<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
RULE 13e-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the
Securities Exchange Act of 1934
and Rule 13e-3 thereunder)
Cable TV Fund 12-B, Ltd.
------------------------
(Name of the Issuer)
Jones Intercable, Inc. (File No. 0-8947)
and
Cable TV Fund 12-B, Ltd. (File No. 0-13807)
-------------------------------------------
(Name of Person(s) Filing Statement)
Limited Partnership Interests
-----------------------------
(Title of Class of Securities)
Elizabeth M. Steele, Esq.
Vice President and General Counsel
Jones Intercable, Inc.
9697 E. Mineral Avenue
Englewood, Colorado 80112
(303) 784-8400
--------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf
of Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
a. X The filing of solicitation materials or an information statement
_____ subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under
the Securities Exchange Act of 1934.
b. _____ The filing of a registration statement under the Securities Act of
1933.
c. _____ A tender offer.
d. _____ None of the above.
<PAGE>
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: X
_____
Calculation of Filing Fee
TRANSACTION VALUATION* AMOUNT OF FILING FEE
- --------------------- --------------------
$20,066,694 $4,013
X Check box if any part of the fee is offset as provided by Rule 0-
_____ 11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: $4,013
Form or Registration No.: Schedule 14A
Filing Party: Cable TV Fund 12-B, Ltd.
Commission File No. 0-13807
Date Filed: Concurrently with this Rule 13e-3
Transaction Statement on
Schedule 13E-3
*Pursuant to Rule 0-11(c)(2), the transaction valuation is based upon Cable TV
Fund 12-B, Ltd.'s 9 percent interest in the $222,963,267 sales price that is to
be paid to Cable TV Fund 12-BCD Venture by Jones Intercable, Inc. in connection
with the transaction that is the subject of the proxy solicitation.
<PAGE>
INTRODUCTION
------------
This Rule 13e-3 Transaction Statement is being filed jointly by Cable TV
Fund 12-B, Ltd., a Colorado limited partnership, and by Jones Intercable, Inc.,
a Colorado corporation that is the general partner of Cable TV Fund 12-B, Ltd.,
in connection with the sale of assets of Cable TV Fund 12-BCD Venture to Jones
Intercable, Inc. upon the terms and subject to the conditions of a Purchase and
Sale Agreement by and between Cable TV Fund 12-BCD Venture and Jones Intercable,
Inc. The sale may be a transaction subject to Rule 13e-3 because it will result
in the sale of certain assets of Cable TV Fund 12-BCD Venture to Jones
Intercable, Inc.
The transaction also involves a vote of the limited partners of Cable TV
Fund 12-B, Ltd., which is subject to Regulation 14A of the Securities Exchange
Act of 1934, and the information contained in the preliminary proxy statement
filed pursuant thereto is incorporated by reference in answer to the items of
this Rule 13e-3 Transaction Statement. Attached as an exhibit to this Rule 13e-3
Transaction Statement are the preliminary proxy solicitation materials that have
been filed simultaneously herewith. The cross-reference sheet that follows shows
the location in the preliminary proxy statement of the information incorporated
by reference in response to the items of this Rule 13e-3 Transaction Statement,
as permitted by General Instruction F to Schedule 13E-3.
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<PAGE>
CROSS-REFERENCE SHEET
---------------------
(Pursuant to General Instruction F to Schedule 13E-3)
<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------ ---------------
<S> <C>
1. Issuer and Class of
Security Subject to
the Transaction.
(a)................... Vote of the Limited Partners of Cable TV Fund
12-B, Ltd.; Certain Information About the
Partnership and the General Partner.
(b)-(c)............... Vote of the Limited Partners of Cable TV Fund
12-B, Ltd.
(d)................... Special Factors, Prior Acquisitions and Sales.
(e)................... [Not applicable.]
(f)................... [Not applicable.]
2. Identity and Background.
(a)-(d), (g).......... Vote of the Limited Partners of Cable TV Fund
12-B, Ltd.; Certain Information About the
Partnership and the General Partner; Schedule 1.
(e)-(f)............... [The answers to these items are in the negative;
pursuant to the Instruction following Item 2(f),
negative answers to Items 2(e) and 2(f) have not
been furnished to limited partners in the proxy
statement.]
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------ ---------------
<S> <C>
3. Past Contracts,
Transactions or
Negotiations.
(a)(1)................ Certain Related Party Transactions.
(a)(2)................ [None.]
(b)................... [None.]
4. Terms of the
Transaction.
(a)................... Proposed Sale of Assets.
(b)................... [Not applicable.]
5. Plans or Proposals of
the Issuer or
Affiliate.
(a)................... Vote of the Limited Partners of Cable TV Fund
12-B, Ltd.; Certain Information About the
Partnership and the General Partner.
(b)-(e)............... [Not applicable.]
(f)-(g)............... Vote of the Limited Partners of Cable TV Fund 12-B,
Ltd.; Certain Information About the Partnership
and the General Partner.
6. Source and Amounts of
Funds or Other
Consideration.
(a)................... Proposed Sale of Assets, The Purchase and Sale
Agreement; Proposed Sale of Assets, Purchase Price.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------- ---------------
<S> <C>
(b)................... Special Factors, The Appraisals; Special Factors,
Costs of the Transaction.
(c)................... Proposed Sale of Assets, The Purchase and Sale
Agreement.
(d)................... [Not applicable.]
7. Purpose(s),
Alternatives,
Reasons and Effects.
(a)................... Special Factors, The Partnership's Investment
Objectives; Special Factors, The General Partner's
Objectives; Special Factors, Reasons for the
Timing of the Sale.
(b)................... Special Factors, Reasons for the Timing of the
Sale; Special Factors, Recommendation of the
General Partner and Fairness of the Proposed Sale
of Assets.
(c)................... Special Factors, The Partnership's Investment
Objectives; Special Factors, Reasons for the
Timing of the Sale; Special Factors,
Recommendation of the General Partner and Fairness
of the Proposed Sale of Assets.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------- ---------------
<S> <C>
(d)................... Special Factors, Certain Effects of the Sale;
Special Factors, Recommendation of the General
Partner and Fairness of the Proposed Sale of
Assets; Federal Income Tax Consequences.
8. Fairness of the
Transaction.
(a)-(b)............... Vote of the Limited Partners of Cable TV Fund
12-B, Ltd.; Special Factors, Recommendation of the
General Partner and Fairness of the Proposed Sale
of Assets; Special Factors, The Appraisals.
(c)................... Vote of the Limited Partners of Cable TV Fund
12-B, Ltd.; Special Factors, Relevant Provisions
of the Partnership Agreement; Proposed Sale of
Assets, Conditions to Closing.
(d)-(e)............... Special Factors, Recommendation of the General
Partner and Fairness of the Proposed Sale of
Assets.
(f)................... [Not applicable.]
9. Reports, Opinions,
Appraisals and Certain
Negotiations.
(a)................... Vote of the Limited Partners of Cable TV Fund
12-B, Ltd.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------- ---------------
<S> <C>
(b)................... Special Factors, Recommendation of the General
Partner and Fairness of the Proposed Sale of
Assets; Special Factors, The Appraisals.
(c)................... Special Factors, The Appraisals; Available
Information.
10. Interest in Securities
of the Issuer
(a)................... Vote of the Limited Partners of Cable TV Fund
12-B, Ltd.; Schedule 1.
(b)................... [None.]
11. Contracts, [None.]
Arrangements or
Understandings with
Respect to the
Issuer's Securities.
12. Present Intention and
Recommendation of
Certain Persons with
Regard to the
Transaction.
(a)................... Vote of the Limited Partners of Cable TV Fund
12-B, Ltd.
(b)................... Vote of the Limited Partners of Cable TV Fund
12-B, Ltd.; Special Factors, Recommendation of the
General Partner and Fairness of the Proposed Sale
of Assets.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
-------------------- ---------------
<S> <C>
13. Other Provisions of
the Transaction.
(a)................... Special Factors, Certain Effects of the Sale.
(b)................... [Not applicable.]
(c)................... [Not applicable.]
14. Financial Information.
(a)(1)................ [Pursuant to General Instruction D to Schedule 13E-
3, the audited financial statements of Cable TV
Fund 12-B, Ltd. for the fiscal years ended December
31, 1995 and 1996 are incorporated by reference
from Cable TV Fund 12-B, Ltd.'s Annual Report on
Form 10-K for the fiscal year ended December 31,
1996, which is filed as an exhibit to this Schedule
13E-3.]
(a)(2)................ [Pursuant to General Instruction D to Schedule 13E-
3, the unaudited financial statements of Cable TV
Fund 12-B, Ltd. for its 1997 fiscal quarters are
incorporated by reference from Cable TV Fund 12-B,
Ltd.'s Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 31, 1997 and June 30,
1997, which are filed as exhibits to this Schedule
13E-3.]
(a)(3)................ [Not applicable.]
(a)(4)................ Special Factors, Recommendation of the General
Partner and Fairness of the Proposed Sale of
Assets.
(b)................... Unaudited Pro Forma Financial Information of Cable
TV Fund 12-B, Ltd.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------- ---------------
<S> <C>
15. Persons and Assets
Employed,
Retained or Utilized.
(a)................... Vote of the Limited Partners of Cable TV Fund
12-B, Ltd.
(b)................... [None.]
16. Additional Special Factors, Relevant Provisions of the
Information. Partnership Agreement.
- -------------------------------------------------------------------------------
17. Materials
Filed as Exhibits:
(a)................... Jones Cable Holdings II, Inc.'s Credit Facility.
(b)(1)................ Appraisal of the Albuquerque System by The
Strategies Group, Inc.
(b)(2)................ Appraisal of the Albuquerque System by Western
Cablesystems, Inc.
(b)(3)................ Appraisal of the Albuquerque System by Bond &
Pecaro, Inc.
(c) [Not applicable.]
(d)(1)................ Preliminary Proxy Statement to be furnished to the
limited partners of Cable TV Fund 12-B, Ltd.
(d)(2)................ Cable TV Fund 12-B, Ltd.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1996.
(d)(3)................ Cable TV Fund 12-B, Ltd.'s Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31,
1997.
(d)(4)................ Cable TV Fund 12-B, Ltd.'s Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1997.
(e)................... [Not applicable.]
(f)................... [Not applicable.]
</TABLE>
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<PAGE>
SIGNATURES
----------
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
JONES INTERCABLE, INC.,
a Colorado corporation
Dated: September 30, 1997 By:/s/ Elizabeth M. Steele
-----------------------
Elizabeth M. Steele
Vice President
CABLE TV FUND 12-B, LTD.,
a Colorado limited partnership
By: Jones Intercable, Inc.,
a Colorado corporation,
as general partner
Dated: September 30, 1997 By:/s/ Elizabeth M. Steele
-----------------------
Elizabeth M. Steele
Vice President
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<PAGE>
EXHIBIT 99.(a)
CREDIT AGREEMENT
[Tranche A]
among
JONES CABLE HOLDINGS II, INC.,
as the Borrower
THE SEVERAL LENDERS
FROM TIME TO TIME PARTIES HERETO
THE BANK OF NOVA SCOTIA,
NATIONSBANK OF TEXAS, N.A. and
SOCIETE GENERALE,
as the Managing Agents
THE BANK OF NOVA SCOTIA,
as the Administrative Agent
NATIONSBANK OF TEXAS, N.A.,
as the Documentation Agent
and
SOCIETE GENERALE,
as the Syndication Agent
Dated as of October 29, 1996
<PAGE>
TABLE OF CONTENTS
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<TABLE>
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Page
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<S> <C>
SECTION 1. DEFINITIONS..................................................................1
1.1 Defined Terms..............................................................1
1.2 Other Definitional Provisions.............................................20
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS.............................................21
2.1 Commitments...............................................................21
2.2 Notes.....................................................................21
2.3 Procedure for Borrowing...................................................21
2.4 Repayment of Loans........................................................22
SECTION 3. LETTERS OF CREDIT...........................................................23
3.1 L/C Commitment............................................................23
3.2 Procedure for Issuance of Letters of Credit...............................23
3.3 Fees, Commissions and Other Charges.......................................23
3.4 L/C Participations........................................................24
3.5 Reimbursement Obligation of the Borrower..................................25
3.6 Obligations Absolute......................................................26
3.7 Letter of Credit Payments.................................................26
3.8 Application...............................................................26
SECTION 4. GENERAL PROVISIONS APPLICABLE TO
LOANS AND LETTERS OF CREDIT.....................................................27
4.1 Interest Rates and Payment Dates..........................................27
4.2 Optional and Mandatory Commitment Reductions and Prepayments..............27
4.3 Commitment Fees, etc......................................................29
4.4 Computation of Interest and Fees..........................................30
4.5 Conversion and Continuation Options.......................................30
4.6 Minimum Amounts of Tranches...............................................31
4.7 Inability to Determine Interest Rate......................................31
4.8 Pro Rata Treatment and Payments...........................................31
4.9 Requirements of Law.......................................................32
4.10 Taxes.....................................................................33
4.11 Indemnity.................................................................35
4.12 Change of Lending Office..................................................36
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C>
SECTION 5. REPRESENTATIONS AND WARRANTIES..............................................36
5.1 Financial Condition........................................................36
5.2 No Change..................................................................37
5.3 Existence; Compliance with Law.............................................37
5.4 Power; Authorization; Enforceable Obligations..............................37
5.5 No Legal Bar...............................................................38
5.6 No Material Litigation.....................................................38
5.7 No Default.................................................................39
5.8 Ownership of Property; Intellectual Property...............................39
5.9 No Burdensome Restrictions.................................................39
5.10 Taxes......................................................................39
5.11 Federal Regulations........................................................39
5.12 ERISA......................................................................40
5.13 Investment Company Act; Other Regulations..................................40
5.14 Subsidiaries...............................................................40
5.15 Insurance..................................................................40
5.16 Certain Cable Television Matters...........................................41
5.17 Environmental Matters......................................................41
5.18 Accuracy of Information....................................................43
5.19 Security Documents.........................................................43
5.20 Solvency...................................................................43
5.21 Indebtedness...............................................................43
5.22 Labor Matters..............................................................43
5.23 Prior Names................................................................44
5.24 Franchises.................................................................44
5.25 Chief Executive Office; Chief Place of Business............................45
5.26 Full Disclosure............................................................45
5.27 Intercompany Subordinated Debt.............................................45
SECTION 6. CONDITIONS PRECEDENT........................................................45
6.1 Conditions to Initial Extensions of Credit.................................45
6.2 Conditions to Each Extension of Credit.....................................47
SECTION 7. AFFIRMATIVE COVENANTS.......................................................48
7.1 Financial Statements.......................................................48
7.2 Certificates; Other Information............................................49
7.3 Payment of Obligations.....................................................50
7.4 Conduct of Business and Maintenance of Existence, etc......................50
7.5 Maintenance of Property; Insurance.........................................50
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
7.6 Inspection of Property; Books and Records; Discussions.....................50
7.7 Notices....................................................................51
7.8 Environmental Laws.........................................................51
7.9 Collateral.................................................................52
7.11 New Subsidiaries...........................................................53
SECTION 8. NEGATIVE COVENANTS..........................................................53
8.1 Financial Condition Covenants..............................................54
8.2 Limitation on Indebtedness.................................................54
8.3 Limitation on Liens........................................................55
8.4 Limitation on Fundamental Changes..........................................56
8.5 Limitation on Sale of Assets...............................................56
8.6 Restricted/Unrestricted Designation of Subsidiaries........................57
8.7 Limitation on Restricted Payments; Other Payment Limitations...............58
8.8 Limitation on Acquisitions.................................................58
8.9 Investments, Loans, Etc....................................................59
8.10 Limitation on Transactions with Affiliates.................................60
8.11 Certain Intercompany Matters...............................................60
8.12 Limitation on Restrictions on Subsidiary Distributions.....................60
8.13 Limitation on Lines of Business............................................60
8.14 No Negative Pledge.........................................................60
8.15 Tax Sharing Agreement......................................................61
8.16 Limitation on the Borrower's Ownership of Assets...........................61
8.17 Limitation on Issuance of Capital Stock....................................61
SECTION 9. EVENTS OF DEFAULT...........................................................61
SECTION 10. THE ADMINISTRATIVE AGENT....................................................64
10.1 Appointment................................................................64
10.2 Delegation of Duties.......................................................65
10.3 Exculpatory Provisions.....................................................65
10.4 Reliance by the Administrative Agent.......................................65
10.5 Notice of Default..........................................................66
10.6 Non-Reliance on the Administrative Agent and the Other Lenders.............66
10.7 Indemnification............................................................66
10.8 The Administrative Agent in Its Individual Capacity........................67
10.9 Successor Administrative Agent.............................................67
10.10 Managing Agents and Co-Agents..............................................68
SECTION 11. NEW RESTRICTED SUBSIDIARIES.................................................69
</TABLE>
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<PAGE>
<TABLE>
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<S> <C>
SECTION 12. MISCELLANEOUS..............................................................69
12.1 Amendments and Waivers...................................................69
12.2 Notices..................................................................70
12.3 No Waiver; Cumulative Remedies...........................................70
12.4 Survival of Representations and Warranties...............................71
12.5 Payment of Expenses and Taxes............................................71
12.6 Successors and Assigns; Participations and Assignments...................71
12.7 Adjustments; Set-off.....................................................75
12.8 Counterparts; When Effective.............................................75
12.9 Severability.............................................................75
12.10 Integration..............................................................76
12.11 GOVERNING LAW............................................................76
12.12 SUBMISSION TO JURISDICTION; WAIVERS......................................76
12.13 Acknowledgements.........................................................77
12.14 WAIVERS OF JURY TRIAL....................................................77
12.15 Confidentiality..........................................................77
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SCHEDULES
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<S> <C>
Schedule 1.1 Commitments and Addresses of the Lenders
Schedule 5.1 Financial Disclosure
Schedule 5.4 Required Consents and Authorizations
Schedule 5.6 Litigation Disclosure
Schedule 5.14 Subsidiaries and Designation
Schedule 5.24 Franchise Agreements
Schedule 5.25 Chief Executive Office/Chief Places of Business
Schedule 6.1(f) Stock Ownership of the Borrower and the Restricted Subsidiaries
Schedule 8.10 Existing Affiliated Transactions
<CAPTION>
EXHIBITS
- --------
<S> <C>
A Form of Assignment and Acceptance
B Form of Compliance Certificate
C Form of Intercompany Subordinated Debt Agreement
D-1 Jones Cable Holdings II, Inc. Negative Pledge Agreement
D-2 Restricted Subsidiary Negative Pledge Agreement
E Form of Intercompany Subordinated Note
F Form of Pledge Agreement(s)
G Form of Note
H-1 Form of Notice of Borrowing
H-2 Form of Notice of Conversion/Continuation
I Form of Closing Certificate
J Form of Legal Opinion of the General Counsel or the acting General Counsel of the Borrower
K Form of FCC Opinion
L Form of Alternative Note
</TABLE>
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<PAGE>
THIS CREDIT AGREEMENT [TRANCHE A] is entered into as of October
29, 1996, among JONES CABLE HOLDINGS II, INC., a Colorado corporation (the
"Borrower"), the several lenders from time to time parties to this Agreement
--------
(the "Lenders"), THE BANK OF NOVA SCOTIA, NATIONSBANK OF TEXAS, N.A. and SOCIETE
-------
GENERALE, as the Managing Agents (in such capacity, the "Managing Agents"), THE
---------------
BANK OF NOVA SCOTIA, as the Administrative Agent for the Lenders hereunder,
NATIONSBANK OF TEXAS, N.A., as the Documentation Agent (in such capacity, the
"Documentation Agent") and SOCIETE GENERALE, as the Syndication Agent (in such
-------------------
capacity, the "Syndication Agent").
-----------------
WITNESSETH:
----------
WHEREAS, (i) the Borrower has purchased or will purchase from
Jones Cable Holdings, Inc., a Colorado corporation ("JCH") 100% of the Capital
---
Stock of Jones Communications of Georgia/South Carolina, Inc. ("JCG") and Jones
---
Communications of Arizona, Inc. ("JCA") and (ii) prior to or contemporaneously
---
with the purchase of such Capital Stock by the Borrower, JCH will sell to JCG
the Cable Systems serving North Augusta, South Carolina, Augusta, Georgia and
Savannah, Georgia and sell to JCA the Cable System serving Pima County, Arizona
(the transactions described in subsections (i) and (ii) above being collectively
referred to herein as the "Stock Purchase"); and
--------------
WHEREAS, the Borrower has requested the Lenders to furnish the
extensions of credit provided for herein, which shall be used by the Borrower
(a) to finance a portion of the cost to purchase the Capital Stock of JCG and
JCA and to finance other permitted acquisitions, (b) for capital expenditures to
expand and upgrade the Cable Systems, (c) to make dividends or distributions
permitted under this Agreement and (d) for general corporate purposes;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
-------------
shall have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if necessary,
---
to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect
on such day and (b) the Federal Funds Effective Rate in effect on such day
plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate of
----------
interest per annum publicly announced from time to time by the
Administrative Agent as its prime rate in effect at its principal office in
New York City (the Prime Rate not being intended to be the lowest rate of
interest charged by the Administrative Agent in connection with extensions
of credit to debtors); and "Federal Funds
-------------
1
<PAGE>
Effective Rate" shall mean, for any day, the weighted average of the rates
--------------
on overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of
the quotations for the day of such transactions received by the
Administrative Agent from three federal funds brokers of recognized standing
selected by it. Any change in the ABR due to a change in the Prime Rate or
the Federal Funds Effective Rate shall be effective as of the opening of
business on the effective day of such change in the Prime Rate or the
Federal Funds Effective Rate, respectively.
"ABR Loans": Loans the rate of interest applicable to which is based
---------
upon the ABR.
"Acquired Assets": as defined in Section 7.9(c).
--------------- --------------
"Acquired Systems": the Cable Systems serving North Augusta, South
----------------
Carolina, Augusta, Georgia, Savannah, Georgia and Pima County Arizona,
transferred by JCH to certain of the Restricted Subsidiaries of the Borrower
on or before the Initial Funding Date.
"Administrative Agent": Scotiabank, together with its affiliates, as
--------------------
the agent for the Lenders under this Agreement and the other Loan Documents.
"Affiliate": as to any Person, any other Person which, directly or
---------
indirectly, is in control of, is controlled by, or is under common control
with, such Person. A Person shall be deemed to control another Person if
such Person (acting alone or with a group of Persons acting in concert)
possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such other Person, whether
through ownership of voting securities, by contract or otherwise.
"Aggregate Outstanding Extensions of Credit": as to any Lender at any
------------------------------------------
time, an amount equal to the sum of (a) the aggregate principal amount of
all Loans made by such Lender then outstanding and (b) such Lender's
Specified Percentage of the L/C Obligations then outstanding.
"Agreement": this Credit Agreement [Tranche A], as amended,
---------
supplemented or otherwise modified from time to time.
"Alternative Note": as defined in Section 12.6(d).
---------------- ---------------
"Alternative Noteholder": as defined in Section 12.6(e).
---------------------- ---------------
"Annualized Operating Cash Flow": for the most recently ended fiscal
------------------------------
quarter, an amount equal to Operating Cash Flow for such period multiplied
----------
by four.
