HomeMy WebLinkAboutRes 98-10 Authorizing Ownership Changes Involving Cable Televsion FranchiseRESOLUTION 98-10
A RESOLUTION OF THE BOARD OF ALDERMEN OF THE TOWN OF
WESTLAKE AUTHORIZING OWNERSHIP CHANGES INVOLVING CABLE
TELEVISION FRANCHISE.
WHEREAS, Marcus Cable Associates, L.L.C. ("Franchisee"), is the duly
authorized holder of a franchise (as amended to date, the "Franchise"), authorizing the
operation and maintenance of a cable television system and authorizing Franchisee to
serve the Town of Westlake; and
WHEREAS, pursuant to that certain First Amendment to Operating Agreement
for Marcus Cable Company, L.L.C., dated as of August 27, 1998, by and between Marcus
Cable Properties, L.L.C., a Delaware limited liability company, as transferor
("Transferor") and Vulcan Cable, Inc., a Washington corporation, as transferee
("Transferee"), the Town of Westlake (the "Franchising Authority") has received a
request for approval of ownership changes involving the transfer of control of Franchisee
and rights associated therewith, and
WHEREAS, Transferee agrees that Franchisee from and after the date of the
closing of the transactions described if FCC Form 394, shall continue to perform each
and every obligation of the Franchisee under the Franchise;
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE
TOWN OF WESTLAKE, TEXAS THAT:
SECTION t: The Franchise has been properly granted, is in full force and effect
in accordance with its terms and conditions, there are no defaults under the Franchise or
events which upon the giving of notice or passage of time, or both, would constitute an
event of default thereunder.
SECTION 2: Consent to and any required approval of the transfer of control of
Franchise from Transferor to Transferee, as described in FCC Form 394, is hereby
granted.
SECTION 3: Following the transfer of control, the franchisee may, at any time
and from time to time: (a) undergo additional transfers of control, and /or (b) assign or
grant or otherwise convey all or part of its assets, including the Franchise; provided that
the transferee of control, assignee or transferee of the assets of Franchise, is a person or
entity which is affiliated with the Franchisee, Transferee or Paul G. Allen by virtue of
direct, indirect and/or common control, management or ownership.
SECTION 4: The Franchising Authority waives any rights of First refusal that it
may have to assume the Franchise or acquire the System upon any transfer contemplated
hereunder.
Resolution 98-10
Page 2
SECTION 5: Following the transfer of control, the Franchisee, may at any time
and from time to time assign, grant or pledge or otherwise convey one or more liens or
security interests in its assets, including its rights, obligations and benefits in and to the
Franchise, to any lender ("Secured Parry") providing financing to Transferee, from time
to time, and that such Secured Party shall have the rights of a secured creditor with
respect thereto.
SECTION 6: The consent to change of control herein provided shall be effective
upon and only effective concurrent with the closing of the transactions described in FCC
Form 394, and the Franchising Authority shall be notified promptly upon the closing of
such transactions.
PASSED AND APPROVED ON THIS 14TH DAY OF SEPTEMBER, 1998.
Scott Brad ey, Mayor
ATTEST:
L -, (,-,( C60b�.--- —
Y
ing Crosswy, Town Acretary
APPROVED AS TO FORM:
Paul C. Isham, Town Attorney
IH a am DIN DMA 161 LejewM1041
WHEREAS, Marcus Cable Associates, L.L.C. ("Franchisee"), is the duly authorized holder of a franchise
(as amended to date, the "Franchise"), authorizing the operation and maintenance of a cable television system and
authorizing Franchisee to serve the Town of Westlake; and
WHEREAS, pursuant to that certain First Amendment to Operating Agreement for Marcus Cable
Company, L.L.C., dated as of August 27, 1998, by and between Marcus Cable Properties, L.L.C., a Delaware
limited liability company, as transferor ("Transferor") and Vulcan Cable, Inc., a Washington corporation, as
transferee ("Transferee"), the Town of Westlake (the "Franchising Authority") has received a request for approval
of ownership changes involving the transfer of control of Franchisee and rights associated therewith; and
WHEREAS, Transferee agrees that Franchisee from and after the date of the closing of the transactions
described in FCC Form 394, shall continue to perform each and every obligation of the Franchisee under the
Franchise;
1. That the Franchise has been properly granted, is in full force and effect in accordance with its
tenns and conditions, there are no defaults under the Franchise or events which upon the giving of notice or passage
of time, or both, would constitute an event of default thereunder;
2. That consent to and any required approval of the transfer of control of Franchise from Transferor
to Transferee, as described in FCC Form 394, is hereby granted;
3. That following the transfer of control, the Franchisee may, at any time and from time to time: (i)
undergo additional transfers of control, and /or (ii) assign or grant or otherwise convey all or part of its assets,
including the Franchise; provided that the transferee of control, assignee or transferee of the assets or Franchise, is a
person or entity which is affiliated with the Franchisee, Transferee or Paul G. Allen by virtue of direct, indirect
and/or common control, management or ownership; and
4. That the Franchising Authority waives any rights of First refusal that it may have to assume the
Franchise or acquire the System upon any transfer contemplated hereunder; and
5. That following the transfer of control, the Franchisee, may at any time and from time to time,
assign, grant or pledge or otherwise convey one or more liens or security interests in its assets, including its rights,
obligations and benefits in and to the Franchise, to any lender ("Secured Party") providing financing to Transferee,
from time to time, and that such Secured Party shall have the rights of a secured creditor with respect thereto; and
6. That the consent to change of control herein provided shall be effective upon and only effective
concurrent with the closing of the transactions described in FCC Form 394, and the Franchising Authority shall be
notified promptly upon the closing of such transactions.
Attest:
ADOPTED by the Franchising Authority on this day of , 1998.
Town of Westlake, TX
By:
Name:
Title:
Federal Communications Commission
Washington, D.C. 20554
APPLICATION FOR FRi AUTHORITY
CONSENT TO ASSIGNMENT OR TRANSFER OF CONTROL
OF %TELEVISION
M 2 -
VIN
• x • •
Approved by OMB
3060-0573
FOR FRANCHISE AUTHORITY USE ONLY
DATE August 28, 1998 1. Community Unit Identification Number: TX1956/1958
2. Application for: ❑ Assignment of Franchise 7X Transfer of Control
3. Franchising authority: Town of Westlake, TX
4. Identify community where the system/franchise that is the subject of the assignment or transfer of control is located:
Westlake, TX
5. Date system was acquired or (for system's constructed by the transferor/assignor) the date on
7/8/97
which service was provided to the first subscriber in the franchise area:
State
6. Proposed effective date of closing of the transaction assigning or transferring ownership of the
12/31/98
system to transferee/assignee:
Texas
7. Attach as an Exhibit a schedule of any and all additional information or material filed with this application that is Exhibit No.
identified in the franchise as required to be provided to the franchising authority when requesting its approval of
the type of transaction that is the subject to this application.
PART I - TRANSFEROR/ASSIGNOR
Indicate the name, mailing address, and telephone number of the transferor/assignor.
Legal name of Transferor/Assignor (if individual, list last name first)
Marcus Cable Properties, L.L.C.
Assumed name used for doing business (if any)
Mailing street address or P.O. Box
2911 Turtle Creek Blvd., Suite 1300
City
State
ZIP Code
Telephone No. (include area code)
Dallas
Texas
75219
214/521-7898
2.(a) Attach as an Exhibit a copy of the contract or agreement that provides for the assignment or transfer of control Exhibit No.
(including any exhibits or schedules thereto necessary in order to understand the terms thereof). If there is only I - i - 2 (a)
an oral agreement, reduce the terms to writing and attach. (Confidential trade, business, pricing or marketing
information, or other information not otherwise publicly available, may be redacted).
(b) Does the contract submitted in response to (a) above embody the full and complete
agreement between the transferor/assignor and the transferee/assignee? ❑X Yes ® No
If No, explain in an Exhibit. There are ancillary documents that are not directly pertinent nor material to Exhibit No.
the transaction between transferor and transferee, and which are not necessary to understand the agreement
between transferor and transferee.
FCC 394 (Page 1) September 1996
1.(a) Indicate the name, mailing address, and telephone number of the transferee/assignee.
Legal name of Transferee/Assignee (if individual, list last name first)
Vulcan Cable, Inc.
Assumed name used for doing business (if any)
Mailing street address or P.O. Box
110 110`h Avenue, NE
City
State
ZIP Code
Telephone No. (include area code)
Bellevue
Washington
98004
425/453-1940
(b) Indicate the name, mailing address, and telephone number of person to contact, if other than transferee/assignee.
Name of contact person (list last name first)
Gregg, Donna C.
Firm or company name (if any)
Wiley, Rein & Fielding
Mailing street address or P.O. Box
1776 K Street, NW
City
State
ZIP Code
Telephone No. (include area code)
Washington
D. C.
20006
202/429-7260
(c) Attach as an Exhibit the name, mailing address, and telephone number of each additional
person who should be contacted, if any.
(d) Indicate the address where the system's records will be maintained. LOCAL SYSTEM
RECORDS WILL CONTINUE TO BE MAINTAINED AT LOCAL SYSTEM OFFICE
Exhibit No.
I -II -1 (c)
Street address 12444 Powerscourt Drive
City St. Louis
State Missouri
ZIP Code 63131-3660
2. Indicate on an attached exhibit any plans to change the current terms and conditions of service and operations Exhibit No.
of the system as a consequence of the transaction for which approval is sought. I - II - 2
PCC 394 (Page 2) September 1996
SECTION H. TRANSFEREE'S/ASSIGNEE'S LEGAL QUALIFICATIONS
1. Transferee/Assignee is:
FX Corporation
❑ Limited Partnership
❑ General Partnership
❑ Individual
❑ Other. Describe in an Exhibit.
a. Jurisdiction of incorporation:
Washington
b. Date of incorporation:
April 2, 1998
c. For profit or not-for-profit:
For Profit
d. Name and address of registered agent in
jurisdiction:
Corporate Service Company
1010 Union Ave., SE
Olympia, WA 98501
a. Jurisdiction in which formed:
c. Name and address of registered agent in
jurisdiction:
b. Date of formation:
a. Jurisdiction whose laws govern formation: b. Date of formation:
Exhibit No.
II -1
2. List the transferee/assignee, and, if the transferee/assignee is not a natural person, each of its officers, directors, stockholders
beneficially holding more than 5% of the outstanding voting shares, general partners, and limited partners holding an equity interest of
more than 5%. Use only one column for each individual or entity. Attach additional pages if necessary. (Read carefully -- the lettered
items below refer to corresponding lines in the following table.)
(a) Name, residence, occupation or principal business, and principal place of business. (If other than an individual, also show name,
address and citizenship of natural person authorized to vote the voting securities of the applicant that it holds.) List the applicant first,
officers, next, then directors and, thereafter, remaining stockholders and/or partners.
(b) Citizenship.
(c) Relationship to the transferee/assignee (e.g., officer, director, etc.)
(d) Number of shares or nature of partnership interest.
(e) Number of votes.
(f) Percentage of votes.
(a) Vulcan Cable, Inc.
Bellevue, WA
Ownership of cable television systems
Paul G. Allen
Bellevue, WA
Investor
William D. Savoy
Bellevue, WA
Investor
(b) Washington Corporation
United States
United States
(c) Transferee
Chairman, Director
Director, President, Secretary and Treasurer
(d) N/A
100%
0%
(a) N/A
N/A
N/A
(f) NIA
100%
0 %
FCC 394 (Page 3) September 1996
3. If the applicant is a corporation or a limited partnership, is the transferee/assignee formed under the laws of, or
duly qualified to transact business in, the State or other jurisdiction in which the system operates?
QX Yes [_� No
If the answer is No, explain in an Exhibit.
Exhibit No.
4. Has the transferee/assignee had any interest in or in connection with an application which has been dismissed or
III - 2
denied by any franchise authority?
[]Yes ® No
If the answer is Yes, describe circumstances in an Exhibit.
[__Exhibit No.
6. Has an adverse finding been made or an adverse final action been taken by any court or administrative body with
respect to the transferee/assignee in a civil, criminal or administrative proceeding, brought under the provisions of
❑ Yes Q No
any law or regulation related to the following: any felony; revocation, suspension or involuntary transfer of any
authorization (including cable franchises) to provide video programming services; mass media related antitrust or
unfair competition; fraudulent statements to another governmental unit; or employment discrimination?
If the answer is Yes, attach as an Exhibit a full description of the persons and matter(s) involved, including an
Exhibit No.
identification of any court or administrative body and any proceeding (by dates and file numbers, if applicable),
and the disposition of such proceeding.
6. Are there any documents, instruments, contracts or understandings relating to ownership or future ownership
rights with respect to any attributable interest as described in Question 2 (including, but not limited to, non-voting
R Yes Q No
stock interests, beneficial stock ownership interests, options, warrants, debentures)?
If Yes, provide particulars in an Exhibit. Exhibit No.
Do documents, instruments, agreements or understandings for the pledge of stock of the transferee/assignee, as
security for loans or contractual performance, provide that: (a) voting rights will remain with the applicant, even in F� Yes Q No
the event of default on the obligation; (b) in the event of default, there will be either a private or public sale of the
stock; and (c) prior to the exercise of any ownership rights by a purchaser at a sale described in (b), any prior
consent of the FCC and/or of the franchising authority, if required pursuant to federal, state or local law or
pursuant to the terms of the franchise agreement will be obtained?
If No, attach as an Exhibit a full explanation. Exhibit No.
11-7
1. The transferee/assignee certifies that it has sufficient net liquid assets on hand or available from committed
resources to consummate the transaction and operate the facilities for three months.
QX Yes ❑ No
2. Attach as an Exhibit the most recent financial statements, prepared in accordance with generally accepted
Exhibit No.
accounting principles, including a balance sheet and income statement for at least one full year, for the
III - 2
transferee/assignee or parent entity that has been prepared in the ordinary course of business, if any such
financial statements are routinely prepared. Such statements, if not otherwise publicly available, may be marked
CONFIDENTIAL and will be maintained as confidential by the franchise authority and its agents to the extent
permissible under local law.
SECTION IV - TRANSFEREE'S/ASSIGNEE'S TECHNICAL QUALIFICATIONS
Set forth in an Exhibit a narrative account of the transferee's/assignee's technical qualifications, experience and expertise Exhibit No.
regarding cable television systems, including, but not limited to, summary information about appropriate management IV
personnel that will be involved in the system's management and operations. The transferee/assignee may, but need not,
list a representative sample of cable systems currently or formerly owned or operated.
FCC 394 (Page 4) September 1996
Part I - Transferor/Assignor
All the statements made in the application and attached exhibits are considered material representations, and all the Exhibits are a material part hereof and are incorporated herein as if set
out in full in the application.
I CERTIFY that the statements in this application are true, complete and correct to the
Signature ;
best of my knowledge and belief and are made in good faith.
b(
WILLFUL FALSE STATEMENTS MADE ON THIS FORM ARE PUNISHABLE BY FINE
Date August 28, 1998
AND/OR IMPRISONMENT. U.S. CODE, TITLE 18, SECTION 1001.
Print full name STEVEN P. BROCKETT
Vice President
Check appropriate classification:
Marcus Cable Properties, Inc.
Indicate Title
The Managing Member
Check appropriate classification:
n Individual F] General Partner QX Corporate Officer Other. Explain:
(Indicate Title)
Part II - Transferee/Assignee
All the statements made in the application and attached exhibits are considered material representations, and all the Exhibits are a material part hereof and are incorporated herein as if set
out in full in the application.
The transferee/assignee certifies that he/she:
(a) Has a current copy of the FCC's Rules governing cable television systems.
(b) Has a current copy of the franchise that is the subject of this application, and of any applicable state laws or local ordinances and related regulations.
(c) Will use its best efforts to comply with the terms of the franchise and applicable state laws or local ordinances and related regulations, and to effect changes, as promptly as practicable,
in the operation of the system, if any changes are necessary to cure any violations thereof or defaults thereunder presently in effect or ongoing.
I CERTIFY that the statements in this application are true, complete and correct to the
Signature
best of my knowledge and belief and are made in good faith.
WILLFUL FALSE STATEMENTS MADE ON THIS FORM ARE PUNISHABLE BY FINE
Date August 28, 1998
AND/OR IMPRISONMENT. U.S. CODE, TITLE 18, SECTION 1001.
Printfuli name WILLIAM D. SAVOY
President
Check appropriate classification:
F] Individual F] General Partner Q Corporate Officer F] Other. Explain:
Indicate Title
FCC 394 (Page 5) September 1996
FCC FORM 394
In an effort to make this application as complete as possible, we are including certain highly
sensitive and confidential trade, business and financial data. We respectfully request that you
help maintain its confidentiality. Therefore, we are seeking the maximum possible protection for
certain highly sensitive business, trade and financial information being submitted under seal
herewith. If, for any reason the form of the current request does not comport with your state or
local standards or you are unable to accord these documents confidential treatment, we ask that
you notify us as soon as possible. We will take your retention of these documents as your
agreement to treat them as confidential.
