedure is commercially reasonable.
(h) This Agreement will be governed by and construed in
accordance with the
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<PAGE> 40
laws of the State of Missouri without regard to its principles of conflicts of
laws. Each of Purchaser and Seller hereby submits to the personal jurisdiction
of and each agrees that all proceedings relating to any dispute with Escrow
Agent under this Agreement will be brought in courts located within the County
of St. Louis County and the State of Missouri or elsewhere as Escrow Agent my
select: provided, however, any dispute between Purchaser and Seller will not be
governed by the preceding. Each of Escrow Agent, Purchaser and Seller hereby
waives the right to trial by jury and to assert counterclaims in any such
proceeding relating to disputes with the Escrow Agent under this Agreement. To
the extent that in any jurisdiction Purchaser or Seller may be entitled to
claim, for itself or its assets, immunity from suit, execution, attachment
(whether before or after judgment) or other legal process, each hereby
irrevocably agrees not to claim, and hereby waives, such immunity. Purchaser,
Seller and Escrow Agent each waives personal service of process and consents to
service of process by certified or registered mail, return receipt requested,
directed to it at the address last specified for notices hereunder, and such
service will be deemed completed ten (10) calendar days after the same is so
mailed.
(i) Except as otherwise specified herein, each of the
Transaction Parties will pay all costs and expenses incurred or to be incurred
by it in negotiating and preparing this Agreement and in closing and carrying
out the transactions contemplated by this Agreement.
(j) If any legal action or proceeding is brought for the
enforcement of this Agreement, or because of an alleged dispute, breach, default
or misrepresentation in connection with any of the provisions of this Agreement,
the successful or prevailing party or parties will be entitled to recover
reasonable attorney's fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it or they may be entitled.
(k) Each party to this Agreement hereby represents and
warrants (i) that this Agreement has been duly authorized, executed and
delivered on its behalf and constitutes its legal, valid and binding obligation,
and (ii) that the execution, delivery and performance of this Agreement does not
and will not violate any applicable law or regulation applicable to such party.
(l) This Agreement will terminate upon the distribution of
the Escrow Fund by Escrow Agent. The provisions of Sections 6 and 9 of this
Agreement will survive termination of this Agreement and/or the resignation or
removal of Escrow Agent.
[Signatures on next page]
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<PAGE> 41
The parties have caused this Agreement to be signed effective as of the
day and year first above written.
ESCROW AGENT: THOMPSON COBURN
By:
--------------------------------
Title:
-----------------------------
SELLER: CENCOM PARTNERS, L.P.
By: Cencom Partners, Inc.
its General Partner
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
TIN:
-------------------------------
PURCHASER: ETAN INDUSTRIES, INC.
By:
--------------------------------
Name:
------------------------------
TIN:
-------------------------------
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<PAGE> 42
Schedule 1 to Deposit Escrow Agreement
Telephone Number(s) for Call-Backs and Person(s)
designated to Confirm Funds Transfer Instructions
If to Seller:
Name Telephone Number
1. Eloise Engman 314-965-0555
2. Ralph Kelly 314-965-0555
If to Purchaser:
1. Nathan A. Levine 972-233-9614
2. Douglas K. Bridges 972-233-9614
Telephone call-backs will be made to each of Purchaser and Seller if joint
instructions are required pursuant to the Deposit Escrow Agreement.
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<PAGE> 43
Exhibit B
Indemnity Escrow Agreement
(CPLP)
AGREEMENT made as of this day of , 1999,
---------------- ----------------
by and between Cencom Partners, L.P., a Delaware limited partnership ("Seller"),
Etan Industries, Inc., a Texas corporation ("Purchaser") and PNC Bank, National
Association as escrow agent (the "Escrow Agent").
W I T N E S S E T H :
WHEREAS, Seller and Purchaser are parties to an Asset Purchase
Agreement dated December , 1998 (the "Purchase Agreement"), and
---------------
WHEREAS, the transactions contemplated under the Purchase Agreement
were consummated on , 1999 (the "Closing Date").
-----------------------
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. Acceptance by Escrow Agent
The Escrow Agent hereby accepts the appointment as escrow agent
hereunder and agrees to act on the terms and conditions hereinafter set forth.
Simultaneously with the execution of this Agreement, Purchaser will cause
delivery to the Escrow Agent for deposit in an escrow account $560,000 in
principal, together with all interest accrued as of the date hereof (which
together with all Income (as hereinafter defined) thereafter accrued thereon, is
referred to as the "Escrow Fund").
<PAGE> 44
2. Investment of Escrow Fund
The Escrow Agent shall invest the Escrow Fund in one or more of the
following investments or in other investments upon the express joint written
direction of Seller and Purchaser:
(i) United States government securities or securities of
agencies of the United States government which are guaranteed
by the United States government;
(ii) commercial paper issued by corporations, each of which
will have a consolidated net worth of at least $250,000,000
and each of which conducts a substantial part of its business
in the United States of America, maturing within 180 days from
the date of the original issue thereof but in no event later
than December 31, 1999 (the "Outside Date") and carrying the
highest rating by Moody's Investors Service, Inc. ("Moody's")
or Standard and Poor's Corporation ("S&P");
(iii) certificates of deposit maturing within 180 days of
the date of purchase but in no event later than the Outside
Date, which are issued by any United States national or state
bank whose long term debt rating is rated A3 or better by
Moody's or A- or better by S&P and which has capital, surplus
and undivided profits totaling more than $250,000,000; and
(iv) mutual funds investing exclusively in investments
listed in (i), (ii) and (iii) above.
Temporarily uninvested funds will be held in an interest bearing
business prime account maintained by the Escrow Agent (or in other investments)
if directed by the joint written instructions of Seller and Purchaser.
3. Rights and Responsibilities of Escrow Agent
The acceptance by the Escrow Agent of its duties hereunder is subject
to the following terms and conditions, which the parties to this Agreement
hereby agree shall govern and control with respect to the Escrow Agent's rights,
duties, liabilities and immunities.
(a) The Escrow Agent shall act hereunder as a depository only, and it
shall not be responsible or liable in any manner whatever for the sufficiency,
correctness, genuineness or validity of any document furnished to the Escrow
agent or any asset deposited with it.
-2-
<PAGE> 45
(b) The Escrow Agent shall be protected in acting upon written
instructions from Seller or Purchaser if it, in good faith, believes such
written instruction to be genuine and what it purports to be.