--
2
<PAGE>
"Applicable Margin": at the time of any determination thereof, for
-----------------
purposes of all Loans, the margin of interest over the ABR or the Eurodollar
Rate, as the case may be, which is applicable at the time of any
determination of interest rates under this Agreement, which Applicable
Margin shall be subject to adjustment (upwards or downwards, as appropriate)
based on the Leverage Ratio, as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
Applicable Margin Applicable Margin for
Leverage Ratio for ABR Loans Eurodollar Rate Loans
----------------------------------------------------------------------------------
<S> <C> <C>
Greater than or equal to 5.50 to 0.250% 1.250%
1.00
----------------------------------------------------------------------------------
Less than 5.50 to 1.00 but greater
than or equal to 5.00 to 1.00 0.000% 1.000%
----------------------------------------------------------------------------------
Less than 5.00 to 1.00 but greater
than or equal to 4.50 to 1.00 0.000% 0.750%
----------------------------------------------------------------------------------
Less than 4.50 to 1.00 0.000% 0.500%
----------------------------------------------------------------------------------
</TABLE>
For the purposes of this definition, the Applicable Margin shall be
determined as at the end of each of the first three quarterly periods of
each fiscal year of the Borrower and as at the end of each fiscal year of
the Borrower, based on the relevant financial statements delivered pursuant
to Section 7.1(a) or (b) and the Compliance Certificate delivered pursuant
-------------- ---
to Section 7.2(b); changes in the Applicable Margin shall become effective
--------------
on the date which is the earlier of (i) two Business Days after the date the
Administrative Agent receives such financial statements and the
corresponding Compliance Certificate and (ii) the 60th day after the end of
each of the first three quarterly periods of each fiscal year or the 120th
day after the end of each fiscal year, as the case may be, and shall remain
in effect until the next change to be effected pursuant to this definition;
provided, that (a) until the first such financial statements and Compliance
--------
Certificate are delivered after the date hereof, the Applicable Margin shall
be determined by reference to the Leverage Ratio set forth in the Closing
Certificate delivered to the Administrative Agent pursuant to Section 6.1(b)
--------------
and (b) if any financial statements or the Compliance Certificate referred
to above are not delivered within the time periods specified above, then,
for the period from and including the date on which such financial
statements and Compliance Certificate are required to be delivered to but
not including the date on which such financial statements and Compliance
Certificate are delivered, the Applicable Margin as at the end of the fiscal
period that would have been covered thereby shall be deemed to be the
Applicable Margin which would be applicable when the Leverage Ratio is
greater than or equal to 5.50 to 1.00.
"Application": an application, in form and substance consistent with
-----------
this Agreement and mutually satisfactory to the Borrower and the Issuing
Lender, requesting the Issuing Lender to open a Letter of Credit.
3
<PAGE>
"Assignee": as defined in Section 12.6(c).
-------- ---------------
"Assignment and Acceptance": an Assignment and Acceptance
-------------------------
substantially in the form of Exhibit A.
---------
"Authorizations": all filings, recordings and registrations with, and
--------------
all validations or exemptions, approvals, orders, authorizations, consents,
Licenses, certificates and permits from, the FCC, applicable public utilities
and other Governmental Authorities, including, without limitation, Franchises,
FCC Licenses and Pole Agreements.
"Available Commitment": at any time, as to any Lender, an amount equal
--------------------
to (a) the amount of such Lender's Commitment at such time, minus (b) such
-----
Lender's Aggregate Outstanding Extensions of Credit at such time.
"BCI": Bell Canada International Inc.
---
"Board": the Board of Governors of the Federal Reserve System or any
-----
successor.
"Borrower": as defined in the preamble hereto.
--------
"Borrowing Date": any Business Day specified in a notice pursuant to
--------------
Section 2.3 as a date on which the Borrower requests the Lenders to make Loans
- -----------
hereunder.
"Business": as defined in Section 5.17(c).
-------- ---------------
"Business Day": a day other than a Saturday, Sunday or other day on
------------
which commercial banks in New York, New York are authorized or required by law
to close and, with respect to Eurodollar Loans, a day on which dealings in
Dollar deposits are carried out in the London interbank market.
"Cable Systems": all cable television facilities and distribution
-------------
systems that are owned, operated and maintained by the Borrower or a Restricted
Subsidiary pursuant to the terms of the related licenses, franchises and permits
issued under federal, state or municipal laws from time to time in effect, which
authorize a person to receive or distribute, or both, by cable, optical,
antennae, microwave, satellite or otherwise, audio, video, digital, other
broadcast signals or information or telecommunications and visual signals within
a defined geographical area for the purpose of providing entertainment or other
services, together with all the property, tangible and intangible, owned or used
in connection with the services provided pursuant to said licenses, franchises
and permits, and each other cable television facility from time to time operated
by the Borrower and the Restricted Subsidiaries. A Cable System means one of
such Cable Systems.
4
<PAGE>
"Capital Lease Obligations": as to any Person, the obligations of such
-------------------------
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP and, for the purposes of
this Agreement, the amount of such obligations at any time shall be the
capitalized amount thereof at such time determined in accordance with GAAP.
"Capital Stock": any and all shares, interests, participations or
-------------
other equivalents (however designated) of capital stock of a corporation, any
and all classes of partnership interests (including, without limitation,
general, limited and preference units) in a partnership, any and all equivalent
ownership interests in a Person (other than a corporation or partnership), and
any and all warrants or options to purchase any of the foregoing.
"Cash Equivalents": (a) securities with maturities of one year or
----------------
less from the date of acquisition issued or fully guaranteed or insured by the
United States Government or any agency thereof, (b) certificates of deposit and
eurodollar time deposits with maturities of one year or less from the date of
acquisition and overnight bank deposits of any Lender or of any commercial bank
having capital and surplus in excess of $500,000,000, (c) repurchase obligations
of any Lender or of any commercial bank satisfying the requirements of clause
(b) of this definition, having a term of not more than 30 days, with respect to
securities issued or fully guaranteed or insured by the United States
Government, (d) commercial paper of a domestic issuer rated at least A-1 by
Standard and Poor's Ratings Group ("S&P") or P-1 by Moody's Investors Service,
---
Inc. ("Moody's"), (e) securities with maturities of one year or less from the
-------
date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States, or by any political subdivision or taxing
authority of any such state, commonwealth or territory, the securities of which
state, commonwealth, territory, political subdivision, taxing authority (as the
case may be) are rated at least A by S&P or A-2 by Moody's, or (f) shares of
money market mutual or similar funds which invest exclusively in assets
satisfying the requirements of clauses (a) through (e) of this definition.
"Change of Control": shall be deemed to have occurred at such time as
-----------------
any of the following occur:
(a) if Glenn R. Jones and/or BCI shall no longer have the power to
elect a majority of the board of directors of JIC or to direct or cause the
direction of the management and policies of JIC through the ownership of voting
securities; or
(b) (i) if Glenn R. Jones and/or BCI shall no longer have the
power, directly or indirectly, to elect a majority of the board of the Borrower
or to direct or cause the direction of the management and policies of the
Borrower and/or any Restricted Subsidiary or (ii) JIC shall create, incur,
assume or suffer to exist any Lien on any Capital Stock of the Borrower.
5
<PAGE>
"Closing Certificate": as defined in Section 6.1(b).
------------------- --------------
"Co-Agents": CoreStates Bank, N.A., Credit Lyonnais New York Branch,
---------
PNC Bank, National Association, Mellon Bank, N.A., Royal Bank of Canada, The
Chase Manhattan Bank, Toronto Dominion (Texas), Inc., Banque Paribas and Bank of
America.
"Code": the Internal Revenue Code of 1986, as amended from time to
----
time.
"Collateral": all Acquired Assets, if any, and all Capital Stock of
----------
all the Restricted Subsidiaries, now owned or hereinafter acquired.
"Commitment": as to any Lender, its obligation, if any, to make Loans
----------
to, and/or issue or participate in Letters of Credit issued on behalf of, the
Borrower in an aggregate amount not to exceed at any one time outstanding the
amount set forth opposite such Lender's name in Schedule 1.1 under the heading
------------
"Commitment" or, in the case of any Lender that is an Assignee, the amount of
the assigning Lender's Commitment assigned to such Assignee pursuant to Section
-------
12.6(c) and set forth in the applicable Assignment and Acceptance (in each case,
- -------
as the same may be increased, reduced or otherwise adjusted from time to time as
provided herein).
"Commonly Controlled Entity": an entity, whether or not incorporated,
--------------------------
which is under common control with the Borrower within the meaning of Section
4001 of ERISA or is part of a group which includes the Borrower and which is
treated as a single employer under Section 414(b) or (c) of the Code.
"Compliance Certificate": a certificate of a Responsible Officer of
----------------------
the Borrower, substantially in the form of Exhibit B.
---------
"Contractual Obligation": as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Default": any of the events specified in Section 9, whether or not
------- ---------
any requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"Disposition": as defined in Section 8.5.
----------- -----------
"Documentation Agent": as defined in the preamble hereto.
-------------------
"Dollars" and "$": dollars in lawful currency of the United States of
------- -
America.
"Effective Date": as defined in Section 12.8.
-------------- ------------
6
<PAGE>
"Environmental Laws": any and all Federal, state, local or municipal
------------------
laws, rules, orders, regulations, statutes, ordinances, codes, decrees,
requirements of any Governmental Authority or other Requirements of Law
(including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the environment,
as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
---------------------------------
Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as
a decimal fraction) of reserve requirements in effect on such day (including,
without limitation, basic, supplemental, marginal and emergency reserves under
any regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
------------------------
Regulation D of such Board) maintained by a member bank of the Federal Reserve
System.
"Eurodollar Base Rate": with respect to each day during each
--------------------
Interest Period at which Scotiabank is offered Dollar deposits at or about 11:00
A.M., New York City time, two Business Days prior to the beginning of such
Interest Period in the interbank eurodollar market where the eurodollar and
foreign currency and exchange operations in respect of its Eurodollar Loans are
then being conducted for delivery on the first day of such Interest Period for
the number of days comprised therein and in an amount comparable to the amount
of its Eurodollar Loan to be outstanding during such Interest Period.
"Eurodollar Loans": Loans, the rate of interest applicable to which
----------------
is based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest Period
---------------
pertaining to a Eurodollar Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest 1/100th of
1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in Section 9,
---------------- ---------
provided that any requirement for the giving of notice, the lapse of time, or
- --------
both, or any other condition, has been satisfied.
"Facility": the Commitments and the extensions of credit made
--------
thereunder.
7
<PAGE>
"FCC": the Federal Communications Commission and any successor
---
thereto.
"FCC License": any community antenna relay service, broadcast
-----------
auxiliary license, earth station registration, business radio, microwave or
special safety radio service license issued by the FCC pursuant to the
Communications Act of 1934, as amended.
"Franchise": any franchise, permit, wire agreement or easement,
---------
License or other Authorization granted by any Governmental Authority, including
all laws, regulations and ordinances relating thereto, for the construction,
operation and maintenance of a Cable System or satellite master antenna
television system and the reception and transmission of signals by microwave,
and shall include, without limitation, all FCC Licenses and all certificates of
compliance and cable television registration statements which are required to be
issued by or filed with the FCC.
"Franchise Agreement": any ordinance, agreement, contract or other
-------------------
document stating the terms and conditions of any Franchise, including, without
limitation, all exhibits and schedules thereto, all amendments thereof and
consents, waivers and extensions issued thereunder, any documents incorporated
therein by reference and the application from which such Franchise was granted.
"GAAP": generally accepted accounting principles in the United States
----
of America in effect from time to time.
"Governmental Authority": any nation or government, any state or other
----------------------
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
-------------------- -------------------
any obligation of (a) the guaranteeing person or (b) another Person (including,
without limitation, any bank under any letter of credit) to induce the creation
of which the guaranteeing person has issued a reimbursement, counterindemnity or
similar obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "primary obligations")
-------------------
of any other third Person (the "primary obligor") in any manner, whether
---------------
directly or indirectly, including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such primary
obligation or any property constituting direct or indirect security therefor,
(ii) to advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, however, that the term
-------- -------
Guarantee Obligation shall not include endorsements of
8
<PAGE>
instruments for deposit or collection in the ordinary course of business. The
amount of any Guarantee Obligation of any guaranteeing person shall be deemed to
be the lower of (a) an amount equal to the stated or determinable principal
amount of the primary obligation in respect of which such Guarantee Obligation
is made and (b) the maximum principal amount for which such guaranteeing person
may be liable pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum principal amount for
which such guaranteeing person may be liable are not stated or determinable, in
which case the amount of such Guarantee Obligation shall be the principal amount
of such guaranteeing person's reasonably anticipated liability in respect
thereof as determined by the Borrower in good faith. For the purposes of
Section 8.2, Guarantee Obligations by the Borrower or any of the Restricted
- -----------
Subsidiaries in respect of Indebtedness of the Borrower or any of the Restricted
Subsidiaries shall be calculated without duplication of any other Indebtedness.
It is understood that obligations pursuant to indemnities which (a) are granted
in the ordinary course of business, are related to officer or director liability
for officers and directors of the Borrower or the Restricted Subsidiaries, or
made in connection with asset Dispositions and (b) do not cover Indebtedness of
the types described in clauses (a) through (d) of the definition thereof shall
not constitute "Guarantee Obligations" for the purposes of this Agreement.
"Indebtedness": of any Person at any date, (a) all indebtedness of
------------
such Person for borrowed money or which is evidenced by a note, bond, debenture
or similar instrument, (b) all indebtedness of such Person for the deferred
purchase price of property or services (other than current trade liabilities
incurred in the ordinary course of business and payable in accordance with
customary practices), (c) all Capital Lease Obligations of such Person, (d) all
obligations of such Person in respect of the principal amount of acceptances or
letters of credit issued or created for the account of such Person, (e) all
Guarantee Obligations of such Person and (f) all liabilities of the type
described in clauses (a) through (e) above secured by any Lien on any property
owned by such Person even though such Person has not assumed or otherwise become
liable for the payment thereof; provided that the amount of any nonrecourse
--------
Indebtedness of such Person shall be not more than an amount equal to the fair
market value of the property subject to such Lien, as determined by the Borrower
in good faith. The Indebtedness of any Person shall include the Indebtedness of
any partnership in which such Person is a general partner, other than to the
extent that the instrument or agreement evidencing such Indebtedness expressly
limits the liability of such Person in respect thereof.
"Information": written information, including, without limitation,
-----------
certificates, reports, statements (other than financial statements, budgets,
projections and similar financial data) and documents.
"Initial Funding Date": the date when the initial extensions of
--------------------
credit have been made hereunder and all of the conditions precedent set forth in
Section 6 have been satisfied in full or waived.
- ---------
9
<PAGE>
"Insolvency": with respect to any Multiemployer Plan, the condition
----------
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
---------
"Intercompany Subordinated Debt": any Indebtedness of the Borrower
------------------------------
related to or resulting from any loan or advance from, or any non-equity
investment in the Borrower by, or any management or similar fees payable by the
Borrower to, or any other obligation of the Borrower to pay to, BCI or an
Affiliate of the Borrower (excluding a Restricted Subsidiary), and all such
present and future Indebtedness of the Borrower owing to, or non-equity
investment in the Borrower by, or management or similar fees payable by the
Borrower to, or any other obligation of the Borrower to pay to, BCI or an
Affiliate of the Borrower (excluding a Restricted Subsidiary) now or hereafter
existing (whether created directly or acquired by assignment or otherwise),
fixed, contingent, liquidated, unliquidated, joint, several, or joint and
several, whether evidenced in writing or not, and interest, premiums and fees,
if any, thereon and other amounts payable in respect thereof, and all rights and
remedies of such obligees with respect thereto. Notwithstanding the foregoing,
Intercompany Subordinated Debt shall not include (a) payments under the
agreements described in Schedule 8.10, or (b) payments relating to any purchase,
-------------
sale, lease or exchange of property or the rendering of any service, with any
Affiliate of the Borrower (other than a Restricted Subsidiary) which is (i)
entered into in the ordinary course of the Borrower's business, (ii) the terms
of which are fair and reasonable and in the best interests of the Borrower and
(iii) which is approved by the Board of Directors of the Borrower.
"Intercompany Subordinated Debt Agreement": the agreement executed and
----------------------------------------
delivered pursuant to Section 6.1(a) by and among JIC, the Borrower and any
--------------
other Affiliate of the Borrower who becomes a party thereto pursuant to the
terms thereof, substantially in the form of Exhibit C.
---------
"Intercompany Subordinated Note": a note substantially in the form of
------------------------------
Exhibit E, evidencing Intercompany Subordinated Debt.
- ---------
"Interest Expense": for any fiscal quarter or fiscal year of the
----------------
Borrower, as applicable, the aggregate of all letter of credit fees, commitment
fees and interest accrued or paid by the Borrower or any of the Restricted
Subsidiaries, during such period in respect of Total Debt, all as determined on
a consolidated basis in accordance with GAAP.
"Interest Payment Date": (a) as to any ABR Loan, (i) the last
---------------------
Business Day of each March, June, September and December prior to the
Termination Date and (ii) the Termination Date, (b) as to any Eurodollar Loan
having an Interest Period of three months or less, the last day of such Interest
Period and (c) as to any Eurodollar Loan having an Interest Period longer than
three months, each day which is three months or a whole multiple thereof, after
the first day of such Interest Period and the last day of such Interest Period.
10
<PAGE>
"Interest Period": with respect to any Eurodollar Loan:
---------------
(a) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such Eurodollar
Loan and ending one, two, three or six months thereafter (or, to the
extent available from all Lenders, nine or twelve months thereafter),
as selected by the Borrower in its Notice of Borrowing or Notice of
Conversion/Continuation, as the case may be, given with respect
thereto; and
(b) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Eurodollar Loan and ending
one, two, three or six months thereafter (or, to the extent available
from all Lenders, nine or twelve months thereafter), as selected by the
Borrower by irrevocable notice to the Administrative Agent not less
than three Business Days prior to the last day of the then current
Interest Period with respect thereto;
provided that, all of the foregoing provisions relating to Interest Periods are
- --------
subject to the following:
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month in which event
such Interest Period shall end on the immediately preceding Business
Day;
(ii) any Interest Period that would otherwise extend beyond the
Termination Date shall end on the Termination Date; and
(iii) any Interest Period that begins on the last Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of a calendar month.
"Interest Rate Hedge Agreement": any interest rate protection
-----------------------------
agreement, interest rate futures contract, interest rate option, interest rate
cap or other interest rate hedge arrangement, to or under which the Borrower or
any Restricted Subsidiary is a party or a beneficiary.
"Investments": as defined in Section 8.9.
----------- -----------
"Issuing Lender": Scotiabank, provided that, in the event that
-------------- --------
Scotiabank shall be replaced as the Administrative Agent pursuant to
Section 10.9, (i) no Letter of Credit shall be issued by Scotiabank on or
- ------------
after the date of such replacement and (ii) the replacement Administrative Agent
shall be an Issuing Lender from and after the date of such replacement.
11
<PAGE>
"JCA": as defined in the recitals.
---
"JCG": as defined in the recitals.
---
"JCH": as defined in the recitals.
---
"JIC": Jones Intercable, Inc., a Colorado corporation.
---
"JIC Negative Pledge": the Negative Pledge Agreement to be executed and
-------------------
delivered by JIC, substantially in the form of Exhibit D-1, as the same may be
-----------
amended, supplemented or otherwise modified from time to time, whereby JIC
agrees not to create, incur, assume or suffer to exist any Lien upon the Capital
Stock of the Borrower nor upon any Intercompany Subordinated Debt from the
Borrower in favor of JIC.
"L/C Fee Payment Date": the last Business Day of each March, June,
--------------------
September and December.
"L/C Obligations": at any time, an amount equal to the sum of (a) the
---------------
aggregate then undrawn and unexpired amount of the then outstanding Letters of
Credit and (b) the aggregate amount of all unpaid Reimbursement Obligations.
"Lenders": as defined in the preamble hereto.
-------
"Letters of Credit": as defined in Section 3.1(a).
----------------- --------------
"Leverage Ratio": as of the last day of the most recently ended fiscal
--------------
quarter, the ratio of (i) Total Debt as of such day to (ii) Annualized Operating
Cash Flow based on such fiscal quarter.
"License": as to any Person, any license, permit, certificate of need,
-------
authorization, certification, accreditation, franchise, approval, or grant of
rights by any Governmental Authority or other Person necessary or appropriate
for such Person to own, maintain, or operate its business or property, including
FCC Licenses.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement and any capital lease having
substantially the same economic effect as any of the foregoing).
"Loan": any loan made by any Lender pursuant to this Agreement.
----
12
<PAGE>
"Loan Documents": this Agreement, the Applications, all Intercompany
--------------
Subordinated Notes, the Intercompany Subordinated Debt Agreement, the Notes, the
JIC Negative Pledge, all Restricted Subsidiary Negative Pledges, any Interest
Rate Hedge Agreements with any of the Lenders and the Security Documents.
"Loan Parties": the collective reference to the Borrower and the
------------
Restricted Subsidiaries.
"Majority Lenders": at any time when no Loans or L/C Obligations are
----------------
outstanding, the Lenders having Commitments greater than 50% of the Total
Commitment, and at any time when Loans or L/C Obligations are outstanding, the
Lenders with outstanding Loans and participations in L/C Obligations having an
unpaid principal balance and face amount, respectively, greater than 50% of all
Loans and L/C Obligations outstanding, excluding from such calculation the
Lenders which have failed or refused to fund a Loan or their respective portion
of an unpaid Reimbursement Obligation.
"Managing Agents": as defined in the preamble hereto.
---------------
"Managing Agents Fee Letter": the letter agreement, dated September
--------------------------
25, 1996, among the Borrower, NationsBank, Scotiabank, and Societe.
"Material Adverse Effect": a material adverse effect on (a) the
-----------------------
business, assets, operations or condition (financial or otherwise) of the
Borrower or any of the Restricted Subsidiaries, (b) the ability of any Loan
Party to perform its obligations under the Loan Documents or (c) the rights or
remedies of the Administrative Agent or the Lenders under this Agreement or any
of the other Loan Documents.
"Materials of Environmental Concern": any gasoline or petroleum
----------------------------------
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as such
in or under any Environmental Law, including, without limitation, asbestos,
polychlorinated biphenyls and urea-formaldehyde insulation.
"Maximum Permitted Indebtedness": shall mean, at the date of
------------------------------
determination, an amount equal to the product of (i) Annualized Operating Cash
Flow based on the preceding fiscal quarter and (ii) the Leverage Ratio permitted
pursuant to Section 8.1(a) on the date of determination.
--------------
"Multiemployer Plan": a Plan which is a multiemployer plan as defined
------------------
in Section 4001(a)(3) of ERISA.
"NationsBank": NationsBank of Texas, N.A.