Please note that we do not consent to disclosure of any information for which confidentiality is
claimed to any person other than those public employees (including consultants and other agents)
who have a specific need to review it in connection with the franchise transfer application. The
information is submitted on the explicit understanding that we: (1) do not relinquish its privacy
interests and its proprietary interests in such material and (2) are relying on the franchising
authority to protect the confidentiality of such information to the maximum extent possible under
the law
We appreciate your attention to this matter and thank you in advance for your cooperation in this
regard.
EXHIBIT I -I-2 (a)
Enclosed herewith is the First Amendment to Operating Agreement for Marcus
Cable Company, L.L.C. which is the Agreement that provides for the change in Manager
of Marcus Cable Company, L.C.C., (a parent of Franchisee) from Marcus Cable
Properties, L.L.C. to Vulcan Cable, Inc. and, as such, transfer control. As background,
also enclosed is the underlying Operating Agreement for Marcus Cable Company, L.L.C.
prior to amendment.
EXHIBIT I -I -2(a)
FIRST AMENDMENT
TO
OPExATrNG AGREEMENT
FOR
MARCUS CABLE COMPANY, L.L.C.
This First Amendment (the "First Amendment") to the Operating Agreement. of
Marcus Cablc Company, L.L.C. dated as of June 9, 1998 (the "Operating Agrccrncnt") is
made and entered into as of August 25, 1998, by and between MARCUS CABLE
PROPERTIES, L.L.C. ("MCP L.L.C.") and VULCANT CABLE, TNC. ("Vulcan"). The
parties to this First Amendment arc sometimes referred to collectively herein its the
"'vteribers." Unless otherwise specified herein, all terns used but not defined herein
shall have the meaning assigned to them in the Agreement.
WHEREAS, the tvfembers wish to amend the Operating Agreement to transfer
control of the Company by changing the Manager of the Company on the Efrective Tate
(as defined below): and
WH F,RENS, the tlembers shall seek appropriate consents, approvals, orders and
authorizations of, and undertake registrations and filings with, the federal
Communications Commission and
local ii°atieluse authorities having j urisdic.tion over
various eagle systems operaied by the Company's affiliates in order to transfer to Vulcan
control of t"tle Cotnpany (the "Approvals" )_
NOW THEREFORE, the parties hcreio agree as follows:
Amendment to Operating AgC--c•nent.
Thu Operating Agreement shall be amended by replacing the current
definition of "Manager" in Article T with the following definition:
"Manager shall nican Vulcan Cable, Inc., a Washington corporation, and
any Person admitted as a successor -%tanager pursuant to Section 9.4
liercof."
2. Fffective Date.
The amendment in paragraph 1, above, sliall be effective ai such time that
MCP L.L.C. (the current Manager of the C:onipany) (i) determines in the light of
the Approvals received that it is in the best ifitprest; of the Members to substitute
Vulcan fpr MCP L.L.C. as the Manager ofthe Compa:_y and (.i) notifies Vulcan
in writing of*such deterniirnation.
1 iv { Ic811OT,
Except as amended hereby, the Operating Agreement shall remain
unchanged and in fiill force aiid effect, and the Company shall continue on the
sa,iie terms and conditions licretofore existing, which terms anci conditions are
hereby ratified and reaffirmed.
4. Counterp arts.
This First Amendinent may be executed in any number of counterparts, all
of which shall constitute but one original.
1N WITNESS WHEREOF, the undersigned have executed this First Amendment
as of the day and year first above writtern.
MARCUS CABLE PROPERTIES. L.L.C.
By: Marcus Cable Properties, Inc.
Its: Manager
Bv: A/ Thomas P. 11k 1lillin
Name: Thomas P. McMillin
Title: Chief Financial Officer
VULCAN CABLE, INC.
By: A/ William D. Savoy
Name: William D. Savov
Title: President
33502 m 113
wamplimcko
1.
DEFINITIONS ......... ... . .. . .......... I ................... 11 .... .....................
I
ARTICLE 2.
THE COMPANY AND ITS BUSINESS ................... .......................
.......... 6
2.1
Formation ............ ......... ..................... ........................................................
6
2,2
Certificate of Formation........ ........ ............... ........................................
6
2.3
Company Name ...... ... ... ....... ............................................... -- .............
7
2.4
Term ............ ..................... ....................... ..................................................
7
2.5
Purpose of the Company . .............. ...............................................................
7
2.6
Authority of the Company ..................................................................
......... 7
2.7
Prohibited Activities . .................. ......... .................................... --
... ........... 8
2.8
Principal Place of Business . ........... .............................. .............................
2.9
Foreign Qualification . ........................... ........ ............ ............ ..................
8
2.10
Cooperation of the Members . ..............................................................
...... 8
ARTICLE 3.
CAPITAL CONTRIBUTIONS; SALE OF PROPERTY TO THE
COMPANY;
ISSUANCE OF UNIT CERTIFICATES ............ .......... ........ ...................
8
3.1
Capital Contributions by the Members . .......................................
-- ..... ...... 8
3.2
Additional Contributions.. ............... .. ..................................................
...... 8
3.3
Withdrawal of Contributions .........................................................................
8
3.4
Additional Inter eas . ....................................................................................
9
ARTICLE 4.
COSTS AND EXPENSES ....... ................................. ......... ........................
9
ARTICLE 5.
DISTRIBUTIONS, PROFITS AND LOSSES ...............................................9
5.1
Distributions . ................. ..... ......................................... ............ .................
9
5.2
Allocations of Company Profits and Losses . ....................................
............ 9
5.3
Allocation in Event of Transfer ......................... ........... .....................
— 12
5.4
Reevaluations of Capital Accounts ................ ........................... .................
12
'UN112.02 03
ARTICLE6.
MANAGEMEN'r ........... -- ..... ................ .................................................
12
6.1
Rights and Duties of Members . ............. . .. .. ... ...... .............
.......... ...... 12
6.2
Power of Manager ............... ................................. -- ...............
........... . 13
6.3
Holding of Title . ................................................. ...............................
. .....
6.4
Exculpation and Indemnification .................................................................
15
6.5
Permitted Transactions ................................................................
......... ..... 16
6.6
Communications Act........ ................ ....... .....................
......... ........ 16
ARTICLE 7.
RIGHTS AND OBLIGATIONS OF THE MENMERS ..............................
17
7.1
Liability of Members . ..................................................................................
17
7.2
Restricted Activity OFVCT . ................................................
.......... ............. 17
7.3
Meetings, Voting Rights and Action without a Meeting ..............................
18
ARTICLE 9.
BWKS, RECORDS, ACCOUNTING AND REPORTS
............................ 18
9.1
Books and Records . .......................... ............. ........................................
— Is
9.2
Delivery to Members and Inspection . ..................... .......
........ .................. . 19
93
Annual Statements . .......................................... ............ .........................
... 20
9.4
Quarterly Financial Statement .............. ............. ................
........... .. ....... 20
8.5
Filings ........................................................ ................................................
20
ARTICLE 9.
TRANSFER OF INTERESTS ....................................................................
20
9.1
Transfer of Interests . ...................................................................................
20
9.2
Amendment of Certificate ........ ..............................................................
... 21
9.3
Removal of Manager ...............................................................................
-.. 21
9.4
Admission of Successor Manager ...............................................................
22
ARTICLE 10.
DISSOLUTION AND TERMINATION .............. ......................................
22
10.1
Events of Dissolution ..................................................................................
22
10.2
Final Accounting ........ ......... ............................ ........................................
23
10.3
Liquidation.. ............................ ...... ... .................... ................................
23
13)aial- 03
10.4
Distributlun in Kind . .......... ....... .. ... ....
. -3
tO i
Cancellation of Certificate of Formation ............... ..................... . ..... . -,
- ., 24
ARTICLE I I -
ANMNIDMENT TO AGREEMENT ......... — ............... .............................
24
11.1
Amendment Procedure ........................................ ---- ......... ................
... . )4
11.2
Certain FCC Matters ........................................ ....................... ..................
25
11.3
Adoption ........................................................... ......... ...............................
25
ARTICLE 12.
CONFLICTS OF rNTEREST, INVESTMENT OPPORTUNITIES ........
... 25
12.1
Conflicts of Interest ........................................ ...... ... .............................
- 25
12.2
Limitations..................................................................................................
26
12.3
Certain Compensation .................................................................................
26
12.4
Removal ................................................................... .............. ... ....... .......
26
ARTICLE 13.
GENERAL PROVISIONS ........................ ........... - ..................... ..............
26
13.1
Method for Notices ................................................................. ....... — ......
- 26
13.2
Computation of Time ................................................. ...........................
—.- 26
13.3
Titles and Captions ....................................... — ... ........... — I... .... I ...... .......
26
13.4
Pronouns. Singular and Plural .....................................................................
27
13.5
Further Action ......................................................... ......................... .........
27
13,6
Applicable Law; Jurisdiction ................................. .....................................
27
13.7
Entire Agreement ........................................................................................ 27
13.8
Agreement Binding .....................................................................................
27
13.9
Construction ........................ I ...... ......... ................. I ............................
27
13.10
Severability ..... . ......................................................................... ...............
27
13.11
Counterparts ............................................................................................... 27
13.12
Avoidance of Publicly Traded Company.. ..................................................
27
13-13
Arbitration. .. ....................... I ......... —A ................... — .............. -- ............ .
- -28
31w2.02 13 - 3 -
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THIS OPERATING AGREEMENT (this "Agreement") for Marcus Cable Company,
LLC, a Delaware limited liability company (the "Company") is entered into as of the 9th day
of June, 1998 by and among MARCUS CABLE PROPERTTES, LLC., a Delaware limited
liability company ("MCP") and VULCAN C�81,E, INC., a Washington corporation
("VCV) {Each of MCP and VCI is sometimes referred to herein as a "Member" and
collectively as the "Members").
WHEREAS, MCP and VCI are all of the partners of that certain Delaware limited
partnership known as Marcus Cable Company, L.P., a Delaware limited partnership ("MCC
WIHEREAS, MCP and VCI desire to convert MCC L.P. from a Delaware limited
partnership to a Delaware limited liability company (the "Conversion") pursuant to the
provisions of Section 18-214 of the Delaware Limited Liability Company Act, by entering
into this Agreement and by filing a Certificate of Conversion to Limited Liability Company
and a Certificate of Formation (collectively, the "Conversion Certificates") with the
Secretary of State of the state of Delaware.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereto have agreed and by these presents do agree as
follows:
Definition . AS used in this Agreement the following terms shall have the following
meanings:
IIIIIIIIIIIIIII I 11 111111 iili�pp�1111 II III III 111�1�11 11111111111111111 1111111111111 lill��illill ", 11�111 111�111 11�1111 1! 11111,11 0
FSTIIIW-T'Tr-I1q-T-IM- 11 ;; i -- --AWLIA&
4.1-iliat shall mean. with respect to any Person, any Person that directly or indirectly
through one or more intennediiries controls, is controlled by, or is under common control
with, the specified Person. As used herein, the term "control" me4ns the possession, direct
or indirectly, of thee power to direct or cause the direction Of the rn4naigement 4nd policies
a Person, whether through ownership of voting securities, by contract or otherwise. I
&UfkUte ble 101crest means any direct or indirect ownership or other interest in any
television station, cable television system (multipoint distribution service, "MDS," and
multichannel multipoint distribution service, "MMDS"), wireless cable television system,
satellite master antenna television system or English language daily newspaper which Is
13302,02 Ill
deemed to be attributable to any Person directly or indirectly ovming or holding such
interest under the rules, regulations, policies and decisions of the FCC.
shall, with respect to any Person, mean the commencement by such Porson of a
voluntary case or proceeding under any applicable Federal or state bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by it to the entry of a decree or order for relief in
respect of such Person in an involuntary case. or proceeding under any applicable Federal or
state bankruptcy, insolvency, reorganization or other similar law or the commencement of
any bankruptcy or insolvency case or proceeding against it which shall continue and remain
unstayed and in effect for a period of 60 consecutive days, or the filing by it of a petition or
answer or consent seeking reorganization or relief under any applicable Federal or State law,
or the consent by it to the filing of such petition or to the appointment of or taking
po&wasion by a custodian, receiver, liquidator, assignee, trustee sequestrator or similar
official of such Person or of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due, or the furtherance of any such Person.
Book l3aaia of any asset of the Company shall mean the adjusted basis for federal income
tax purposes of such asset, except in the case of any asset contributed by a Member to the
Company or any asset owned by the Company on the date of a Revaluation, in which case
"Book Basis" shall mean the fair market value of such asset on the date of the contribution
or Revaluation as subsequently adjusted (e.g., for depreciation -or amortization in accordance
with federal income tax principles).
Capital Account shall mean, a capital account maintained for each Member in accordance
with the Code and Treasury Regulations thereunder. The Capital Account for each Member
shall equal the amount of such Member's Capital Account in MCG L.P. immediately prior to
the Conversion increased in the future by (i) the amount of money and the fair market value
of property (determined without regard to Section 7701(g) of the Cade) contributed by such
Member to the capital of the Company (net of liabilities secured by such property that the
Company is considered to assume or take subject to); (ii) allocations to it of Company
income and gain pursuant to Sections 5.2 and 5.3; and (iii) other items that increase Capital
Accounts pursuant to the Code and applicable Treasury Regulations; and decreased in the
future by (B) the aggregate of (i) the amount of money distributed to it by the Company,
(ii) allocations to it of Company lass and deduction pursuant to Sections 5.2 and 5.3; (iii) the
fair market value (determined without regard to Section 770 l (g) of the Code) of property
distributed to it by the Company (net of liabilities secured by such distributed property that.
such Member is considered to assume or take Subject to), and (iv) other items that decrease
Capital Accounts pursuant to the Code and applicable Treasury Regulations.
The realization, recognition and classification of any item,, of income, gain loss or deduction
for Capital Account purposes shall be the same as its realization, recognition and
classification for federal income tax purposes, except that:
(a) Any unrealized income, gain, loss and deduction inherent in property
distributed to any Member or that is subject of a Revaluation pursuant to Section 5.5 hereof
shall, for purposes of determining the Capital Accounts of the Members and to the extent not
9
33 s m 03 -
previously reflected in their Capital Accounts, be allocated among the Members as if there
were a taxable disposition of such property for its fair market value (taking Section 77Q1(g)
of the Code into account) on the date of the Revaluation.
(b) Any income, gain or loss attributable to the taxable disposition of any
property shall be determined by the Company as if the adjusted basis of such property as of
such date of disposition were equal in amount to the Book Basis with respect to such
property as of such date.
(c) In a manner consistent with the requirement of Treasury Regulations
Section 1. 704-1 (b)(2)(iv)(g), any deductions for depreciation, cost recovery or amortization
attributable to a property contributed to the Company or that is the subject of a Revaluation
shall be equal to the amount that bears the same relationship to the Book Basis of such
property as the depreciation. cost recovery or amortisation computed for tax purposes with
respect to such property bears to the adjusted tax basis of such property. If such property
has a z= tax basis, the depreciation, cost recovery or amortization shall be determined by
reference to the Book Basis using any reasonable method selected by the Manager.
The foregoing provisions and the other provisions of this Agreement relating to the
maintenance of Capital Accounts are intended to comply with Treasury Regulations
Section l 704-1(b), and shall be interpreted and applied in a manner consistent therewith. in
the event the ,Manager shall determine that it is prudent to modify the manner in which the
Capital Accounts, or any debits or credits thereto (including, without limitation, debits or
credits relating to liabilities which are secured by contributed or distributed property or
which are assumed by the Company or any Member), are computed in order to comply with
such Treasury Regulations, the Manager may make such modification, provided that it is not
likely to have a material effect on the amounts or timing of any distribution that otherwise
would be made to any Member pursuant to this Agreement.
Capital Contribution shall mean, for any Member, the net amount of cash or the net fair
market value of property that such Member (or its predeceaaor in interest) has contributed or
contributes subsequent to the date of this Agreement to the capital of the Company as
described in Article 3 hereof.
Cause shall mean, in connection with any removal of the Manager, one or more: of the
following:
(a) conviction of a felony, or plea ofguilty.- charge of a felony, by the
ManagerManager which reasonably could have an adverse effect on the ability of the
obligations
(b) malfeasance, criminal conduct or willful neglect by the Manager in its
performance of its obligations hereunder, or
(c) violation by the Manager of any material prevision of this Agreement.
Certificate shall have the same meaning as defined in Section 2.4 hereof.
C.gL e shall mean the Internal Revenue Code of 1986, as amended.
13502 02 nt - 3
Communica ions Act shall mean the Communications Act of 1934, as amended, and any
successor to such Act.
Qamgwly shall have the same meaning as defined in the preamble to this Agreement.
Compa iy eiod shall have the same meaning as deftned in Article 12 hereof
Company PuMm shall mean the purpose of the Company set forth in Section 2.5 hereof
Consolidated Total Assets shall mean, as of any date, the consolidated total assets of the
Company and its Subsidiaries as of such date, determined in accordance with generally
accepted accounting principles, without reduction for any liabilities of the Company or any
Subsidiary.
Credit A&Mment shall mean that certain Credit Agreement dated as of August 31, 1995, as
amended, among MCOC, MCC L.P., Banque Paribas, Chemical Bank, Citibank,N.A.. The
First National Bank of Boston, Pearl Street, L.P., Chemical Securities, Inc. Citicorp
Securities, Inc., Goldman Sachs, Paribas Capital Markets, Union Bank and the several
lenders from time to time parties thereto.