Each of Seller and Purchaser shall, upon the execution of this
Agreement and from time to time as appropriate, file with the Escrow Agent a
certified copy of each resolution of its General Partner or Board of Directors,
as the case may be, authorizing the person or persons to give written
instructions. Such resolution shall specify the class of instructions that may
be given by each person to the Escrow Agent, under this Agreement, together with
certified signatures of such persons authorized to sign. This shall constitute
conclusive evidence of the authority of the signatories designated therein to
act. It shall be considered in full force and effect with the Escrow Agent fully
protected in acting in reliance thereon unless and until it receives written
notice to the contrary.
(c) The Escrow Agent shall not be liable for any error of judgment or
for any action taken or omitted by it in good faith, for any mistake of fact or
law, or for anything which it may do or refrain from doing in connection
herewith except its own gross negligence or willful misconduct.
(d) Seller and Purchaser agree to indemnify the Escrow Agent and hold
it harmless from and against any loss, liability, expenses (including reasonable
attorneys' fees and expenses), claim or demand arising out of or in connection
with the performance of its obligations in accordance with the provisions of
this Escrow Agreement, except for the gross negligence or willful misconduct of
the Escrow Agent (provided, that in no event will Seller and Purchaser be liable
for any allocated cost or expense of persons regularly employed by the Escrow
Agent). These indemnities shall survive the resignation of the Escrow Agent or
the termination of this
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<PAGE> 46
Escrow Agreement.
(e) The Escrow Agent shall have no duties except those specifically
set forth in this Agreement. This Agreement represents the entire understanding
of the parties hereto with respect to the subject matter contained herein and
supersedes any and all other and prior agreements between them.
(f) The Escrow Agent shall have the right at any time it deems
appropriate to seek an adjudication in a court of competent jurisdiction as to
the respective rights of the parties hereto and shall not be held liable by any
party hereto for any delay or the consequences of any delay occasioned by such
resort to court.
(g) The fee of the Escrow Agent for its services hereunder in the
amount of $1,000.00 shall be paid jointly by Seller and Purchaser. Each of
Seller and Purchaser shall be responsible for one-half of such fee.
(h) In addition to the fee described in Section 3(g), the Escrow
Agent shall be entitled to reimbursement for all reasonable expenses,
disbursements and advances made by it in the performance of its duties
hereunder, including counsel fees and court costs. Escrow Agent shall have a
lien on the Escrow Fund to insure payment of such expenses, disbursements and
advances.
4. Statements
During the term of this Agreement, the Escrow Agent shall provide
Seller and Purchaser with monthly statements containing the beginning balance in
the escrow account as well as all principal and income transactions for the
statement period. Seller and Purchaser shall be responsible for reconciling such
statements. The Escrow Agent shall be forever released and discharged from all
liability with respect to the accuracy of such statements, except with respect
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<PAGE> 47
to any such act or transaction as to which Seller or Purchaser shall, within 90
days after the furnishing of the statement, file written objections with the
Escrow Agent.
5. Claims
In the event that at any time prior to the Outside Date Purchaser shall
give written notice (a "Claim Notice") to the Escrow Agent of any claim in
respect of which indemnity may be sought from Seller pursuant to Section 10 of
the Purchase Agreement (a "Claim"), the Claim Notice shall contain the amount of
the Claim (the "Losses"), and a demand for payment, certified in good faith by
an officer of Purchaser. The Escrow Agent promptly shall deliver a copy of such
Claim Notice to Seller. Unless within 30 days after giving the Claim Notice to
Seller the Escrow Agent receives from Seller a notice disputing Purchaser's
right to all or any portion of the Claim (a "Dispute Notice"), the Escrow Agent
shall pay to Purchaser promptly after expiration of that 30-day period the full
amount of the Claim demanded by Purchaser in the Claim Notice. Any Claim Notice
given after the Outside Date shall be given no effect under this Agreement.
6. Distributions
(a) The Escrow Agent shall distribute the Escrow Fund from time to
time, as follows:
(i) Upon the Escrow Agent's receipt of joint
written instructions signed on behalf of Seller and
Purchaser specifying the method for disbursing the
Escrow Fund, in which case such funds will be
disbursed promptly by the Escrow Agent in accordance
with such instructions;
(ii) Upon termination of the 30-day period
following the receipt of a Claim Notice the Escrow
Agent shall pay to Purchaser any portion of the Claim
for which a Dispute Notice has not been received. The
Escrow Agent shall continue to hold, as a part of the
Escrow Fund, all or a portion of such Claim subject
to dispute, until the earlier of (A) a receipt of
written instructions signed by the Seller and the
Purchaser pursuant to paragraph (a)(i) above or (B) a
Court Order pursuant to paragraph (a)(iii) below; or
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<PAGE> 48
(iii) Upon the Escrow Agent's receipt of an
official copy of a final, non-appealable order issued
by a court of competent jurisdiction (a "Court
Order") specifying the method for disbursement of the
Escrow Fund, in which case such funds will be
disbursed promptly by the Escrow Agent in accordance
with such instructions.
(b) On the first business day following the Outside Date, the Escrow
Agent shall distribute to Seller from the Escrow Fund the amount of the Escrow
Fund less the sum of (i) all amounts owed to Purchaser on such date pursuant to
Section 5 and (ii) the aggregate amount of Losses contained in Claim Notices in
respect of Claims that have not been resolved in accordance with Section 5. On
the first business day following the Outside Date on which all Claims have been
resolved (whether by agreement of the parties, by failure of Seller to dispute a
Claim or by Court Order) the Escrow Agent shall distribute the Escrow Fund (i)
to Purchaser to the extent of all amounts owed Purchaser pursuant to Section 5
and (ii) to Seller the balance of the amount in the Escrow Fund.
(c) All disbursement of funds in the Escrow Fund pursuant to Section
5 will be by wire or interbank transfer of immediately available funds to the
account or accounts designated in writing by Seller or Purchaser, as applicable.
7. Income
All income, including interest and dividends, earned on the Escrow Fund
deposited hereunder ("Income") shall be added to, held and reinvested in the
Escrow Fund created hereunder. With a disbursement of all or a portion of the
Escrow Fund pursuant to Section 6 above, the Escrow Agent will distribute to the
party receiving such disbursement a proportionate share of the Income from the
investment of the Escrow Fund, unless the Escrow Agent is otherwise directed by
joint written instructions signed by Seller and Purchaser.
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<PAGE> 49
8. Tax Identification Number
All Income accrued in the Escrow Fund shall be for the account of
Seller or Purchaser as set forth in Section 7 and shall be reported under
applicable federal regulations using the tax identification number of Seller,
which is # 43-1541299, or Purchaser, which is #75-1546158, as applicable.