-----------
13
<PAGE>
"Net Unrestricted Designated Subsidiaries Three Month Cash Flow":
--------------------------------------------------------------
shall mean, for any period, the excess, if any, of (i) the Three Month Cash
Flow attributable to all Restricted Subsidiaries which have been designated
during such period as Unrestricted Subsidiaries pursuant to Section 8.6,
-----------
including, if applicable, the Three Month Cash Flow attributable to any
Restricted Subsidiary which is then being designated as an Unrestricted
Subsidiary pursuant to Section 8.6 (calculated at the time of each such
-----------
designation), over (ii) the Three Month Cash Flow attributed to all
Unrestricted Subsidiaries which have been designated during such period as
Restricted Subsidiaries pursuant to Section 8.6, including, if applicable,
-----------
the Three Month Cash Flow attributable to any Unrestricted Subsidiary which
is then being designated as a Restricted Subsidiary pursuant to Section 8.6
-----------
(calculated at the time of each such designation).
"Non-Excluded Taxes": as defined in Section 4.10(a).
------------------ ---------------
"Non-U.S. Lender": as defined in Section 4.10(b).
--------------- ---------------
"Notes": as defined in Section 2.2.
----- -----------
"Notice of Borrowing": as defined in Section 2.3.
------------------- -----------
"Notice of Conversion/Continuation": as defined in Section 4.5.
--------------------------------- -----------
"Obligations": the unpaid principal of and interest on (including,
-----------
without limitation, interest accruing after the maturity of the Loans and
Reimbursement Obligations and interest accruing after the filing of any
petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to any Loan Party, whether or
not a claim for post-filing or post-petition interest is allowed in such
proceeding) the Loans and Reimbursement Obligations and all other
obligations and liabilities of any Loan Party to the Administrative Agent
or to any Lender (or, in the case of any Interest Rate Protection
Agreement, any affiliate of any Lender), whether direct or indirect,
absolute or contingent, due or to become due, or now existing or hereafter
incurred, which may arise under, out of, or in connection with, this
Agreement, any other Loan Document, the Letters of Credit, any Interest
Rate Protection Agreement entered into with any Lender (or any affiliate of
any Lender) or any other document made, delivered or given in connection
herewith or therewith, whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses (including,
without limitation, all reasonable fees, charges and disbursements of
counsel to the Administrative Agent or to any Lender that are required to
be paid by any Loan Party pursuant hereto) or otherwise.
"Operating Cash Flow": for any period the total revenues
-------------------
(excluding the gain on the sale of any assets to the extent included
therein) of the Borrower and the Restricted Subsidiaries, less the sum of
(a) operating expenses of the Borrower and the Restricted Subsidiaries for
such period, and (b) general and administrative expenses of the Borrower
14
<PAGE>
and the Restricted Subsidiaries for such period, in each case determined
and consolidated in accordance with GAAP and calculated after giving effect
to acquisitions, exchanges and dispositions of assets of the Borrower and
any of the Restricted Subsidiaries (and designations of the Restricted
Subsidiaries and the Unrestricted Subsidiaries) during such period as if
such transactions had occurred on the first day of such period; provided,
--------
that for purposes of determining Operating Cash Flow for any such period
during which (a) the Borrower or any of the Restricted Subsidiaries
acquired or disposed of any assets, or (b) any Restricted Subsidiaries were
designated Unrestricted Subsidiaries or Unrestricted Subsidiaries were
designated Restricted Subsidiaries, then such Operating Cash Flow shall be
increased (in the case of asset acquisitions or the designation of a
Unrestricted Subsidiary as a Restricted Subsidiary) or reduced (in the case
of asset dispositions or the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary), by the Operating Cash Flow that would have been
contributed by such assets or Restricted Subsidiary or Unrestricted
Subsidiary, as the case may be during such period, determined on a pro
forma basis in a manner reasonably satisfactory to the Managing Agents, as
though the Borrower or the relevant Restricted Subsidiary acquired or
disposed of such assets or the designations of the Restricted Subsidiaries
or the Unrestricted Subsidiaries took place, on the first day of such
period.
"Participant": as defined in Section 12.6(b).
----------- ---------------
"PBGC": the Pension Benefit Guaranty Corporation established
----
pursuant to Subtitle A of Title IV of ERISA.
"Permitted Line of Business": as defined in Section 8.13.
-------------------------- ------------
"Person": an individual, partnership, corporation, limited
------
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority or other
entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which is
----
covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) a "contributing sponsor" as
defined in Section 4001(a)(13) of ERISA or a member of such contributing
sponsor's "control group" as defined in Section 4001(a)(14) of ERISA.
"Pledge Agreements": the Pledge Agreements to be executed and
-----------------
delivered by the Borrower and each of the Restricted Subsidiaries,
substantially in the form of Exhibit F hereto, as the same may be amended,
---------
supplemented or otherwise modified from time to time.
"Pledged Subsidiary": any Restricted Subsidiary of the Borrower.
------------------
15
<PAGE>
"Pole Agreement": any pole attachment agreement or underground
--------------
conduit use agreement entered into in connection with the operation of any
Cable System.
"Prime Rate": as defined in the definition of "ABR".
----------
"Pro Forma Debt Service": on any date of determination, without
----------------------
duplication, for the succeeding twelve-month period from the end of the
most recently ended fiscal quarter, the sum of (a) all Interest Expense
scheduled to be paid on Total Debt during such twelve-month period
(including without limitation any amounts scheduled to be paid pursuant to
any Interest Rate Hedge Agreement), plus (b) all rentals (other than
insurance premiums and property taxes) scheduled to be paid under Capital
Lease Obligations during such twelve-month period, plus (c) required
principal payments on Total Debt and/or payments associated with reductions
in the Total Commitment for such twelve-month period; provided that, for
--------
purposes of this definition, the rates of interest payable during any
period on Total Debt (x) bearing interest at a variable rate or at
different fixed rates or (y) on which interest does not become payable
until a specified date after the end of such quarter shall, in each case,
be the interest rates per annum payable on such Total Debt as of the date
for which such calculation is made.
"Properties": as defined in Section 5.17(e).
---------- ---------------
"Quarterly Percentage Reduction": as defined in Section 4.2(c).
------------------------------ --------------
"Register": as defined in Section 12.6(g).
-------- ---------------
"Reimbursement Obligations": the obligations of the Borrower to
-------------------------
reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn
-----------
under Letters of Credit.
"Reorganization": with respect to any Multiemployer Plan, the
--------------
condition that such plan is in reorganization within the meaning of Section
4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(b)
----------------
of ERISA, other than those events as to which the thirty day notice period
is waived under Sections .13, .14, .16, .18, .19 or .20 of PBGC Reg. (S)
2615.
"Requirement of Law": as to any Person, the Certificate of
------------------
Incorporation and By-Laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority (including any
Authorization), in each case applicable to or binding upon such Person or
any of its property or to which such Person or any of its property is
subject.
"Responsible Officer": the chief executive officer, the president,
-------------------
the chief financial officer or the treasurer of the relevant Loan Party.
16
<PAGE>
"Restricted Payments": as defined in Section 8.7.
------------------- -----------
"Restricted Subsidiary": (a) each of the Subsidiaries designated
---------------------
as such on Schedule 5.14 attached hereto, (b) any Subsidiary created or
-------------
acquired after the Effective Date pursuant to Section 8.9(e), unless and
-------------
until designated as an Unrestricted Subsidiary pursuant to Section 8.6 and
-----------
(c) as of the date of such designation, any Unrestricted Subsidiary
designated as a Restricted Subsidiary pursuant to Section 8.6.
-----------
"Restricted Subsidiary Negative Pledge": the Negative Pledge
-------------------------------------
Agreement to be executed and delivered by each Restricted Subsidiary in the
form of Exhibit D-2, as the same may be amended, supplemented or otherwise
-----------
modified from time to time, whereby the Restricted Subsidiaries agree not
to create, incur, assume or suffer to exist any Lien upon any of their
assets except as permitted under Section 8.3 of the Tranche B Agreement and
-----------
this Agreement.
"Scotiabank": The Bank of Nova Scotia.
----------
"Scotiabank Fee Letter": the letter agreement, dated September 25,
---------------------
1996, between the Borrower and Scotiabank.
"Security Documents": the collective reference to the Pledge
------------------
Agreements and any other security documents hereafter delivered to the
Administrative Agent granting a Lien on any asset or assets of any Person
to secure the obligations and liabilities of the Borrower hereunder and
under any of the other Loan Documents or to secure any guarantee of any
such obligations and liabilities.
"Single Employer Plan": any Plan which is covered by Title IV of
--------------------
ERISA, but which is not a Multiemployer Plan.
"Societe": Societe Generale.
-------
"Solvent": when used with respect to any Person, means that, as of
-------
any date of determination, (a) the amount of the "fair value" or "present
fair saleable value" of the assets of such Person will, as of such date,
exceed the amount of all "liabilities of such Person, contingent or
otherwise", as of such date, as such quoted terms are determined in
accordance with applicable federal and state laws governing determinations
of the insolvency of debtors, (b) the fair value or present fair saleable
value of the assets of such Person will, as of such date, be greater than
the amount that will be required to pay the liability of such Person on its
debts as such debts become absolute and matured, (c) such Person will not
have, as of such date, an unreasonably small amount of capital with which
to conduct its business, and (d) such Person will be able to pay its debts
as they mature. For purposes of this definition, (i) "debt" means liability
on a "claim", (ii) "claim" means any (x) right to payment, whether or not
such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent,
17
<PAGE>
matured, unmatured, disputed, undisputed, legal, equitable, secured or
unsecured or (y) right to an equitable remedy for breach of performance if
such breach gives rise to a right to payment, whether or not such right to
an equitable remedy is reduced to judgment, fixed, contingent, matured or
unmatured, disputed, undisputed, secured or unsecured and (iii)
unliquidated, contingent, disputed and unmatured claims shall be valued at
the amount that can be reasonably expected to be actual and matured.
"Specified Percentage": at any time, as to any Lender, the
--------------------
percentage of the Total Commitment then constituted by such Lender's
Commitment.
"Stock Purchase": as defined in the recitals hereto.
--------------
"Subsidiary": as to any Person, a corporation, partnership or
----------
other entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors (or Persons holding equivalent
positions) of such corporation, partnership or other entity are at the time
owned, or the management and policies of which are otherwise ultimately
controlled, directly or indirectly through one or more intermediaries, or
both, by such Person. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Borrower.
"Syndication Agent": as defined in the preamble hereto.
-----------------
"Tax Sharing Agreement": that certain Jones Intercable, Inc. and
---------------------
its Qualifying Subsidiaries Income Tax Sharing Agreement, dated as of
October 31, 1995, among JIC and certain of its Subsidiaries, as amended
solely to include the Borrower and the Restricted Subsidiaries as parties
thereto.
"Termination Date": the earlier of (i) December 31, 2005, (ii) the
----------------
date the Lenders' Commitments to lend under this Agreement are otherwise
cancelled or terminated and (iii) the date any Note shall become due and
payable, whether at stated maturity, by acceleration or otherwise.
"Three Month Cash Flow": for a Person or group of Persons or the
---------------------
assets of any Person as the context requires that portion of Operating Cash
Flow derived from or produced by such Person, Persons or assets for the
three-month period ending on the last day of the month immediately
preceding the date of designation, transfer, sale or exchange of such
Person, Persons or assets or, in the case of the Borrower and the
Restricted Subsidiaries, immediately prior to the date of determination
thereof.
"Total Available Commitment": the sum of the Available Commitments
--------------------------
of all the Lenders.
18
<PAGE>
"Total Commitment": the sum of the Commitments (in each case, as
----------------
the same may be increased, reduced or otherwise adjusted from time to time
as provided herein) not to exceed $300,000,000.
"Total Debt": for the Borrower and the Restricted Subsidiaries as
----------
of any date, without duplication, the sum of (a) Indebtedness outstanding
on such date excluding any Intercompany Subordinated Debt, provided that
--------
the Intercompany Subordinated Debt is unsecured and subordinated pursuant
to the terms of the Intercompany Subordinated Debt Agreement, (b) Capital
Lease Obligations outstanding on such date and (c) Guarantee Obligations,
determined on a consolidated basis in accordance with GAAP.
"Total Extensions of Credit": at any time, the sum of the
--------------------------
Aggregate Outstanding Extensions of Credit of all of the Lenders at such
time.
"Tranche": the collective reference to Eurodollar Loans, the then
-------
current Interest Periods of which begin on the same date and end on the
same later date (whether or not such Loans shall originally have been made
on the same day).
"Tranche B Agreement": the Credit Agreement [Tranche B] among the
-------------------
Borrower, the several Lenders from time to time parties thereto, the
Managing Agents, the Syndication Agent, the Documentation Agent and the
Administrative Agent, of even date herewith, as amended, supplemented or
otherwise modified from time to time.
"Transferee": as defined in Section 12.6(i).
---------- ---------------
"Type": as to any Loan, its nature as an ABR Loan or a Eurodollar
----
Loan.
"Uniform Customs": the Uniform Customs and Practice for
---------------
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be amended from time to time.
"Unrestricted Subsidiary": (a) any Subsidiary created or acquired
-----------------------
after the Effective Date, pursuant to Section 8.9(f) and/or any Subsidiary
-------------
that is designated as an Unrestricted Subsidiary in accordance with the
terms of Section 8.6 and (b) any Subsidiary of any such Unrestricted
-----------
Subsidiary, provided, that (i) at no time shall any creditor of any such
--------
Subsidiary have any claim (whether pursuant to a Guarantee Obligation or
otherwise) against the Borrower or any of its other Subsidiaries (other
than another Unrestricted Subsidiary) in respect of any Indebtedness or
other obligation of any such Subsidiary; (ii) neither the Borrower nor any
of its Subsidiaries (other than another Unrestricted Subsidiary) shall
become a general partner of any such Subsidiary; (iii) no default with
respect to any Indebtedness of any such Subsidiary (including any right
which the holders thereof may have to take enforcement action against any
such Subsidiary) shall permit (upon notice, lapse of time or both) any
holder of any Indebtedness of the Borrower or its other Subsidiaries (other
19
<PAGE>
than another Unrestricted Subsidiary) to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable
prior to its final scheduled maturity; (iv) no such Subsidiary shall own
any Capital Stock of, or own or hold any Lien on any property of, the
Borrower or any other Subsidiary of the Borrower (other than another
Unrestricted Subsidiary); (v) no Investments may be made in any such
Subsidiary by the Borrower or any of its Subsidiaries (other than another
Unrestricted Subsidiary except pursuant to Section 8.9(f)); and (vi) at the
-------------
time of such designation, no Default or Event of Default shall have
occurred and be continuing or would result therefrom. It is understood that
the Unrestricted Subsidiaries shall be disregarded for the purposes of any
calculation pursuant to this Agreement relating to financial matters with
respect to the Borrower.
"Unrestricted Subsidiary Designation": as defined in Section 8.6.
----------------------------------- -----------
"Wholly Owned Subsidiary": as to any Person, any other Person at
-----------------------
least 100% of the Capital Stock of which (other than directors' qualifying
shares required by law) is owned by such Person directly or indirectly
through one or more other Wholly Owned Subsidiaries.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
-----------------------------
therein, all terms defined in this Agreement shall have the defined meanings
when used in any other Loan Document or any certificate or other document made
or delivered pursuant hereto or thereto.
(b) Unless otherwise specified herein, all accounting terms used
herein (and in any other Loan Document and any certificate or other document
made or delivered pursuant hereto or thereto) shall be interpreted, all
accounting determinations shall be made, and all financial statements required
to be delivered hereunder shall be prepared, in accordance with GAAP as in
effect from time to time; provided, however, that if the Borrower notifies the
-------- -------
Administrative Agent that the Borrower wishes to amend any covenant in Section 8
---------
to eliminate the effect of any change in GAAP on the operation of such covenant
(or if the Administrative Agent notifies the Borrower that the Majority Lenders
wish to amend Section 8 for such purpose), then compliance with such covenant
---------
shall be determined on the basis of GAAP in effect immediately before the
relevant change in GAAP became effective, until either such notice is withdrawn
or such covenant is amended in a manner satisfactory to the Borrower and the
Majority Lenders.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
20
<PAGE>
(e) References in this Agreement or any other Loan Document to
knowledge by the Borrower or any Restricted Subsidiary of events or
circumstances shall be deemed to refer to events or circumstances of which any
Responsible Officer has actual knowledge or reasonably should have knowledge.
(f) References in this Agreement or any other Loan Document to
financial statements shall be deemed to include all related schedules and notes
thereto.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Commitments. (a) Subject to and in reliance upon the terms,
-----------
conditions, representations and warranties contained in the Loan Documents, each
Lender severally agrees to make revolving credit Loans to the Borrower from time
to time until the Termination Date, provided that in no event shall the
Aggregate Outstanding Extensions of Credit of any Lender at any time exceed such
Lender's Commitment. Until the Termination Date, the Borrower may use the
Available Commitments by borrowing, prepaying the Loans in whole or in part, and
reborrowing, all in accordance with the terms and conditions hereof.
(b) The Loans may from time to time be (i) Eurodollar Loans,
(ii) ABR Loans or (iii) a combination thereof, as determined by the Borrower
and notified to the Administrative Agent in accordance with Sections 2.3 and
------------
4.5, provided that no Loan shall be made as a Eurodollar Loan after the day
- --- --------
that is one month prior to the Termination Date.
2.2 Notes. In order to evidence the Loans, the Borrower will
-----
execute and deliver to each Lender a promissory note substantially in the form
of Exhibit G, with appropriate insertions as to payee, date and principal amount
---------
(each, as amended, supplemented, replaced or otherwise modified from time to
time, a "Note"), payable to the order of each Lender and in a principal amount
----
equal to each such Lender's Commitment. Each Note shall (x) be dated the
Effective Date or the date of any reissuance of such Note, (y) be stated to
mature on the Termination Date and (z) provide for the payment of interest in
accordance with Section 4.1.
-----------
2.3 Procedure for Borrowing. Subject to the terms and conditions
-----------------------
contained in the Loan Documents, the Borrower may borrow under the Available
Commitments, prior to the Termination Date, on any Business Day by delivery to
the Administrative Agent of an irrevocable notice substantially in the form of
Exhibit H-1 (a "Notice of Borrowing"). A Notice of Borrowing must be received
- ----------- -------------------
by the Administrative Agent prior to 12:00 Noon, New York City time, (a) three
Business Days prior to the requested Borrowing Date, if all or any part of the
requested Loans are to be initially Eurodollar Loans, or (b) on the requested
Borrowing Date. A Notice of Borrowing shall specify (i) the amount to be
borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to
be of Eurodollar Loans, ABR Loans or a combination thereof and (iv) if the
borrowing is to be entirely or partly of Eurodollar Loans, the respective
amounts of each Tranche and the respective lengths of the initial Interest
Periods therefor. Each borrowing under the Total Available Commitment shall be
in an amount equal to (x) in the case of ABR Loans, $5,000,000 or
21
<PAGE>
a whole multiple of $1,000,000 in excess thereof (or, if the then Total
Available Commitment is less than $5,000,000, such lesser amount) and (y) in the
case of Eurodollar Loans, $5,000,000 or a whole multiple of $1,000,000 in excess
thereof. Upon receipt of any such Notice of Borrowing from the Borrower, the
Administrative Agent shall promptly notify each Lender thereof. Each such
Lender will make the amount of its pro rata share of each borrowing available to
the Administrative Agent for the account of the Borrower at the office of the
Administrative Agent specified in Section 12.2 prior to 2:00 P.M., New York City
------------
time, on the Borrowing Date requested by the Borrower in funds immediately
available to the Administrative Agent. Such borrowing will then be made
available to the Borrower by the Administrative Agent crediting the account of
the Borrower as so directed by the Borrower in a Notice of Borrowing with the
aggregate of the amounts made available to the Administrative Agent by the
Lenders and in like funds as received by the Administrative Agent.
2.4 Repayment of Loans. (a) The Borrower hereby unconditionally
------------------
promises to pay to the Administrative Agent for the account of each Lender, (i)
the then unpaid principal amount of each Loan of such Lender, on the Termination
Date (or such earlier date on which the Loans become due and payable pursuant to
Section 9) and (ii) the amounts specified in Section 4.2, on the dates specified
- --------- -----------
in Section 4.2. The Borrower hereby further agrees to pay interest on the
-----------
unpaid principal amount of the Loans from time to time outstanding from the date
hereof until payment in full thereof at the rates per annum, and on the dates,
set forth in Section 4.1.
-----------
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing indebtedness of the Borrower to such
Lender resulting from each Loan of such Lender from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time under this Agreement.
(c) The Administrative Agent shall maintain the Register pursuant
to Section 12.6(g), and a subaccount therein for each Lender, in which shall be
--------------
recorded (i) the amount of each Loan made hereunder, the Type thereof and each
Interest Period, if any, applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each
Lender hereunder and (iii) both the amount of any sum received by the
Administrative Agent hereunder from the Borrower and each Lender's share
thereof.
(d) The entries made in the Register and the accounts of each
Lender maintained pursuant to Section 12.6(g) shall, to the extent permitted by
--------------
applicable law, be prima facie evidence of the existence and amounts of the
----- -----
obligations of the Borrower therein recorded; provided, however, that the
-------- -------
failure of any Lender or the Administrative Agent to maintain the Register or
any such account, or any error therein, shall not in any manner affect the
obligation of the Borrower to repay (with applicable interest) the Loans made to
the Borrower by such Lender in accordance with the terms of this Agreement.
22
<PAGE>
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and conditions
--------------
hereof, Issuing Lender, in reliance on the agreements of the other Lenders set
forth in Section 3.4(a), agrees to issue letters of credit ("Letters of Credit")
------------- -----------------
for the account of the Borrower on any Business Day in such form as may be
approved from time to time by such Issuing Lender; provided that Issuing Lender
--------
shall not issue any Letter of Credit if, after giving effect to such issuance,
either (i) the L/C Obligations would exceed $30,000,000 or (ii) the Total
Extensions of Credit would exceed the Total Commitment. Each Letter of Credit
shall (i) be denominated in Dollars and shall be either (x) a standby letter of
credit issued for the account of the Borrower, which finances the working
capital and business needs of the Borrower and/or the Subsidiaries of the
Borrower, including, without limitation, good faith deposits in connection with
permitted acquisitions by the Borrower and/or the Subsidiaries of the Borrower,
or (y) a commercial letter of credit issued for the account of the Borrower in
respect of the purchase of goods or services by the Borrower and/or any of the
Subsidiaries of the Borrower and (ii) expire no later than the earlier of (x)
the Termination Date and (y) the date which is 12 months after its date of
issuance.
(b) Each Letter of Credit shall be subject to the Uniform Customs
and, to the extent not inconsistent therewith, the laws of the State of New
York.
(c) The Issuing Lender shall not at any time be obligated to
issue any Letter of Credit hereunder if such issuance would conflict with, or
cause the Issuing Lender or any other Lender to exceed any limits imposed by,
any applicable Requirement of Law.
3.2 Procedure for Issuance of Letters of Credit. The Borrower may
-------------------------------------------
from time to time request that the Issuing Lender issue a Letter of Credit by
delivering to the Issuing Lender, at its address for notices specified herein,
an Application therefor, completed to the reasonable satisfaction of the Issuing
Lender, and such other certificates, documents and other papers and information
as the Issuing Lender may reasonably request. Upon receipt of any Application,
the Issuing Lender will process such Application and the certificates, documents
and other papers and information delivered to it in connection therewith in
accordance with its customary procedures and shall promptly issue the Letter of
Credit requested thereby (but in no event shall the Issuing Lender be required
to issue any Letter of Credit earlier than three Business Days after its receipt
of the Application therefor and all such other certificates, documents and other
papers and information relating thereto) by issuing the original of such Letter
of Credit to the beneficiary thereof or as otherwise may be agreed by the
Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such
Letter of Credit to the Borrower promptly following the issuance thereof.