Disabling&ve_n shall mean any of the following events: (a) the Bankruptcy of the Manager;
(b) the withdrawal of the Manager from the Company; (c) the Transfer by the Manager of
any part of its interest in the Company in violation of the provisions of Article 9 hereof
provided that such violation has been determined by arbitration, as provided in
Section 13.13 hereof, to have occurred; or (d) any other event (other than any event
described in Sections 10.1(b) - (d) hereof) that, under the Act, would cause the dissolution of
the Company without regard to the provisions of Section 10.1(a) hereof.
FCC shall mean the Federal Communications Commissions.
First Indnnture shall mean the Indenture, dated as of October 13, 1993, by and among MCC
L.P. and Marcus Cable Capital Corporation, as joint and several obligors, and U.S. Trust
Company of Texas, N.A., as Trustee, as amended from time to time.
Fi1ct}1 Year shall mean the period from January l to December 31 of each year.
Indenture Pebt shall mean any indebtedness of the Company under the First, Second or
Third Indenture.
Initial Members shall mean MCP and VCI, or any successors to the interests of such Initial
Members.
i o shall have the same meaning as defined in Section 10.3(x) hereof
%ilnggel shall mean Marcus Cable Properties, LLC, a Delaware limited liability company,
and any Person admitted as a successor Manager pursuant to Section 9.4 hereof
Aerial Comtr= shall mean, as of any date, any oral or written agreement, understanding,
arrangement or commitment not entered into in the ordinary course of the Company's
-4.
business consistent with past practices (e.g., not relating to day-to-day programming,
personnel or day-to-day financial matters in connection with the Company's media
enterprises) that by its terms calls for the purchase, sale or provision (whether outright or by
licensing, lease or otherwise) of goods, properties (tangible or intangible, real or personal) or
services if the aggregate consideration payable by any party thereunder will equal or exceed
(in fair market value to the extent not in cash) an amount equal to or greater than 25% of the
Consolidated Total Assets of the Company as of the end of the calendar month for which a
consolidated balance sheet of the Company is available next preceding such date.
MLAterial Dis2Qsition shall mean the sale, leas.,,- transfer, conveyance or other disposition of,
or the grant to any Person or Persons of the exclusive license or right to acquire or uM all or
substantially all of the aisets of the Company or any Subsidiary, as applicable, to the extent
that such assets relate to or affect service EO more than 10% of the then current cu=mcr3 of
the Company and its Subsidiarica.
MCC L.P. AgLq2= shall mean that certain Fifth Amended and Restated Agreement of
Limited partnership of Marcus Cable Company, L.P. dated as of August 31, 1995.
Vi,f,Q-Q shall mean Marcus Cable Operating Company, a Delaware limited liability
120M
YLE shall have the same meaning as defined in the recitals to this Agreement.
Media, Pro2= shall have the same meaning as defined in Section 6.6 hereof
MemLer shall mean each of MCP and VCI, and/or any other Person admitted to the
Company as a Member pursuant to the provisions of Article 9 hereof
Opinion of Counsel shall mean a written opinion of legal counsel of recognized standing.
Percentage Intere shall mean, with respect to MCP, three and seven thousand seven
hundredeighty-six ten -thousandths percent (3.7786%), and with re-ipect to VC1, ri�inety-,."'.
and two thousand two hundred fourteen ten -thousandths percent (96.22214%).
Penjo shall mean any individuaL corporation, usociation, partnership, joint venture. trust,
estate or other entity or organization.
Removed Wanaga shall have the same meaning as defined in Section 9.3(b) hereof
Replacement Manager shall have the same meaning as defined in Section 9.3(b) hereof
gaguired Vote shall mean the affirmative vote or consent of Persons holding 80% or more in
Percentage Interest at the time of.such vote or consent.
gevaluatio shall have the same meaning as defined in Section 5.5 hereof
SIL
9o
ase tiusfer, conveyance 1i
. e f_&sat§ shall mean the cntribution, �ale, exchange, le
other dispogsition to any other Person of all or substantially all of the Company's assets.
13502.02 03 - 5 -
Second Indenture shall mean the Indenture, dated as of July 29, 1994, by and among MCOC
and Marcus Cagle Capital Corporation Il, as joint and several obligors, MCC L.P., as
Guarantor, and U.S. 'crust Company of Texas, N.A., as Trustee, as amended, and as
amended from time to time.
Securities Act shall mean the Securities Act of 1933, as amended.
Spg&ifed Agent shall mean any natural Person who at any time shall serve, or shall have
served, as a director, officer, employee or other agent of the Manager or of any Affiliate of
the Manager and who, in such capacity, shall engage, or shall have engaged, in activities on
behalf of the Company.
s'c ' Iy shall mean, with respect to any Person, any entity a majority of the equity
interests in which is owned by such Person. directly or indirectly, through a Subsidiary of
such Person.
Substituted Member shall have the same meaning as defined in Section 9, i (b).
shall mean the cable television systems and franchises relating thereto now or
hereafter owned directly or indirectly by the Company. Each individual cable television
system and franchises relating thereto shall be referred to as a "System".
Tax Matters Eartner shall have the same meaning, as defined in Section 6.2(d) hereof
Third Indenture shall mean the Indenture, dated lune 9, i 44S, among MCC L.P. and Marcus
Cable Capital Corporation III, as joint and several obligors, and Norwest Bank Minnesota,
National Association, as Trustee, as amended from time to time.
1r-4a_sLa1 shall mean any sale, assignment, exchange, transfer, conveyance or other
disposition, and any pledge, hypothecation or other encumbrance.
Trcaa uZe Regulations shall mean the income Tax Regulations, including Temporary
Regulations, promulgated under the Code, as such regulations may be amended from time to
time (including corresponding provisions of succeeding regulations).
ARTICLE 2.
s
limited2.1 Fomation. The parties hereto have formed a limited liability company Pursuant to
the provisions of the Act, and the rights and liabilities of theMembers shall be &% provided
in the Act, except as herein expressly provided. Pursuant to the Act, the conversion of MCC
L.P. into the Company shall constitute a continuation of MCC L.P. in the form of a
Delaware liability company.
2.2 Cinihcate of Formaiion. The Manager shall, as soon hereafter as reasonably
possible, cauic the Conversion Certificates w be flied with the Secretary of State for the
State of Delaware. The date on which the Certificates are filed shall be the effective date of
this Agreement (the "Effective Date"). The Manager shall do, and shall continue to do, all
11 N11,5j m - 6 -
ocher things as may be required or advisable from time to time to maintain the Company as a
limited liability company existing pursuant to the laws of Delaware, and as provided herein.
2.3 COMDanv name. The name of the Company shalt be Marcus Cable Company, LLC,
provided, however, that the business of the Company may be conducted, upon compliance
with all applicable laws, under such trade names as the Manager may deem appropriate or
advisable, with notice to the Members.
2.4 Term. The term of the Company shall commence on the date of the filing of the
Original Certificato of Formation (the "Certificate") and qualification in the office of the
Secretary of State of the State of Delaware and shrill continue until December 31, 2048,
unless sooner terminated in accordance with the provisions of Article 10 hereof.
2.6 Authority of the Comna . In order to carry out its purpose, and not in limitation
thereof, and as part of its business, the Company is empowered and authorized to do,
directly or indirectly through its Subsidiaries, any and all lawful acts and things necessary,
appropriate, proper, advisable, incidental to or convenient for the furtherance and
accomplishment of its purposes, including, but not limited to, the following:
(a) construct, operate, maintain, improve, expand, own, sell, convey,
assign, exchange, mortgage, refinance, rent or lease the Systems and other real estate
or personal property and any interest therein regardless of whether such activity is
financed by cash flow of the Company and its Subsidiaries or loans,
(b) engage in any kind of activity, and enter into, perform and carry out
contracts and agreements of any kind necessary to, in connection with, or incidental
to, accomplishing the purpose of the Company-,
borrow money and issue evidence& of indebtednft3
indebtednesslimimtion evidences of indcbWness i=ed pursuant to the Trust Indenture Act of
1939, as amended, and the Securities Act) in furtherance of the Company business
and secure any such
(d) maintain and operate the Company's assets,
(e) negotiate and conclude 4greemenO for the acqui3ition, construction,
operation, maintenarim
improvement. expansion,
- , conveyance,
callateralization or lease of all or any part of due property of the Company-,
compensate • tA=inate. •independent
f •rs� attorneys and
(g) bring and defend actions in law or at equity-,
3350: 0: 03 . 7 -
(h) redeem or repurchase any interests in the Company, notes or other
securities or evidences of indebtedness issued by the Company: and
2.7 Prohibited Ac ivities. The Company shall not:
(a) commingle Company funds with the separate funds of the Manager or
its Affiliates or any other Person;
(b) underwrite securities of any other Person, other than securities of
other entities controlled directly or indirectly by the Company;
(c) take any action that would subject the Members to personal liability;
or
(d) take any action that would cause any interest in the Company to
qualify as an Attributable interest with respect to any Member who is not also a
Manager.
2.8 Pring, Place of Eusirtess. The location of the principal place of business of the
Company shall be 2911 Turtle Creek Blvd., Suite 1300, Dallas, Texas 75219, or such other
place as may be selected from time to time by the Manager in its reasonable judgment. The
Company may maintain such other offices at such other places as the Manager deems
advisable.
2.9 For ' n Qualification. The Manager shall use its best onrts to register or qualify
the Company as a foreign limited liability company in each state or jurisdiction in which
such qualification is necessary.
2.10 Cooperation of tete Members. The Members hereby agree to take such action as may
be reasonably required to allow the Manager to perform its obligations under Sections 2.8
and 2.9 hereof.
ARTICLE 3.
CAPITAL CONTRIBUTIONS; SALE OF PROPERTY TO
THE • OF
3.1 Qgpital Cnntributinn3.b_yAe MembeLs. Each Member (or iu predecessor in interest)
has heretofore made• • a described Articleof the MCC L.P.
3.2 Additional Contribulions. There shall be no further assessments for capital
contributions by the Members to the Company in addition to the Capital Contributions
described in Section 3. 1. Novkrithstanding the foregoing, the Manager may, in its discretio
make such additional contributions::•...r • •....y as it shall •..:.: necessary a._
•" •
3.3 WithdrawAl of Contributions. All Capitai Contributions may be expended by the
Manager in furtherance of the business of the Company. Except as provided in the
immediately preceding sentence or under the Act, no Member shall have the right to demand
335=01- N " 9
a return of or withdraw all or any part of its Capital Contribution during the term of the
l Company; any return of a Member's Capital Contribution shall be made solely from the
assets of the Company and only in accordance with the terms hereof. No interest shall be
paid to any Member with respect to .uch Member's Capital Contribution. Each Member
waives its rights to partition of Company property. Except as required by this Section 3.3 or
as otherwise provided in Articles 5 and 10, no Member shalt be entitled to a return of its
Capital Contributions.
3.4 additional Interests. No additional Members shall be admitted to the Company, and
substitute members may only be admitted in accordance with Article 4.
A181-11
{
ARTICLE 5.
P,?,OEITS t1A LOSSES
(a) All cash available for distributio after due provision is made for
•• ...geted expenditures,
for working caTital and Co.. ; t or otherwis����se as
determined in good faith by the Manager, and subject to any restrictions imposed by
any loan document or instrument cvidcncing indebtedness of the Company,
distributed
otherwise required.
Members in accordance Percentage _
(b) Notwithstanding Section 5, 1(4), cwh or propetty of the Company
available for distribution upon the dissolution and liquidation of the Company
t:' t .. • . It •:: • � i•', • ♦.: _. : : •. •
liquidation), at defined in Article 10 hereof, shall be distributed as provided in
accordance with the provisions of Section 10.3 or 10.4, as applicable.
.)xr.cr.: 0 " C) "
(iv) Possess any Company property or assign the rights of the
Company in specific Company property for other than a Company
purpose-,
(v) Perform any act which would subject any Member who is not
also a Manager to personal liability under the then existing law of any
applicable jurisdiction,
(vi) Employ, or permit to employ, the funds or assets of the
Company in any manner except for the "elusive benefit of the
Company;
(vii) Enter into, permit or cause (A) any withdrawal by the
Manager from the Company not in accordance with Section 9.3
accordance with Article 0 hereof- or
(viii) Perform any act which would cause any interest held by a
Member who is not also a Manager to qualify as an Attributable
Interest
. (c) Without a Required Vote, the Company shall not, and the Manager
shall not cause or 'permit the Company or any Subsidiary to:
(i) enter into, or otherwise effect, any Material Disposition;
(ii) enter into or otherwise became bound by, or permit any assets
to become subject to, or amend or modify (other than amendments or
modifications that are not material) or terminate, any Material
Contract;
(ii!) cause or permit the Company to be merged or consolidated
with any other entity;
(iv) permit the amendment, modification or restatement of this
Agreement; or
I
,,v) sell, exchange or otherwise dispose of all or substantially all,
the assets of the Company.
(d) Each Member does hereby appoint and designate initially the
Manager as the "Tax Matters Partner' in a=rdance with Section 62-11(a)(7) of the
Code, but shall otherwise be considered to have retained such rights as are provided
for under the Code with respect to any cx4mination, proposed adjusrment or
proceeding relating to the Company items. The Tax Matters Partner shall notify
each Member within ten business days after such Tax Matters Partner receives notice
from the Internal Revenue Service of all administrative proceedings with respect to
an examination of, or proposed 4ustment to, Company items. In the event that any
Member notifies the Tax Matters Partner of its intention to represent itself, or w
Moll of - 14-
obtain independent tax counsel or accountants to represent it, in connection with any
such examination, proceeding or proposed adjustment, the Tax Matters Partner
agrecs to supply such Member and its tax counsel or accountants, as the case may be,
with copies of all written communications received by the Tax Matters Partncr with
respect thereto, together with such information as it may reasonably request
therewith. The Tax Matters Partner further agrees, in that event, to cooperate with
such Member and its tax counsel or accountants, as the case may be in connection
with its separate representation, to the extent reasonably practical. In addition to the
foregoing, the Tax Matters Partner shall notify each Member prior to submitting a
request for administrative adjustment on behalf of the Company. The Tax Matters
Partner shall be entitled to be reimbursed by the Company for all costs and expenses
incurred by it in connection with any proceedings with the Internal Revenue Service
with respect to the Company and to be indemnified by the Company (solely out of
Company assets) with respect to any action brought against it in connection with the
judgment or settlement of any proceeding to the same extent that the Company
protects all other indemnified persons pursuant to Section 6.4 hereof.
6.3 Holding of Tille. Title to all Company assets shall be held in the Company name.
lir-117#11 M#
Wr
(a) Neither the Manager, any Affiliate ofthe Manager, nor any Specified
Agent shall be liable, in damages or otherwise, to the Company or to any of the
Members, and neither the Company nor any Member shall take any action against
the Manager, any affiliate of the Manager, or any Specified Agent, in respect of any
loss which arises out of any acts or omissions performed or omitted by it pursuant to
the authority granted by this Agreement, or otherwise performed on behalf of the
Company, if the Manager, such Affiliate, or such Specified Agent, as applicable, In
good faith, determined that such course of conduct was in the best interests of the
Company. Each Member shall look solely to the assets of the Company for return of
its investment, and if the property of the Company remaining after the discharge of
the debts and liabilities of the Company is insufficient to return such investment,
such Member shalt have no recourse against the Manager, its Affiliates, any
Specified Agent, or any other Member, except as expressly provided herein,
provided, however, that the foregoing shall not relieve the Manager of its fiduciary
duty or duty of fair dealing to the Members under applicable law or u provided for
herein.
(b) In any threatened, pending or completed claim, action, suit or
proceeding to which the Manager, any Affiliate of the Manager, or any Specified
Agent was or is a party or is threatened to be made a party by reason of the fact that
it is or was engaged in activities on behalf of the Company, including, without
limitation, any action or proceeding brought under the Securities Act against the
Manager, any of its Affiliates, or any Specified Agent relating to the Company, the
Company shall indemnify and hold harmless the Manager, any such Affiliates, and
any such Specified Agents against kisses, damages, expenses (including attorneys'
fees), judgments and amounts paid in settlement actually and reasonably incurred by
or in connection with such claim, action, suit or proceeding; provided, however, that
3350-02 Q - 15 -
neither the Manager, any Affiliate of the Manager, nor any Specified Agent shall be
indemnified for action constituting bad faith, willful misconduct or fraud. Any act or
omission by the Manager, any of its Affiliates, or any Specified Agent, if done in
reliance upon the opinion of independent legal counsel or public accountants selected
with reasonable care by the Manager, such Affiliate, or such Specified Agents, as
applicable, shall not constitute bad faith, willful misconduct or fraud on the part of
the Manager, such Affiliate, or such Specified Agent.
(c) The termination of any claire, action, suit or proceeding by judgment,
order or settlement shall not, of itsel& "create a presumption that the Manager's, its
Affiliates', or any Specified Agent's act or failure to act constituted bad faith, willful
misconduct or fraud under this Agreement.
(d) Any such indemnification under this Section 6.4 shall be recoverable
only out of the assets of the Company and not from the Members.