9. Indemnification as to Taxes, Penalties and Interest
Seller and Purchaser shall indemnify and hold harmless the Escrow Agent
against and in respect of any liability for taxes and for any penalties or
interest in respect of taxes attributable to the investment of funds held in
escrow by the Escrow Agent pursuant to this Agreement.
10. Amendment
This Agreement may not be amended or supplemented and no provision
hereof may be modified or waived, except by an instrument in writing, signed by
all of the parties hereto.
11. Termination
The purpose of this Escrow Agreement and the terms hereof shall
terminate upon the disbursement of amounts constituting the Escrow Fund. Upon
the termination of this Agreement and upon the delivery of all the Escrow Fund
by the Escrow Agent, in accordance with the terms hereof, the Escrow Agent shall
be relieved of any and all further obligations hereunder.
12. Resignation
The Escrow Agent may resign at any time by giving 30 days written
notice of such resignation to Seller and Purchaser. If no successor escrow agent
has been named at the expiration of the 30 day period, the Escrow Agent shall
have no further obligation hereunder except to hold the Escrow Fund as a
depository. Upon notification by Seller and Purchaser of the appointment of the
successor the Escrow Agent shall promptly deliver the Escrow Fund and
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<PAGE> 50
all materials in its possession relating to the Escrow Fund to such successor,
and the duties of the resigning Escrow Agent shall thereupon in all respects
terminate, and it shall be released and discharged from all further obligations
hereunder. Any such successor agent, which will be a federally chartered bank
having combined capital and surplus of at least $250,000,000, will be appointed
by a written instrument mutually satisfactory to and executed by Seller,
Purchaser and the successor escrow agent which will have the same rights,
powers, privileges, immunities and authorities as are granted herein to the
original Escrow Agent.
Similarly, the Escrow Agent may be discharged from its duties as Escrow
Agent under this Agreement upon 30 days written notice from Seller and Purchaser
and upon payment of any and all fees due to the Escrow Agent. In such event, the
Escrow Agent shall be entitled to rely on joint written instructions from Seller
and Purchaser as to the disposition and delivery of the Escrow Fund.
13. Execution
This Agreement may be executed in several counterparts, each of which
shall be deemed an original, but such counterparts together shall constitute one
and the same instrument. The effective date of this Agreement shall be the date
it is executed by the last party to do so. Whenever Seller and Purchaser are to
deliver a jointly signed writing to the Escrow Agent, such writing may be signed
jointly or in counterparts and such counterparts will be deemed to be one
instrument.
14. Miscellaneous
All covenants and agreements contained in this Agreement by or on
behalf of the parties hereto shall bind and inure to the benefit of such parties
and their respective heirs, administrators, legal representatives, successors
and assigns, as the case may be. The headings
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<PAGE> 51
in this Agreement are for convenience of reference only and shall neither be
considered as part of this Agreement, nor limit or otherwise affect the meaning
hereof. This Agreement shall be construed and enforced in accordance with the
laws of the Commonwealth of Pennsylvania without regard to its principles of
conflicts of laws.
15. Notices
All instructions, notices and other communications hereunder must be in
writing and shall be deemed to have been duly given if delivered by hand or
mailed by first class, registered mail, return receipt requested, postage
prepaid or confirmed telecopy and addressed as follows:
If to Seller at:
Cencom Partners, L.P.
c/o Charter Communications
12444 Powerscourt Drive, Suite 400
St. Louis, Missouri 63131
Attention: Kent Kalkwarf
Telecopy: (314) 965-6640
With a copy similarly addressed to the attention of: Marcy Lifton, Esq.
and with a copy (which shall not constitute notice) to:
Thompson Coburn
One Mercantile Center, Suite 3400
St. Louis, Missouri 63101
Attention: Benjamin H. Hulsey, Esq.
Telecopy: (314) 552-7000
If to Purchaser at:
Etan Industries, Inc.
One Galleria Tower
13355 Noel Road - 21st Floor
Dallas, Texas 75240
Attention: Nathan A. Levine
Telecopy: (214) 385-9601
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<PAGE> 52
With a copy (which shall not constitute notice) to:
Prager, Metzger & Kroemer PLLC
2626 Cole Avenue, Suite 900
Dallas, Texas 75204
Attention: Jerome L. Prager, Esq.
Telecopy: (214) 969-7635
If to the Escrow Agent:
PNC Bank, National Association
ATTN: Corporate Trust Administration
1600 Market Street - 30th Floor
Philadelphia, PA 19103
Telecopy: (215) 585-8872
or at such other address or telecopy number as any of the above may have
furnished to the other parties in writing and any notice or communication given
in the manner specified in this Section 15 will be deemed to have been given as
of the date received. In the event that the Escrow Agent, in its sole
discretion, determines that an emergency exists, the Escrow Agent may use such
other means of communications as the Escrow Agent reasonably deems advisable.
16. Costs and Expenses
Except as otherwise specified herein, each of Seller and Purchaser will
pay all costs and expenses incurred or to be incurred by each of them, in
negotiating and preparing this Agreement and in carrying out the transactions
contemplated hereby. If any legal action or proceeding is brought for the
enforcement of, or because of a dispute, breach or misrepresentation in
connection with this Agreement, the successful or prevailing party will be
entitled to recover reasonable attorneys' fees and other costs incurred in such
action or proceeding, in addition to any other relief to which it may be
entitled.
17. Authorization
Each party to this Agreement hereby represents and warrants (i) that
this Agreement has
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<PAGE> 53
been duly authorized, executed and delivered on its behalf and constitutes its
legal, valid and binding obligation and (ii) that the execution, delivery and
performance of this Agreement does not and will not violate any law or
regulation applicable to such party.
IN WITNESS THEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
CENCOM PARTNERS, L.P.
By: Cencom Partners, Inc.,
General Partner
By:
---------------------------------------
Name:
--------------------------------
Title:
-------------------------------
ETAN INDUSTRIES, INC.
By:
---------------------------------------
Name:
--------------------------------
Title:
-------------------------------
PNC BANK, NATIONAL ASSOCIATION,
as Escrow Agent
By:
---------------------------------------
Name:
--------------------------------
Title:
-------------------------------
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<PAGE> 54
Exhibit E
Opinion of Seller's Counsel
(CPLP)
, 1999
----------------
Etan Industries, Inc.