3.3 Fees, Commissions and Other Charges. (a) The Borrower shall
-----------------------------------
pay to the Administrative Agent, for the account of each Lender, a letter of
credit fee with respect to each Letter of Credit, computed for the period from
and including the date of issuance of such Letter of Credit to the date such
Letter of Credit is no longer outstanding, computed at a percentage rate per
annum equal to the Applicable Margin from time to time applicable to Loans
bearing interest at the
23
<PAGE>
Eurodollar Rate, calculated on the basis of a 360-day year, of the aggregate
average daily amount available to be drawn under such Letter of Credit for the
period as to which payment of such fee is made, payable on each L/C Fee Payment
Date to occur while such Letter of Credit remains outstanding and on the date
such Letter of Credit expires, is cancelled or is drawn upon. Such fee shall be
nonrefundable.
(b) In addition to the foregoing fees, the Borrower shall pay to the
Issuing Lender the fees set forth in the Scotiabank Fee Letter.
(c) The Administrative Agent shall, promptly following its receipt
thereof, distribute to each Lender all fees received by the Administrative Agent
for each such Lender's account pursuant to this Section.
3.4 L/C Participations. (a) The Issuing Lender irrevocably agrees
------------------
to grant and hereby grants to each Lender, and, to induce the Issuing Lender to
issue Letters of Credit hereunder, each Lender irrevocably agrees to accept and
purchase and hereby accepts and purchases from the Issuing Lender, on the terms
and conditions hereinafter stated, for such Lender's own account and risk an
undivided interest equal to such Lender's Specified Percentage in the Issuing
Lender's obligations and rights under each Letter of Credit issued by the
Issuing Lender and the amount of each draft paid by the Issuing Lender
thereunder. Each Lender unconditionally and irrevocably agrees with the Issuing
Lender that, if a draft is paid under any Letter of Credit issued by the Issuing
Lender for which the Issuing Lender is not reimbursed in full by the Borrower in
accordance with Section 3.5(a), such Lender shall pay to the Issuing Lender upon
--------------
demand at the Issuing Lender's address for notices specified herein an amount
equal to such Lender's Specified Percentage of the amount of such draft, or any
part thereof, which is not so reimbursed.
(b) If any amount required to be paid by any Lender to the Issuing
Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion of any
--------------
payment made by the Issuing Lender under any Letter of Credit is paid to the
Issuing Lender within three Business Days after the date such payment is due,
such Lender shall pay to the Issuing Lender on demand an amount equal to the
product of (i) such amount, times (ii) the daily average Federal Funds Effective
-----
Rate during the period from and including the date such payment is required to
the date on which such payment is immediately available to the Issuing Lender,
times (iii) a fraction the numerator of which is the number of days that elapse
- -----
during such period and the denominator of which is 360. If any such amount
required to be paid by any Lender pursuant to Section 3.4(a) is not in fact made
--------------
available to the Issuing Lender by such Lender within three Business Days after
the date such payment is due, the Issuing Lender shall be entitled to recover
from such Lender, on demand, such amount with interest thereon calculated from
such due date at a rate per annum equal to the ABR plus the Applicable Margin.
----
A certificate of the Issuing Lender submitted to any Lender with respect to any
amounts owing under this Section shall be conclusive in the absence of manifest
error.
24
<PAGE>
(c) Whenever, at any time after the Issuing Lender has made payment
under any Letter of Credit and has received from any Lender its pro rata share
--- ----
of such payment in accordance with Section 3.4(a), the Issuing Lender receives
--------------
any payment related to such Letter of Credit (whether directly from the Borrower
or otherwise, including proceeds of Collateral applied thereto by the Issuing
Lender), or any payment of interest on account thereof, the Issuing Lender will,
if such payment is received prior to 1:00 p.m., New York City time, on a
Business Day, distribute to such Lender its pro rata share thereof on the same
--- ----
Business Day or if received later than 1:00 p.m. on the next succeeding Business
Day; provided, however, that in the event that any such payment received by the
-------- -------
Issuing Lender shall be required to be returned by the Issuing Lender, such
Lender shall return to the Issuing Lender the portion thereof previously
distributed by the Issuing Lender to it.
(d) Notwithstanding anything to the contrary in this Agreement, each
Lender's obligation to make the Loans referred to in Section 3.5(b) and to
--------------
purchase and fund participating interests pursuant to Section 3.4(a) shall be
--------------
absolute and unconditional and shall not be affected by any circumstance,
including, without limitation, (i) any setoff, counterclaim, recoupment, defense
or other right which such Lender or the Borrower may have against the Issuing
Lender, the Borrower or any other Person for any reason whatsoever; (ii) the
occurrence or continuance of a Default or an Event of Default or the failure to
satisfy any of the other conditions specified in Section 6; (iii) any adverse
---------
change in the condition (financial or otherwise) of any Loan Party; (iv) any
breach of this Agreement or any other Loan Document by any Loan Party or any
Lender; or (v) any other circumstance, happening or event whatsoever, whether or
not similar to any of the foregoing.
3.5 Reimbursement Obligation of the Borrower. (a) The Borrower
----------------------------------------
agrees to reimburse the Issuing Lender (it being understood that such
reimbursement shall be effected by means of a borrowing of Loans unless the
Managing Agents shall determine in their sole discretion that such Loans may not
be made for such purpose as a result of a Default or Event of Default pursuant
to Section 9(f)), upon receipt of notice from the Issuing Lender of the date and
------------
amount of a draft presented under any Letter of Credit and paid by the Issuing
Lender, for the amount of (i) such draft so paid and (ii) any taxes, fees,
charges or other costs or expenses incurred by the Issuing Lender in connection
with such payment. Each such payment shall be made to the Issuing Lender, at
its address for notices specified herein in Dollars and in immediately available
funds, on the date on which the Borrower receives such notice, if received prior
to 1:00 P.M., New York City time, on a Business Day and otherwise on the next
succeeding Business Day.
(b) Interest shall be payable on any and all amounts remaining
unpaid by the Borrower under this Section 3.5, (i) from the date the draft
-----------
presented under the affected Letter of Credit is paid to the date on which the
Borrower is required to pay such amounts pursuant to paragraph (a) above at a
rate per annum equal to the ABR plus the Applicable Margin and (ii) thereafter
----
until payment in full at the rate which would be payable on any Loans which were
then overdue. Except as otherwise specified in Section 3.5(a), each drawing
--------------
under any Letter of Credit shall constitute a request by the Borrower to the
Administrative Agent for a borrowing of Loans that are ABR Loans pursuant to
Section 2.3 in the amount of such drawing. The Borrowing Date with
- -----------
25
<PAGE>
respect to such borrowing shall be the date of payment of such drawing and the
proceeds of such Loans shall be applied by the Administrative Agent to reimburse
the Issuing Lender for the amounts paid under such Letter of Credit.
3.6 Obligations Absolute. Subject to the penultimate sentence of
--------------------
this Section 3.6, the Borrower's obligations under this Section 3 shall be
----------- ---------
absolute and unconditional under any and all circumstances and irrespective of
any set-off, counterclaim or defense to payment which the Borrower may have or
have had against the Issuing Lender, any Lender or any beneficiary of a Letter
of Credit. The Borrower also agrees with the Issuing Lender that the Issuing
Lender and the Lenders shall not be responsible for, and the Borrower's
Reimbursement Obligations under Section 3.5(a) shall not be affected by, among
--------------
other things, (i) the validity or genuineness of documents or of any
endorsements thereon, even though such documents shall in fact prove to be
invalid, fraudulent or forged, or (ii) any dispute between or among the Borrower
and any beneficiary of any Letter of Credit or any other party to which such
Letter of Credit may be transferred or (iii) any claims whatsoever of the
Borrower against any beneficiary of such Letter of Credit or any such
transferee. The Issuing Lender and the Lenders shall not be liable for any
error, omission, interruption or delay in transmission, dispatch or delivery of
any message or advice, however transmitted, in connection with any Letter of
Credit, except for errors or omissions caused by such Person's gross negligence
or willful misconduct. The Borrower agrees that any action taken or omitted by
the Issuing Lender under or in connection with any Letter of Credit or the
related drafts or documents, if done in the absence of gross negligence or
willful misconduct and in accordance with the standards of care specified in the
Uniform Commercial Code of the State of New York, shall be binding on the
Borrower and shall not result in any liability of either the Issuing Lender or
any Lender to the Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented for
-------------------------
payment under any Letter of Credit, the Issuing Lender shall promptly notify the
Borrower and the Lenders of the date and amount thereof. Subject to Section 3.6,
-----------
the responsibility of the Issuing Lender to the Borrower in connection with any
draft presented for payment under any Letter of Credit shall, in addition to any
payment obligation expressly provided for in such Letter of Credit, be limited
to determining that the documents (including each draft) delivered under such
Letter of Credit in connection with such presentment appear on their face to be
in conformity with such Letter of Credit.
3.8 Application. To the extent that any provision of any Application
-----------
related to any Letter of Credit is inconsistent with the provisions of this
Agreement, the provisions of this Agreement shall apply.
26
<PAGE>
SECTION 4. GENERAL PROVISIONS APPLICABLE TO
LOANS AND LETTERS OF CREDIT
4.1 Interest Rates and Payment Dates. (a) Each Eurodollar Loan
--------------------------------
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin in effect for such day.
- ----
(b) Each ABR Loan shall bear interest for each day that it is
outstanding at a rate per annum equal to the ABR for such day plus the
----
Applicable Margin in effect for such day.
(c) (i) After the occurrence and during the continuance of an Event
of Default, all Loans and Reimbursement Obligations shall bear interest at a
rate per annum which is equal to (x) in the case of the Loans, the rate that
would otherwise be applicable thereto pursuant to the foregoing provisions of
this Section 4.1 plus 2% or (y) in the case of Reimbursement Obligations, at a
----------- ----
rate per annum equal to the ABR plus the Applicable Margin plus 2% and (ii) if
---- ----
all or a portion of any interest payable on any Loan or Reimbursement Obligation
or any commitment fee or other amount payable hereunder shall not be paid when
due (whether at the stated maturity, by acceleration or otherwise), such overdue
amount shall bear interest at a rate per annum equal to ABR plus the Applicable
----
Margin plus 2%, in each case, with respect to clauses (i) and (ii) above, from
----
the date of such non-payment until such amount is paid in full (as well after as
before judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to paragraph (c) of this Section
--------
shall be payable from time to time on demand.
4.2 Optional and Mandatory Commitment Reductions and Prepayments.
------------------------------------------------------------
(a) The Borrower may at any time and from time to time prepay the Loans, in
whole or in part, without premium or penalty (it being understood that amounts
payable pursuant to Section 4.11 do not constitute premium or penalty), upon at
------------
least three Business Days' irrevocable notice to the Administrative Agent (in
the case of Eurodollar Loans) or at least one Business Day's irrevocable notice
to the Administrative Agent (in the case of ABR Loans), specifying the date and
amount of prepayment and whether the prepayment is of Eurodollar Loans, ABR
Loans or a combination thereof, and, in each case if a combination thereof, the
principal amount allocable to each. Upon the receipt of any such notice the
Administrative Agent shall promptly notify each Lender thereof. If any such
notice is given, the amount specified in such notice shall be due and payable on
the date specified therein, together with interest accrued to the date of such
prepayment and (if a Eurodollar Loan is prepaid other than at the end of the
Interest Period applicable thereto) any amounts payable pursuant to
Section 4.11. Partial prepayments of Loans shall be in an aggregate principal
- ------------
amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof.
(b) The Borrower shall have the right, upon not less than three
Business Days' notice to the Administrative Agent (which will promptly notify
the Lenders thereof), to terminate the Total Commitment or, from time to time,
to reduce the amount of the Total Commitment;
27
<PAGE>
provided that no such termination or reduction of the Total Commitment shall be
- --------
permitted if, after giving effect thereto and to any prepayments of the Loans
made on the effective date thereof, the sum of the Aggregate Outstanding
Extensions of Credit of all the Lenders then in effect would exceed the
aggregate Total Commitment as so reduced. Any such reduction shall be in a
minimum amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof
and shall reduce permanently the Total Commitment then in effect.
(c) On the last Business Day of each March, June, September and
December, commencing March 31, 2000, through the Termination Date, the Total
Commitment shall automatically and permanently be reduced by the percentage (the
"Quarterly Percentage Reduction") of the original Total Commitment, as set forth
------------------------------
below. Notwithstanding anything contained in this Agreement to the contrary, on
the Termination Date the Total Commitment shall automatically reduce to zero.
<TABLE>
<CAPTION>
Quarterly Percentage Total Percentage Reduction
Calendar Year Reduction for the Calendar Year
------------- --------- ---------------------
<S> <C> <C>
2000 1.875% 7.50%
2001 3.750% 15.00%
2002 4.375% 17.50%
2003 5.000% 20.00%
2004 5.000% 20.00%
2005 5.000% 20.00%
</TABLE>
(d) If at any time the sum of the Aggregate Outstanding Extensions
of Credit of all the Lenders exceeds the Total Available Commitment then in
effect, the Borrower shall, without notice or demand, immediately repay the
Loans in an aggregate principal amount equal to such excess, together with
interest accrued to the date of such payment or repayment and any amounts
payable under Section 4.11. To the extent that, after giving effect to any
------------
prepayment of the Loans required by the preceding sentence, the sum of the
Aggregate Outstanding Extensions of Credit of all the Lenders still exceeds the
Total Available Commitment then in effect, the Borrower shall, without notice or
demand, immediately cash collateralize the then outstanding L/C Obligations in
an amount equal to such excess upon terms reasonably satisfactory to the
Administrative Agent.
(e) In the case of any reduction of the Total Commitment the
Borrower shall, if applicable, comply with the requirements of Section 4.2(d).
--------------
Each repayment of the Loans under this Section 4.2 shall be accompanied by
-----------
accrued interest to the date of such repayment on the amount repaid. Any amounts
deposited in any cash collateral account established pursuant to this Section
-------
28
<PAGE>
4.2 shall be invested in Cash Equivalents having a one-day maturity or such
- ---
other Cash Equivalents as shall be acceptable to the Administrative Agent and
the Borrower.
4.3 Commitment Fees, etc. (a) The Borrower agrees to pay to the
--------------------
Administrative Agent for the account of each Lender, a commitment fee, on the
average daily amount of the Total Available Commitment computed at a rate per
annum based on the Leverage Ratio in effect for the fiscal quarter preceding the
payment date, determined as follows:
<TABLE>
<CAPTION>
Leverage Ratio Commitment Fee
-------------- --------------
<S> <C>
(greater than) 5.00:1.00 0.375%
(less than or equal to) 5.00:1.00 0.250%
</TABLE>
For purposes of calculating the commitment fee due hereunder, the Leverage Ratio
shall be determined as at the end of each of the first three quarterly periods
of each fiscal year of the Borrower and as at the end of each fiscal year of the
Borrower, based on the relevant financial statements delivered pursuant to
Section 7.1(a) or (b) and the Compliance Certificate delivered pursuant to
- -------------- ---
Section 7.2(b); changes in the Leverage Ratio shall become effective on the date
- --------------
which is the earlier of (i) two Business Days after the date the Administrative
Agent receives such financial statements and the corresponding Compliance
Certificate and (ii) the 60th day after the end of each of the first three
quarterly periods of each fiscal year or the 120th day after the end of each
fiscal year, as the case may be, and shall remain in effect until the next
change to be effected pursuant to this Section 4.3; provided, that (a) until the
----------- --------
first such financial statements and Compliance Certificate are delivered after
the date hereof, the Applicable Margin shall be determined by reference to the
Leverage Ratio set forth in the Closing Certificate delivered to the
Administrative Agent pursuant to Section 6.1(b), and (b) if any financial
--------------
statements or the Compliance Certificate referred to above are not delivered
within the time periods specified above, then, for the period from and including
the date on which such financial statements and Compliance Certificate are
required to be delivered until the date on which such financial statements and
Compliance Certificate are delivered, then the Leverage Ratio as at the end of
the fiscal period that would have been covered thereby shall be deemed to be
greater than 5.00 to 1.00.
Such commitment fee shall be (i) payable quarterly in arrears on the last
Business Day of each March, June, September and December and on the date on
which all of the Commitments shall have terminated and (ii) fully earned and
non-refundable upon payment thereof.
(b) The Borrower shall pay (without duplication of any other fee
payable under this Section 4.3) to the Managing Agents, for their respective
-----------
accounts, the fees in the amounts and on the dates agreed to in the Managing
Agents Fee Letter.
29
<PAGE>
(c) The Borrower shall pay (without duplication of any other fee
payable under this Section 4.3) to the Administrative Agent, the fees in the
-----------
amounts and on the dates agreed to in the Scotiabank Fee Letter.
4.4 Computation of Interest and Fees. (a) Interest based on the
--------------------------------
Eurodollar Rate and fees shall be calculated on the basis of a 360-day year for
the actual days elapsed; and interest based on the ABR shall be calculated on
the basis of a 365- (or 366-, as the case may be) day year for the actual days
elapsed. The Administrative Agent shall as soon as practicable notify the
Borrower and the Lenders of each determination of a Eurodollar Rate. Any change
in the interest rate on a Loan resulting from a change in the ABR or the
Eurocurrency Reserve Requirements shall become effective as of the opening of
business on the day on which such change becomes effective. The Administrative
Agent shall as soon as practicable notify the Borrower and the Lenders of the
effective date and the amount of each such change in interest rate.
(b) Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a statement showing in reasonable detail the calculations used by the
Administrative Agent in determining any interest rate pursuant to
Section 4.1(a).
- --------------
4.5 Conversion and Continuation Options. (a) The Borrower may
-----------------------------------
elect from time to time to convert Eurodollar Loans to ABR Loans by giving the
Administrative Agent an irrevocable notice substantially in the form of
Exhibit H-2 (a "Notice of Conversion/Continuation"), at least one Business Day
- ----------- ---------------------------------
prior to such election, provided that any such conversion of Eurodollar Loans
--------
may only be made on the last day of an Interest Period with respect thereto. The
Borrower may elect from time to time to convert ABR Loans to Eurodollar Loans or
to continue Eurodollar Loans as Eurodollar Loans by giving the Administrative
Agent a Notice of Conversion/Continuation at least three Business Days' prior to
such election. Any such Notice of Conversion/Continuation to Eurodollar Loans
shall specify the length of the initial Interest Period or Interest Periods
therefor. Upon receipt of any such Notice of Conversion/Continuation the
Administrative Agent shall promptly notify each Lender thereof. All or any part
of outstanding Eurodollar Loans and ABR Loans may be converted as provided
herein, provided that (i) no Loan may be converted into a Eurodollar Loan when
--------
any Event of Default has occurred and is continuing and (ii) no Loan may be
converted into a Eurodollar Loan if the Interest Period selected therefor would
expire after the Termination Date.
(b) Any Eurodollar Loans may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower giving irrevocable notice to the Administrative Agent, of the length of
the next Interest Period to be applicable to such Loans, determined in
accordance with the applicable provisions of the term "Interest Period" set
forth in Section 1.1, provided that no Eurodollar Loan may be continued as such
----------- --------
(i) when any Event of Default has occurred and is continuing or (ii) after the
date that is one month prior to the Termination Date, and provided, further,
-------- -------
that if the Borrower shall fail to give any required notice as described
30
<PAGE>
above in this paragraph or if such continuation is not permitted pursuant to the
preceding proviso such Loans shall be automatically converted to ABR Loans on
the last day of such then expiring Interest Period. Upon receipt of any such
notice of continuation pursuant to this Section 4.5(b), the Administrative Agent
--------------
shall promptly notify each Lender thereof.
4.6 Minimum Amounts of Tranches. All borrowings, conversions,
---------------------------
continuations and payments of Loans hereunder and all selections of Interest
Periods hereunder shall be in such amounts and be made pursuant to such
elections so that, after giving effect thereto, the aggregate principal amount
of the Eurodollar Loans comprising each Tranche shall be equal to $5,000,000 or
a whole multiple of $1,000,000 in excess thereof. In no event shall there be
more than six Tranches outstanding at any time.
4.7 Inability to Determine Interest Rate. If prior to the first
------------------------------------
day of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that, by
reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for such
Interest Period; or
(b) the Administrative Agent shall have received notice from the
Majority Lenders that the Eurodollar Rate determined or to be determined
for such Interest Period will not adequately and fairly reflect the cost to
such Lenders (as conclusively certified by such Lenders) of making or
maintaining their affected Loans during such Interest Period,
the Administrative Agent shall give facsimile notice thereof to the Borrower and
the Lenders as soon as practicable thereafter. If such notice is given (x) any
Eurodollar Loans requested to be made on the first day of such Interest Period
shall be made as ABR Loans, (y) any Loans that were to have been converted on
the first day of such Interest Period to Eurodollar Loans shall be continued as
ABR Loans and (z) any outstanding Eurodollar Loans shall be converted, on the
first day of such Interest Period, to ABR Loans. Until such notice has been
withdrawn by the Administrative Agent or the Majority Lenders, as the case may
be, no further Eurodollar Loans shall be made or continued as such, nor shall
the Borrower have the right to convert Loans to Eurodollar Loans.
4.8 Pro Rata Treatment and Payments. (a) Each borrowing of Loans
-------------------------------
hereunder shall be made, each payment by the Borrower on account of any
commitment fee hereunder shall be allocated by the Administrative Agent, and any
reduction of the Total Commitment shall be allocated by the Administrative
Agent, pro rata according to the respective Specified Percentages of the
--- ----
Lenders. Each payment (including each prepayment) by the Borrower on account of
principal of and interest on, or commitment fees related to, the Loans or
Reimbursement Obligations shall be allocated by the Administrative Agent to the
Lenders pro rata according to the respective Specified Percentages of such Loans
--- ----
and Reimbursement Obligations then held by the Lenders. All payments (including
prepayments) to be made by the Borrower hereunder and under any Notes, whether
on
31
<PAGE>
account of principal, interest, fees, Reimbursement Obligations or otherwise,
shall be made without set-off or counterclaim and shall be made prior to 2:00
P.M., New York City time, on the due date thereof to the Administrative Agent,
for the account of the Lenders, at the Administrative Agent's office specified
in Section 12.2, in Dollars and in immediately available funds. Payments
------------
received by the Administrative Agent after such time shall be deemed to have
been received on the next Business Day. If any payment hereunder becomes due
and payable on a day other than a Business Day, the maturity of such payment
shall be extended to the next succeeding Business Day, (and, with respect to
payments of principal, interest thereon shall be payable at the then applicable
rate during such extension) unless, with respect to payments of Eurodollar Loans
only, the result of such extension would be to extend such payment into another
calendar month, in which event such payment shall be made on the immediately
preceding Business Day.