6.5 Permitted Transactions.
(a) Any Member may engage in or possess an interest in other business
ventures of any nature or description, independently or with others, either currently
existing or hereafter created, including, but not limited to, the cable television
business, which shall include, without limitation, the acquisition, ownership,
oper=ion and management of cable television systems and franchises, and neither
the Company nor any Member shall have any rights in or to such independent
ventures or the income or profits derived therefrom.
(b) The Company has entered and will enter into transactions between the
Company and the Manager or its Affiliates only upon a Required Vote and provided
(i) that to the extent that pursuant to such transactions any services are performed by
the Manager or its Affiliates, such services are those which the Manager reasonably
believes, at the time of requesting such services, to be in the best interests of the
Company, and (ii) that the rate of compensation or amounts to be paid pursuant to
any such transactions shall not be greater than the amount the Manager reasonably
believes would be paid for similar dealings, services, property or materials under
similar circumstances in arm's-length transactions.
6.6 Communications Act. The Manager shall not, and shall not knowingly permit any
director, officer or significant employee of the Manager, the Company or any of their
respective Subsidiaries or any other Member who is not also a Manager, to, control, acquire,
own or hold, directly or indirectly: (i) any direct or indirect control, ownership or other
interest in any television station, cable television system, wireless cable television system
(MDS and S), satellite master antenna television system or local exchange telephone
company ("Media Property") which is deemed to be attributable to any such person directly
or indirectly owning or holding such interest under the rules, regulations, policies and
do ;isions of the FCC, or (ii) a "cognizable interest," as such term is defined under the rules
and policies of the FCC, including, without limitation, the cross ownership policies and
regulations of the FCC, in any Media Property serving any portion of a geographic area
served by a Media Property of the Manager, the Company or any of their respective
jlura,r- it, - 16 -
Subsidiaries; or (iii) acquire or otherwise hold any other interest in any Person, in each case
which violates, or results in a violation of the Communications Act or the rules, policies and
decisions promulgated by the FCC thereunder, including, without limitation, its cross
ownership rulc3, cross int=.it policy and national subscriber rules affecting cable television
properties; Myjdtd, hgH;Lv�u, that the foregoing requirement shall not apply with respect to
any such interest that consists of serving as a director, officer, employee, consultant, lender
or in a similar capacity to & Media Property and as to which the individual in question takes
appropriate steps, including but not limited to executing a recusal statement, which, to the
Manager's satisfaction, shields such interest from attribution or "cognizable" statui.
I III III
1103(My DIM: I of W-11 I 121110KIIIIIS I 4611311J,133161:111
(b) No Member shall be personally liable or obligated, except as
otherwiae required by law, either (i) to pay to the Company or to any creditor of the
Company or any other Member any deficiency in such Member's Capital Account, or
(ii) to return to the Company or to pay any creditor or any other Member the amount
of any return to him of his Capital Contribution or other distribution made to him.
Until such time that the following restrictions are no longer required by the FCC, neither
VCT nor any officer, director or equivalent non -corporate official of VCI, may engage in or
participate in any of the following activities.-
...,
ctivities.-
poyee of the Company if the functions related to such
zmploymam directly or indirecAly, relate to media entorpri2es of the Company or
zny Media Property of the Company,
(b) serve in any material capacity, as an independent contractor or agent
with respect to the Company's media enterprises,
(c) perform any smices for the Company materially relating to its media
110tiYitiM
(d) become actively involved in the management or operation of tho
media business of the Company,
(e) communicate on matters pertaining to the day-to-day operations of the
Company or any Media Property of the Company with (A) an officer, director,
13sa—IM 03 ® 17-
partner, agent, representative or employee of such Media Property, or (B) the
Manager, or
(f) vote on any matter relating to the day-to-day operations of the
Company or any Media Property of the Company;
in each case as interpreted with reference to the rules, regulations, policies and decisions of
the FCC. Subject to the foregoing, and any other express limitation contained in this
Agreement, any Member may enter into transactions with the Company on such terms as
such Member and the Manager, acting on behalf of the Company, may agree.
_ UnrTIT4 . I, • i a `3 t_,
(a) Meetings of the Members for any purpose may be called only by the
Manager or by a Rtquired Vote. Such meeting may be held at the principal office of
the Company or at such other location within the United States as the Manager may
reasonably deem appropriate or desirable.
(b) Notification of any such meeting shall be given by the Manager not
less than 10 calendar days nor more than 60 calendar days before the date of the
meeting to each Member at its record address or at such other address which it may
have furnished in writing to the Manager. Such notification shall be in writing, and
shall state the place, date, hour and purpose of the meeting.
(c) Except as to matters for which consent or approval is expressly
required by this Agreement, the Members shall have no vote on any matters.
(d) At each meeting of the Members. the Manager shall adopt such rules
for the conduct of such meeting as the Manager shall deem appropriate.
(e) Any action which may be taken by the Members may be taken at a
meeting or without a meeting, without prior notice and without a vote, If a consent in
writing setting forth the action so taken is signed by the Members holding the
required Percentage Interests. Such consents shalt be effective when received by the
Manager.
ARTTCLE S.
BOOKS, RECORDS, ACCOUNTING AND REPORT�5
9.1 Sg�Qkz and Ra=rd . The Company shall maintain at its principal office the
(a) A current list of the full name and last known business or residence
address of each Member set forth in alphabetical order together with the Capital
Contribution, if any, of the Manager and each Member;
)35(r.(r. A - 19 -
(b) A copy of this Agreement and all amendments thereto, a copy of the
Certificate and all amendments thereto. together with executed copies of any powers
of attorney pursuant to which any amendment to this Agreement, or the Certificate or
any amendment thereto has been executed,
(c) Copies of the Company's federal, state and local income tax or
information returns and reports, if any, for the six most recently completed tax years,
(d) The audited financial statements, if any, of the Company for the six
most recently completed Fiscal Years: and
(e) The Company's books and records, if any, for the current and the six
most recently completed Fiscal Years.
reasonable(a) Upon the
of the information required to be maintained under Section 8.1 above.
(b) Subject to Swion 8.2 (c) below, the Manager shall deliver to each
Member holding at least 80% in Percentage Interest, copies of all reports,
documents, statements and other information ("Lender information") delivered to the
Lenders pursuant to the terms of the Credit Agreement, as such Agreement may be
amended from time to time, or any successor agreement providing for senior
financing to the Company and/or any of its Subsidiaries. Such Lender Information
shall be delivered to the Members at substantially the same time that they arc
delivered to the lenders under such Agreement.
(c) Each Member, or its duly authorized representative, has the right,
upon reasonable request, to do each of the following:
agreements(i) Subject to applicable law and confidentiality
Company •... the Manager•..... inspect / •■ during normal
hoursofthe Company
promptly becoming • andcopythe• •.
federal,• local income or other ": or • •
Fiscal Year.
Each Member agrees to hold in confidence, (x) information determined by the Manager to
be confidential, such determination to be hued upon the Manager's reasonable belief that
disclosure of such information is likely to have an adverse effect on the Company or its
business, and (y) information which the Company is required by agreements with third
parties to hold confidential.
t15Q1'1 0-1 J9
0-
8.3 Annual Stmements.
(a) The Manager shall cause to be prepared, at the expense of the
Company, an annual report ("Annual Report") containing auditad financial
statements in accordance with generally accepted accounting principles, consistently
applied, and accompanied by a report thereon containing the opinion of a nationally
recognized independent public accounting firm selected by the Manager and
approved by VC1. The financial statements shall include a balance sheet, and
statements of income or loss, Members' equity and cash flows of the Company. The
annual report shall also include a description of any material event regarding, and a
general description of, the business of the Company during the preceding Fiscal
Year. The annual report shall be delivered to each Member within 90 calendar days
after the end of each Fiscal Year.
(b) Ut addition to the Annual Report, the Manager shall cause to be
prepared, at the expense of the Company, and shall within 45 calendar days after the
end of each Fiscal Year provide to each Member the information necessary for the
preparation of such Member's income tax return which shall include: (i) a statement
of each Member's share of the Company's profit, loss, deduction or credit for the
preceding Fiscal Year in the final form of Schedule K®1; and (ii) a report identifying
the amount and timing of distributions to the Members during the Fiscal Year.
8.4 arterly Financial Statement. The Manager shall cause to be prepared, at the
expense of the Company, reports covering each of the first three calendar quarters of
Company operations in each Fiscal Year, which shall consist of unaudited financial
statements (comprised of a balance sheet and statements of income or loss for each quarter
and statement of cash flows for each quarter), and a statement of other pertinent information
regarding the Company and its activities which, in the reasonable and good faith judgment
of the Manager, is deemed of material interest to the Members, or which a Member may
reasonably request. Copies of such reports shall be delivered to each Member within 50
calendar days after the close of each quarter (other than the fourth quarter) of each Fiscal
Year.
8.5 Filings. The Manager shall, at the expense of the Company, cause tax returns for
Company be prepared and filed in a timely manner with the appropriate authorides. Th
Manager shall, at the expense of the Company, cause be prepared and filed in & timely
manner, with appropriate federal and state • .. and administrative bodies,
required to be flied with those entities under applicable
9.1 Transfer of In erests.
(a) The Manager may not Transfer all or any part of its interest in the
Company to any Person and any purported Transfer in violation of this Section
u-n2.a1 u3 0 20
9.1(a) shall be null and void ab initio as against the Company and each other
Member.
(b) 'VCI may Transfer its interest in the Company (or any part thereof) to
any Person, and an assignee (including, without limitation, any transferee, heir,
legatee or purchaser) thereof shall be substituted as a Member (a "Substituted
Member"); provided, however, that as a condition of any such Transfer by VCt,
such assignee shall have:
(i) accepted and assumed, in form reasonably satisfactory to the
Manager, all terms and provisions of this Agreement
(ii) executed transfer documents satisfactory to the Manager,
(iii) provided such Opinions of Counsel as the Manager may reasonably
require: that such assignment of such interest in the Company (x) does nae
violate any registration or similar provision of any federal or state securities
or comparable law, (y) docs not result in a change of control of the Company
within the meaning of any applicable communications laws or any System
franchise, unless FCC approval for such assignment has been obtained and
(z) does not violate the cross ownership policies and regulations of the FCC.
unless FCC approval for such assignment has been obtained, and
(iv) executed such other documents or instruments as the Manager may
reasonably require to effect the admission of such assignee as a Substituted
Member.
9,2 Amendment of Certificate. After a Person has became a Substituted Member, the
Manager shall cause an amendment to the Certificate to be prepared and recorded promptly
if such amendment is required by applicable law. However, the Company shall recognize
the assignee of the Company interest by no later than 14 calendar days after the date on
which such assignee satisfies the conditions of this Article 9 even if such an amendment to
the Certificate is not filed or is filed subsequently.
ManagerI RUN
•withdraw
the Company; provided, however, that the Manager shall be subject to removal
pursuant to paragraph (b) below.
(b) Upon a Required Vote, the Manager shall be removed (the "Removed
Mariager"), and a replacement manager (the "Rcpl&c4ment Manager") sha.11 be
appointed, provided, be removed only for i'
if such removal based on -factorreferred toin clause• or of definition of
Cause in this Agreernent, then, •..asotherwise provided paragraph • of
Section 13.13, no such removal may be effected unless it has theretofore been
determined by arbitration, as provided in Section 111.1, that a factot-COnsfituting
Cause exists. Upon the admission of the Replacement Manager as manager of the
1.350102 03 -21
Company as provided in Section 9.4 below, the Replacement Manager shall succeed
to all of the powers of the Removed Manger hereunder and shall possess and have
all such powers except as otherwise expressly provided herein.
9.4 Admission ol`Successor NdL
qjgLr. A Replacement Manager approved pursuant to
Section 9.3 hereof shall be admitted to the Company as the successor Manager, effective as
of the date an amendment or restatement of the Certificate is filed with the Secretary of State
of Delaware effecting such substitution; provided, however, that no such successor shall be
so admitted to the Company until it has agreed in writing to assume the Removed Manager's
obligations hereunder. This Agreement and the Certificate shall be amended as appropriate
to reflect the termination of the Removed Manager as manager and the admission of the
Replacement Manager. Any successor Manager_ shall continue the business of the
Company.
AMCLE to.
10.1 Events of Dissolution. The Company shall be dissolved upon the earliest to occur of
any of the following events:
(a) The occurrence of any Diabiing &vent, unless, within 94 calendar
days after the date of the Disabling Event, members holding 90°/a or more in
Percentage Cnlerest (1) elect to reconstitute the business of the Company, and
(ii) elect a new manager; or
(b) The removal of the Manager pursuant to Section 9.3 hereof, unless
within 90 calendar days after the date of such removal, Members holding 90% or
more in Perccrntagc Interest (i) elect to reconatitute the business of the Company, and
(ii) elect a new manager, or
(c) The expiration of the term of the Company as provided in Section 2.4;
Hi
i
Notwithstanding anything to the contrary in this Sectiont 1, the.:
agree a long as any of • r" is outstanding.action
necessary, except in the case of bankruptcy or insolvency of the Manager, to ensure that
• s. •' s s • • • (isqbAxed •
81
of of Second and ThirdIndentures)to the Companyof
Secondand •.Indentures.bankruptcy • '. insolvencyof
CompanyCompany shall use its best efforts to ensure that the Company is not dissolved or that a
Successor Company (as defined in Section 801 of the First, Second and Third Indentures)
the :. of obligations of • •. pursuant to the provisions
Section801 and 802 of • . and Third IndenturetL
_22
3.8:4.' W_..
10.2 Einal Accounting. [Upon the dissolution of the Company, a proper accounting shall
be made from the date of tho last previous accounting to the date of such dissolution.
10.3 Liquidation.
(a) Upon the dissolution of the Company, a Person (which may include
the Manager) shall, upon the vote by Members holding a majority in Percentage
Interest (excluding any Member who is the subject of the dissolution event) (a
"Disinterested Required Vote"), be appointed to act as Liquidator (the "Liquidator")
to wind up the Company. The Liquidator shall be entitled to receive such
compensation for its services as may be approved by a Disinterested Required Vote.
The Liquidator shalt be required to agree not to resign at any time without 15 days'
prior written notice and (if other than the Manager) may be removed at any time,
with or without cause, by notice of romoval approved by a Disinterested Required
Vote. Upon resignation or removal of the Liquidator, a successor and substitute
Liquidator (who shall have and succeed to all rights, powers and obligations of the
original Liquidator) shall, within 30 days thereafter, be approved by a Disinterested
Required Vote. Except as expressly provided in this Section 10.3, the Liquidator -
shall have and may exercise, without further authorization or approval of any of the
parties hereto, all of the powers conferred upon the Manager under the terms of this
Agreement (provided that the Liquidator shalt be subject to all applicable limitations,
contractual and otherwise, upon the exercise of such powers) to the extent
appropriate or necessary in the reasonable and good faith judgment of the Liquidator
to carry out the duties and functions of the Liquidator hereunder for and during such
period of time as shall be reasonably required to complete the winding -up and
liquidation'of the Company as provided for herein.
(b) The proceeds of liquidation shall be:
(i) First, applied to the payment of the debts and liabilities of the
Company (including any loans to the Company made by any Member or any
Alftliam thereof, the expenses of liquidation, and the establishment of such
reserves as the Liquidator may reasonably deem necessary for potential or
contingent liabilities of the Company), and
(ii) Next, distributed to the Members in accordance with the
provisions of Section 5.1 (a) hereof.
To the extent possible, items of income, gain, deduction and loss shall,
notwithstanding the provisions of Section 5.2, be allocated between the
Members so that their respective Capital Accounts prior to the distributions
provided for in this Section are equal to the amount of such distributions.
(a) tf the Liquidator shall determine that the Members would be
materially adversely affected if the Company were to convert the Company's assets
to cash or cash equivalents, then the Liquidator may distribute all assets in kind to
usul a? (t3
23 -
the Members. If so, tho Liquidator shall obtain an independent appraisal of the fair
market value of each Fuch asset as of a date reasonably close to the date of
liquidation. In accordance with Section 5.5, any unrealized appreciation or
depreciation with respect to such assets shall be allocated among the Members (in
accordance with Section 5.2, assuming that the property were sold for the appraised
value) and distribution of any such assets in kind to a Member shall be considered
for purposes of Section 10.3 a distribution of an amount equal to the assets' appraised
fair market value less any liabilities secured by such distributed property that such
Member is considered to assume or take subject to under Section 752 of the Code.
(b) Notwithstanding the provisions of Section 10.4(x), if, upon liquidation
of the Company, the Liquidator shall determine that an immediate sale of part or all
of the Company's assets would cause undue loss to the Members, the Liquidator
may, in order to avoid such loss, either:
(i) defer the liquidation of, and withhold from distribution for a
reasonable time, any assets of the Company except those necessary to satisfy
debts and liabilities of the Company (other than those to the Members); or
(ii) distribute to the [Members, in lieu of cash, as tenants in common and
in accordance with the provisions of Section 10.3, undivided interests in any
Company assets, and liquidate only such assets as are necessary to pay the
debts and liabilities of the Company.