One Galleria Tower
13355 Noel Road - 21st Floor
Dallas, Texas 75240
Ladies and Gentlemen:
We have acted as counsel for (the "Partnership"),
----------------------
in connection with (i) the preparation, execution and delivery of (a) the Asset
Purchase Agreement, dated , (the "Purchase Agreement"),
------------------ -------
between Etan Industries, Inc. ("Purchaser"), and the Partnership, (b) the
Indemnity Escrow Agreement, dated , , among Purchaser,
------------------- --------
the Partnership, and NationsBank of Texas, N.A. (the "Escrow Agreement"), and
(c) the Bill of Sale and Assignment and Assumption Agreement, each of even date
herewith (collectively, the "Assignment Documents") (the Purchase Agreement, the
Escrow Agreement and the Assignment Documents being hereinafter sometimes
collectively referred to as the "Agreements"); and (ii) the transactions
contemplated thereby. We are rendering this opinion at the request of our
clients pursuant to Sections 3.2(f) and 7.8 of the Purchase Agreement.
Capitalized terms used and not otherwise defined herein have the same meanings
herein as in the Purchase Agreement.
In our capacity as counsel to the Partnership, we have made such
factual inquiries and examined such documents, records and certificates as we
have deemed necessary or appropriate for issuing this opinion letter, including
but not limited to the following:
(A-1) The Partnership Agreement ("Partnership Agreement") and
Certificate of Limited Partnership ("Certificate of Limited Partnership") of the
Partnership, as amended to date, certified to us on this date as true and
complete by the general partner of the Partnership;
(A-2) Certificate dated , 1999, from the Delaware
---------------------
Secretary of State and oral confirmation as of the date hereof as the
Partnership's partnership existence;
(A-3) Certificates dated as of a recent date, from the Secretary of
State and Comptroller of Public Accounts of the State of Texas and oral
confirmation as of the date hereof as to the Partnership's qualification to
transact business in such jurisdiction;
(A-4) The written consent of the Board of Directors of ,Inc.,
----------
the corporate general partner of the Partnership, dated , 19
---------------
<PAGE> 55
Etan Industries, Inc.
___________________________________, 19____
Page 2
_________, as certified to us on this date by an officer of the corporate
general partner of the Partnership;
(A-5) The factual representations, warranties and certifications made
by or on behalf of the Partnership in the Agreements or in any certificate,
document or other written communication delivered by or on behalf of the
Partnership in connection with the transactions contemplated by the Agreements;
and
` (A-6) The Agreements,
For purpose of rendering the opinions expressed herein, we have
assumed: (i) the genuineness of all signatures (other than signatures by or on
behalf of the Partnership on documents submitted to us as originals and the
conformity to original documents furnished to us; (ii) the authenticity of all
documents submitted to us as originals and the conformity to original documents
of all copies furnished to us; (iii) the due power and authority of each party
(other than the Partnership) to each document reviewed by us; (iv) the due
authorization of each document reviewed by us by each party thereto (other than
the Partnership); (v) the due execution and delivery of each of the Agreements
executed by or on behalf of any person other than the Partnership; and (vi) that
the Agreements executed by or on behalf of any person (other than signatures by
or on behalf of the Partnership) constitute the legal, valid and binding
obligations of each such person, enforceable against each such person in
accordance with their respective terms.
The opinions expressed herein are also subject to the following:
(B-1) The opinions expressed by us herein are limited to the laws of
the State of Missouri, the Delaware Revised Uniform Limited Partnership Act
(Title 6) and, where applicable, to Federal laws. We note that the Agreements
recite that they are governed by the laws of the State of Texas. For purposes of
this opinion letter, we have assumed, without inquiry, that the laws of the
State of Texas are the same as the laws of the State of Missouri in all
pertinent respects.
(B-2) We express no opinion with respect to any law, rule or regulation
regarding: (i) the issuance, purchase or sale of securities or with respect to
securities generally; (ii) the environment, toxic or hazardous substances; (iii)
occupational safety or health; (iv) federal, state or local taxation; (v) any
matter subject to the review or jurisdiction of the Copyright Office, the
Copyright Royalty Tribunal, the Federal Communications Commission or the Federal
Aviation Administration, including, without limitation, matters within the
jurisdiction of any such body relating to whether the Partnership has all
requisite franchises, is required to file copyright
<PAGE> 56
Etan Industries, Inc.
___________________________________, 19____
Page 3
statements of account or is required to comply with any law, rule or regulation
relating to the use of aeronautical frequencies or signal leakage; (vi) zoning,
land use, subdivision matters or other matters governed by county, municipality
or other local laws or regulations; (vii) antitrust (except with respect to the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended); (viii) unfair
competition; and (ix) labor matters.
(B-3) Our opinions are subject to the effect of bankruptcy, insolvency,
reorganization, fraudulent conveyance, arrangement, moratorium, and other laws
relating to or affecting the rights of creditors generally.
(B-4) Our opinions are subject to limitations imposed by general
principles of equity upon: (i) the specific enforceability of any of the
remedies, covenants or other provisions of the Agreements; (ii) the general
availability of injunctive relief or other equitable remedies; and (iii) the
application of principles of equity (regardless of whether enforcement is
considered in proceedings in law or in equity) in regard to certain covenants
and provisions where (y) the breach of such covenants or provisions imposes
restrictions or burdens upon an obligor, and a court determines that such breach
is not material to the obligee or (z) the obligee's enforcement of covenants or
provisions of the Agreements would violate the obligee's implied covenant of
good faith and fair dealing or would be commercially unreasonable.
(B-5) We express no opinion as to the enforceability of any provisions
of the Agreements that: (i) purport to specify that provisions may be waived or
amended only in writing; or (ii) purport to indemnify or would have the effect
of indemnifying any person for such person's gross negligence, reckless or
willful misconduct or intentional wrongs, or to exculpate any person as to
liability for wrongs committed to persons other than a party to the instrument
purporting to create such exculpation.
(B-6) Whenever any opinion stated herein with respect to the existence
or absence of facts is indicated to be based on our knowledge or the best of our
knowledge, it is limited to (i) the current actual knowledge of the attorney who
signed this opinion, any attorney of our firm who had active involvement in
negotiating the Purchase Agreement, preparing the Purchase Agreement or
preparing this opinion letter and, solely as to information, relevant to an
opinion issue, any attorney of our firm who was primarily responsible for
providing the response concerning the particular issue; (ii) a review of our
internal litigation docket; (iii) inquiry of representatives of the Partnership
in connection with preparation of the Agreements and the schedules thereto; and
(iv) our review of the items listed in subparagraphs (A-1) through (A-6) above.