(b) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the
Administrative Agent by the required time on the Borrowing Date therefor, such
Lender shall pay to the Administrative Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal Funds Effective
Rate for the period until such Lender makes such amount immediately available to
the Administrative Agent. A certificate of the Administrative Agent submitted
to any Lender with respect to any amounts owing under this Section 4.8 shall be
-----------
conclusive in the absence of manifest error. If such Lender's share of such
borrowing is not made available to the Administrative Agent by such Lender
within three Business Days of such Borrowing Date, the Administrative Agent
shall notify the Borrower of the failure of such Lender to make such amount
available to the Administrative Agent and the Administrative Agent shall also be
entitled to recover, on demand from the Borrower, such amount with interest
thereon at a rate per annum equal to the ABR plus the Applicable Margin in
----
effect on the Borrowing Date.
4.9 Requirements of Law. (a) If the adoption of or any change in
-------------------
any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever
with respect to this Agreement, any Note or any Eurodollar Loan made by it,
or change the basis of taxation of payments to such Lender in respect
thereof (except for Non-Excluded Taxes covered by Section 4.10, net income
------------
taxes and franchise taxes (imposed in lieu of net income taxes));
32
<PAGE>
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held
by, deposits or other liabilities in or for the account of, advances, loans
or other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, the Borrower shall
promptly pay such Lender such additional amount or amounts as will compensate
such Lender for such increased cost or reduced amount receivable.
(b) If any Lender shall have determined in good faith that the
adoption of or any change in any Requirement of Law regarding capital adequacy
or in the interpretation or application thereof or compliance by such Lender or
any corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder to a level below that which such Lender
or such corporation could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's or such corporation's
policies with respect to capital adequacy) by an amount reasonably deemed by
such Lender to be material, then from time to time, the Borrower shall promptly
pay to such Lender such additional amount or amounts as will compensate such
Lender for such reduction.
(c) If any Lender becomes entitled to claim any additional amounts
pursuant to this Section 4.9, it shall promptly deliver a certificate to the
-----------
Borrower (with a copy to the Administrative Agent), setting forth in reasonable
detail an explanation of the basis for requesting such compensation. Such
certificate as to any additional amounts payable pursuant to this Section 4.9
-----------
submitted by such Lender to the Borrower (with a copy to the Administrative
Agent) shall be conclusive in the absence of manifest error. The Borrower shall
pay each Lender the amount shown as due on any such certificate delivered by it
within 15 days after the Borrower's receipt thereof. The agreements in this
Section 4.9 shall survive the termination of this Agreement and the payment of
- -----------
the Loans and all other amounts payable hereunder.
4.10 Taxes. (a) All payments made by the Borrower under this
-----
Agreement and any Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding (i) net income taxes; (ii) franchise and doing
business taxes imposed on the Administrative Agent or any Lender as a result of
a present or former connection between the Administrative Agent or such Lender
and the jurisdiction of the Governmental
33
<PAGE>
Authority imposing such tax or any political subdivision or taxing authority
thereof or therein (other than any such connection arising solely from the
Administrative Agent or such Lender having executed, delivered or performed its
obligations or received a payment under, or enforced, this Agreement or any
Note); (iii) any Taxes, levies, imposts, deductions, charges or withholdings
that are in effect and that would apply to a payment to such Lender as of the
Effective Date; and (iv) if any Person acquires any interest in this Agreement
or any Note pursuant to the provisions hereof, including without limitation a
participation (whether or not by operation of law), or a foreign Lender changes
the office in which the Loan is made, accounted for or booked (any such Person
or such foreign Lender in that event being referred to as a "Tax Transferee"),
--------------
any Taxes, levies, imposts, deductions, charges or withholdings to the extent
that they are in effect and would apply to a payment to such Tax Transferee as
of the date of the acquisition of such interest or change in office, as the case
may be. If any such non-excluded taxes, levies, imposts, duties, charges, fees
deductions or withholdings ("Non-Excluded Taxes") are required to be withheld
------------------
from any amounts payable to the Administrative Agent or any Lender hereunder or
under any Note, the amounts so payable to the Administrative Agent or such
Lender shall be increased to the extent necessary to yield to the Administrative
Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any
such other amounts payable hereunder at the rates or in the amounts specified in
this Agreement, provided, however, that the Borrower shall not be required to
-------- -------
increase any such amounts payable to any Non-U.S. Lender if such Lender fails to
comply with the requirements of paragraph (b) of this Section. Whenever any
Non-Excluded Taxes are payable by the Borrower, as promptly as possible
thereafter the Borrower shall send to the Administrative Agent for its own
account or for the account of such Lender, as the case may be, a certified copy
of an original official receipt received by the Borrower showing payment
thereof. If, when the Borrower is required by this Section 4.10(a) to pay any
---------------
Non-Excluded Taxes, the Borrower fails to pay such Non-Excluded Taxes when due
to the appropriate taxing authority or fails to remit to the Administrative
Agent the required receipts or other required documentary evidence, the Borrower
shall indemnify the Administrative Agent and the Lenders for any incremental
taxes, interest or penalties that may become payable by the Administrative Agent
or any Lender as a result of any such failure.
(b) Each Lender (or Transferee) that is not a citizen or resident of
the United States of America, a corporation, partnership or other entity created
or organized in or under the laws of the United States of America, or any estate
or trust that is subject to federal income taxation regardless of the source of
its income (a "Non-U.S. Lender") shall deliver to the Borrower and the
---------------
Administrative Agent (or, in the case of a Participant, to the Lender from which
the related participation shall have been purchased) two copies of either U.S.
Internal Revenue Service Form 1001 or Form 4224, or, in the case of a Non-U.S.
Lender claiming exemption from U.S. federal withholding tax under Section 871(h)
or 881(c) of the Code with respect to payments of "portfolio interest", a Form
W-8, or any subsequent versions thereof or successors thereto (and, if such Non-
U.S. Lender delivers a Form W-8, an annual certificate representing that such
Non-U.S. Lender (i) is not a "bank" for purposes of Section 881(c) of the Code
(and is not subject to regulatory or other legal requirements as a bank in any
jurisdiction, and has not been treated as a bank in any filing with or
submission made to any Governmental Authority or rating agency), (ii) is not a
10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code)
of the Borrower and (iii) is
34
<PAGE>
not a controlled foreign corporation related to the Borrower (within the meaning
of Section 864(d)(4) of the Code)), properly completed and duly executed by such
Non-U.S. Lender claiming complete exemption from, U.S. federal withholding tax
on all payments by the Borrower under this Agreement and the other Loan
Documents, along with such other additional forms as the Borrower, the
Administrative Agent (or, in the case of a Participant, the Lender from which
the related participation shall have been purchased) may reasonably request to
establish the availability of such exemption. Such forms shall be delivered by
each Non-U.S. Lender on or before the date it becomes a party to this Agreement
(or, in the case of any Participant, on or before the date such Participant
purchases the related participation). In addition, each Non-U.S. Lender shall
deliver such forms promptly upon the obsolescence or invalidity of any form
previously delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall
promptly notify the Borrower at any time it determines that it is no longer in a
position to provide any previously delivered certificate to the Borrower (or any
other form of certification adopted by the U.S. taxing authorities for such
purpose). Notwithstanding any other provision of Section 4.10, a Non-U.S.
------------
Lender shall not be required to deliver any form pursuant to this Section
-------
4.10(b) that such Non-U.S. Lender is not legally able to deliver, it being
- -------
understood and agreed that, in the event that a Non-U.S. Lender fails to deliver
any forms otherwise required to be delivered pursuant to this Section 4.10(b),
---------------
or notifies the Borrower that any previously delivered certificate is no longer
in force, the Borrower shall withhold such amounts as the Borrower shall
reasonably determine are required by law and shall not be required to make any
additional payment with respect thereto to the Non-U.S. Lender, unless such
failure to deliver or notify is a result of change in law subsequent to the date
hereof.
(c) If a Lender (or Transferee) or the Administrative Agent shall
become aware that it is entitled to receive a refund in respect of Non-Excluded
Taxes paid by the Borrower, or as to which it has been indemnified by the
Borrower, which refund in the good faith judgment of such Lender (or Transferee)
is allocable to such payment made pursuant to this Section 4.10, it shall
------------
promptly notify the Borrower of the availability of such refund and shall,
within 30 days after receipt of a request by the Borrower, apply for such
refund. If any Lender (or Transferee) or the Administrative Agent receives a
refund in respect of any Non-Excluded Taxes paid by the Borrower, or as to which
it has been indemnified by the Borrower, which refund in the good faith judgment
of such Lender (or Transferee) is allocable to such payment made pursuant to
this Section 4.10, it shall promptly notify the Borrower of such refund and
------------
shall, within 15 days after receipt, repay such refund to the Borrower. The
agreements in this Section 4.10 shall survive the termination of this Agreement
------------
and the payment of the Loans and all other amounts payable hereunder.
4.11 Indemnity. The Borrower agrees to indemnify each Lender and to
---------
hold each Lender harmless from any loss or expense which such Lender may sustain
or incur as a consequence of (a) default by the Borrower in making a borrowing
of, conversion into or continuation of Eurodollar Loans after the Borrower has
given a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by the Borrower in making any prepayment of Eurodollar
Loans after the Borrower has given a notice thereof in accordance with the
provisions of this Agreement or (c) the making of a prepayment of Eurodollar
Loans on a day which is not the last day of an Interest Period with respect
thereto. Such indemnification may include an amount equal to the
35
<PAGE>
excess, if any, of (i) the amount of interest which would have accrued on the
amount so prepaid, or not so borrowed, converted or continued, for the period
from the date of such prepayment or of such failure to borrow, convert or
continue to, but not including, the last day of such Interest Period (or, in the
case of a failure to borrow, convert or continue, the Interest Period that would
have commenced on the date of such failure) in each case at the applicable rate
of interest for such Loans provided for herein over (ii) the amount of interest
(as reasonably determined by such Lender) which would have accrued to such Bank
on such amount by placing such amount on deposit for a comparable period with
leading banks in the interbank eurodollar market. This covenant shall survive
the termination of this Agreement and the payment of the Loans and all other
amounts payable hereunder.
4.12 Change of Lending Office. Each Lender agrees that if it makes
------------------------
any demand for payment under Section 4.9 or 4.10(a), it will use reasonable
----------- -------
efforts (consistent with its internal policy and legal and regulatory
restrictions and so long as such efforts would not be disadvantageous to it, as
determined in its sole discretion) to designate a different lending office if
the making of such a designation would reduce or obviate the need for the
Borrower to make payments under Section 4.9 or 4.10(a) or would eliminate or
----------- -------
reduce the effect of any adoption or change described in Section 4.9.
-----------
SECTION 5. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make the Loans and to issue Letters of Credit, the Borrower
hereby represents and warrants to the Administrative Agent and each Lender that:
5.1 Financial Condition. (a) The consolidated balance sheet of JIC
-------------------
and its consolidated Subsidiaries at June 30, 1996 and the related consolidated
statements of income and of cash flows for the fiscal year ended on such date,
reported on by Arthur Andersen L.L.P., copies of which have heretofore been
furnished to each Lender, present fairly in all material respects the
consolidated financial condition of JIC and its consolidated Subsidiaries as at
such date, and the consolidated results of their operations and their
consolidated cash flows for the fiscal year then ended. All such financial
statements, including the related schedules and notes thereto, have been
prepared in accordance with GAAP applied consistently throughout the periods
involved (except as approved by such accountants and as disclosed therein).
Neither JIC, the Borrower nor any of their consolidated Subsidiaries had, as of
June 30, 1996, any material Guarantee Obligation, contingent liability or
liability for taxes, or any long-term lease or unusual forward or long-term
commitment, including, without limitation, any interest rate or foreign currency
swap or exchange transaction, which is not reflected in the foregoing statements
or in the schedules or notes thereto. Except as set forth on Schedule 5.1,
------------
during the period from June 30, 1996 to and including the date hereof there has
been no sale, transfer or other disposition by JIC or any of its consolidated
Subsidiaries of any material part of its business, assets or property and no
purchase or other acquisition of any business, assets or property (including any
Capital Stock of any other Person) material in relation to the
36
<PAGE>
consolidated financial condition of JIC and its consolidated Subsidiaries at
June 30, 1996, other than the Stock Purchase.
(b) The financial statements of the Borrower and the Restricted
Subsidiaries and other information most recently delivered under Sections 7.1(a)
---------------
and (b) were prepared in accordance with GAAP and present fairly the
---
consolidated financial condition, results of operations, and cash flows of the
Borrower and the Restricted Subsidiaries as of, and for the portion of the
fiscal year ending on the date or dates thereof (subject in the case of interim
statements only to normal year-end audit adjustments). There were no material
liabilities, direct or indirect, fixed or contingent, of the Borrower or the
Restricted Subsidiaries as of the date or dates of such financial statements
which are not reflected therein or in the notes thereto. Except for
transactions directly related to, or specifically contemplated by, the Loan
Documents, there have been no changes in the consolidated financial condition of
the Borrower or the Restricted Subsidiaries from that shown in such financial
statements after such date which could reasonably be expected to have a Material
Adverse Effect, nor has the Borrower or any Restricted Subsidiary incurred any
liability (including, without limitation, any liability under any Environmental
Law), direct or indirect, fixed or contingent, after such date which could
reasonably be expected to have a Material Adverse Effect.
5.2 No Change. From June 30, 1996, through and including the
---------
Effective Date there has been no development or event which has had or could
reasonably be expected to have a material adverse effect on the financial
condition and business operations of the Acquired Systems. Since the Effective
Date there has been no development or event which has had or could reasonably be
expected to have a Material Adverse Effect.
5.3 Existence; Compliance with Law. The Borrower and each of its
------------------------------
Subsidiaries (a) is duly organized, validly existing and, where applicable, in
good standing under the laws of the jurisdiction of its organization, (b) has
the corporate or partnership power and authority, and the legal right, to own
and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently engaged, (c) is duly qualified
and, where applicable, in good standing under the laws of each jurisdiction
where its ownership, lease or operation of property or the conduct of its
business requires such qualification, except where the failure to be so
qualified could not reasonably be expected to have a Material Adverse Effect,
and (d) is in compliance with all Requirements of Law except to the extent that
the failure to comply therewith could not reasonably be expected to have a
Material Adverse Effect.
5.4 Power; Authorization; Enforceable Obligations. Each Loan Party
---------------------------------------------
has the power and authority, and the legal right, to make, deliver and perform
each of the Loan Documents to which it is a party and, in the case of the
Borrower, to borrow hereunder, and has taken all necessary corporate or
partnership action to authorize the execution, delivery and performance of each
of the Loan Documents to which it is a party and, in the case of the Borrower,
to authorize the borrowings on the terms and conditions of this Agreement.
Except as set forth on Schedule 5.4, no consent or authorization of, filing
------------
with, notice to or other act by or in respect of, any Governmental Authority or
any other Person (including any partner or shareholder of any Loan Party or any
37
<PAGE>
Affiliate of any Loan Party) is required to be obtained or made by any Loan
Party or any other Person, in connection with the Stock Purchase other than
those that have been obtained or made and are in full force and effect;
provided, that with respect to third party approvals necessary for the Stock
- --------
Purchase, Schedule 5.4 lists only the material third party approvals required.
------------
No consent or authorization of, filing with, notice to or other act by or in
respect of, any Governmental Authority or any other Person (including any
partner or shareholder of JIC, any Loan Party or any Affiliate of JIC or any
Loan Party) is required to be obtained or made by JIC or any Loan Party or any
Subsidiary of any Loan Party in connection with the borrowings hereunder or with
the execution, delivery, performance, validity or enforceability of the Loan
Documents other than those that have been obtained or made and are in full force
and effect. Each Loan Document to which JIC and each Loan Party is a party has
been duly executed and delivered on behalf of JIC and each such Loan Party.
Each Loan Document constitutes a legal, valid and binding obligation of JIC, to
the extent JIC is a party thereto, and each Loan Party party thereto enforceable
against JIC and each such Loan Party in accordance with its terms, subject to
the effects of bankruptcy, insolvency, fraudulent transfer or conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good faith and fair
dealing.
5.5 No Legal Bar. The Stock Purchase, the execution, delivery and
------------
performance of the Loan Documents, the borrowings hereunder and the use of the
proceeds thereof will not (a) violate, result in a default under or conflict
with any Requirement of Law or any material Contractual Obligation, in any
material respect, of JIC, JCH, the Borrower or of any of the Restricted
Subsidiaries or (b) violate any provision of the charter or bylaws of JIC, JCH,
the Borrower or the Restricted Subsidiaries and will not result in a default
under, or result in or require the creation or imposition of any Lien on any of
their respective properties or revenues pursuant to any such Requirement of Law
or Contractual Obligation (other than pursuant to the Security Documents).
5.6 No Material Litigation. Except as set forth on Schedule 5.6, no
---------------------- ------------
litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of the Borrower,
threatened by or against the Borrower or any of the Restricted Subsidiaries or
against any of its or their respective properties or revenues (a) with respect
to any of the Loan Documents, the Stock Purchase or any of the transactions
contemplated hereby or thereby, or (b) which could reasonably be expected to
have a Material Adverse Effect. No attachment, prejudgment or judgment Lien
encumbers the Acquired Systems or any asset of the Borrower or any of the
Restricted Subsidiaries other than in respect of (i) claims as to which payment
in full above any applicable customary deductible is covered by insurance or a
bond or (ii) other claims aggregating not more than $10,000,000. No litigation,
investigation or proceeding of or before any arbitrator or Governmental
Authority is pending or, to the knowledge of the Borrower, threatened by or
against (i) JCH with respect to the Stock Purchase or (ii) JIC, with respect to
the JIC Negative Pledge.
38
<PAGE>
5.7 No Default. Neither JIC, the Borrower nor any of its Restricted
----------
Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect which could reasonably be expected to have a Material
Adverse Effect. No Default or Event of Default has occurred and is continuing.
5.8 Ownership of Property; Intellectual Property. (a) Each of the
--------------------------------------------
Borrower and the Restricted Subsidiaries has good record and indefeasible title
in fee simple to, or a valid leasehold interest in, all its real property, if
any, and good title to, or a valid leasehold interest in, all its other material
property, if any, and none of such property is subject to any Lien except as
permitted by Section 8.3. Upon the consummation of the Stock Purchase, the
-----------
Borrower or the Restricted Subsidiaries, as applicable, will have good record
and indefeasible title in fee simple to, or a valid leasehold interest in all of
the real property, if any, and all other material property and Franchises
associated with the Acquired Systems.
(b) The Borrower and the Restricted Subsidiaries have the right to
use all trademarks, tradenames, copyrights, technology, know-how or processes
("Intellectual Property") that are necessary for the conduct of the business of
- -----------------------
the Borrower or any of the Restricted Subsidiaries.
5.9 No Burdensome Restrictions. No Requirement of Law or
--------------------------
Contractual Obligation of JIC, its Subsidiaries, the Borrower or any of its
Restricted Subsidiaries could reasonably be expected to have a Material Adverse
Effect.
5.10 Taxes. (a) (i) Each of the Borrower and its Subsidiaries has
-----
filed or caused to be filed all tax returns which, to the knowledge of the
Borrower, are required to be filed and has paid all taxes shown to be due and
payable by it on said returns and all other material taxes, fees or other
charges (collectively, the "Specified Taxes") imposed on it or any of its
---------------
property by any Governmental Authority due and payable by it and (ii) to the
knowledge of the Borrower, no material claim is being asserted with respect to
any Specified Tax, other than, in each case with respect to this clause (a),
Specified Taxes the amount or validity of which are currently being contested in
good faith by appropriate proceedings diligently pursued and with respect to
which reserves in conformity with GAAP have been provided on the books of the
Borrower or the relevant Subsidiary, as the case may be, and (b) no tax Lien has
been filed with respect to any Specified Tax.
5.11 Federal Regulations. No part of the proceeds of any Loans will
-------------------
be used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation G or Regulation U of the
Board as now and from time to time hereafter in effect. If requested by any
Lender or the Administrative Agent, the Borrower will furnish to the
Administrative Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form G-3 or FR Form U-1 referred to in
said Regulation G or Regulation U, as the case may be.
39
<PAGE>
5.12 ERISA. Except as, in the aggregate, could not reasonably be
-----
expected to result in a Material Adverse Effect: (a) neither a Reportable Event
nor an "accumulated funding deficiency" (within the meaning of Section 412 of
the Code or Section 302 of ERISA) has occurred during the five-year period prior
to the date on which this representation is made or deemed made with respect to
any Plan, and each Plan has complied in all material respects with the
applicable provisions of ERISA and the Code; (b) no termination of a Single
Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has
arisen, during such five-year period; (c) the present value of all accrued
benefits under each Single Employer Plan (based on those assumptions used to
fund such Plans) did not, as of the last annual valuation date prior to the date
on which this representation is made or deemed made, exceed the value of the
assets of such Plan allocable to such accrued benefits; (d) neither the Borrower
nor any Commonly Controlled Entity has had a complete or partial withdrawal from
any Multiemployer Plan, and neither the Borrower nor any Commonly Controlled
Entity would become subject to any liability under ERISA if the Borrower or any
such Commonly Controlled Entity were to withdraw completely from all
Multiemployer Plans as of the valuation date most closely preceding the date on
which this representation is made or deemed made; and (e) no such Multiemployer
Plan is in Reorganization or Insolvent.
5.13 Investment Company Act; Other Regulations. No Loan Party is an
-----------------------------------------
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No Loan
Party is subject to regulation under any Federal or State statute or regulation
(other than Regulation X of the Board) which limits its ability to incur
Indebtedness under this Agreement or the other Loan Documents.
5.14 Subsidiaries. Except for changes permitted by this Agreement
------------
pursuant to Sections 8.6, 8.8 or 8.9, Schedule 5.14 sets forth a true and
------------ --- --- -------------
complete list of each of the Borrower's Subsidiaries and accurately designates
as of the date hereof whether each such Subsidiary is a Restricted Subsidiary or
an Unrestricted Subsidiary. The Borrower has or will have delivered to the
Administrative Agent, an updated Schedule 5.14 within 30 days after any changes
-------------
thereto. The outstanding shares of Capital Stock of each Restricted Subsidiary
have been duly authorized and validly issued and are fully paid and non-
assessable, and all of the outstanding shares of each class of the Capital Stock
of each Restricted Subsidiary are owned, directly or indirectly, beneficially
and of record, by the Borrower, free and clear of all Liens.
5.15 Insurance. Each Loan Party maintains with financially sound,
---------
responsible, and reputable insurance companies or associations (or, as to
workers' compensation or similar insurance, with an insurance fund or by self-
insurance authorized by the jurisdictions in which it operates) insurance
covering its properties and businesses against such casualties and contingencies
and of such types and in such amounts (and with co-insurance and deductibles) as
is customary in the case of same or similar businesses.