Notwithstanding anything to the contrary in this Article 10, neither the Company nor the
Liquidator may distribute any assets in kind to any Member if such distribution would result
in a violation of any ECC regulation, rule, policy or decision as to such Member, its
partners, stockholders, directors, .officers or ether AfTliates; provided that the Liquidator
will use its reasonable efforts to obtain any applicable consents or waivers which would
permit a desired distribution in kind.
Company10.5 Cancellation OfCertifiWe of Formation. Upon the completion of the distribu6on of
amets as provided i the Company• .termin", and the
person acting as Liquidator• • •. of
Certificate • all amendmentsthereto, and shall take such other actionsbe
necessary or appropriate t• terminate the Company.
11.1 G!i"1•!1'1; • • • otherwise provided Agreement may
be modified or amended only by the written consent of the Manager and of holders of 80%
or more in Percentage Interest. The Manager 3hal I cause to be prepared and filed any
amendment to the Certificate which may be required to be filed under the Act as a
• . • • • • •a •irpf, tx be filed
in
13sal tat (II -24-
connection with such an amendment by the laws of any state in which the Company is doing
business.
11.2 Certain ECC Mattera. The Manager shall not consent to any amendment to this
Agreement that would add to, or detract from, or otherwise affect the powers of Members
(or the officers, directors, and equivalent non -corporate officials of any Members that are
not individuals) unless it shall have first received written advice from legal counsel that such
amendment would not cause the Members to be considered non -insulated limited partners
under the policies of the FCC (as articulatod in Docket No. 83-46, FCC 85-252
(released June 24, 1985), as modified on reconsideration in . Docket No. 83-46, FCC 86-
410 (released November 28, 1986), and as those policies may be further modified from time
to time).
1 l .3 AAopfm. Any proposal by the Manager to amend this Agreement which requires
the consent of Members shall be accompanied by a summary, in reasonable detail, of the
proposed a.mendmcm and as to the legality of the proposed amendment and the effect of the
amendment on the personal liability of the Members or the liabilities and obligations of the
Company and any other material information. Any proposed amendment shall be adopted
upon receipt by the Manager of written approval thereof from Members holding the required
Percentage Interests. A written approval may not be withdrawn or voided once it is received
by the Manager, but Members who initially object to a proposed amcndmcnt may thereafter
file a valid written approval. The Manager shall give written notice to all Members
promptly after any amendment has become effective. Any amendment of this Agreement
made by less than all of the Members as permitted in this Article 1 1 is hereby consented to,
and each Member hereby agrees to execute any document that may be required or
appropriate in respect thereof.
ARTICLE 12.
12.1 Conflicts of Interest. It is the understanding of the Members that: (i) the business
and affairs of the Company or any Subsidiary thereof shall be the principal business of the
Manager, and (ii) neither the Manager nor any Subsidiary thereof shall, during the Company
Period, engage in, direaty or indirectly, for their respective accounts or for the account of
any Person other than the Company, or render any services or advice to any Person other
than the Company directly or indirectly engaged in, the management, operation or
ownership of any entity which engages in the communications or voice or data transmission
or video programming business, including, without limitation, the business of operating a
cable television system (or obtaining or holding any franchises for the purposes thereof),
subscription television system, multipoint distribution system, multichannel multipoint
distribution service, satellite ma -star antenna television system, direct broadcast satellite
system, fiber optic system, video dial tone system or other comparable system pursuant to
which video programming is provided to subscribers by carriers subject to regulation under
Title R of the Communications Act, or any suc"ssgr statute, private operational fixed
microwave service providing television broadcast signals or other services now or hereafter
provided by such systems or any similar system, whether now known or hereinafter
13sarc al -25 -
invented, or other service providing television broadcast signals (a "Competing Business.
For purposes of this Agreement, "Company Period" shall the period commencing with the
date of this Agreement and ending on the date of the earliest to occur of the dissolution,
liquidation or termination of the Company in accordance with Article 10 hereof.
12.2 LjMitajj=. The provisions of this Article 12 are not intended to relieve the
Manager of its fiduciary duty or duty of fair dealing to the Members under applicable laws.
113 !! ! •f Neither the Manager northereof
any brokerage, findees,or • ' fee or other compensationor • • •
connection with the acquisition of any cable television system or any portion thereof, the
sale or other disposition of or portion thereof,• • :• - transaction,
any Material Disposition or any other Material Contract or lesser transaction.
12.4 Removal. Notwithstanding anything to the contrary in this Article 12, the provisions
of this Article 12,Aill no longer apply to Marcus Cable Properties, LLC. Marcus Cable
Properties,or any of their Subsidiaries from and after the removal of the Manager
pursuant to Section 9.3 hereof
• • IL
Agreement13.1 Method for Nolice . Any noticcs and communications required to be given under
this be
in writing • except otherwise• provided
Agreement,be • by • or .• mail, ••''.r' prepaid, by
telecopier against acknowledgement of receipt thereof or (iii) delivered personally or by
messenger against receipt therefor. in each case co the parties at the following addresses: if
to the Manager, at 2911 Turtle Creek Blvd., Suite 1300, Dallas, Texas 75219 and if to VCI,
at 110 11 O'h Avenue NE, Suite 550, Bellevue, Washington 98004. Any Member may from
time to time give notice changing its address for this purpose by giving notice to the
Manager. The Manager shall give notice to all Members of any change in its address. Any
notice or •' • provided forherein shallbecomeordy uponand at the
receipt,,#r certified mail, return receipt requested, in which case it shall be deemed to have been
busine.0• y. or . . • business day.whicheverof •.
be
I oil
not be included. The last day of the period so computed shall be included, unless it is a
Saturday, Sunday or legal holiday, in which event the period shall run until the end of the
next day which ig not a Sawday. Sunday or legal holiday.
13.3 Titles itnd Captiomi. All Article, Section or paragraph titles or captions contained in
this Agreement and the order of Articles, Sections and Paragraphs are for convenience only
and shall not be deemed part of this Agreement.
uSn'_.n3 nr - 26 -
13.4 Pronouns, Singular and Plural. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine xnd neuter as the identity of the person or
persons may require, and all nouns, pronouns and verbs shall be singular or plural as the
context or the identity of persons may require.
13.5 Further Actino. The parties shall execute and deliver all documents, provide all
information and take, or forbear from, all such actions as may be necessary or appropriate to
achieve the purposes of this Agreement.
13.6 AAppiicahle Law: Juriadiction. This Agreement shall be governed by and consumed
in accordance with the laws of the State of Delaware without giving erect to conflicxs of
laws principles. Except as provided in Section 13. 13, each party hereby consents to the
exclusive jurisdiction of the itate and federal courts sitting in Seade, Washington in any
action or claim arising out of under, or in connection with this Agreement and agrees that
personal jurisdiction over such Member may be effected by service of process by registered
or certified mail addressed as provided in Section 1:3.1, and that when so made shall be as if
served upon such Member personally within the State of Washington.
13.7sire Agreement. This Agreement contains the entire understanding between and
among the parties, and supersedes any prior understandings and agreements between and
among them respecting the subject matter of this Agreement.
13.8 Aareement Binding. This Agreement shall be binding upon the heirs, executors,
administrators, successors and assigns of the parties.
13.9 Construction. Except as provided in Section 6.4 and Section 10. 1, none of the
provisions of this Agreement shall be for the benefit of, or enforceable by, any creditors of
the Company or other third parties. No provision of this Agreement may be waived except
by a writing specifically waiving such provision and executed by the party chargeable with
such waiver.
13.10 51=abilb. If any provision or part of any provision of this Agreement shall be
invalid or unenforceable in any respect, such provision or part of any provisions shall be
ineffective to the extent of such invalidity or unenforceability only, without in any way
affecting the remaining pares of such provision or the remaining provisions of this
Agreement.
13.11 . This Agreement may be executed in several counterparts and, as so
executed, shall constitute one agreement, binding on all the parties hereto, even though all
the parties are not signatory to the original or the same counterpart. Any counterpart of
either this Agreement or any certificate of formation or of any amendments to either, which
has attached to it separate signature pages, which together contain the signatures of all
Members, shall for all purposes be deerned a fully executed instrument.
13.12 &voidance of Publicly Traded QgMpIny. The Members agree that the restrictions on
transferability of interests in the Company contained in Section 9.1 shall be amended if and
as necessary to enable counsel to the Company to opine, if requested, that the Company will
13SOZ.r 02 -27-
not be treated as a "publicly traded partnership" within the meaning of Section 7704(b) of
the Code or any successor provision thereto.
(a) If there has been a Required Vote to remove the Manager for Cause,
as contemplated by Section 9.3 hereof and such removal is based on it factor
referred to in clause (b) or (c) of the definition of Cause in this Agreement, then the
Members shall submit to arbitration the question whether a factor constituting Cause
exists.
paragraph(b) Notwithstanding
administrative or regulatory authority or arbitrator has theretofore determined that
11
Cause exists. • the Manager has r a reasonableopportunity to be • before
such court, authority or arbitrator, then such determination shall be binding and no
Lrbitration need be conducted pursuant to this Section 13.13.
(c) if there has been any purported Transfer by the Manager of any part
of its interest in the Company, then upon the delivery of notice to the Manager, such
notice to be signed by Members holding more than 80% of the in Percentage Inwest
at the time of such Transfer and delivered within 30 days following the delivery by
the Manager to the Members of notice describing in reasonable detail such Transfer,
the Members shall submit to arbitration pursuant to this Section 13.13 the question
whether such Transfer constituted a violation of the provision of Article 9 hereof.
Any arbitration conducted pursuant to this Section 13.13 shall be conducted in the
City of Seattle, Washington, by one arbitrator in accordance with the rules of the
American Arbitration Asiociation then in cfTcct.
MA 2.M Ill -28 -
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be effective as of
the day and year first above written.
MARCUS CABLE PROPERTIES, L.L.C.
By: Marcus Cable Properties, Inc.
Its: Manager
By: /s/ Thomas P. McMillin
Name: Thomas P. McMillin
Title: Chief Financial Officer
VULCAN CABLE, INC.
By: /s/ William D. Savoy
Name: William D. Savoy
Title: President
33502.02 04 _-)g_
EXHIBIT I -II -1(c)
The name, mailing address, and telephone number of an additional person who should be
contacted is:
Richard A.B. Glemer
Marcus Cable
2911 Turtle Creek Blvd., Suite 1300
Dallas, Texas 75219
telephone number: [214]521.7898
(b) Limitations on Allocation of Losscs. Any allocation of loss, expense
or deduction pursuant to Section 5.2(a) that would cause or increase a deficit balance
in a Member's Adjusted Capital Account as of the end of the Fiscal Year to which
such allocation relates shall be reallocatod to the other Members
(c) Qualified Income Offset. If any Member unexpectedly receives any
adjustments, allocations or distributions described in Treasury Regulations Sections
1.704-l(bX2)(ii)(d)(4), 1.704.1(b)(2)(ii)(d)(5) or 1.704-t(b)(2)(ii)(d)(6), items of
Company income and gain shall be specially allocated to such Member in an amount
and manner sufficient to eliminate, to the extent required by the Treasury
Regulations, the deficit balance in such Member's Adjusted Capital Account as
quickly as possible; provided, however, that an allocation pursuant to this
Section 5.2(c) shall be made if and only to the extent that such Member would have a
deficit balance in its Adjusted Capital Account after all other allocations provided for
in this Section 5.2 have been tentatively made as if this Section S.2(c) were not in the
Agreement.
Member's(d) Adjusted Capital Account. A Members "Adjusted Capital AccounV
shall mean such Capital
(i) crediting to such Capital Account (A) any amounts which such
Member is obligated to restore to the Company pursuant to Treasury
Regulations Scc-tion 1. 704-1 (b)(2)(ii)(c) or is deemed to be obligated to
restore pursuant to the penultimate sentences of Treasury Regulations
Sections 1.704-2(g)(1) wid 1.704-2(i)(5), and (8) the amount of the
deductions and losses referable to any outstanding recourse liabilities owed
by the Company to such Member for which no other Member bears any
economic risk of loss and the amount of the deductions and losses referable
to such Member's share (determined in accordance with the Member's
Percentage Interest) of outstanding recourse liabilities owed by the Company
to non -Members for which no Member bears any economic risk of logs; and
(ii) debiting from such Capital Account the items described in
Treasury Regulations Sections 1.704- 1 (b)(2)(ii(d)(4). 1.704®1(b)(2XH)(d)(S)
and 1.704-1(b)(2)(11)(d)(6).
The foregoing definition of Adjusted Capital Account is intended to comply with t
• • 0•
(determinedconsistently therewith. i
(e) Minimum Gain Chargeback. Notwithstanding any other provision of
this Section 5.2, if there is a net decrease in Company Minimum Gain
ac4wrdance with Treasury Regulations Section 1.704-2(d)) for any Fiscal Year, each
Member shall be specially allocated items of Company income and gain for such
year (and if necauary, for succeeding yeari) in an amount equal to �uch Mcmbeei
share of the net decrease in Company Minimum Gain, determined in accordance
with Treasury Regulations Sectiuns iprovided,
5.2(e) shall not apply to the extent the circumstances described in Treasury
1950201- 411 - 10-
Regulations Sections 1.704-2(f)(2), 1.704-2(0(3), 1.704-2(0(4) or 1.704-2(0(5)
exist. Allocations made pursuant to the preceding sentence shall be made in
proportion to the respective amounts required to be allocated to each Member
pursuant thereto. The items of Company income and gain to be allocated pursuant to
this Section 5.2(e) shall be determined in accordance with Treasury Regulations
Section 1.704-2(f)(6). This Section 5.2(e) is intended to comply with the minimum
gain chargeback requirement in Treasury Regulations Section 1.704-2(f) and "H be
interpreted consistently therewith.
M Member Nonrecourse Debt Minimum Gain Chargeback.
Notwithstanding any other provision of this Section 1.2, if during any Fiscal Year
there is a net decrease in Member Nonrecourse Debt Minimum Clain (determined in
accordance with Treasury Regulations Section 1.704-2(i)(2)), any Member with 4
share of that Member Nonrecourse Debt Minimum Gain (determined in accordance
with Treasury Regulations Section 1.704-2(i)(5) as of the beginning of such Fiscal
Year) must be allocated items of Company income and gain in the Fiscal Year (and,
if necessary, for succeeding Fiscal Years) equal to that Members share of tho not
decrease in the Member Nonrecourse Debt Minimum Gain (determined in
accordance with Treasury Regulations Section 1.704-2 (i)(4)); provided, however,
that this Section 5.2(f) shall not apply to the extent the circumstances described in
the third and fifth sentences of Treasury Re&ruluions Section 1,704-2(i)(4) exist.
Allocations pursuant to the preceding sentence shall be made in proportion to the
respective amounts required to be allocated to each Member pursuant thereto. This
Section 5.2(f) is intended to comply with the minimum gain chargeback requirement
in Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted consistently
therewith.
(g) Member Nonrecourse Deductions. Any Member Nonrecourse
Deductions (determined in accordance with Treasury Regulations Section 1.704-
2(i)(1)) for any Fiscal Year or other period shall be specially allocated to the
Member who bears the economic risk of loss with respect to the Member
Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable
in accordance with Treasury Regulation Section 1.704-2(i). Member Nonrecourse
Debt shall be determined in accordance with Tremry Regulations Section 1.704-
2(b)(4).
(h) Section 754 Adjustment. To the extent any adjustment to the adjusted
tax basis of any Company asset pursuant to Code Section 734(b) or Code
Section 743(b) is required, pursuant to Treasury Regulations Section 1.704-
1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount
of such adjustment shall be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such basis), and such gain or
loss shall be specially allocated to the Members in a manner consistent with the
manner in which their Capital Accounts are required to be adjusted pursuant to such
Section of the Treasury Regulations.
(i) Allocations Pursuant to Section 704(c) of the Code. If Company
property is reflected in the Capital Accounts of the Members at 4 Book Basis that
13562 M 01
differs from the adjusted tax basis of such property, allocations of depreciation,
amortization, income, gain or loss with respect to such property, as computed for
income tax purposes, shall be made among the Members in a manner which takes
such difference into account in accordancc with Code Section 704(c) and the
Treasury Regulations thereunder. Such allocations shall not affect the Capital
Accounts of the Members. if the Manager shall revalue the Capital Accounts of the
Members pursuant to Section 5.5, the Company shall make reverse 704(c)
allocations, solely for income tax purposes, on an asset -by -asset basis, using curative
or remedial allocations where appropriate.
6) Allocations Subiequent to Allocations Pursuant to Section 5.2(b)
through (i). Any allocations pursuant to Section 5.2(b) through (i) of items of
income or gains shall be taken into account in computing subsequent allocations
pursuant to Section 5.2 so that the net amount of any items so allocated and all other
items allocated to each Member pursuant to Section 5.2 shall, to the extent possible,
be equal to the net amount that would have been allocated to each Member pursuant
to the provisions of Sections 5.2(a).