We rely on the factual representations and warranties referred to in
subparagraphs (A-5), except to the extent of any knowledge to the contrary or to
the extent reliance thereon would be unreasonable. Except to the extent
expressly set forth herein, we have not undertaken any
<PAGE> 57
Etan Industries, Inc.
___________________________________, 19____
Page 4
independent investigation to determine the existence or absence of such facts
and no inference as to our knowledge of existence or absence of such facts
should be drawn from our representation of the Partnership.
Based upon the foregoing and subject to the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that, as of this date:
1. The Partnership is a Delaware limited partnership, validly
existing under the laws of the State of Delaware with full partnership power and
authority required to owns its properties and conduct its business as presently
conducted by it and as contemplated to be conducted by it under the Agreements,
including the power and authority to enter into and perform the Agreements and
to carry out its obligations thereunder and as contemplated therein. The
Partnership is duly authorized to transact business as a foreign limited
partnership in the State of Texas.
2. The execution, delivery and performance by the Partnership of
each of the Agreements to which it is a party and the transactions contemplated
thereby have been duly authorized by all necessary partnership action, and each
such agreement, when executed and delivered by the parties thereto pursuant to
due authorization will be, the legal, valid and binding obligation of the
Partnership, enforceable against it in accordance with its terms.
3. To the best of our knowledge, there are no actions, suits,
investigations or proceedings ("Actions") pending or threatened against or
affecting the Partnership or any of its properties or rights with respect to the
Systems, by or before any court, arbitrator or administrative tribunal or
Governmental Authority, except Actions that may affect the cable television or
telecommunications business generally.
This opinion letter is rendered as of the date hereof and we assume no
responsibility to supplement the opinions set forth herein in light of any
matters occurring after the date hereof.
This opinion letter is issued solely for the benefit and information of
Purchaser and is in no respect to be quoted by, or otherwise referred to by, or
relied upon by, or filed with, any Governmental Authority or other person or
entity without our prior written consent, except that Purchaser may provide a
copy of this opinion to persons who provide financing to Purchaser, and such
person may rely thereon in connection with providing such financing to
Purchaser.
Very truly yours,
<PAGE> 58
Exhibit F
Opinion of Seller's FCC Counsel
(CPLP)
__________________, 1999
Etan Industries, Inc.
14001 Parkway, Suite 1050
Dallas, Texas 75240
Ladies and Gentlemen:
This letter is furnished to you pursuant to Section _________________
of the Asset Purchase Agreement dated as of __________________________________
the (the "Agreement") between _____________________________________ ("Seller")
and Etan Industries, Inc. ("Purchaser").
We have acted as special communications counsel to Seller in connection
with its cable television business in the communities identified in Attachment A
hereto the "Systems"). This opinion is based, as to matters of law, solely on
the Communications Act of 1934, as amended (the "Act"), the rules and
regulations of the Federal Communications Commission ("FCC"), Section 111 of the
Copyright Act of 1976, as amended (17 U.S.C. ss. 111) (the "Copyright Act"), the
rules and regulations of the United States Copyright Office ("Copyright Office")
pertaining to 17 U.S.C. ss. 111, and the rules and regulations of the Federal
Aviation Administration ("FAA").
For purposes of this opinion, we have examined files made available to
us by Seller, our own files, and have examined available records at the FCC and
the Copyright Office, and have considered such questions and issues under the
above-referenced laws and regulations as relate to Seller or the Systems as we
have deemed necessary or appropriate for the purposes of this opinion. In making
such examinations, we have assumed the genuineness of all signatures on all of
the original or certified, conformed or reproduced copies of all documents of
all parties, the authenticity of all documents submitted to us as originals, and
the conformity to original documents of all documents submitted to us as
certified or photostatic copies.
We have not conducted an independent field investigation of the
Systems, and we have not examined the actual day-to-day operations of the
Systems. We have thus relied upon information provided to us by Seller
concerning the day-to-day operations and actual signal carriage of the Systems.
As to certain questions of fact, we have relied upon statements and certificates
of certain officers, directors, employees and representatives of Seller as well
as the
<PAGE> 59
Etan Industries, Inc.
___________________________________, 19____
Page 2
statements of certain government officials. We have no reason to believe that
such statements are not accurate. This opinion is limited to the matters
expressly addressed herein. We note in particular that we have no knowledge and
express no opinion as to the Systems' compliance in the field with FCC technical
and engineering regulations or their compliance with local franchising
obligations. We have undertaken no investigation and accordingly render no
opinion concerning compliance with the FCC's children's television advertising
rules, public file and record keeping requirements, complaint procedures, or
political advertising rules. Furthermore, we have no knowledge and express no
opinion as to the Systems' regulatory compliance for any periods predating
Seller's ownership of the Systems.
Based upon and limited by the foregoing, and subject to the exceptions
set forth in Attachment F, we are of the opinion that:
1. (a) Seller holds the licenses listed in Attachment A hereto
(the "FCC Licenses"). Based on information provided by Seller, these are the
only FCC licenses required to continue operating the Systems as presently
operated. Each such license was validly issued by the FCC and remain in full
force and effect. Except as noted in Attachment A, the assignment of these
licenses to Buyer has been approved by the FCC, to the extent such approval is
required, and such assignment authorizations are in full force and effect.
(b) The execution, delivery and performance by Seller of the
Agreement will not result in any violation of the Communications Act or the
FCC's rules, regulations or policies and will not cause any forfeiture or
impairment of any FCC authorizations held by the Systems, provided that Buyer
complies with all FCC rules, regulations and policies relating to transfers of
ownership including cross-ownership restrictions.
2. The Systems have authorization to use the frequencies in the
aeronautical and navigational bands (108-137 and 225-240 MHz) set forth in
Attachment B. Based on information provided to us by Seller, these are the only
aeronautical authorizations necessary at this time to enable the Systems to
operate in compliance with FCC regulations.
3. To the extent required, (i) registration statements for the
Systems' communities, (ii) the most recent FCC Forms 320 (showing complying
index scores) required to be filed, (iii) the most recent Forms 325 required to
be filed, (iv) 1990-1998 Form 395A reports, (v) FCC Form 854, Antenna Structure
Registrations, and (vi) all regulatory fee forms, are on file with the FCC. The
Systems have received EEO certification from the FCC for 1990 through 1997.
4. To the best of our knowledge, based on information provided by
Seller, as set forth in Attachment C, the Systems is carrying all of the
commercial "must-carry" signals
<PAGE> 60
Etan Industries, Inc.