40
<PAGE>
5.16 Certain Cable Television Matters. Except as could not
--------------------------------
reasonably be expected to result in a Material Adverse Effect:
(a) the Borrower and the Restricted Subsidiaries possess all
Authorizations necessary to own, operate and construct the Cable Systems or
otherwise for the operations of their businesses and are not in violation
thereof. All such Authorizations are in full force and effect and no event
has occurred that permits, or after notice or lapse of time could permit,
the revocation, termination or material and adverse modification of any such
Authorization;
(b) neither the Borrower nor any of the Restricted Subsidiaries is
in violation of any duty or obligation required by the Communications Act of
1934, as amended, or any FCC rule or regulation applicable to the operation
of any portion of any of the Cable Systems;
(c) there is not pending or, to the best knowledge of the Borrower,
threatened, any action by the FCC to revoke, cancel, suspend or refuse to
renew any FCC License held by the Borrower or any of the Restricted
Subsidiaries. There is not pending or, to the best knowledge of the
Borrower, threatened, any action by the FCC to modify adversely, revoke,
cancel, suspend or refuse to renew any other Authorization; and
(d) there is not issued or outstanding or, to the best knowledge of
the Borrower, threatened, any notice of any hearing, violation or complaint
against the Borrower or any of the Restricted Subsidiaries with respect to
the operation of any portion of the Cable Systems and the Borrower has no
knowledge that any Person intends to contest renewal of any Authorization.
5.17 Environmental Matters. Except as could not reasonably be
---------------------
expected to result in a Material Adverse Effect:
(a) the facilities and properties owned by the Borrower or any of
its Subsidiaries (the "Owned Properties") do not contain, and, to the
----------------
knowledge of the Borrower to the extent not owned, leased or operated during
the past five years, have not contained during the past five years, any
Materials of Environmental Concern in amounts or concentrations which
constitute or constituted a violation of, or could reasonably be expected to
give rise to liability under, any Environmental Law;
(b) the facilities and properties leased or operated by the Borrower
or any of its Subsidiaries, but not owned by them (the "Leased and Operated
-------------------
Properties"), to the knowledge of the Borrower, do not contain and have not
----------
contained during the past five years, any Materials of Environmental Concern
in amounts or concentrations which constitute or constituted a violation of,
or could reasonably be expected to give rise to liability under, any
Environmental Law;
41
<PAGE>
(c) the Owned Properties and all operations at the Owned Properties
are in compliance, and, to the knowledge of the Borrower to the extent not
owned, leased or operated during the past five years, have in the last five
years been in compliance, with all applicable Environmental Laws, and there
is no contamination at, under or about the Owned Properties or violation of
any Environmental Law with respect to the Owned Properties or the business
operated by the Borrower or any of its Subsidiaries (the "Business") which
--------
could interfere with the continued operation of the Owned Properties or
impair the fair saleable value thereof;
(d) to the knowledge of the Borrower, the Leased and Operated
Properties and all operations at the Leased and Operated Properties are in
compliance, and, in the last five years been in compliance, with all
applicable Environmental Laws, and to the knowledge of the Borrower there
is no contamination at, under or about the Leased and Operated Properties
or violation of any Environmental Law with respect to the Leased and
Operated Properties or the Business operated by the Borrower or any of its
Subsidiaries which could interfere with the continued operation of the
Leased and Operated Properties or impair the fair saleable value thereof;
(e) neither the Borrower nor any of its Subsidiaries has received
any notice of violation, alleged violation, non-compliance, liability or
potential liability regarding environmental matters or compliance with
Environmental Laws with regard to any of the Owned Properties or the Leased
and Operated Properties (together, the "Properties") or the Business, nor
----------
does the Borrower have any knowledge that any such notice will be received
or is being threatened;
(f) the Borrower has not transported or disposed of Materials of
Environmental Concern nor, to the Borrower's knowledge, have Materials of
Environmental Concern been transported or disposed of from the Properties
in violation of, or in a manner or to a location which could reasonably be
expected to give rise to liability to the Borrower or any Restricted
Subsidiary under, any Environmental Law, nor has the Borrower generated any
Materials of Environmental Concern nor, to the Borrower's knowledge, have
Materials of Environmental Concerns been generated, treated, stored or
disposed of at, on or under any of the Properties in violation of, or in a
manner that could reasonably be expected to give rise to liability to the
Borrower or any Restricted Subsidiary under, any applicable Environmental
Law;
(g) no judicial proceeding or governmental or administrative action
is pending or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower or any Subsidiary is or will be
named as a party with respect to the Properties or the Business, nor are
there any consent decrees or other decrees, consent orders, administrative
orders or other orders, or other administrative or judicial requirements
outstanding under any applicable Environmental Law with respect to the
Properties or the Business; and
42
<PAGE>
(h) the Borrower has not released, nor, to the Borrower's knowledge,
has there been any release or threat of release of Materials of
Environmental Concern at or from the Properties, or arising from or related
to the operations of the Borrower or any Subsidiary in connection with the
Properties or otherwise in connection with the Business, in violation of or
in amounts or in a manner that could reasonably be expected to give rise to
liability under Environmental Laws.
5.18 Accuracy of Information. (a) All Information made available to
-----------------------
the Administrative Agent or any Lender by the Borrower pursuant to this
Agreement or any other Loan Document did not, as of the date such Information
was made available, contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained
therein not materially misleading in light of the circumstances under which such
statements were made.
(b) All pro forma financial information and projections made
--- -----
available to the Administrative Agent or any Lender by the Borrower pursuant to
this Agreement or any other Loan Document have been prepared and furnished to
the Administrative Agent or such Lender in good faith and were based on
estimates and assumptions that were believed by the management of the Borrower
to be reasonable in light of the then current and foreseeable business
conditions of the Borrower and the Subsidiaries. The Administrative Agent and
the Lenders recognize that such pro forma financial information and projections
--- -----
and the estimates and assumptions on which they are based may or may not prove
to be correct.
5.19 Security Documents. The Security Documents are effective to
------------------
create in favor of the Administrative Agent, for the benefit of the Lenders, a
legal, valid and enforceable security interest in the Collateral described
therein and proceeds thereof and, after satisfaction of the conditions specified
in Section 6.1(j), the Security Documents shall constitute a fully perfected
--------------
first priority Lien on, and security interest in, all right, title and interest
of, the Borrower and the Restricted Subsidiaries in such Collateral and the
proceeds thereof (subject to Section 9-306 of the Uniform Commercial Code), as
security for the Obligations (and the Obligations under and as defined in the
Tranche B Agreement), in each case prior and superior in right to any other
Person.
5.20 Solvency. As of the date on which this representation and
--------
warranty is made or deemed made, each Loan Party is Solvent, both before and
after giving effect to the transactions contemplated hereby consummated on such
date and to the incurrence of all Indebtedness and other obligations incurred on
such date in connection herewith and therewith.
5.21 Indebtedness. No Loan Party is an obligor on any Indebtedness
------------
except as permitted under Section 8.2.
-----------
5.22 Labor Matters. There are no actual or overtly threatened
-------------
strikes, labor disputes, slow downs, walkouts, or other concerted interruptions
of operations by the employees of any Loan Party which could reasonably be
expected to have a Material Adverse Effect. Hours
43
<PAGE>
worked by and payment made to employees of the Loan Parties have not been in
violation of the Fair Labor Standards Act or any other applicable law dealing
with such matters, other than any such violations, individually or collectively,
which could reasonably be expected to have a Material Adverse Effect. All
payments due from any Loan Party on account of employee health and welfare
insurance have been paid or accrued as a liability on its books, other than any
such nonpayments which could not, individually or collectively, reasonably be
expected to have a Material Adverse Effect.
5.23 Prior Names. Neither the Borrower nor any Restricted Subsidiary
-----------
has used or transacted business under any other corporate or trade name in the
five-year period preceding the Effective Date.
5.24 Franchises. Schedule 5.24, as supplemented to reflect any
---------- -------------
renewals and extensions of Franchise Agreements and to reflect any acquisition,
lists all Franchise Agreements of the Borrower and the Restricted Subsidiaries
relating to the Cable Systems owned by the Borrower and the Restricted
Subsidiaries as of the Initial Funding Date and, with respect to the Cable
Systems acquired after such date, as of the date of acquisition, at any time
thereafter, including but not limited to the Acquired Systems. As of the
Initial Funding Date, JCH and all of the Loan Parties shall have taken all
action required by applicable Governmental Authorities to lawfully transfer or
grant all of the Franchise Agreements relating to the Acquired Systems to the
Loan Parties and, with respect to the Cable Systems acquired after the Initial
Funding Date, all of the Loan Parties have taken all action required by
applicable Governmental Authorities to lawfully transfer or grant such after
acquired Franchise Agreement to the Loan Parties. To the knowledge of the
Borrower, as of the Initial Funding Date and at all times thereafter, all
Franchise Agreements of the Loan Parties were lawfully transferred or granted to
the Borrower or a Restricted Subsidiary pursuant to the rules and regulations of
applicable Governmental Authorities. The Franchise Agreements authorize the
Borrower or a Restricted Subsidiary as indicated on Schedule 5.24 (as
-------------
supplemented to reflect any renewals and extensions of Franchise Agreements and
to reflect any acquisition) to operate one or more Cable Systems until the
respective expiration dates listed on Schedule 5.24 or, will authorize the
-------------
Borrower or a Restricted Subsidiary as indicated on Schedule 5.24 (as
-------------
supplemented to reflect any renewals and extensions of Franchise Agreements and
to reflect any acquisition), and no other further approval, filing or other
action of any Governmental Authority is or will be necessary or advisable as of
the Initial Funding Date or, with respect to the Cable Systems acquired after
such date, as of the date of acquisition, in order to permit the Borrower's or
such Restricted Subsidiaries' operation of the Cable Systems in accordance with
the terms thereof. Schedule 5.24 (as supplemented from time to time) correctly
-------------
identifies the franchisee and accurately describes the franchise area, the
exclusive or nonexclusive nature of each such Franchise Agreement and all
limitations contained in the Franchise Agreement or related statutes on the
assignment, sale or encumbering of the Franchise Agreement or the related Cable
System's assets. The Borrower or the Restricted Subsidiary that is the
franchisee is in compliance in all material respects with all material terms and
conditions of all Franchise Agreements relating to the Cable Systems owned by
it, and on and after the date of acquisition of any Cable System will be in
compliance in all material respects with all material terms and conditions of
all Franchise Agreements relating to such Cable
44
<PAGE>
Systems so acquired and no event has occurred or exists which permits, or, after
the giving of notice, or the lapse of time or both would permit, the revocation
or termination of any Franchise Agreement.
5.25 Chief Executive Office; Chief Place of Business. Schedule 5.25
----------------------------------------------- -------------
(as supplemented from time to time) accurately sets forth the location of the
chief executive office and chief place of business (as such terms are used in
the Uniform Commercial Code of each state whose law would purport to govern the
attachment and perfection of the security interests granted by the Security
Documents) of the Borrower and each Restricted Subsidiary.
5.26 Full Disclosure. There is no material fact or condition
---------------
relating to the Loan Documents or the financial condition, business, or property
of any Loan Party which could reasonably be expected to have a Material Adverse
Effect and which has not been disclosed, in writing, to the Managing Agents and
the Lenders.
5.27 Intercompany Subordinated Debt. There is no Intercompany
------------------------------
Subordinated Debt other than the Indebtedness described in Exhibit A (as
---------
supplemented from time to time) to the Intercompany Subordinated Debt Agreement.
SECTION 6. CONDITIONS PRECEDENT
6.1 Conditions to Initial Extensions of Credit. The agreement of
------------------------------------------
each Lender to make the initial extension of credit requested to be made by it
is subject to the satisfaction, immediately prior to or concurrently with the
making of such extension of credit of the following conditions precedent:
(a) Loan Documents. The Administrative Agent shall have received
--------------
(i) this Agreement and the Tranche B Agreement, each duly executed and
delivered by the Borrower; (ii) the Notes, duly executed and delivered by
the Borrower to each of the Lenders; (iii) the Pledge Agreements, duly
executed and delivered by the Borrower and each of the Restricted
Subsidiaries; (iv) the JIC Negative Pledge duly executed and delivered by
JIC; (v) the Restricted Subsidiary Negative Pledges, duly executed and
delivered by each of the Restricted Subsidiaries; and (vi) a copy of the
Intercompany Subordinated Debt Agreement duly executed and delivered by the
Borrower and JIC.
(b) Closing Certificate. The Administrative Agent shall have
-------------------
received a certificate (the "Closing Certificate") of each Loan Party and
-------------------
JIC, dated the date of the initial extension of credit, substantially in
the form of Exhibit I, with appropriate insertions and attachments, in
---------
each case reasonably satisfactory in form and substance to the
Administrative Agent, executed by a Responsible Officer and the Secretary
or any Assistant Secretary of the appropriate Loan Party and JIC.
45
<PAGE>
(c) Fees. The Administrative Agent and the Managing Agents shall
----
have received all fees and expenses required to be paid on or before the
date hereof referred to in Section 4.3(b) and the Lenders shall have
--------------
received all fees required to be paid on or before the date hereof
pursuant to the various invitation letters from the Borrower to
prospective lenders forwarded with the Confidential Information
Memorandum, dated September 19, 1996.
(d) Legal Opinions. The Administrative Agent shall have
--------------
received, with a counterpart for each Lender, the following executed
legal opinions:
(i) the executed legal opinion of the General
Counsel or the acting General Counsel of the Borrower,
substantially in the form of Exhibit J; and
---------
(ii) the executed legal opinion of Cole, Raywid &
Braverman, L.L.P., substantially in the form of Exhibit K.
---------
(e) Financial Statements. The Lenders shall have received
--------------------
audited consolidated financial statements of JIC for the 1995 fiscal
year, which financial statements shall have been prepared in accordance
with GAAP and shall be accompanied by an unqualified report thereon
prepared by Arthur Andersen L.L.P.
(f) Satisfactory Organizational and Capital Structure. The stock
-------------------------------------------------
ownership of the Borrower and each of the Restricted Subsidiaries shall
be consistent with the structure described in Schedule 6.1(f). All
---------------
necessary intercreditor arrangements shall be satisfactory to the
Lenders.
(g) Governmental and Third Party Approvals. All governmental
--------------------------------------
approvals and material third party approvals necessary in connection with
the Stock Purchase shall have been obtained and be in full force and
effect. All governmental approvals and material third party approvals
necessary in connection with the financing contemplated hereby shall have
been obtained and be in full force and effect.
(h) No Material Adverse Information. The Lenders shall not have
-------------------------------
become aware of any previously undisclosed materially adverse information
with respect to (i) the ability of the Loan Parties to perform their
respective obligations under the Loan Documents in any material respect
or (ii) the rights and remedies of the Lenders.
(i) No Material Default Under Other Agreements. There shall
------------------------------------------
exist no material event of default (or condition which would constitute
such an event of default with the giving of notice or the passage of
time) under any agreements relating to Capital Stock, or any material
financing agreements, lease agreements or other material Contractual
Obligations, of JIC, the Borrower or any of the Restricted Subsidiaries.
46
<PAGE>
(j) Pledged Stock; Stock Powers. The Administrative Agent shall
---------------------------
have received the certificates representing the shares of Capital Stock
pledged pursuant to each Pledge Agreement of the Borrower and each of the
Restricted Subsidiaries, respectively, together with an undated stock
power for each such certificate, if any, executed in blank by a duly
authorized officer of the Borrower and each of the Restricted
Subsidiaries, respectively.
(k) Material Adverse Change. There shall exist no material
-----------------------
adverse change in the financial condition or business operations of the
Acquired Systems since June 30, 1996.
(l) Additional Documentation. All other documentation,
------------------------
including, without limitation, any tax sharing agreement, employment
agreement, management compensation arrangement or other financing
arrangement of the Borrower or any of the Restricted Subsidiaries shall
be reasonably satisfactory in form and substance to the Lenders.
(m) Lien Termination. All Liens covering the Acquired Systems
----------------
shall have been terminated.
(n) The Stock Purchase. The Stock Purchase shall have been
------------------
consummated.
(o) Insurance. The Administrative Agent shall have received
---------
certificates of insurance naming the Administrative Agent as loss payee
for the benefit of the Lenders and as additional insured for the benefit
of the Lenders, as required by Section 7.5(b).
--------------
(p) Tax Sharing Agreement. The Administrative Agent or the
---------------------
Documentation Agent shall have received a copy of the Tax Sharing
Agreement.
(q) Acquired Systems. The Acquired Systems shall have been sold
----------------
and transferred to JCG and JCA and all governmental approvals and
material third party approvals necessary in connection with such sale and
transfer shall have been obtained and in full force and effect such that
JCG shall own good title to the Cable Systems serving North Augusta,
South Carolina, Savannah, Georgia and Augusta, Georgia and JCA will own
good title to the Cable System serving Pima County, Arizona.
(r) Pro Forma Covenant Compliance. The Managing Agents shall
-----------------------------
have received reasonably satisfactory calculations evidencing the
Borrower's pro forma compliance with Sections 8.1(a) and (c), after
--------------- ---
giving effect to the requested borrowing.
6.2 Conditions to Each Extension of Credit. The obligation or
--------------------------------------
agreement of each Lender to make any Loan or to issue any Letter of Credit
requested to be made or issued by it on any date (including, without limitation,
its initial extension of credit) is subject to the satisfaction, immediately
prior to or concurrently with the making of such Loans or the issuing of such
Letters of Credit, of the following conditions precedent:
47
<PAGE>
(a) Initial Conditions Satisfied. Each of the conditions
----------------------------
precedent set forth in Section 6.1 shall have been satisfied and shall
-----------
continue to be satisfied on the date of such Loans.
(b) No Material Litigation. Except as disclosed on Schedule 5.6,
---------------------- ------------
no litigation, inquiry, injunction or restraining order shall be pending,
entered or threatened in writing which could reasonably be expected to
have a Material Adverse Effect.
(c) No Material Adverse Effect. There shall not have occurred
--------------------------
any change, development or event which could reasonably be expected to
have a Material Adverse Effect.
(d) Representations and Warranties. Each of the representations
------------------------------
and warranties made by any Loan Party or JIC in or pursuant to the Loan
Documents to which it is a party shall be true and correct in all
material respects on and as of such date as if made on and as of such
date, after giving effect to the Loans requested to be made or the
Letters of Credit to be issued on such date and the proposed use of the
proceeds thereof.
(e) No Default. No Default or Event of Default shall have
----------
occurred and be continuing on such date or will occur after giving effect
to the extension of credit requested to be made on such date and the
proposed use of the proceeds thereof.
(f) Notice of Borrowing; Application. The Borrower shall have
--------------------------------
submitted a Notice of Borrowing in accordance with Section 2.3 and
-----------
certifying to the matters set forth in Section 6.2(a) through and
including (e) and/or an Application in accordance with Section 3.2.
-----------
Each borrowing by or issuance of a Letter of Credit on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such extension of credit that the applicable conditions contained in
this Section 6.2 have been satisfied.
-----------
SECTION 7. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as any Commitment remains
in effect, any Loan or Letter of Credit shall be outstanding or any other
Obligation is due and payable to any Lender or the Administrative Agent
hereunder or under any other Loan Document, the Borrower shall and shall cause
each of its Restricted Subsidiaries to:
7.1 Financial Statements. Furnish to the Administrative Agent
--------------------
for subsequent distribution to each Lender:
(a) as soon as available, but in any event within 120 days after
the end of each fiscal year of the Borrower, a copy of the consolidated
balance sheet of the Borrower and the
48
<PAGE>
Restricted Subsidiaries as at the end of such year and the related
consolidated statements of income and shareholders' capital (deficit) and
of cash flows for such year, setting forth in each case in comparative
form the figures for the previous year, reported on without a "going
concern" or like qualification or exception, or qualification arising out
of the scope of the audit, by Arthur Andersen L.L.P. or other independent
certified public accountants of nationally recognized standing; and
(b) as soon as available, but in any event not later than 60
days after the end of each of the first three fiscal quarterly periods of
each fiscal year of the Borrower, the unaudited consolidated balance
sheet of the Borrower and the Restricted Subsidiaries as at the end of
such quarter and the related unaudited consolidated statements of income
and of cash flows for such quarter and the portion of the fiscal year
through the end of such quarter, setting forth in each case in
comparative form the figures for the previous year, certified by a
Responsible Officer as being fairly stated in all material respects
(subject to normal year-end audit adjustments).
All such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
7.2 Certificates; Other Information. Furnish to the
-------------------------------
Administrative Agent for subsequent distribution to each Lender:
(a) concurrently with the delivery of the financial statements
referred to in Section 7.1(a), a certificate of the independent certified
--------------
public accountants reporting on such financial statements stating that in
making the examination necessary therefor no knowledge was obtained of
any Default or Event of Default, except as specified in such certificate;
(b) concurrently with the delivery of the financial statements
referred to in Sections 7.1(a) or (b), a Compliance Certificate executed
--------------- ---
by a Responsible Officer of the Borrower and each of the Restricted
Subsidiaries;
(c) without duplication of the financial statements delivered
pursuant to Section 7.1, within five days after the same are sent, copies
-----------
of all financial statements and reports which the Borrower sends to the
holders of any class of its debt securities, and within five days after
the same are filed, copies of all financial statements and reports which
the Borrower may make to, or file with, the Securities and Exchange
Commission or any successor or analogous Governmental Authority; and
(d) promptly, such additional financial and other information as
any Lender may from time to time reasonably request.
49
<PAGE>
7.3 Payment of Obligations. Pay, discharge or otherwise satisfy
----------------------
at or before maturity or before they become delinquent, as the case may be, all
its material obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of the Borrower or the relevant Restricted Subsidiary, as the case may
be.
7.4 Conduct of Business and Maintenance of Existence, etc.
-----------------------------------------------------
(a) Continue to engage in business of the same general type as now conducted by
it, except as otherwise permitted by Section 8.13, and preserve, renew and keep
------------
in full force and effect its organizational existence and take all reasonable
action to maintain all material rights, privileges and franchises necessary in
the normal conduct of its business except as otherwise permitted pursuant to
Section 8.4.
- -----------
(b) Comply with all Contractual Obligations and applicable
Requirements of Law, except to the extent that failure to comply therewith could
not reasonably be expected to have a Material Adverse Effect.
7.5 Maintenance of Property; Insurance. (a) Keep all material
----------------------------------
property useful and necessary in its business in good working order and
condition (ordinary wear and tear excepted) consistent with customary practices
in the cable industry; maintain with financially sound and reputable insurance
companies insurance on all its property in at least such amounts and against at
least such risks as are usually insured against in the same general area by
companies engaged in the same or a similar business; and furnish to the
Administrative Agent certificates of insurance from time to time received by it
for each such policy of insurance including insurance certificates evidencing
compliance with Section 7.5(b).
--------------
(b) In the event that the provisions of item (ii) of
Section 8.16 apply, then contemporaneously with the Borrower's compliance with
- ------------
Section 7.9 the Borrower shall cause (i) the Administrative Agent to be named,
- -----------
in a manner reasonably satisfactory to the Administrative Agent, (a) as lender
loss payee for the benefit of the Lenders under all policies of casualty
insurance maintained by the Borrower and the Restricted Subsidiaries and (b) as
an additional insured for the benefit of the Lenders on all policies of
liability insurance maintained by the Borrower and the Restricted Subsidiaries;
and (ii) all insurance policies to contain a provision that the policy may not
be cancelled, terminated or modified without thirty (30) days' prior written
notice to the Administrative Agent.