5.3 Allocation in went of Transfer, Van interest in the Company is transferred in
accordance with Anicle 9 of this Agreement, there shall be allocated to each Member who
holds such interest in the Company during the Fiscal Year of transfer the product of (a) the
Company's income, gain, loss, deduction and other items allocable to such interest in the
Company pursuam to Section 5.2(a) for such Fiscal Year, multiplied by (b) a fraction, the
numerator of which is the total number of days in such Fiscal Year that the transferred
interest in the Company was held by such Member and the denominator of which is the total
number of days in such Fiscal Year, provided, however, that the Manager may, in its
reasonable discretion, cause such Company items to be allocated by the closing of the books
method if w requested by both the transferor and transferee Members. Such allocation shall
be made without regard to the date, amount or recipient of any distributions which may have
been made with respect to such transferred interest. As of the date of such transfer, the
transferee Member shall succeed to the Capital Account of the transferor Member with
respect to the transferred interest.
5.4 Reevalwadons of CaRital AccgUnts.to revalue the
Capital_ Members in accordance with TreasuryReplations,
I(b)(2)(iv)(f) (a "Revaluation") at the following times: (a) the acquisition of additional
interests in the Company • .....any newor ! •thedistribution by
Company to 4 Member of more thim it dg miaimis amount of property in exchange for an
-npany within the meaning of
.nterest in the Company and (c) the liquidation of the Coi
6.1 Rights and Duties ofMe-. Except as specifically provided herein, the Members
shall take no part in the control, management. direction or operation of the affairs of the
1314'_mW - i 2 -
Company. At all times the sole control and management of the Company shall rest with the
Manager. No prior consent or approval of the Members shall be required
ed in respect of any
act or transaction taken by the Manager for the Company unless otherwise provided in this
Agreement.
(i) Sell, exchange or otherwise dispose of the assets of the
Company or any Subsidiwy, subject to the limitations in Section 6.2
(b) or (c) below;
(ii) Acquire by purchase, lease, or otherwise any real or personal
property:
(iii) Operate, maintain, finance, improve, own, grant options with
respect to, sell, convoy, assign, mortgage and lease real and personal
property:
(vi) Execute agreements, contTacts, certificates, deeds, leases,
mortgages, deeds of trust, notes, bills of We and other documents.
Notwithstanding any of the provisions above, the Manager will provide each
Member with written notice of any materied transactions outside the ordinVy COurU
of the Company`3 business prior to any such transaction.
(b) The Manager shall not have the authority to do any of the followin3
(i) Alter the purpose of the Company as set forth in Section 2.5
hereof-,
(ii) Cause the Company to issue additional interests in the
Company;
Do any act in contravention of this Agreement or which would
PQ f t�,e Comnanv'.
Msalal 03 - 13 -
r,
T
There are no plans to change the current terms and conditions of service and operations of
the system as a consequence of the transaction for which approval is sought.
Following Transfer
100% 100% 7007&
In April 1998, Vulcan Cable, Inc., invested in Marcus Cable through the purchase of passive
limited partnership interests in various Marcus parent company entities, and Vulcan's Chairman
and sole shareholder, Paul G. Allen, purchased non-voting common stock in Marcus Cable
Properties, Inc., the ultimate general partner in the Marcus corporate organization.
Notwithstanding the Vulcan investment, there was no change of ownership or control of the
current franchisee company. The current franchisee company continues to hold the local cable
franchise and continues as the operator of the cable television system in your community. As
before, the parent company of the local franchisee continues to be Marcus Cable Operating
Company.' Control of the franchisee and all of the intermediate parent companies, as has always
been the case, continues to reside with Marcus Cable Properties, Inc., over which Jeffrey A.
Marcus retains control through voting shares giving him the sole power to vote for directors and
thereby control the Board of the ultimate parent, Marcus Cable Properties, Inc.
In terms of the Marcus Cable corporate structure. the companies in which Vulcan purchased
limited partnership interests and Mr. Allen purchased non-voting stock are upper tier companies.
none of which directly owns or controls the franchisee. After the consummation of certain
transactions, the company's structure will change as reflected in the attached chart, with the
current franchisee continuing to hold the franchise, but with Vulcan Cable, Inc. assuming indirect
control of each franchisee by becoming the manager of Marcus Cable Company, LLC, a Marcus
parent entity currently under the ultimate control of Jeffrey Marcus.
B. Transfer of Control
Just as before the initial Vulcan investment.. the franchisee for your community is under the
direct control of Marcus Cable Operating Company, LLC, which, in turn, is under the direct
control of Marcus Cable Company, LLC. Marcus Cable Company, LLC is under the direct
control of Marcus Cable Properties, LLC. Marcus Cable Company, LLC is currently owned in
' In order to achieve certain efficiencies in structure, as part of an on-going overall
company reorganization, both the franchise holder and Marcus Cable Operating Company
recently took advantage of the fairly recent development in Delaware law permitting a limited
partnership to convert to a limited liability company. Each, thus, bears the initials "LLC" rather
than ``LP" after their names. The Delaware Limited Liability Company Act provides that for all
purposes, the entity remains the same before and after conversion and all the rights, privileges.
and powers of the limited partnership vest in the limited liability company. As such, the
conversions constituted no change of organization. ownership or control.
part by Marcus Cable Properties, LLC ("Transferor'), its managing member, and in part by
Vulcan Cable ("Transferee"). its non-managinu, member. After a number of steps and conditions
are met, Marcus Cable Properties, LLC ("Transferor") will relinquish its control over the
franchisee's parent, Marcus Cable Company, LLC, by substituting Vulcan Cable ("Transferee")
as the manager. Thus. Vulcan will become the indirect and controlling parent of your
community's franchisee, and Vulcan will be able to direct the affairs of the franchisee.2
C. Future Management of the Franchisee
In furtherance of his vision of a wired world. Paul G. Allen, owner of Vulcan, recently entered
into an agreement to acquire Charter Communications, Inc. and affiliated companies ("Charter").
Charter currently is one of the country's top cable television companies, with over one million
subscribers in 18 states. (For further information about Charter's cable holdings and
operations. see Exhibit IV.) It is currently contemplated that after the transfer of control of
Marcus and the acquisition of Charter are complete, both companies' cable systems and the
combined subscriber base of over two million will be combined under the management of current
Charter executives as well as some current Marcus executives and personnel. For those
communities in which local franchising authority approval is required for this transaction,. we
also are requesting the right to undertake some additional corporate restructuring needed to
combine the two companies' cable operations under the ultimate control of Vulcan and/or
entities affiliated with Vulcan or Paul G. Allen.
At the same time or shortly thereafter, Paul G. Allen's non-voting stock in Marcus Cable
Properties, Inc. will be converted into voting stock, and Allen will acquire the remaining voting
stock of Jeffrey Marcus in Marcus Cable Properties. Inc. Allen's acquisition of Marcus's voting
stock in Marcus Cable Properties, Inc. at such time will have no effect on the transfer of control
of the franchisee company contemplated by this Form 394 or of Vulcan's control of the
franchisee company.
The transaction will not involve any documents, instruments or agreements or understandings for
the pledge of stock of the transferee, as security for loans or contractual performance or other
purposes
VULCAN CABLE, INC.
110 110'h Avenue Northeast
Suite 550
Bellevue, Washington 98004
Tel: (425) 453-1940
Fax: (425) 453-1985
August 24, 1998
Persons to Whom The Vulcan Cable, Inc. Unaudited Balance Sheet is Delivered:
I am the Vice President Finance of Vulcan Cable, Inc., which is wholly owned by Mr. Paul
G. Allen. I have reviewed the accompanying unaudited Balance Sheet of Vulcan Cable, Inc.
as of June 30, 1998. All information included in this unaudited Balance Sheet is the
representation of officers of Vulcan Cable, Inc.
Vulcan Cable, Inc.'s principal asset is its investment in Marcus Cable, whose operations are
reflected in the financial statements of Marcus Cable Company, LLC. submitted herewith.
Since Vulcan Cable, Inc. has no other material operations or sources of income, no separate
income statement is provided for Vulcan Cable, Inc.
Based upon my review, I am not aware of any material modifications that should be made to
the accompanying unaudited Balance Sheet in order for it to fairly present the financial
condition of Vulcan Cable, Inc. as of June 30, 1998.
Sincerely,
JJph D. zi
Vice President Finance
Encl.
t
u 98 June (Una7r Sheet S19
Cash and Equivalents
Intercompany Accounts
Investment in Marcus Cable
Accounts Payable
Taxes Payable
Common Stock
Paid in Capital
Retained Earnings- Prior
Retained Earnings - Current Year
$90,845
$0
$1,407,385,125
$1,407,475,770
m
$1,000
$1,407,475,125
$0
($355)
$1,407,475,770
MARCUS CABLE OPERATING COMPANY, L.P.
AND SUBSIDIARIES
Consolidated Financial Statements and Consolidating Schedules
December 31, 1997 and 1996
(With Independent Auditors' Report Thereon)
200 Crescent Court
Suite 300
Dallas, TX 75201-1885
The Partners
Marcus Cable Operating Company, L.P.:
We have audited the accompanying consolidated balance sheets of Marcus Cable Operating Company,
L.P. and subsidiaries as of December 31, 1997 and 1996, and the related statements of operations,
partners' capital and cash flows for the years then ended. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Marcus Cable Operating Company, L.P. and subsidiaries as of
December 31, 1997 and 1996, and the results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the consolidated financial statements
taken as a whole. The consolidating information is presented for purposes of additional analysis of the
consolidated financial statements rather than to present the financial position and results of operations of
the individual entities. The consolidating information has been subjected to the auditing procedures
applied in the audits of the consolidated financial statements and, in our opinion, is fairly stated in all
material respects in relation to the consolidated financial statements taken as a whole.
February 20, 1998, except for note 11,
which is as of March 4, 1998
MARCUS CABLE OPERATING COMPANY, L.P. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
(in thousands)
Assets 1997 1996
Current assets:
Cash and cash equivalents $ 794 $ 5,278
Accounts receivable, net of allowance of $1,904 in 1997 and
$1,900 in 1996 23,935 17,043
Prepaid expenses 2,105 2,432
Total current assets 26,834 24,753
Property and equipment, net (notes 2 and 3) 706,626 578,507
Other assets, net (notes 2 and 4) 1.039 443_ 1,093,242
Liabilities and Partners' Capital
Current liabilities:
$ 1,772,903 $-1 696.502
Current maturities of long-term debt (note 6)
$ 68,288
$ 41,819
Accrued liabilities (note 5)
67,281
56,073
Accrued interest
4,956
7,695
Total current liabilities
140,525
105,587
Long-term debt (note 6)
1,220,273
1,110,790
Subsidiary limited partner interests (note 1)
(246)
(246)
Partners' capital (note 7)
412,351
480,371
Commitments and contingencies (notes 6, 7 and 10)
$ 1,772,903
$ 1,696,502
See accompanying notes to consolidated financial statements.
MARCUS CABLE OPERATING COMPANY, L.P. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1997 and 1996
(in thousands)
1997 1996
Revenues:
Cable services $ 473,701 $ 432,172
Management fees (note 8) 5.614 2.335
Total revenues 479.315 434.507
Operating expenses:
Selling, service and system management
176,515
157,197
General and administrative
72,351
73,017
Depreciation and amortization
188.471
166,429
Total operating expenses
437.337
396,643
Operating income
41,978
37,864
Other (income) expense:
Interest expense, net 110,826 107,704
Gain on sale of cable systems (note 2) — 6.442)
Total other expense 110.826 101,262
Net loss $ 68,848$ 63 398
See accompanying notes to consolidated financial statements.
MARCUS CABLE OPERATING COMPANY, L.P. AND SUBSIDIARIES
Consolidated Statements of Partners' Capital
Years ended December 31, 1997 and 1996
(in thousands)
General Limited
Partner Partner Total
Balance at December 31, 1995
$ 543,058 $ —
$ 543,058
Capital contributions
711 —
711
Net loss6l
3,398) —
63 398
Balance at December 31, 1996
480,371 —
480,371
Capital contributions
828 —
828
Net loss6(
8,8481 —
68 848
Balance at December 31, 1997
$ 412351 $ —
$ 412,351
See accompanying notes to consolidated financial statements.
MARCUS CABLE OPERATING COMPANY, L.P. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1997 and 1996
(in thousands)
Cash flows from investing activities:
Acquisition of cable systems and franchises, net of cash acquired (53,812) (10,272)
Net proceeds from sale of assets — 20,638
Additions to property and equipmentI9( 7.275) (110,639)
Net cash used in investing activities25t 1,087) 10( 0,273)
Cash flows from financing activities:
Proceeds from long-term debt
1997
1996
Cash flows from operating activities:
(131,359)
(95,052)
Net Ioss
$ (68,848)
$ (63,398)
Adjustments to reconcile net loss to net cash provided by
558
(374)
operating activities:
92,3583(
0,088)
Gain on sale of cable systems
—
(6,442)
Depreciation and amortization
188,471
166,429
Accretion of discount on notes
41,185
36,140
Other non cash interest
3,131
2,560
Changes in operating assets and liabilities, net of effects
$ 684
$ 694
of acquisitions:
Accounts receivable
(6,439)
(70)
Prepaid expenses
95
(574)
Other assets
(13,093)
(13,178)
Accrued liabilities
9,743
(2,494}
Net cash provided by operating activities
154,245
118,973
Cash flows from investing activities:
Acquisition of cable systems and franchises, net of cash acquired (53,812) (10,272)
Net proceeds from sale of assets — 20,638
Additions to property and equipmentI9( 7.275) (110,639)
Net cash used in investing activities25t 1,087) 10( 0,273)
Cash flows from financing activities:
Proceeds from long-term debt
226,000
65,338
Repayment of long-term debt
(131,359)
(95,052)
Payment of debt issuance costs
(1,725)
—
Payments on capital leases
558
(374)
Net cash provided by (used in) financing activities
92,3583(
0,088)
Net decrease in cash and cash equivalents
(4,484)
(11,388)
Cash and cash equivalents at beginning of year
5,278
16.666
Cash and cash equivalents at end of year
$ 794
$ 5.278
Supplemental disclosure of cash flow information - interest paid
$ 69,088
$ 71.286
Non cash investing activities - capital lease additions
$ 684
$ 694
See accompanying notes to consolidated financial statements.
MARCUS CABLE OPERATING COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(1) Summary of Significant Accounting Policies
(a) General
Marcus Cable Operating Company, L.P. ("Operating"), a Delaware limited partnership, is a
wholly-owned subsidiary of Marcus Cable Company, L.P. ("MCC"). Operating was
formed in July 1994 for the purpose of acquiring, operating and developing cable television
systems and to act as a holding company and as general partner for the subsidiary operating
partnerships. Upon the formation of Operating, MCC contributed its interests in its
subsidiary operating partnerships to Operating. Because this transaction represented a
combination of entities under common control, the partnerships were transferred to
Operating at historical costs in a manner similar to a pooling of interests. Accordingly,
information presented in the accompanying financial statements represents operations and
cash flows of the combined entities for all periods presented.
Operating and its subsidiaries (collectively, the "Company") derive their primary source of
revenues by providing various levels of cable television programming and services to
residential and business customers. The Company's operations are conducted through
subsidiary partnerships.
(b) Basis of Presentation
The consolidated financial statements include the accounts of Operating and its subsidiary
partnerships and corporations. All significant intercompany accounts and transactions have
been eliminated in consolidation. Certain reclassifications have been made to prior years'
consolidated balances to conform to the current year presentation.
(c) Franchise Fees
Local governmental authorities impose franchise fees on the cable television systems owned
by the Company (the "Systems") ranging up to a federally mandated maximum of 5.0% of
gross revenues. On a monthly basis, such fees are collected from the Systems' customers.
Historically, franchise fees in certain of the Systems (i.e., the former Sammons Systems)
were not separately itemized on customers' bills. Such fees were considered part of the
monthly charge for basic services and equipment, and therefore were reported as revenue
and expense in the Company's financial results. MCC began the process of itemizing such
fees on all customers' bills to conform with the collection of, and accounting for, franchise
fees in the remaining Systems in November 1996 and completed the process during the first
quarter of 1997. In conjunction with itemizing these charges, the Company began collecting
the franchise fee on all taxable revenues. As a result, beginning in the first quarter of 1997,
such fees are no longer included as revenue or as general and administrative expenses. The
net effect of this change is a reduction in 1997 revenue of approximately $6,800,000 and a
reduction of approximately $9,300,000 in 1997 general and administrative expenses, versus
the comparable period in 1996.
2
MARCUS CABLE OPERATING COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(d) Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid
investments with original maturities of three months or less at inception to be cash
equivalents. At December 31, 1997 and 1996, the Company had cash equivalents of
$10,133,000 and $5,479,000, respectively, consisting of certificates of deposit and money
market funds. A book overdraft of approximately $9,300,000 existed at December 31,
1997.
(e) ProNrtv and Equipment
Property and equipment are recorded at cost, including all direct costs and certain indirect
costs associated with the construction of cable television transmission and distribution
systems, and the cost of new customer installations. Maintenance and repairs are charged to
expense as incurred and equipment replacements and betterments are capitalized.
Property and equipment are depreciated using the straight-line method based on estimated
useful lives as follows: buildings, 15 years; cable systems, which include converters,
headends, distribution systems and microwave equipment, 3 to 10 years; and vehicles and
other, 3 to 10 years.
(f) Other Assets
Franchise rights and going concern value of acquired cable systems are amortized on a
straight-line basis over ten to fifteen years. The cost of noncompetition agreements is
amortized using the straight-line method over the periods of the respective agreements.