___________________________________, 1999
Page 3
required to be carried pursuant to Federal Law. To the best of our knowledge,
there are no "must-carry" complaints pending against the Systems.
5. To the best of our knowledge, based on information provided by
Seller, as set forth in Attachment C, all necessary retransmission consents for
the television broadcast signals currently carried on the Systems have been
obtained.
6. To the best of our knowledge, based on information provided by
Seller and our review of unofficial logs compiled by the FCC or its independent
contractor, Garcia Consulting, Inc. of Forms 328 and 329 filed with the FCC as
of August 31, 1998, Attachment D identifies all of the Systems' franchising
authorities that have sought certification from the FCC to regulate basic
service and equipment rates and all complaints filed at the FCC with respect to
rates for cable programming service.
7. Based on information provided by Seller, the Systems have
established procedures to provide privacy notices annually to their subscribers
and to each new subscriber upon commencement of service, to prevent unauthorized
access to personally identifiable information, and to make available lockboxes
upon request, pursuant to the provisions of the Act. We express no opinion as to
the adequacy or legal sufficiency of the content of such privacy notices or as
to the Systems' internal procedures for the distribution of lockboxes, privacy
notices or the protection of subscriber privacy in accordance with the Act.
8. All Statements of Account required under Section 111 of the
Copyright Act, together with all royalty fees reported as due thereunder, have
been filed by the Systems for the semi-annual accounting periods of 1995/1
through the date hereof, to the extent due. We have not verified the Systems'
historic signal carriage, nor have we verified the royalty fee treatment,
calculation or figures, and we express no opinion as to the accuracy thereof.
9. To the best of our knowledge after due inquiry, there have been
no inquiries, which have not been resolved, received from the U.S. Copyright
Office or any other party which question the 1995/1-1998/1 Statements of Account
or any copyright payment made by the Systems for those accounting periods, nor
are we aware of any claim, action, or demand, other than matters relating to the
cable television industry generally, for copyright infringement or for
non-payment for royalties pending or threatened against the Systems.
10. To the best of our knowledge after due inquiry, and except as
identified in Attachment D and with respect to general rulemakings and similar
matters relating to the cable television industry generally, there is no FCC
order, writ, injunction, or decree which has been
<PAGE> 61
Eaton Industries, Inc.
__________________, 1999
Page 4
issued against the ongoing operations of the Systems, nor are we aware of any
FCC action, suit or proceeding pending or threatened against the Systems.
11. Based solely upon the information provided by Seller as to
antenna structure height, location and proximity to any aircraft landing areas,
all antenna structures utilized by Seller in connection with its operation of
the Systems are in compliance with the requirements for notification to the FAA
contained in Part 17 of the FCC's rules. These antenna structures are listed in
Attachment E hereto. We express no opinion as to compliance with any
requirements of Part 17 of the FCC's rules (such as antenna structure marking
and lighting requirements) other than those delineating the circumstances under
which notification to the FAA is required prior to the construction or
alteration of certain antenna structures.
Opinions are expressed herein only as of the date hereof, and we assume
no obligation to advise you of any future changes in the foregoing. Except as
noted below, this opinion has been prepared solely for your use in connection
with the closing under the Agreement as of the date hereof and should not be
quoted in whole or in part or otherwise be referred to, nor filed with or
furnished to any governmental agency or other person or entity without the prior
written consent of this firm. Each of Buyer's lenders is authorized to rely on
this opinion to the same extent as if it had been addressed to them.
Very truly yours,
<PAGE> 62
Exhibit G
Opinion of Purchaser's Counsel
(CPLP)
_____________________, 1999
Cencom Partners, L.P.
c/o Charter Communications
12444 Powerscourt Drive
Suite 400
St. Louis, Missouri 63131
Ladies and Gentlemen:
We have acted as counsel for Etan Industries, Inc. (the "Company"), in
connection with (i) the preparation, execution and delivery of (a) the Asset
Purchase Agreement, dated __________________________, _____ (the "Purchase
Agreement"), between the Company and Cencom Cable Income Partners II, L.P.
("Seller"), (b) the Indemnity Escrow Agreement, dated _________________, _____,
among the Company, Seller and Fleet National Bank (the "Escrow Agreement"), and
(c) the Assignment and Assumption Agreement, of even date herewith (the
"Assignment Document") (the Purchase Agreement, the Escrow Agreement and the
Assignment Document being hereinafter sometimes collectively referred to as the
"Agreements"); and (ii) the transactions contemplated thereby. We are rendering
this opinion at the request of our clients pursuant to Sections 3.3(d) and 8.7
of the Purchase Agreement. Capitalized terms used and not otherwise defined
herein have the same meanings herein as in the Purchase Agreement.
In our capacity as counsel to the Company, we have made such factual
inquiries and examined such documents, records and certificates as we have
deemed necessary or appropriate for issuing this opinion letter, including but
not limited to the following:
A-1) The Articles of Incorporation and Bylaws of the Company, as
amended to date, certified to us on this date as true and complete by a duly
appointed officer of the Company;
A-2) Certificates dated as of ____________________ and______________,
from the Secretary of State and Comptroller of Public Accounts of the State of
Texas and verbal confirmation as of the date hereof as to the Company's
qualification to transact business in such jurisdiction;
(A-3) The written consent of the Board of Directors of the Company
dated ________________, 19__, as certified to us on this date by a duly
appointed officer of the Company;
(A-4) The factual representations, warranties and certifications made
by or on behalf of the Company in the Agreements or in any certificate, document
or other written communication
<PAGE> 63
Cencom Partners, L.P.
___________________________________, 19____
Page 2
delivered by or on behalf of the Company in connection with the transactions
contemplated by the Agreements; and
(A-5) The Agreements.
For purpose of rendering the opinions expressed herein, we have
assumed: (i) the genuineness of all signatures (other than signatures by or on
behalf of the Company on documents submitted to us as originals and the
conformity to original documents furnished to us; (ii) the authenticity of all
documents submitted to us as originals and the conformity to original documents
of all copies furnished to us; (iii) the due power and authority of each party
(other than the Company) to each document reviewed by us; (iv) the due
authorization of each document reviewed by us by each party thereto (other than
the Company); (v) the due execution and delivery of each of the Agreements
executed by or on behalf of any person other than the Company; and (vi) that the
Agreements executed by or on behalf of any person (other than signatures by or
on behalf of the Company) constitute the legal, valid and binding obligations of
each such person, enforceable against each such person in accordance with their
respective terms.