7.6 Inspection of Property; Books and Records; Discussions. Keep
------------------------------------------------------
and maintain a system of accounting established and administered in accordance
with sound business practices and keep and maintain proper books of record and
accounts; and permit representatives of any Lender to visit and inspect any of
its properties and examine and make abstracts from any of its books and records
during normal business hours and as often as may reasonably be requested and
upon reasonable notice and to discuss the business, operations, properties and
financial and other condition of the Borrower and the Restricted Subsidiaries
with officers and employees of the
50
<PAGE>
Borrower and the Restricted Subsidiaries and with their independent certified
public accountants; provided that representatives of the Borrower designated by
a Responsible Officer may be present at any such meeting with such accountants.
7.7 Notices. Promptly after the Borrower obtains knowledge
-------
thereof, give notice to the Administrative Agent and each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of JIC, the Borrower or any of the Restricted Subsidiaries or
(ii) litigation, investigation or proceeding which may exist at any time
between JIC, the Borrower or any of the Restricted Subsidiaries and any
Governmental Authority, which in either case could reasonably be expected
to have a Material Adverse Effect;
(c) any litigation or proceeding affecting the Borrower or any
of the Restricted Subsidiaries (i) which could reasonably be expected to
result in an adverse judgment of $10,000,000 or more and which is not
covered by insurance or (ii) in which injunctive or similar relief is
sought which in the case of this clause (ii) could reasonably be expected
to materially interfere with the ordinary conduct of business of the
Borrower or any of the Restricted Subsidiaries;
(d) the following events, as soon as possible and in any event
within 30 days after the Borrower knows thereof: (i) the occurrence of
any Reportable Event with respect to any Plan, a failure to make any
required contribution to a Plan, the creation of any Lien in favor of the
PBGC or a Plan or any withdrawal from, or the termination, Reorganization
or Insolvency of, any Multiemployer Plan or (ii) the institution of
proceedings or the taking of any other action by the PBGC or the Borrower
or any Commonly Controlled Entity or any Multiemployer Plan with respect
to the withdrawal from, or the terminating, Reorganization or Insolvency
of, any Plan; and
(e) any development or event which could reasonably be expected
to have a Material Adverse Effect.
Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action is proposed to be taken with respect thereto.
7.8 Environmental Laws. (a) Comply with, and use reasonable
------------------
efforts to require compliance by all tenants and subtenants, if any, with, all
applicable Environmental Laws and obtain and comply with and maintain, and use
reasonable efforts to require that all tenants and subtenants obtain and comply
with and maintain, any and all licenses, approvals, notifications, registrations
or
51
<PAGE>
permits required by applicable Environmental Laws except, in each case, to the
extent that failure to do so could not be reasonably expected to have a Material
Adverse Effect.
(b) Comply with all lawful orders and directives of all
Governmental Authorities regarding Environmental Laws except to the extent that
the same are being contested in good faith by appropriate proceedings diligently
pursued.
7.9 Collateral. (a) To ratably secure full and complete payment
----------
and performance of the Obligations (and the Obligations under and as defined in
the Tranche B Agreement), (i) the Borrower shall grant and convey to and create
in favor of, the Administrative Agent for the ratable benefit of the Lenders a
continuing first priority perfected Lien and security interest in, to and on all
of the Capital Stock of each direct or indirect Restricted Subsidiary of the
Borrower and any other direct or indirect Restricted Subsidiary of the Borrower,
now owned or hereafter acquired and/or designated by the Borrower; and (ii) the
Restricted Subsidiaries shall grant and convey to and create in favor of, the
Administrative Agent for the ratable benefit of the Lenders a continuing first
priority perfected Lien and security interest in, to and on all of the Capital
Stock of each Restricted Subsidiary owned by a Restricted Subsidiary, now owned
or hereafter acquired.
(b) With respect to any new Restricted Subsidiary created,
acquired or designated after the date hereof, the Borrower shall and shall cause
each such new Restricted Subsidiary, as applicable, to promptly (but in no event
later than 30 days after the creation, acquisition or designation of a
Restricted Subsidiary) (i) execute and deliver to the Administrative Agent such
new Pledge Agreements and/or amendments to existing Pledge Agreements as the
Administrative Agent deems necessary or advisable in order to grant to the
Administrative Agent, for the benefit of the Lenders, a perfected first priority
security interest in the Capital Stock of such Restricted Subsidiary and any
Restricted Subsidiaries of such Restricted Subsidiary, (ii) deliver to the
Administrative Agent the certificates representing the Capital Stock of such
Restricted Subsidiary and any Restricted Subsidiary of such Restricted
Subsidiary, together with undated stock powers, in blank, executed and delivered
by a duly authorized officer of the Borrower or such Restricted Subsidiary, as
applicable, (iii) take such other actions as shall be necessary or advisable to
grant to the Administrative Agent for the benefit of the Lenders a perfected
first priority security interest in such Capital Stock, including, without
limitation, the filing of such Uniform Commercial Code financing statements as
may be requested by the Administrative Agent, (iv) execute and deliver to the
Administrative Agent a Restricted Subsidiary Negative Pledge and (v) if
requested by the Administrative Agent, deliver to the Administrative Agent legal
opinions relating to the matters described in the preceding clauses (i), (ii),
(iii) and (iv), which opinions shall be in form and substance, and from counsel,
reasonably satisfactory to the Administrative Agent.
52
<PAGE>
(c) With respect to any assets (other than the Capital Stock of
Subsidiaries) from time to time acquired by the Borrower which are not
transferred to a Restricted Subsidiary in accordance with Section 8.16 (each, an
------------
"Acquired Asset" and collectively, the "Acquired Assets"), the Borrower shall,
-------------- ---------------
within 90 days after the date on which the aggregate fair market value of all
Acquired Assets owned by the Borrower exceeds $500,000, execute and deliver or
cause to be delivered to the Administrative Agent in a form reasonably
acceptable to the Administrative Agent (i) one or more mortgages and/or security
agreements which grant to the Administrative Agent a first priority perfected
security interest in the assets of the Borrower, whether then owned or
thereafter acquired (subject to any Liens permitted by Section 8.3) and
-----------
(ii) such additional agreements and other documents as the Administrative Agent
reasonably deems necessary to establish a valid, enforceable and perfected first
priority security interest in such assets (subject to any Liens permitted by
Section 8.3).
- -----------
(d) Upon request of the Administrative Agent, promptly execute
and deliver or cause to be executed and delivered to the Administrative Agent in
a form reasonably acceptable to the Administrative Agent such additional
agreements and other documents as the Administrative Agent reasonably deems
necessary to establish a valid, enforceable and perfected first priority
security interest in the Collateral.
7.10 Use of Proceeds. The Borrower shall use the proceeds of the
---------------
Loans and the Letters of Credit only for (a) financing permitted acquisitions,
(b) capital expenditures to expand and upgrade Cable Systems, (c) dividends or
distributions permitted under this Agreement, and (d) general corporate
purposes.
7.11 New Subsidiaries. Immediately upon the creation or
----------------
acquisition thereof, the Borrower shall notify the Administrative Agent of the
designation of any newly created or acquired Subsidiary as a Restricted
Subsidiary or an Unrestricted Subsidiary and shall provide the Administrative
Agent with an updated Schedule 5.14 within 30 days of any changes thereto,
-------------
provided that no designation of any newly created or acquired Subsidiary as an
- --------
Unrestricted Subsidiary shall be permitted (except by another Unrestricted
Subsidiary) unless such designation would otherwise be permitted under the
definition thereof and Sections 8.6 and 8.9(f). In addition, the Borrower shall
------------ ------
cause any newly created or acquired Restricted Subsidiary to execute and deliver
to the Administrative Agent, within 30 days of such creation or acquisition, a
Restricted Subsidiary Negative Pledge.
SECTION 8. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as any Commitment remains
in effect, any Loan or Letter of Credit is outstanding, or any other Obligation
is due and payable to any Lender or the Administrative Agent hereunder or under
any other Loan Document, the Borrower shall not, and the Borrower shall not
permit any of the Restricted Subsidiaries to, directly or indirectly:
53
<PAGE>
8.1 Financial Condition Covenants.
-----------------------------
(a) Leverage Ratio. Permit the Leverage Ratio at any time during
any period set forth below to be greater than the ratio set forth
opposite such period below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Effective Date through and including 6/30/99 6.00 to 1.00
7/01/99 through and including 6/30/2000 5.50 to 1.00
7/01/2000 through and including 6/30/2001 5.00 to 1.00
7/01/2001 and thereafter 4.50 to 1.00
</TABLE>
(b) Interest Coverage Ratio. Permit the ratio of Operating Cash
Flow for any fiscal quarter of the Borrower ending during any period set
forth below to Interest Expense for such fiscal quarter to be less than
the ratio set forth opposite such period below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Effective Date through 6/30/2000 1.50 to 1.00
7/1/2000 and thereafter 2.00 to 1.00
</TABLE>
(c) Pro Forma Debt Service Ratio. Permit, at any time, the ratio
----------------------------
of Annualized Operating Cash Flow based on the most recently ended fiscal
quarter to Pro Forma Debt Service to be less than 1.10 to 1.00.
8.2 Limitation on Indebtedness. Create, incur, assume or suffer
--------------------------
to exist any Indebtedness of the Borrower or any Restricted Subsidiary of the
Borrower, except:
(a) Indebtedness under this Agreement and the Tranche B
Agreement, other than L/C Obligations of the Borrower that are for the
benefit of or support the obligations of any Person other than the
Borrower or a Restricted Subsidiary;
(b) Indebtedness of the Restricted Subsidiaries resulting from
any loan or advance from the Borrower;
(c) Intercompany Subordinated Debt, provided that the
--------
Intercompany Subordinated Debt is unsecured and subordinated pursuant to
the terms and conditions of the Intercompany Subordinated Debt Agreement;
(d) Interest Rate Hedge Agreements entered into with the Lenders
or any of them for the purpose of hedging against interest rate
fluctuations with respect to variable rate Indebtedness of the Borrower
or any of the Restricted Subsidiaries; and
54
<PAGE>
(e) Indebtedness of the Borrower and/or any Restricted
Subsidiary not otherwise permitted by this Section 8.2, provided that
----------- --------
immediately prior to and after giving effect to the creation, incurrence
or assumption of such Indebtedness (i) the aggregate outstanding
principal amount of all such other Indebtedness of the Borrower and the
Restricted Subsidiaries, on a combined basis plus (without duplication)
the aggregate amount of all Indebtedness secured by Liens permitted under
subsection (d) of Section 8.3 shall not at any time exceed 5% of Maximum
-------------- -----------
Permitted Indebtedness and (ii) no Default exists and would then be
continuing.
8.3 Limitation on Liens. Create, incur, assume or suffer to
-------------------
exist any Lien upon any of its property, assets or revenues, whether now owned
or hereafter acquired, except for:
(a) Liens for taxes, assessments or governmental charges arising
in the ordinary course of business which are not yet due and payable or
which are being contested in good faith by appropriate proceedings,
provided that adequate reserves with respect thereto are maintained on
--------
the books of the Borrower or the Restricted Subsidiary, as the case may
be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business which are not yet due and payable;
(c) Liens created pursuant to the Security Documents;
(d) other Liens, provided that immediately prior to and after
--------
giving effect to the creation of any such Liens (i) the aggregate amount
of such Indebtedness secured by Liens permitted under this
subsection (d) plus (without duplication) the aggregate amount of all
--------------
Indebtedness of the Borrower and the Restricted Subsidiaries permitted
under Section 8.2(e) shall not at any time exceed 5% of Maximum Permitted
--------------
Indebtedness and (ii) no Default or Event of Default exists and would
then be continuing;
(e) encumbrances consisting of zoning restrictions, easements,
or other restrictions on the use of real property, none of which impair
in any material respect the use of such property by the Person in
question in the operation of its business, and none of which is violated
by existing or proposed structures or land use; and
(f) any attachment, prejudgment or judgment Lien in existence
less than sixty consecutive calendar days after the entry thereof, or
with respect to which execution has been stayed, or with respect to which
payment in full above any applicable customary deductible is covered by
insurance or a bond.
55
<PAGE>
8.4 Limitation on Fundamental Changes. Enter into any merger,
---------------------------------
consolidation or amalgamation with any Person, or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution), or convey, sell, lease,
assign, transfer or otherwise dispose of, all or substantially all of its
property, business or assets to any Person, or make any material change in its
present method of conducting business, except:
(a) a Restricted Subsidiary may merge into or be acquired by the
Borrower if the Borrower is the survivor thereof;
(b) a Restricted Subsidiary may merge into or be acquired by another
Restricted Subsidiary; and
(c) the Borrower or any Restricted Subsidiary may sell, lease,
transfer or otherwise dispose of any or all of its assets in a transaction
permitted under Section 8.5.
-----------
8.5 Limitation on Sale of Assets. Convey, sell, lease, assign,
----------------------------
exchange, transfer or otherwise dispose of any of its property, business or
assets (including, without limitation, receivables and leasehold interests),
whether now owned or hereafter acquired to any Person (a "Disposition"), except:
-----------
(a) Dispositions in the ordinary course of business (which shall not
be construed to include the Disposition of any License, Franchise or Cable
System);
(b) subject to the provisions of Section 8.16, Dispositions between
------------
the Borrower and the Restricted Subsidiaries or between the Restricted
Subsidiaries;
(c) the Borrower may designate any Restricted Subsidiary as an
Unrestricted Subsidiary in accordance with Section 8.6 and may make
-----------
Restricted Payments in accordance with Section 8.7; and
-----------
(d) other Dispositions, provided that all of the following
--------
conditions are satisfied: (i) the Borrower or such Restricted Subsidiary
receives consideration that represents the fair market value of such
property or assets at the time of such Disposition, (ii) any such
Disposition shall be on a non-recourse basis, except that the Borrower or
such Restricted Subsidiary may make commercially reasonable
representations, warranties and indemnities with respect to such properties
or assets that are normal and customary in the cable television business
("Permitted Sale Representations"), (iii) no Default or Event of Default
------------------------------
shall have occurred and be continuing either before or after the
consummation of such transaction and (iv) either (1) the Leverage Ratio is
less than or equal to 3.75 to 1.00 after giving effect to such Disposition
or (2) after giving effect to such proposed Disposition (x) the sum,
without duplication, of (A) the Net Unrestricted Designated Subsidiaries
Three Month Cash Flow for the prior twelve month period (or shorter period
commencing on the Effective Date) ending on the date of such proposed
transaction, (B) the Three Month Cash Flow attributable to the
56
<PAGE>
properties or assets to be sold, leased, transferred, assigned or otherwise
disposed of and (C) the Three Month Cash Flow attributable to all
properties or assets sold, leased, transferred, assigned or otherwise
disposed of during the prior twelve month period (or shorter period
commencing on the Effective Date) ending on the date of such proposed
transaction shall not exceed 15% of the Three Month Cash Flow of the
Borrower and the Restricted Subsidiaries, and (y) the sum, without
duplication of (A) the Net Unrestricted Designated Subsidiaries Three Month
Cash Flow for the five-year period (or shorter period commencing on the
Effective Date) ending on the date of such proposed transaction, (B) the
Three Month Cash Flow attributable to the properties or assets to be sold,
leased, transferred, assigned or otherwise disposed of and (C) the Three
Month Cash Flow attributable to all assets sold, leased, transferred,
assigned or disposed of during the five-year period (or shorter period
commencing on the Effective Date) ending on the date of such proposed
transaction shall not exceed 30% of the Three Month Cash Flow of the
Borrower and the Restricted Subsidiaries. Notwithstanding anything to the
contrary contained in the foregoing, if the Leverage Ratio is less than or
equal to 3.75 to 1.00 for a period of twelve consecutive months all prior
Dispositions and Unrestricted Subsidiary Designations shall be excluded
from subsequent determinations pertaining to the foregoing clause (y).
Upon request by and at the expense of the Borrower, the Administrative Agent
shall release any Liens arising under the Security Documents with respect to any
Collateral which (i) is permitted to be disposed of pursuant to Section 8.5(a),
--------------
(ii) consists of the Capital Stock of a Restricted Subsidiary which is
designated as an Unrestricted Subsidiary pursuant to Section 8.6, or (iii) is
-----------
sold or otherwise disposed of in compliance with the terms of Section 8.5(d).
--------------
8.6 Restricted/Unrestricted Designation of Subsidiaries. Be
---------------------------------------------------
permitted to designate a Restricted Subsidiary as an Unrestricted Subsidiary or
an Unrestricted Subsidiary as a Restricted Subsidiary unless (a) the Borrower
delivers to the Administrative Agent and the Lenders a written notice, not later
than ten (10) days prior to such designation, certifying that all conditions set
forth in this Section 8.6 are satisfied as of the proposed effective date of
-----------
such designation, which certification shall state the proposed effective date of
such designation and shall be signed by a Responsible Officer of the Borrower;
(b) no Default or Event of Default shall exist immediately before or after the
effective date of such designation; (c) after giving effect to such designation,
there shall not be any material and adverse effect on the Borrower and the
Restricted Subsidiaries on a consolidated basis with respect to the prospects
for the future generation of Operating Cash Flow, the general mix of assets or
the condition, quality and development level of technical equipment, and such
designation shall not render the Borrower and the Restricted Subsidiaries on a
consolidated basis insolvent or generally unable to pay its or their respective
debts as they become due; (d) in the case of the designation of an Unrestricted
Subsidiary as a Restricted Subsidiary, such notice shall also serve as the
certification of the Borrower that, with respect to such Restricted Subsidiary,
the representations and warranties contained herein are true and correct on and
as of the effective date of such designation; and (e) in the case of the
designation of any Restricted Subsidiary as an Unrestricted Subsidiary (an
"Unrestricted Subsidiary Designation"), either (1) the Leverage Ratio is less
- ------------------------------------
than or equal to 3.75 to 1.00 after giving effect to such Unrestricted
Subsidiary Designation
57
<PAGE>
or (2) after giving effect to such Unrestricted Subsidiary Designation the
following additional conditions are satisfied as of the effective date of such
proposed designation: (i) the sum, without duplication, of (x) the Net
Unrestricted Designated Subsidiaries Three Month Cash Flow for the prior twelve
month period (or shorter period commencing on the Effective Date) ending on the
date of such proposed designation and (y) the Three Month Cash Flow attributable
to all asset Dispositions made pursuant to Section 8.5(d) during the twelve
--------------
month period (or shorter period commencing on the Effective Date) ending on the
date of such proposed designation shall not exceed fifteen percent (15%) of the
Three Month Cash Flow of the Borrower and the Restricted Subsidiaries, and (ii)
the sum, without duplication, of (x) the Net Unrestricted Designated
Subsidiaries Three Month Cash Flow for the five-year period (or shorter period
commencing on the Effective Date) ending on the date of such proposed
designation and (y) the Three Month Cash Flow attributable to all asset
Dispositions made pursuant to Section 8.5(d) during the five-year period (or
--------------
shorter period commencing on the Effective Date) ending on the date of such
proposed designation shall not exceed thirty percent (30%) of the Three Month
Cash Flow of the Borrower and the Restricted Subsidiaries. Notwithstanding the
foregoing, if the Leverage Ratio is less than or equal to 3.75 to 1.00 for a
period of twelve consecutive months, all previous Unrestricted Subsidiary
Designations and asset Dispositions shall be excluded from subsequent
determinations pertaining to the foregoing clause (ii).
8.7 Limitation on Restricted Payments; Other Payment Limitations.
------------------------------------------------------------
Declare or pay any dividend or distribution in respect of, or make any payment
on account of, or set apart assets for a sinking or other analogous fund for,
the purchase, redemption, defeasance, retirement or other acquisition of, any
shares of or interests in any class of Capital Stock of the Borrower, whether
now or hereafter outstanding, either directly or indirectly, whether in cash or
property or in obligations of the Borrower or any of its Subsidiaries, or make,
or permit any payments of principal, interest, premium or fees on account of
Intercompany Subordinated Debt or make any payment in respect of any fees
payable to any Person (other than to the Borrower or a Restricted Subsidiary)
for management, consulting, oversight or similar services (collectively,
"Restricted Payments"), except that the Borrower and the Restricted Subsidiaries
-------------------
may make Restricted Payments in cash or Capital Stock so long as both
immediately before and after making such Restricted Payment (i) no Default or
Event of Default shall have occurred and be continuing or would result therefrom
and (ii) the Leverage Ratio is less than 5.50 to 1.00. Notwithstanding anything
to the contrary contained in the foregoing, prior to making any Restricted
Payment, the Borrower shall provide the Administrative Agent with a pro forma
calculation of the Leverage Ratio demonstrating that such Leverage Ratio is less
than 5.50 to 1.00 both before and after making such Restricted Payment, which
calculation shall be certified to by the Borrower.
8.8 Limitation on Acquisitions. Purchase any stock, bonds, notes,
--------------------------
debentures or other securities of or any assets constituting all or any
significant part of a business unit of any Person (collectively,
"Acquisitions"), except acquisitions (substantially all of which consist of
------------
Cable Systems or telecommunications systems) through the purchase of stock or
assets in any Permitted Line of Business, provided, that (i) no such acquisition
--------
may be made if a Default or an Event of Default shall have occurred and be
continuing or would result therefrom, (ii) prior to such
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<PAGE>
Acquisition, the Borrower provides evidence of pro forma compliance with all of
the terms and conditions of this Agreement, and in the case of Acquisitions in
excess of $50,000,000 a ten year cash flow projection for any such Cable System
or telecommunications system being acquired, demonstrating such compliance and
(iii) compliance in a timely manner by the Borrower with Section 8.16.
------------
8.9 Investments, Loans, Etc. Purchase or otherwise acquire or
------------------------
invest in the Capital Stock of, or any other equity interest in, any Person
(including, without limitation, the Capital Stock of the Borrower), or make any
loan to, or enter into any arrangement for the purpose of providing funds or
credit to, or, guarantee or become contingently obligated in respect of the
obligations of or make any other investment, whether by way of capital
contribution or otherwise, in, to or with any Person, or permit any Restricted
Subsidiary so to do (all of which are sometimes referred to herein as
"Investments"), provided that, so long as no Default or Event of Default shall
- ------------ --------
have occurred and be continuing or would result therefrom, nothing contained in
this Section 8.9 shall be deemed to prohibit the Borrower or any Restricted
-----------
Subsidiary from making Investments:
(a) in certificates of deposit with maturities of 270 days or less
from the date of acquisition and overnight bank deposits of any Lender or
of any commercial bank having capital and surplus in excess of
$500,000,000;
(b) in repurchase obligations of any Lender or of any commercial bank
satisfying the requirements of clause (a) of this Section 8.9, having a
-----------
term of not more than 30 days, with respect to securities issued or fully
guaranteed or insured by the United States Government;
(c) in commercial paper of a domestic issuer maturing not in excess
of 270 days from the date of acquisition and rated at least A-1 by S&P or
P-1 by Moody's;
(d) in indebtedness of a domestic issuer maturing not in excess of
270 days from the date of acquisition and having the highest rating by S&P
and Moody's;
(e) in Restricted Subsidiaries or for the acquisition or creation of
new Restricted Subsidiaries, provided that (i) in the case of an
--------
acquisition, the Borrower complies with the provisions of Section 8.8, (ii)
-----------
such Restricted Subsidiary is organized under the laws of any state of the
United States or the District of Columbia and (iii) not less than one
hundred percent (100%) of the voting control thereof and not less than one
hundred percent (100%) of the overall economic equity therein, at the time
of which any determination is being made, is owned, directly or indirectly,
beneficially and of record by the Borrower; and
(f) in Unrestricted Subsidiaries through Dispositions under
Section 8.5, designations under Section 8.6 and Acquisitions under
----------- -----------
Section 8.8, provided that such Investments are in compliance with
----------- --------
Sections 8.5, 8.6 and 8.8.