Deferred debt issuance costs are amortized to interest expense using the interest method
over the term of the related debt.
The Company assesses the recoverability of its intangible assets as well as the related
amortization lives by determining whether the carrying value of the intangible assets can be
recovered over the remaining lives through projected undiscounted future cash flows. To
the extent that such projections indicate that undiscounted future cash flows are not
expected to be adequate to recover the carrying amounts of the related intangible assets,
such carrying amounts are adjusted for impairment to a level commensurate with the
estimated fair value of the underlying assets.
(g) Revenues
Revenues from basic and premium service are recognized when the service is 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 estimated average period
that customers are expected to remain connected to the cable television system.
(('nnt;„tIAri �
3
MARCUS CABLE OPERATING COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Management fee revenues are recognized concurrently with the recognition of revenues by
the managed cable system, or as a specified monthly amount as stipulated in the
management agreement. Incentive management fee revenue is recognized upon performance
of specified actions as stipulated in the management agreement.
(h) Income Taxes
The Company has not provided for federal income taxes since such taxes are the
responsibility of the individual partners. The Company's subsidiary corporations are
subject to federal income tax but have either no operations or have experienced net losses
and, therefore, had no taxable income since their inception.
(i) Subsidiary Limited Partner Interests
Limited partner interests of subsidiary partnerships which are not directly held by the
Company are accounted for in a manner similar to minority interests. Net income or loss
and preference returns related to the limited partner interests of subsidiary partnerships are
reflected in the accompanying statements of operations as "subsidiary limited partner
interests."
Certain subsidiary limited partner interests were allocated losses in excess of their
contributed capital to the extent that the fair value of assets contributed by the subsidiary
limited partners exceeded the book value at the date of contribution.
0) Derivative Financial Instruments and Fair Value
The Company has only limited involvement with derivative financial instruments and does
not use them for trading purposes. Any derivative financial instruments are used to manage
well-defined interest rate risk related to the Company's outstanding debt.
As interest rates change under interest rate swap agreements, the differential to be paid or
received is recognized as ari adjustment to interest expense. The Company is not exposed
to credit loss as its interest rate swap agreements are with certain of the participating banks
under the Company's Senior Credit Facility. The carrying value of the interest rate
agreements approximates fair value due to their maturities.
The carrying amounts of cash equivalents, accounts receivable and accrued operating
liabilities reported in the accompanying consolidated financial statements approximate fair
value due to their short maturities. The fair value of long-term debt was $1,333,675,000
and $1,193,014,000 at December 31, 1997 and 1996, respectively, based on quoted market
prices for the publicly held debt. The carrying amount of the Senior Credit Facility
approximates fair value as the outstanding borrowings bear interest at market rates.
(Continued)
4
MARCUS CABLE OPERATING COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(k) Disclosure of Certain Significant Risks and Uncertainties
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.
(1) Impairment of Lone -Lived Assets and 'ons -Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the Impairment of
Long -Lived Assets and for Long -Lived Assets to Be Disposed Of, on January 1, 1996. This
Statement requires that long-lived assets and intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets exceeds
the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell. The adoption of this Statement did not have a material
impact on the Company's financial position, results of operations, or liquidity.
(2) Acquisitions and Dispositions
On July 1, 1997, the Company purchased cable television systems located near Dallas -Fort Worth,
Texas for an aggregate purchase price of $34,500,000. On December 1, the Company completed
an exchange of cable television systems in Wisconsin and Indiana. According to terms of the
exchange agreement, in addition to the contribution of its systems, the Company paid $17,807,000.
On January 11, 1996, the Company completed the purchase of a cable television system in Texas
for $875,000. On July 8, 1996, the Company acquired a cable television system in Mississippi for
an aggregate purchase price of $2,600,000. On July 31, 1996, the Company acquired a cable
television system in Indiana for a purchase price of $6,700,000.
On January 18, 1995, the Company acquired cable television systems in Wisconsin and
Minnesota owned and operated by Crown Media, Inc. ("Crown"), and Cencom of Alabama, L.P.
("CALP") limited partner units held by Crown, for an aggregate purchase price of $331,717,000.
On August 31, 1995, the Company acquired all remaining CALP ordinary limited partner interests
held by outside parties in exchange for convertible preference units of MCC with a $15,000,000
distribution preference and caused the redemption of all outstanding CALP special limited
partnership interests and the retirement of all outstanding bank indebtedness of CALP for
$138,280,000 in cash. On November I, 1995, the Company acquired certain cable television
systems owned and operated by Sammons Communications, Inc. ("Sammons") for a purchase
price of $961,701,000 plus direct acquisition costs of $31,187,000 and less assumed liabilities of
(Continued)
;
MARCUS CABLE OPERATING COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
$4,524,000. Other miscellaneous acquisitions of cable television systems were also completed in
1995 for $2,357,000.
The acquisitions discussed above were accounted for as purchases and, accordingly, the purchase
prices were allocated to tangible and intangible assets based on estimated fair market values at the
dates of acquisition. Fair market values were determined using independent appraisers, or in the
case of the smaller acquisitions, estimated based on previous acquisitions. The cable system
exchange discussed above was accounted for as a nonmonetary exchange and, accordingly, the
additional cash contribution was allocated to tangible and intangible assets based on recorded
amounts of the nonmonetary assets relinquished. Operating results of the acquired companies are
included in the accompanying financial statements from the dates of acquisition except for
operating results of Crown, which are included from January 1, 1995. In connection with the
acquisitions, the Company also assumed responsibility for settling outstanding receivables and
payables of the cable television systems acquired. Net assets acquired as a result of these
acquisitions are summarized as follows (in thousands):
1997 1996
Property and equipment $ 26,310 $ 5,004
Franchise rights 27,002 4,861
Noncompetition agreements 1,000 383
Other (liabilities) assets (500) 24
Total purchase price $ 53,812 $ 10,272
Prior to the final CALP acquisition, certain partners in MCC who hold a controlling interest in
MCC also held an interest in CALP. Because of this common ownership interest, the predecessor
cost was used to value the assets acquired to the extent of the investment held in CALP by the
partners in MCC. A charge of $14,183,000 which was made to partners' capital represents the
excess of the consideration paid over the carrying value of the investment in CALP held by partners
in MCC. For accounting purposes, such excess is reflected as a reduction in the partners' capital
accounts of MCC.
On October 11, 1996, the Company sold the cable television systems operating in Washington for
cash of $20,638,000, net of selling costs. The sale resulted in a gain of $6,442,000.
On June 30, 1995, the Company sold the cable television systems operating in and around San
Angelo, Texas to TeleService Corporation of America for cash of $65,037,000, net of selling costs.
The sale resulted in a gain of $26,409,000. Net proceeds from the sale were used to retire
outstanding borrowings under Operating's then existing senior credit facility.
(Continued)
1.1
MARCUS CABLE OPERATING COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Unaudited pro forma financial information for the years ended December 31, 1997 and 1996 as
though the acquisitions and dispositions discussed above had occurred at January 1, 1996 follows
(in thousands):
1997
1996
Revenues $ 484,673
$ 437,746
Operating income 40,945
39,950
Net loss (69,886)
(61,328)
The pro forma financial information has been prepared for comparative purposes only and does not
purport to indicate the results of operations which would actually have occurred had the
acquisitions, dispositions and exchange been made at the beginning of the period indicated, or
which may occur in the future.
(3) Property and Equii)ment
Property and equipment consists of the following at December 31, 1997 and 1996 (in thousands):
(4) Other Assets
Other assets consist of the following at December 31, 1997 and 1996 (in thousands):
1997
1996
Cable systems
$ 878,721
$ 670,829
Vehicles and other
37,943
26,008
Land and buildings
17,271
13,256
Debt issuance costs
933,935
710,093
Accumulated depreciation22(
7.309)
13( 1,586)
Other
$ 706.626
$ 578,507
(4) Other Assets
Other assets consist of the following at December 31, 1997 and 1996 (in thousands):
(Continued)
1997
1996
Franchise rights
$ 1,209,725
$ 1,175,009
Going concern value of acquired cable systems
37,274
45,969
Intercompany receivable
33,738
21,030
Debt issuance costs
32,541
30,816
Noncompetition agreements
25,914
31,914
Other
1,075
1,052
1,340,267
1,305,790
Accumulated amortization
300.824
(212,548
$ 1.039,443
$ 1,093,242
(Continued)
MARCUS CABLE OPERATING COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Effective December 31, 1997, the Company wrote off approximately $7,000,000 and $175,000 of
fully amortized non competition agreements and other costs, respectively.
(5) Accrued Liabilities
Accrued liabilities consist of the following at December 31, 1997 and 1996 (in thousands):
$ 67,281 $ 56.073
(6) Lona -term Debt
The Company has outstanding borrowings on long-term debt arrangements at December 31, 1997
and 1996 as follows (in thousands):
1997 1996
Senior Credit Facility $ 949,750 $ 855,000
13 1/2% Senior Subordinated Discount Notes 336,304 295,119
Capital leases and other notes 2,507 2,490
1,288,561 1,152,609
Less current maturities 68,288 41.819
$ 1,220,273 $ 1.110,790
On August 31, 1995, the Company entered into the Senior Credit Facility, which provides for two
term loan facilities, one of which is in the principal amount of $490,000,000 and matures on
December 31, 2002 ("Tranche A°") and the other of which is in the principal amount of
$300,000,000 and matures on April 30, 2004 ("Tranche B"). The Senior Credit Facility, as
amended on March 14, 1997, provides for scheduled amortization of the two term loan facilities
which began in September 1997. The Senior Credit Facility also provides for a $360,000,000
Revolving Credit Facility, with a maturity date of December 31, 2002. At December 31, 1997,
there were borrowings of $748,750,000 under the two term loan facilities and $201,000,000 under
the Revolving Credit Facility. Amounts outstanding under the Senior Credit Facility bear interest
at either the i) Eurodollar rate, ii) prime rate or iii) CD base rate or Federal Funds rate, plus a
margin of up to 2.25% subject to certain adjustments based on the ratio of Operating's total debt to
annualized operating cash flow, as defined. At December 31, 1997, borrowings under the Senior
Credit Facility -bore interest at rates ranging from 5.97% to 8.05% under the Eurodollar rate option.
The Senior Credit Facility, among other things, provides for (i) a pledge by Operating of all
(Continued)
1997
1996
Accrued operating expenses
$ 27,923
$ 20,377
Accrued franchise fees
10,131
9,429
Accrued programming costs
9,704
9,301
Intercompany payables
8,673
9,506
Other accrued liabilities
5,725
4,630
Accrued property taxes
5,125
3.830
$ 67,281 $ 56.073
(6) Lona -term Debt
The Company has outstanding borrowings on long-term debt arrangements at December 31, 1997
and 1996 as follows (in thousands):
1997 1996
Senior Credit Facility $ 949,750 $ 855,000
13 1/2% Senior Subordinated Discount Notes 336,304 295,119
Capital leases and other notes 2,507 2,490
1,288,561 1,152,609
Less current maturities 68,288 41.819
$ 1,220,273 $ 1.110,790
On August 31, 1995, the Company entered into the Senior Credit Facility, which provides for two
term loan facilities, one of which is in the principal amount of $490,000,000 and matures on
December 31, 2002 ("Tranche A°") and the other of which is in the principal amount of
$300,000,000 and matures on April 30, 2004 ("Tranche B"). The Senior Credit Facility, as
amended on March 14, 1997, provides for scheduled amortization of the two term loan facilities
which began in September 1997. The Senior Credit Facility also provides for a $360,000,000
Revolving Credit Facility, with a maturity date of December 31, 2002. At December 31, 1997,
there were borrowings of $748,750,000 under the two term loan facilities and $201,000,000 under
the Revolving Credit Facility. Amounts outstanding under the Senior Credit Facility bear interest
at either the i) Eurodollar rate, ii) prime rate or iii) CD base rate or Federal Funds rate, plus a
margin of up to 2.25% subject to certain adjustments based on the ratio of Operating's total debt to
annualized operating cash flow, as defined. At December 31, 1997, borrowings under the Senior
Credit Facility -bore interest at rates ranging from 5.97% to 8.05% under the Eurodollar rate option.
The Senior Credit Facility, among other things, provides for (i) a pledge by Operating of all
(Continued)
8
MARCUS CABLE OPERATING COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
partnership interests in the subsidiary operating partnerships and (ii) a pledge by Operating of
intercompany notes payable to it by the subsidiary operating partnerships. All borrowings
outstanding under the Senior Credit Facility are guaranteed by MCC on an unsecured basis. The
Company pays a commitment fee of 0.250% to 0.375% on the unused commitment under the
Senior Credit Facility. Commitment fees on the unused portion of credit facilities amounted to
$944,000 and $866,000 for the years ended December 31, 1997 and 1996, respectively.
On July 29, 1994, the Company issued $413,461,000 face amount of 13 1/2% Senior Subordinated
Discount Notes due August 1, 2004 (the "13 1/2% Notes") for net proceeds of approximately
$215,000,000. The 13 1/2% Notes are unsecured, are guaranteed by MCC and are redeemable, at
the option of Operating, at amounts decreasing from 105% to 100% of par beginning on August 1,
1999. No interest is payable on the 13 1/2% Notes until February 1, 2000. Thereafter, interest is
payable semiannually until maturity. The discount on the 13 1/2% Notes is being accreted using
the interest method. The unamortized discount was $77,157,000 and $118,342,000 at
December 31, 1997 and 1996, respectively. Proceeds from the 13 1/2% Notes were used to retire
outstanding borrowings under the Company's then existing senior credit facility and to fund the
1994 acquisitions.
On October 13, 1993, MCC issued $100,000,000 principal amount of 11 7/8% Senior Debentures
due October 1, 2005 (the "11 7/8% Debentures"). MCC concurrently issued a $100,000,000 11
7/8% intercompany note to a subsidiary operating partnership. This intercompany note was
contributed to the Company at the Company's inception in July 1994. MCC relies on the
Company for the payment of interest on the 11 7/8% Debentures through cash distributions by the
Company to MCC to the extent permitted by the 13 1/2% Notes and the Senior Credit Facility. In
June 1995, this intercompany note was converted to partners' capital.
The 13 1/2% Notes and Senior Credit Facility require the Company and/or its subsidiaries to
comply with various financial and other covenants, including the maintenance of certain operating
and financial ratios. These debt instruments also contain substantial limitations on, or prohibitions
of, distributions, additional indebtedness, liens, asset sales and certain other items.
To reduce the impact of changes in interest rates on its floating rate long-term debt, the Company
has entered into certain interest rate swap agreements with certain of the participating banks under
the Senior Credit Facility. At December 31, 1997, interest rate swap agreements covering a
notional balance of $400,000,000 were outstanding which require the Company to pay fixed rates
ranging from 5.75% to 5.77%, plus the applicable interest rate margin. These agreements mature
during 1998 and 1999, and allow for the optional extension by the counterparty for additional
periods and certain of the agreements provide for the automatic termination in the event that one
month LIBOR exceeds 6.75% on any monthly reset date. The Company has also entered into an
interest rate swap agreement covering an aggregate notional principal amount of $100,000,000
which matures in the year 2000 whereby the Company receives one month LIBOR plus 0.07% and
is required to pay the higher of one month LIBOR at either the beginning or end of the interest
period, plus the applicable interest rate margin.
Wontiniiedi
6
MARCUS CABLE OPERATING COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As interest rates change under the interest rate swap agreements, the differential to be paid or
received is recognized as an adjustment to interest expense. During the year ended December 31,
1997, the Company recognized additional expenses under its interest rate swap agreements of
$322,000. During the year ended December 31, 1996, the Company recognized benefits of
$130,000 under its interest rate swap agreements.
A summary of the future maturities of long-term debt follows (in thousands):
1998
$ 68,288
1999
78,372
2000
89,591
2001
156,255
2002
463,500
Thereafter
432.555
$ 1.288,561
(7) Partners' Capital
Income and losses of the Company are allocated to the general and limited partners in accordance
with their proportionate shares of the total contributions of the Company. The operating
partnership agreement requires the termination of the partnership no later than December 31, 2005.
During the year ended December 31, 1997 and 1996, no general partner capital contributions were
made.
(8) Related Party Transactions
Affiliates of Goldman Sachs own limited partnership interests in MCC. Maryland Cable, which is
controlled by an affiliate of Goldman Sachs, owned the Maryland Cable System which served
customers in and around Prince Georges County, Maryland. Operating managed the Maryland
Cable Systems under the Maryland Cable Agreement, which was entered into in September of
1994. Operating earned a management fee, payable monthly, equal to 4.7% of the revenues of
Maryland Cable, and was reimbursed for certain expenses.
Effective January 31, 1997, the Maryland Cable System was sold to Jones Communications of
Maryland, Inc. Pursuant to the Maryland Cable Agreement, Operating recognized incentive
management fees of $5,069,000 during 1997 in conjunction with the sale. Additional incentive
management fees may be recognized upon dissolution of Maryland Cable, which is anticipated to
occur during 1998. There is no assurance that any of such fees will be realized. Although
Operating is no longer involved in the active management of those cable television systems,
Operating has entered into an agreement with Maryland Cable to oversee the activities, if any, of
Maryland Cable through the liquidation of the partnership. Pursuant to such agreement, Operating
will earn a nominal monthly fee. Including the incentive management fees noted above, during the
years ended December 31, 1997 and 1996, Operating earned total management fees of $5,614,000
and $2,335,000, respectively.