The opinions expressed herein are also subject to the following:
(B-1) The opinions expressed by us herein are limited to the laws of
the State of Texas, and, where applicable, to Federal laws.
(B-2) Our opinions are subject to the effect of bankruptcy, insolvency,
reorganization, fraudulent conveyance, arrangement, moratorium, and other laws
relating to or affecting the rights of creditors generally.
(B-3) Our opinions are subject to limitations imposed by general
principles of equity upon: (i) the specific enforceability of any of the
remedies, covenants or other provisions of the Agreement; (ii) the general
availability of injunctive relieve or other equitable remedies; and (iii) the
application of principles of equity (regardless of whether enforcement in
considered in proceedings in law or in equity) in regard to certain covenants
and provisions where (y) the breach of such covenants or provisions imposes
restrictions or burdens upon an obligor, and a court determines that such breach
is not material to the obligee or (z) the obligee's enforcement of covenants or
provisions of the Agreements would violate the obligee's implied covenants of
good faith and fair dealing or would be commercially unreasonable.
(B-4) We express no opinion as to the enforceability of any provisions
of the Agreements that: (i) purport to specify that provisions may be waived or
amended only in writing; or (ii) purport to indemnify or would have the effect
of indemnifying any person for
<PAGE> 64
Cencom Partners, L.P.
___________________________________, 19____
Page 3
such person's gross negligence, reckless or willful misconduct or intentional
wrongs, or to exculpate any person as to liability for wrongs committed to
persons other than a party to the instrument purporting to create such
exculpation.
(B-5) Whenever any opinion stated herein with respect to the existence
or absence of facts is indicated to be based on our knowledge or the best of our
knowledge, it is limited to (i) the current actual knowledge of the attorney who
signed this opinion, any attorney of our firm who had active involvements in
negotiating the Purchase Agreement, preparing the Purchase Agreement or
preparing this opinion letter and, solely as to information, relevant to an
opinion issue, any attorney of our firm who was primarily responsible for
providing the response concerning the particular issue; (ii) inquiry of
representatives of the Company in connection with preparation of the Agreements;
and (iii) our review of the items listed in subparagraphs (A-1) through (A-5)
above. We rely on the factual representations and warranties referred to in
subparagraph (A-4), except to the extent of any knowledge to the contrary or to
the extent reliance thereon would be unreasonable. Except to the extent
expressly set forth herein, we have not undertaken any independent investigation
to determine the existence or absence of such facts and no inference as to our
knowledge of existence or absence of such facts should be drawn from our
representation of the Company.
Based upon the foregoing and subject to the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that, as of this date:
1. The Company is a Texas corporation, validly existing under the
laws of the State of Texas with full corporate power and authority required to
own its properties and conduct its business as presently conducted by it and as
contemplated to be conducted by it under the Agreements, including the power and
authority to enter into and perform the Agreements and to carry out its
obligations thereunder and as contemplated therein.
2. The execution, delivery and performance by the Company of each of
the Agreements to which it is a party and the transactions contemplated thereby
have been duly authorized by all necessary corporate action, and each such
agreement, when executed and delivered by the parties thereto pursuant to due
authorization will be, the legal, valid and binding obligation of the Company,
enforceable against it in accordance with its terms.
3. To the best of our knowledge, neither the execution or delivery
of the Agreements or any agreement contemplated thereby, nor fulfillment of or
compliance with the terms and provisions of the Agreements will result in a
breach of the terms, conditions, or provisions of, or constitute a default
under, or result in any material violation of the Articles of Incorporation or
Bylaws of the Company, any award known to us of any arbitrator or any agreement,
instrument,
<PAGE> 65
Cencom Partners, L.P.
___________________________________, 19____
Page 4
order, judgment or decree known to us or any law, rule or regulation that, based
upon the exercise of customary professional diligence, would be recognized as
being directly applicable to the Company.
This opinion letter is rendered as of the date hereof and we assume no
responsibility to supplement the opinions set forth herein in light of any
matters occurring after the date hereof.
This opinion letter is issued solely for the benefit and information of
Seller and is in no respect to be quoted by, or otherwise referred to by, or
relied upon by, or filed with, any Governmental Authority or other person or
entity without our prior written consent.
Very truly yours,
<PAGE> 66
Exhibit H
Consent of Franchisor
(CPLP)
RESOLUTION NO. [NO]
A RESOLUTION OF THE [authority] OF THE
[municipality], [state], CONSENTING TO THE ASSIGNMENT
OF THE CABLE TELEVISION SYSTEM FRANCHISE
FROM [seller] TO [purchaser]
WHEREAS, on [date], the [authority], (the "[authority]") granted to
[seller] ("Seller"), a franchise as set forth in Ordinance No. [number], to own
and operate a cable television system in the [municipality], [state] (the
"Franchise");
WHEREAS, Seller has executed an asset purchase agreement (the "Purchase
Agreement") whereby Seller has committed to transfer and convey the
[municipality] cable television system and related assets (the "System") to
[purchaser] ("Purchaser"), including all right, title and interest of Seller in
the Franchise to Purchaser;
WHEREAS, the [authority] has investigated the background of Purchaser
and finds Purchaser to be a suitable transferee; and
WHEREAS, FCC Form 394 has been filed with [municipality].
NOW THEREFORE, BE IT RESOLVED BY THE [authority] OF THE [municipality],
AS FOLLOWS:
Section 1. The [authority] hereby consents to and approves the
assignment by Seller of its right, title and interest in the Franchise to
Purchaser and assumption by Purchaser of the obligations of Seller under the
Franchise, subject to applicable law, which accrue from and after the date of
closing of the purchase of the System by Purchaser.
Section 2. The [authority] hereby consents to and approves the
assignment, mortgage, pledge or other encumbrance, if any, of the Franchise,
System or assets relating thereto, or of the interests in Purchaser, as
collateral for a loan.
Section 3. Upon such assignment, Seller shall be released of all
obligations under the Franchise.
Section 4. This Resolution shall not become effective until Purchaser
purchases the System from Seller and assumes the obligations of Seller under the
Franchise.
<PAGE> 67
Section 5. This Resolution shall have the force of a continuing
agreement with Purchaser, and the [authority] shall not amend or otherwise alter
this Resolution without the consent of Purchaser and Seller.
PASSED, ADOPTED AND APPROVED by the [authority] of the [municipality],
[state], this [date].
--------------------------------
ATTEST: APPROVED AS TO FORM:
- ------------------------ --------------------------------
<PAGE> 1
EXHIBIT 10(bb)
CENCOM CABLE INCOME PARTNERS, II, L.P.