(Continued)
IN
MARCUS CABLE OPERATING COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In connection with the acquisitions in 1995, fees of $5,250,000 were paid to Marcus Cable
Properties, Inc. for services directly related to the Sammons and Crown acquisitions. In addition,
strategic advisory fees of $18,309,000 were paid to certain limited partners in connection with the
acquisition of Sammons in 1995. The fees were capitalized as part of the cost of acquiring the
cable television systems.
(9) Employee Benefit Plan
The Company sponsors a 401(k) . plan for its employees whereby employees that qualify for
participation under the plan can contribute up to 15% of their salary, on a before tax basis, subject
to a maximum contribution limit as determined by the Internal Revenue Service. The Company
matches participant contributions up to a maximum of 2% of a participant's salary. For the years
ended December 31, 1997 and 1996, the Company made contributions to the plan of approximately
$761,000 and $480,000, respectively.
(10) Commitments and Contingencies
The Company rents pole space from various companies under agreements which are generally
cancelable on short notice and leases office space for system and corporate offices. Lease and
rental costs charged to expense for the years ended December 31, 1997 and 1996 were
approximately $7,544,000 and $6,775,000, respectively.
In October 1992, Congress enacted the Cable Television Consumer Protection and Competition
Act of 1992 (the "1992 Cable Act"). During May 1993, pursuant to authority granted to it under
the 1992 Cable Act, the Federal Communications Commission ("FCC") issued its rate regulation
rules which became effective September 1, 1993. These rate regulation rules required certain cable
systems in franchise areas which receive certification and are not subject to effective competition,
as defined, to set rates for basic and cable programming services, as well as related equipment and
installations, pursuant to general cost -of -service standards or FCC prescribed benchmarks. These
FCC benchmarks were based on an average 10% competitive differential between competitive and
non-competitive systems. Effective September 1, 1993, regulated cable systems not electing cost -
of -service were required to reduce rates to the higher of the prescribed benchmarks or rates that
were 10% below those in effect on September 1, 1992.
In February 1994, the FCC announced further changes in its rate regulation rules and announced its
interim cost -of -service standards. In connection with these changes, the FCC issued revised
benchmark formulas, based on a revised competitive differential of 17%, which became effective
on May 15, 1994 or if certain conditions were met, on July 14, 1994. Regulated cable systems
were required to reduce rates to the higher of the new FCC prescribed benchmarks or rates that
were 17% below those in effect on September 1, 1992.
frnntimiPtii
MARCUS CABLE OPERATING COMPANY, L.P. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
On February 1, 1996 Congress passed S.652, "The Telecommunications Act of 1996" (the "Act"),
which was subsequently signed into law on February 8, 1996. This law altered federal, state and
local laws and regulations for telecommunications providers and services, including the Company.
There are numerous rulemakings to be undertaken by the FCC which will interpret and implement
the Act. It is not possible at this time to predict the outcome of such rulemakings. Several aspects
of the Act impact cable television, including the elimination of regulation of the cable
programming service tier as of March 31, 1999.
The Company believes that it has complied with all provisions of the 1992 Cable Act, including
the rate setting provisions promulgated by the FCC. However, in jurisdictions which have chosen
not to certify, refunds covering a one-year period of basic service may be ordered upon
certification if the Company is unable to justify its rates. The amount of refund liability, if any, to
which the Company could be subject in the event that these systems' rates are successfully
challenged by franchising authorities is not currently estimable.
The Company is involved in various claims and lawsuits which are generally incidental to its
business. The Company is vigorously contesting all such matters and believes that their ultimate
resolution will not have a material adverse effect on its consolidated financial position, results of
operations or cash flows.
(11) Subsequent Events
On March 3, 1998, the Company announced that it has retained Goldman Sachs to advise the
Company as it explores various strategic alternatives involving the ownership of the Company.
Several alternatives are being reviewed, however, no decision has been made and the outcome of
the Company's review cannot be predicted at this time.
On March 4, 1998, the Company entered into a definitive agreement with TMC Holdings, Inc. to
sell cable television assets located in Connecticut and Virginia for a sales price of approximately
$150,000,000. The systems serve approximately 46,000 customers and 17,000 customers in
Connecticut and Virginia, respectively. The transaction is subject to regulatory approval and is
expected to be finalized during the third quarter of 1998.
Schedule 1
MARCUS CABLE OPERATING COMPANY,L.P.AND SUBSIDIARIES
Consolidating Schedule-Balance Sheet Information
December 31,1997
(in thousands)
Marcus Consolidated
Marcus Marcus Cable of Marcus Cable Marcus Cable
Cable Cable Delaware and Marcus Cable Marcus Cable Combined Marcus Cable Operating Operating
Partners, Fiberlink Maryland, of Alabama, Associates, Operating Capital Company, Company,
Aum LP, L.L.C. 1•P LP, Lp. Partnerships Corporation 11 LE Eliminations L_P,
Cash and cash equivalents $ 2,892 S - $ 503 S 1,656 $ 3,644 $ 8,695 $ 1 $ (7,902) S - $ 794
Accounts receivable,net 44,945 182 3,084 30,215 53,911 132,337 - 80,756 (189,158) 23,935
Prepaid expenses 232 488 100 298 574 1.692 - 413 - 2,105
Total current assets 48,069 670 3,687 32,169 58,129 142,724 1 73,267 (189,158) 26,834
Property and equipment,net 206,736 842 13,040 69,803 409,097 699,518 - 7,108 - 706,626
Other assets,net 296,910 - 9,714 83,273 627,069 1,016,966 - 1,621,662 (1,599,185) 1,039,443
Investment in subsidiaries - - - - - - 80,054 80_054
Total assets $$ 1,71 S $ I.S I2 $26,441 $185,245 $ 1.094,298 $L&9,Q $ $I_782�p $(1.868,397) S
Liabilities and Partners'Capital
Current liabilities:
Current maturities of long-term debt $ 69 $ - S 5 $ 2 S 118 S 194 $ - S 68,094 $ - S 68,288
Accrued liabilities 36,135 2,136 (1,065) 26,855 109,318 173,379 - 76,947 (183,045) 67,281
Accrued interest 3.771 �68 1,252 2,216 7,925 - -x,956 -(7,925
4,956
Total current liabilities 39,975 2,136 (374) 28,109 111,652 181,498 - 149,997 (190,970) 140,525
Long-term debt 532,310 - 36,250 166,677 862,420 1,597,657 - 1,219,989 (1,597,373), 1,220,273
Subsidiary limited partner interests - - - - - - - (246) - (246)
Partners'capital-redeemable partner interests2( 0.570) _(624) 9( ,435) (9,541 _124,223 80.053 _ 1 412,351 _(80,054 412.3�l
Total liabilities and partners'capital $551,715 S 1,512 S 26.441 $185.245 $1.09C295 $1,$59,208 $ 1 $1 7 091 S(1.868,397) S 17. 72.903
See accompanying independent auditors'report.
Schedule
MARCUS CABLE OPERATING COMPANY,L.P.AND SUBSIDIARIES
Consolidating Schedule-Statement of Operations Information
For the year ended December 31,1997
(in thousands)
Marcus Consolidated
Marcus Marcus Cable of Marcus Cable Marcus Cable
Cable Cable Delaware and Marcus Cable Marcus Cable Combined Marcus Cable Operating Operating
Partners, Fiberlink Maryland, of Alabama, Associates, Operating Capital Company, Company,
L,Q, L.L.C. 4-P Partnerships Cumation 11 LL Eliminations I,yL.
Revenues:
Cable services S 150,321 $ 230 $12,639 S 37,828 $272,683 $473,701 S - S - $ - $473,701
Management fees - - - - 5.614 - - 4
Total revenues 150,321 230 12 9 1?g28 272.683 44.73.701 5,614 - 479.315
Operating expenses:
Selling,service and system management 49,493 126 5,046 15,221 104,287 174,173 - 2,342 - 176,515
General and administrative 16,014 390 1,625 4,325 35,773 58,127 - 14,224 - 72,351
Allocated corporate costs 3,734 0 251 852 6,715 11,552 - (11,552) - -
Depreciation and amortization 65,359 _180 5393 16,468 92,705 187,105 -1.36 - 188,471
Total operating expenses 134.600 696 12.315 36,866 246A8 430.957 -6.38 - 437,333
Operating income(loss) 15.721 (446) 324 962 26,201 42,744 066) - -41,7$
Other(income)expense:
Interest(income)expense,net 50,463 - 3,437 15,881 82,483 152,264 - (41,438) - 110,826
Equity earnings of subsidiaries - - - - - --_ 109.520 (144.20) -
Totalotherexpense 30 4 - 3,437 15,881 _82,483 152,264 68.082 (142.£24) 114.82
Net income(loss) $ (34,742) $ (466) $ (3,11.3_) S(14.919) S (56.280) $099-520S S (68,848) Siam S{§8.848)
See accompanying independent auditors'report.
EXHIBIT IV
TRANSFEREE'S O
Vulcan Cable, Inc. is owned by Microsoft co-founder Paul G. Allen. In addition to its
investment in MCC, VCI recently entered into an agreement to purchase controlling interest in
Charter Communications of St. Louis, Missouri. After gaining operating control of MCC and
Charter Communications, VCI will combine the operations of MCC and Charter to form the
nation's seventh largest Multiple System Operator ("MSO"). Following is a summary of the
technical qualifications of both MCC and Charter with a brief description of how VCI will
operate the two companies as one. It is expected that the companies will continue to run on a
decentralized basis, as local management will remain in effect.
Through its operating partnerships, MCC owns and manages cable systems serving a total
of approximately 1,100,000 cable customers located in fourteen states providing service over
approximately 25,000 miles of coaxial and fiber optic cable. MCC is the twelfth largest MSO in
the nation, owning or operating approximately 500 cable systems. MCC was recently named
"1998 Cable Operator of the Year" by Cablevision Magazine.
MCC has one of the lowest monthly service call percentages in the industry and one of
the highest levels of customer satisfaction. In its annual survey of customer service for 1997,
J.D. Power & Associates rated MCC second in the country among all cable operators. MCC
strives to maintain high technological standards in its cable television systems on a cost-effective
basis and is constantly upgrading its cable plant to achieve this goal. MCC has an extensive
technical staff of corporate and regional engineers who constantly review the system operating
and technical needs of each system to improve system reliability while expanding the system
bandwidth capabilities to add additional services.
Currently, MCC is in the process of systematically rebuilding its cable systems so that
within the next three years substantially all existing systems will have a bandwidth of between
450 MHZ and 862 MHZ. This program should enable MCC to deliver technological innovations
to its customers as such services become commercially viable. For fiscal year 1998, MCC is
projecting approximately $214,300,000 of capital expenditures, of which $152,000,000 is
directly committed to system rebuilds and upgrades. The capital expenditures projected for 1998
will provide, among other benefits, a substantial increase in channel capacity. MCC is on
schedule to complete the rebuilds and upgrades projected for 1998.
As part of its upgrade program, certain systems, such as those serving the areas in and
around Ft. Worth/Tarrant County (Texas), Glendale/Burbank (California) and suburban
Birmingham (Alabama) together with selected systems in Wisconsin, Indiana, Tennessee and
other states in which the Company operates cable systems, are being, or have been, upgraded to
750 MHZ or 860 MHZ with two-way communication capabilities. As part of the rebuild
program, the Company has deployed approximately 4,800 miles of fiber optic cable and
upgraded approximately 15,500 miles of coaxial cable.
As of December 31, 1997, the average channel capacity of the Systems is approximately
77 analog channels with approximately 42% of the homes passed served by systems with 550
MHZ or greater bandwidth capacity and approximately 83% of the homes passed served by
systems that utilize addressable technology. MCC's current plan contemplates that by the end of
1998, its systems will have an average capacity of approximately 89 analog channels with
approximately 66% of the homes passed being served by systems with 550 MHZ or greater
bandwidth capacity, including more than 50% at 750 MHZ or greater, warehoused digital
spectrum of up to 200 MHZ in systems serving approximately 52% of the Company's homes
passed and approximately 84% of the homes passed served by systems that utilize addressable
technology. In addition, as part of the upgrade process, two-way communication capability will
be activated past approximately 1,000,000 homes by the end of 1998, which will support
enhanced digital video, high speed data services and other advanced applications.
In addition to allowing increased channel offerings, the expanded bandwidth of the
upgraded systems creates the optimal medium for transmitting vast amounts of information at
high speed. Cable modem technology enables data traffic to be carried at rates up to 100 times
faster than current telephone modems. MCC has partnered with HSA and @Home, two internet
source providers dedicated to providing high speed data products and service specifically for
cable television systems, to deploy high speed intemet service to its customers. The HSA and
@Home networks provide high-speed, fully integrated multimedia services to the home by using
the cable television infrastructure and its own architecture. In the home, a high-speed cable
modem connects to a user's personal computer, providing speeds hundreds of times faster than
telephone modems. Through the introduction of this service, MCC will be delivering high-speed
interactive content over its HFC distribution architecture to an estimated 160,000 homes by the
end of 1998. MCC is now deploying cable modems using the @Home service in its Fort Worth,
Texas system and in its system serving University Park and Highland Park, Texas. Upon
completion of the current rebuild in the Dallas/Ft. Worth Metroplex area, scheduled for the end
of 1999, @Home will be offered to more than 300,000 homes. MCC is also pursuing additional
deployment of internet access via MCC's HFC plant in systems located in certain of its other
operating groups.
MCC is most proud of its leadership role in developing fiber optic educational service
networks. The upgrade of its cable plant, including the utilization of addressable technology and
fiber optic cable, has allowed MCC to enter into arrangements to provide video and data
transmission services to various educational institutions. The MCC technical staff has and will
continue to work with state and instructional television authorities to respond to RFPs and
develop educational service networks. This level of commitment demands that the MCC
technical staff be fully cognizant of new and developing technologies which would enable us to
expand our service capabilities and improve network reliability. This commitment to the future
ultimately benefits each of our customers.
Charter Communications, Inc.
Charter Communications has grown to be the nation's eleventh largest MSO in five years,
serving approximately 1,100,000 subscribers in eighteen States. By the end of 1998 Charter will
have a network of over 38,000 miles of coaxial and fiber optic cable. Charter is committed to
heavy investment in infrastructure, spending $200 million on cable plant fiber optics to date in
1998. Charter has established a strong record in developing technology as well. In 1997,
Charter introduced Charter Pipeline (TM), a high speed Internet service, to customers in
California. In the Spring of 1998, Charter was the first MSO to launch universal internal access
and e-mail service over cable television.
Charter ranks at the top of the cable industry in all key performance standards and has
achieved customer growth that is twice the industry average. Like MCC, Charter has an
extensive technical staff of corporate and regional engineers who constantly review the system
operating and technical needs of each system to improve system reliability while expanding the
system bandwidth capabilities to add additional services. Charter management is committed to
technology, customer service, investment in education and community support. Charter donates
hundreds of thousands of dollars annually to national charities and local civic and charitable
organizations. In 1997 Charter management won the Ernst & Young Entrepreneur of the Year
Award in the Communications/Entertainment category.
Paul Allen, owner of VCI, owns and invests in a suite of companies exploring the
potential of multimedia digital communications. Allen's business strategy includes encouraging
communications and synergy between his companies for mutual benefit. His primary companies
include Asymetrix Corp., Vulcan Ventures, Inc. and Vulcan Northwest, Inc. located in Bellvue,
Washington and Interval Research Corp. of Palo Alto, Calif. Allen, the owner of the Portland
Trail Blazers NBA team and the NFL's Seattle Seahawks franchises, is a partner in the
entertainment studio DreamWorks SKG and has invested in more than 50 new -media companies.
A co-founder of Microsoft Corporation with Bill Gates in 1975, Allen served as the company's
executive vice president of research and new product development until 1983, the company's
senior technology post. Since 1986, Allen has been investing in leading companies which
further his vision of a Wired World. Allen gives back to the community through the six Allen
Charitable Foundations which support the arts, medical research, forest protection and other
charitable needs in the Pacific Northwest. He is also the founder of the Experience Music Project
in Seattle.
Paul Allen, through VCI, invested in MCC and Charter Communications to further his
dream of a Wired World in which the high -bandwidth data channels of cable television are
merged with the personal computer. VCI will consolidate MCC and Charter headquarters upon
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gaining control of both companies. Coincident with the consolidation of headquarters will be a
consolidation of senior level management from both companies. VCI is committed to
maintaining both companies' commitments to technology, system improvement and customer
service. Both companies bring a wealth of knowledge and expertise to what will be the
consolidated entity. VCI will integrate into the new entity's operations plans MCC's plans and
projections for system rebuilds and upgrades as well as for technological deployments as
described above.
From a local operational perspective, there will be no change in any of the cable systems
currently owned and controlled by MCC as a result of the consolidation. Though the franchise
may draw on the expertise of the Corporate staff of the new merged company, VCI recognizes
that providing a quality product and good customer service must be accomplished locally. The
office staff who are now responsible for the management and operations of the franchise will
continue to operate as they have in the past.
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