CENCOM PARTNERS, L.P.
C/O CHARTER COMMUNICATIONS, INC.
12444 POWERSCOURT DRIVE, SUITE 100
ST. LOUIS, MISSOURI 63131-3660
December 3, 1998
The Lenders (as defined below) and
Canadian Imperial Bank of Commerce, as Agent
425 Lexington Avenue
New York, New York 10017
Re: Amendment Letter
Dear Sirs:
Reference is made to the Credit Agreement, dated as of May 23, 1997 (as amended
by the Limited Waiver and Amendment Letter, dated August 11, 1997, the "Credit
Agreement"), among Cencom Cable Income Partners II, L.P. and Cencom Partners,
L.P. (collectively, the "Borrowers"), the various financial institutions as are,
or may from time to time become, parties thereto (the "Lenders"), and Canadian
Imperial Bank of Commerce, acting through one or more of its affiliates,
branches or agencies ("CIBC"), as agent for the Lenders (in such capacity, the
"Agent"). Terms defined in the Credit Agreement are used in this amendment
letter (this "Amendment Letter") as therein defined.
By this Amendment Letter, the Borrowers hereby request that the Lenders:
(a) amend the definition of "Change of Control in Section 1.1 of the Credit
agreement by
(i) restating clause (a) thereof in its entirety to read as
follows: "(a) if at any time prior to the consummation of the
Allen Transaction, (i) Charter Communications shall for any
reason fail to be controlled, directly or indirectly, by at
least one of Jerald L. Kent, Howard L. Wood or Barry L.
Babcock or (ii) at least 51% of the voting equity of Charter
Communications shall for any reason fail to be owned by at
least one of such individuals;";
(ii) restating clause (b) thereof in its entirety to reason as
follows: "(b) if at any time subsequent to the consummation of
the Allen Transaction, Paul G. Allen or Persons under the
Control of Paul G. Allen (including his heirs, his estate or
any trust or other Person, 100% in interest of the owners or
beneficiaries of which consist of his heirs or estate) shall
no longer have, directly or indirectly, Control of at least
51% of the voting equity of charter Communications;"; and
(iii) appending a new sentence at the end of such definition to read
as follows: "For purposes of clause (b) of this definition,
`Control' shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the
<PAGE> 2
management or policies of a Person, whether through ownership
of voting equity, by contract or otherwise."; and
(b) amend Section 1.1 of the Credit Agreement to include the following new
definition (in its proper alphabetical location):
"Allen Transaction" means the acquisition by Paul G. Allen of at least
51% of the voting equity and economic interest in Charter
Communications."
This Amendment Letter shall become effective as of the date hereof upon the
execution of counterparts hereof by each Borrower, the Required Lenders and the
Agent.
In order to induce the Lenders to grant the foregoing amendments, (a) the
Borrowers hereby confirm, reaffirm and restate the representations and
warranties set forth in Article VI of the Credit Agreement and in the Loan
Documents as if made on the date hereof and (b) the Borrowers hereby represent
and warrant that, after giving effect to the amendments set forth in this
Amendment Letter, no Default or Event of Default shall have occurred and be then
continuing.
Except as expressly modified by this Amendment Letter, all of the terms and
provisions of the Credit Agreement and the Loan Documents shall remain in full
force and effect. This Amendment Letter is a Loan Document executed pursuant to
the Credit Agreement and shall be construed and administered in accordance with
all of the terms and provisions of the Credit Agreement (including that all
expenses in connection with the preparation, execution and delivery hereof shall
be paid by the Borrowers).
If you are in agreement with the foregoing terms, kindly execute this Amendment
Letter in the space provided below and deliver to the Agent an executed
counterpart of this Amendment Letter.
THIS AMENDMENT LETTER MAY BE EXECUTED IN COUNTERPARTS, EACH OF WHICH SHALL BE
DEEMED AN ORIGINAL AND SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK.
Very truly yours,
CENCOM CABLE INCOME PARTNERS II, L.P.
By: Cencom Properties II, Inc.,
its general partner
By: _____________________________
<PAGE> 3
December 3, 1998
Page 3
CENCOM PARTNERS, L.P.
By Cencom Partners, Inc.,
its general partner
By: _____________________________
THE AMENDMENT SET FORTH ABOVE
IS HEREBY AGREED TO AND
ACCEPTED AS OF THE DATE FIRST
ABOVE WRITTEN:
CANADIAN IMPERIAL BANK OF COMMERCE,
as Agent
By:__________________________________
LENDERS:
CIBC INC.
By:__________________________________
<PAGE> 1
CENCOM CALBE INCOME PARTNERS II, L.P.
RATIO OF EARNINGS TO FIXED CHARGES CALCULATION
(In Thousands, Except Ratios)
<TABLE>
<CAPTION>
Earnings 1998 1997 1996 1995 1994
- -------- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Income (Loss) 2,291 44,549 (1,447) (2,293) (5,256)
Fixed Charges 405 1,329 2,842 3,455 3,158
----- ------ ------ ------ ------
Earnings 2,696 45,878 1,395 1,162 (2,098)
===== ====== ====== ====== ======
Fixed Charges
Interest Expense 350 944 2,835 3,373 3,153
Interest Element of Rentals 3 5 7 8 5
Amortization of debt costs 52 380 0 74 0
----- ------ ------ ------ ------
Total Fixed Charges 405 1,329 2,842 3,455 3,158
===== ====== ====== ====== ======
Ratio of Earnings to Fixed Charges 6.66 34.52 -- -- --
</TABLE>
(1) Earnings for the year ended December 31, 1996, 1995, and 1994 were
insufficient to cover the $2,293, and $5,256, respectively. As a result of
such deficiencies, the ratios are not present
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 267,002
<SECURITIES> 0
<RECEIVABLES> 52,409
<ALLOWANCES> (17,990)
<INVENTORY> 0
<CURRENT-ASSETS> 350,255
<PP&E> 15,320,714
<DEPRECIATION> (11,164,131)
<TOTAL-ASSETS> 7,897,700
<CURRENT-LIABILITIES> 7,612,910
<BONDS> 3,800,000
0
0
<COMMON> 0
<OTHER-SE> (3,534,984)
<TOTAL-LIABILITY-AND-EQUITY> 7,897,700
<SALES> 6,114,611
<TOTAL-REVENUES> 6,114,611
<CGS> 0
<TOTAL-COSTS> 3,999,111
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (401,809)
<INCOME-PRETAX> 2,291,383
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,291,383
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,291,383
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