------------ --- ---
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<PAGE>
8.10 Limitation on Transactions with Affiliates. Enter into any
------------------------------------------
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate (other
than a Restricted Subsidiary) other than transactions (a) otherwise permitted
under this Agreement, (b) entered into in the ordinary course of the Borrower's
or such Restricted Subsidiary's business, the terms of which are fair and
reasonable and in the best interests of the Loan Party which is party to the
transaction and which transaction is approved by the Board of Directors of the
Borrower or (c) which are existing transactions set forth on Schedule 8.10 and
-------------
future transactions which are in renewal or replacement of the transactions set
forth in Schedule 8.10 provided that such future transactions are of a type and
------------- --------
upon terms consistent with the transactions set forth on Schedule 8.10.
-------------
8.11 Certain Intercompany Matters. Fail to (i) satisfy customary
----------------------------
formalities with respect to organizational separateness, including, without
limitation, (x) the maintenance of separate books and records and (y) the
maintenance of separate bank accounts in its own name; (ii) act solely in its
own name and through its authorized officers and agents; (iii) commingle any
money or other assets of JIC or any Unrestricted Subsidiary with any money or
other assets of the Borrower or any of the Restricted Subsidiaries; or (iv) take
any action, or conduct its affairs in a manner, which could reasonably be
expected to result in the separate organizational existence of JIC, each
Unrestricted Subsidiary, the Borrower and the Restricted Subsidiaries being
ignored under any circumstance.
8.12 Limitation on Restrictions on Subsidiary Distributions.
------------------------------------------------------
Enter into or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary of the Borrower to (a)
pay dividends or make any other distributions in respect of any Capital Stock of
such Restricted Subsidiary held by, or pay any Indebtedness owed to, the
Borrower or any other Restricted Subsidiary of the Borrower, (b) make loans or
advances to the Borrower or any other Restricted Subsidiary of the Borrower or
(c) transfer any of its assets to the Borrower or any other Restricted
Subsidiary of the Borrower, except for such encumbrances or restrictions
existing under or by reason of (i) any restrictions existing under the Loan
Documents or any other agreements in effect on the date hereof, or (ii) any
restrictions with respect to a Restricted Subsidiary imposed pursuant to an
agreement which has been entered into in connection with the sale or disposition
of all or substantially all of the Capital Stock or assets of such Restricted
Subsidiary or any restrictions arising under Franchise Agreements, Pole
Agreements or leases entered into in the ordinary course of business.
8.13 Limitation on Lines of Business. Enter into any business,
-------------------------------
either directly or through any Restricted Subsidiary, except for the domestic
cable and telecommunications business (each, a "Permitted Line of Business").
--------------------------
8.14 No Negative Pledge. Covenant or agree with any other lender
------------------
or other Person, not to create, or not to allow to be created or otherwise
exist, any Lien upon any asset of the Borrower or any of the Restricted
Subsidiaries or covenant or agree with any other lenders or other Persons to any
other arrangement that is functionally equivalent or similar to a negative
pledge.
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<PAGE>
8.15 Tax Sharing Agreement. Pay any Taxes under the Tax Sharing
---------------------
Agreement or other similar agreement greater than the lesser of (i) the amount
that would have been payable by the Borrower if there were no Tax Sharing
Agreement or other similar agreement and (ii) the amount actually paid by JIC in
respect of such Taxes. Amend, supplement or in any manner modify, without the
written consent of the Majority Banks, the terms of the Tax Sharing Agreement.
8.16 Limitation on the Borrower's Ownership of Assets. The
------------------------------------------------
Borrower shall not be permitted to own any Cable System or other material asset
unless the Borrower either (i) transfers any assets it owns or acquires (other
than the Capital Stock of a Subsidiary) to a Restricted Subsidiary or (ii)
complies with the provisions of Section 7.9 within 90 days after the date on
-----------
which the aggregate fair market value of all Acquired Assets (as defined in
Section 7.9(c)) owned by the Borrower exceeds $500,000.
- --------------
8.17 Limitation on Issuance of Capital Stock. Issue, sell,
---------------------------------------
assign, pledge or otherwise encumber or dispose of any shares of Capital Stock,
except (i) the Restricted Subsidiaries may issue or sell Capital Stock to the
Borrower, (ii) the Borrower and the Restricted Subsidiaries may pledge the
Capital Stock of the Restricted Subsidiaries pursuant to the Pledge Agreements
and (iii) the Borrower can issue shares of its Capital Stock so long as both
before and after giving effect to such issuance and any related transactions no
Default or Event of Default shall have occurred and be continuing or would
result therefrom.
SECTION 9. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan or
Reimbursement Obligation when due in accordance with the terms hereof; or
the Borrower shall fail to pay any interest on any Loan or Reimbursement
Obligation, or any other amount payable hereunder, on or prior to the date
which is five days (or, if later, three Business Days) after any such
interest or other amount becomes due in accordance with the terms hereof;
or
(b) Any representation or warranty made or deemed made by JIC, the
Borrower or any other Loan Party herein or in any other Loan Document or
which is contained in any Information furnished at any time under or in
connection with this Agreement or any such other Loan Document shall prove
to have been incorrect in any material respect on or as of the date made or
deemed made; or
(c) The Borrower or any other Loan Party shall default in the
observance or performance of any agreement contained in Section 7.7(a) or
-------------
Section 8 of this Agreement or in Section 5(b) of the Pledge Agreements; or
---------
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<PAGE>
(d) The Borrower, JIC or any other Loan Party shall default in the
observance or performance of any other agreement contained in this
Agreement or any other Loan Document (other than as provided in paragraphs
(a) through (c) of this Section), and such default shall continue
unremedied for a period of 30 days after the Administrative Agent shall
have given the Borrower notice thereof; or
(e) (i) JIC, the Borrower or any of the Restricted Subsidiaries shall
default in making any payment of any principal of any Indebtedness
(including, without limitation, any Guarantee Obligation, but excluding the
Loans and Reimbursement Obligations) beyond the period of grace or cure, if
any, provided in the instrument or agreement under which such Indebtedness
was created; or (ii) JIC, the Borrower or any of the Restricted
Subsidiaries shall default in making any payment of any interest on any
such Indebtedness beyond the period of grace or cure, if any, provided in
the instrument or agreement under which such Indebtedness was created; or
(iii) JIC, the Borrower or any of the Restricted Subsidiaries shall default
in the observance or performance of any other agreement or condition
relating to any such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event
shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or beneficiary of such
Indebtedness (or a trustee or agent on behalf of such holder or
beneficiary) to cause, with the giving of notice if required, such
Indebtedness to become due or to be purchased or repurchased prior to its
stated maturity (or, in the case of any such Indebtedness constituting a
Guarantee Obligation, to become payable prior to the stated maturity of the
primary obligation covered by such Guarantee Obligation); provided that a
--------
default, event or condition described in clause (i), (ii) or (iii) of this
paragraph (e) shall not constitute an Event of Default under this Agreement
unless, at the time of such default, event or condition one or more
defaults, events or conditions of the type described in clauses (i), (ii)
and (iii) of this paragraph (e) shall have occurred with respect to
Indebtedness the outstanding principal amount of which exceeds in the
aggregate $10,000,000; or
(f) (i) JIC, the Borrower or any of the Restricted Subsidiaries shall
commence any case, proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (B) seeking appointment
of a receiver, trustee, custodian, conservator or other similar official
for it or for all or any substantial part of its assets, or JIC, the
Borrower or any of the Restricted Subsidiaries shall make a general
assignment for the benefit of its creditors; or (ii) there shall be
commenced against JIC, the Borrower or any of the Restricted Subsidiaries
any case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be commenced against
JIC, the Borrower or any of the Restricted Subsidiaries any case,
62
<PAGE>
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part
of its assets which results in the entry of an order for any such relief
which shall not have been vacated, discharged, or stayed or bonded pending
appeal within 60 days from the entry thereof; or (iv) JIC, the Borrower or
any of the Restricted Subsidiaries shall take any action in furtherance of,
or indicating its consent to, approval of, or acquiescence in, any of the
acts set forth in clause (i), (ii), or (iii) above; or (v) JIC, the
Borrower or any of the Restricted Subsidiaries shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall
occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate,
any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of
the Majority Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the Borrower or any
Commonly Controlled Entity shall, or in the reasonable opinion of the
Majority Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other event or condition shall occur or exist with respect
to a Plan; and in each case in clauses (i) through (vi) above, such event
or condition, together with all other such events or conditions, if any,
could reasonably be expected to have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against JIC, the
Borrower or any of the Restricted Subsidiaries involving in the aggregate a
liability (not paid or fully covered by insurance) of $10,000,000 or more,
and all such judgments or decrees shall not have been vacated, discharged,
stayed or bonded pending appeal within 60 days after the entry thereof; or
(i) (i) Any material provision of the Loan Documents shall cease, for
any reason, to be in full force and effect, or the Borrower or any other
Loan Party shall so assert or (ii) the Lien created by any of the Security
Documents shall cease to be enforceable and of the same effect and priority
purported to be created thereby;
(j) A Change of Control shall occur;
(k) The Capital Stock of the Borrower or any portion thereof or any
Intercompany Subordinated Debt shall become subject to or covered by the
Lien of any Person; or
63
<PAGE>
(l) A default or event of default shall occur under the Tranche B
Agreement.
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) of this Section 9 with respect to the
---------
Borrower, automatically the Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement and the other Loan Documents (including, without
limitation, all amounts of L/C Obligations, whether or not the beneficiaries of
the then outstanding Letters of Credit shall have presented the documents
required thereunder) shall immediately become due and payable, and (B) if such
event is any other Event of Default, either or both of the following actions may
be taken: (i) with the consent of the Majority Lenders, the Administrative
Agent may, or upon the request of the Majority Lenders, the Administrative Agent
shall, by notice to the Borrower declare the Commitments to be terminated
forthwith, whereupon such Commitments shall immediately terminate; and (ii) with
the consent of the Majority Lenders, the Administrative Agent may, or upon the
request of the Majority Lenders, the Administrative Agent shall, by notice to
the Borrower, declare the Loans hereunder (with accrued interest thereon) and
all other amounts owing under this Agreement and the other Loan Documents
(including, without limitation, all amounts of L/C Obligations, whether or not
the beneficiaries of the then outstanding Letters of Credit shall have presented
the documents required thereunder) to be due and payable forthwith, whereupon
the same shall immediately become due and payable. With respect to all Letters
of Credit with respect to which presentment for honor shall not have occurred at
the time of an acceleration pursuant to this paragraph, the Borrower shall at
such time deposit in a cash collateral account opened by the Administrative
Agent an amount equal to the aggregate then undrawn and unexpired amount of such
Letters of Credit. Amounts held in such cash collateral account shall be
applied by the Administrative Agent to the payment of drafts drawn under such
Letters of Credit, and the unused portion thereof after all such Letters of
Credit shall have expired or been fully drawn upon, if any, shall be applied to
repay other Obligations of the Borrower hereunder and under the other Loan
Documents. After all such Letters of Credit shall have expired or been fully
drawn upon, all Reimbursement Obligations shall have been satisfied, all Loans
shall have been paid in full and no other Obligations shall be due and payable,
the balance, if any, in such cash collateral account shall be returned to the
Borrower (or such other Person as may be lawfully entitled thereto).
Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
SECTION 10. THE ADMINISTRATIVE AGENT
10.1 Appointment. Each Lender hereby irrevocably designates and
-----------
appoints the Administrative Agent as the agent of such Lender under this
Agreement and the other Loan Documents, and each such Lender irrevocably
authorizes the Administrative Agent, in such capacity, to take such action on
its behalf under the provisions of this Agreement and the other Loan Documents
and to exercise such powers and perform such duties as are expressly delegated
to the Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with
64
<PAGE>
such other powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary elsewhere in this Agreement or any other Loan
Document, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the
Administrative Agent.
10.2 Delegation of Duties. The Administrative Agent may execute any
--------------------
of its duties under this Agreement and the other Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agents or attorneys
in-fact selected by it with reasonable care.
10.3 Exculpatory Provisions. Neither the Administrative Agent nor
----------------------
any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except for its or such Person's own gross negligence or
willful misconduct) or (ii) responsible in any manner to any of the Lenders for
any recitals, statements, representations or warranties made by the Borrower or
any officer thereof contained in this Agreement or any other Loan Document or in
any certificate, report, statement or other document referred to or provided for
in, or received by the Administrative Agent under or in connection with, this
Agreement or any other Loan Document or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document or for any failure of the Borrower to perform its obligations hereunder
or thereunder. The Administrative Agent shall not be under any obligation to any
Lender to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower.
10.4 Reliance by the Administrative Agent. The Administrative Agent
------------------------------------
shall be entitled to rely, and shall be fully protected in relying, upon any
Note, writing, resolution, notice, consent, certificate, affidavit, letter,
facsimile, statement, order or other document or conversation believed by it to
be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Borrower), independent accountants and other
experts selected by the Administrative Agent. The Administrative Agent may deem
and treat the payee of any Note as the owner thereof for all purposes unless a
written notice of assignment, negotiation or transfer thereof shall have been
filed with the Administrative Agent. The Administrative Agent shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Loan Document unless it shall first receive such advice or concurrence of
the Majority Lenders as it deems appropriate or it shall first be indemnified to
its satisfaction by the Lenders against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such action.
The Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this
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Agreement and the other Loan Documents in accordance with a request of the
Majority Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders of
the Loans.
10.5 Notice of Default. The Administrative Agent shall not be
-----------------
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default hereunder unless the Administrative Agent has received notice from a
Lender (except in the case of a Default under Section 9(a)) or the Borrower
------------
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that the
Administrative Agent receives such a notice, the Administrative Agent shall give
notice thereof to the Lenders. The Administrative Agent shall take such action
with respect to such Default or Event of Default as shall be reasonably directed
by the Majority Lenders; provided that unless and until the Administrative Agent
--------
shall have received such directions, the Administrative Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Lenders.
10.6 Non-Reliance on the Administrative Agent and the Other
------------------------------------------------------
Lenders. Each Lender expressly acknowledges that neither the Administrative
- -------
Agent nor any of its officers, directors, employees, agents, attorneys-in-fact
or affiliates has made any representations or warranties to it and that no act
by the Administrative Agent hereinafter taken, including any review of the
affairs of the Borrower, shall be deemed to constitute any representation or
warranty by the Administrative Agent to any Lender. Each Lender represents to
the Administrative Agent that it has, independently and without reliance upon
the Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Borrower and made its own decision to make
its Loans hereunder and enter into this Agreement. Each Lender also represents
that it will, independently and without reliance upon the Administrative Agent
or any other Lender, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigation as it deems necessary
to inform itself as to the business, operations, property, financial and other
condition and creditworthiness of the Borrower. Except for notices, reports and
other documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Borrower which may come into
the possession of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates.
10.7 Indemnification. The Lenders agree to indemnify the
---------------
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Borrower and without limiting the obligation of the Borrower to do so),
ratably according to their respective Specified Percentages in effect on the
date on which indemnification is sought (or, if indemnification is sought after
the date
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upon which the Loans shall have been paid in full, ratably in accordance with
their Specified Percentages immediately prior to such date), from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind whatsoever which
may at any time (including, without limitation, at any time following the
payment of the Loans) be imposed on, incurred by or asserted against the
Administrative Agent in any way relating to or arising out of, the Commitments,
this Agreement, any of the other Loan Documents or any documents contemplated by
or referred to herein or therein or the transactions contemplated hereby or
thereby or any action taken or omitted by the Administrative Agent under or in
connection with any of the foregoing; provided that no Lender shall be liable
--------
for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Administrative Agent's gross negligence or willful
misconduct. The agreements in this Section shall survive the payment of the
Loans and all other amounts payable hereunder.
10.8 The Administrative Agent in Its Individual Capacity. The
---------------------------------------------------
Administrative Agent and its affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Borrower as though the
Administrative Agent were not the Administrative Agent hereunder and under the
other Loan Documents. With respect to the Loans made by it, the Administrative
Agent shall have the same rights and powers under this Agreement and the other
Loan Documents as any Lender and may exercise the same as though it were not the
Administrative Agent, and the terms "Lender" and "Lenders" shall include the
Administrative Agent in its individual capacity.
10.9 Successor Administrative Agent. (a) The Administrative
------------------------------
Agent may resign as the Administrative Agent upon 30 days' notice to the Lenders
and the appointment of a successor Administrative Agent as hereinafter set
forth; provided that concurrently with such resignation the Administrative Agent
--------
also resigns as the Administrative Agent for the Tranche B Agreement. If the
Administrative Agent shall resign as the Administrative Agent under this
Agreement, the other Loan Documents and the Tranche B Agreement, then, unless an
Event of Default shall have occurred and be continuing (in which case, the
Majority Lenders shall appoint a successor), the Borrower shall appoint from
among the Lenders a successor Administrative Agent for the Lenders, which
successor Administrative Agent shall be approved by the Majority Lenders (which
approval shall not be unreasonably withheld). If no successor Administrative
Agent shall have been so appointed by the Borrower (or in the case of an Event
of Default, by the Majority Lenders) and such successor Administrative Agent has
not accepted such appointment within 30 days after such resignation, then the
resigning Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent, which successor Administrative Agent hereunder
shall be either a Lender or, if none of the Lenders is willing to serve as
successor Administrative Agent, a major international bank having combined
capital and surplus of at least $500,000,000. Upon the acceptance of any
appointment as the Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall succeed to the rights, powers
and duties of the Administrative Agent, and the term "Administrative Agent"
shall mean such successor Administrative Agent effective upon such appointment
and approval, and the former Administrative Agent's rights, powers
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and duties as the Administrative Agent shall be terminated, without any other or
further act or deed on the part of such former Administrative Agent or any of
the parties to this Agreement or any holders of the Loans. After any retiring
Administrative Agent's resignation as the Administrative Agent, the provisions
of this Section 10 shall inure to its benefit as to any actions taken or omitted
----------
to be taken by it while it was the Administrative Agent under this Agreement and
the other Loan Documents.
(b) In the event that the Administrative Agent shall have breached
any of its material obligations to the Lenders hereunder, the Majority Lenders
may remove the Administrative Agent as the Administrative Agent hereunder and
under the Tranche B Agreement, effective on the date specified by them, by
written notice to the Administrative Agent and the Borrower. Upon any such
removal, the Borrower, provided that no Event of Default shall have occurred and
--------
be continuing (in which case the Majority Lenders shall make the appointment),
shall have the right to appoint a successor Administrative Agent hereunder and
under the Tranche B Agreement, which successor Administrative Agent shall be
approved by the Majority Lenders (which approval shall not be unreasonably
withheld). If no successor Administrative Agent shall have been so appointed by
the Borrower (or in the case of an Event of Default, by the Majority Lenders)
and such successor Administrative Agent has not accepted such appointment within
30 days after notification to the Administrative Agent of its removal, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent hereunder and under the Tranche B Agreement, which
successor Administrative Agent shall be either a Lender or, if none of the
Lenders is willing to serve as successor Administrative Agent, a major
international bank having combined capital and surplus of at least $500,000,000.
Such successor Administrative Agent, provided that no Event of Default shall
--------
have occurred and be continuing, shall be reasonably satisfactory to the
Borrower. Upon the acceptance of any appointment as the Administrative Agent
hereunder and under the Tranche B Agreement by a successor Administrative Agent,
such successor Administrative Agent shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be discharged
from its duties and obligations under this Agreement and the Tranche B
Agreement. The Borrower and the Lenders shall execute such documents as shall
be necessary to effect such appointment. After any retiring Administrative
Agent's removal hereunder and under the Tranche B Agreement as the
Administrative Agent, the provisions of this Section 10.9 and Section 10.9 of
------------ ------------
the Tranche B Agreement, respectively, shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was the Administrative Agent
under this Agreement, the other Loan Documents and the Tranche B Agreement. If
at any time there shall not be a duly appointed and acting Administrative Agent,
the Borrower agrees to make each payment due hereunder and under the Notes
directly to the Lenders entitled thereto during such time.
10.10 Managing Agents and Co-Agents. No Managing Agent or Co-
-----------------------------
Agent in their respective capacities as such shall have any duties or
responsibilities hereunder, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or otherwise exist against any
Managing Agent or Co-Agent in their respective capacities as such.
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<PAGE>
SECTION 11. NEW RESTRICTED SUBSIDIARIES
The Borrower and each Restricted Subsidiary hereby agree to promptly,
after the creation, acquisition and/or designation of a Restricted Subsidiary,
notify the Administrative Agent of the existence thereof and to promptly cause
each such new Restricted Subsidiary to execute and deliver to the Administrative
Agent a Pledge Agreement in the form of Exhibit F hereto.
---------
SECTION 12. MISCELLANEOUS
12.1 Amendments and Waivers. Neither this Agreement nor any
----------------------
other Loan Document, nor any terms hereof or thereof may be amended,
supplemented or modified except in accordance with the provisions of this
Section 12.1. The Majority Lenders and each relevant Loan Party may, or, with
- ------------
the written consent of the Majority Lenders, the Administrative Agent and each
relevant Loan Party may, from time to time, (a) enter into written amendments,
supplements or modifications hereto and to the other Loan Documents for the
purpose of adding any provisions to this Agreement or the other Loan Documents
or changing in any manner the rights of the Lenders or of the Loan Parties
hereunder or thereunder or (b) waive, on such terms and conditions as the
Majority Lenders or the Administrative Agent, as the case may be, may specify in
such instrument, any of the requirements of this Agreement or the other Loan
Documents or any Default or Event of Default and its consequences; provided,
--------
however, that no such waiver and no such amendment, supplement or modification
- -------
shall (i) reduce the amount or extend the scheduled date of maturity of any Loan
or of any installment thereof, or reduce the stated rate of any interest or fee
payable hereunder or extend the scheduled date of any payment thereof or
increase the amount or extend the expiration date of any Commitment of any
Lender, or make any change in the method of application of any payment of the
Loans specified in Section 4.2 or Section 4.8, (ii) waive, extend or reduce any
----------- -----------
mandatory Commitment reduction pursuant to Section 4.2, (iii) amend, modify or
-----------
waive any provision of the Intercompany Subordinated Debt Agreement, this
Section 12.1 or reduce any percentage specified in the definition of Majority
- ------------
Lenders, or consent to the assignment or transfer by any Loan Party of any of
its rights and obligations under this Agreement and the other Loan Documents,
(iv) release the Collateral except for any Collateral which is (x) permitted to
be disposed of pursuant to Section 8.5(a) or (y) the subject of a transaction
--------------
permitted under Sections 8.5(c) or (d), which Collateral may be released by the
--------------- ---
Administrative Agent pursuant to Section 8.5, (v) amend, modify or waive any
-----------
condition precedent to any extension of credit set forth in Section 6, in each
case of (i), (ii), (iii), (iv) and (v) above, without the written consent of all
of the Lenders, (vi) amend, modify or waive any provision of Section 10 without
the written consent of the then Administrative Agent or (vii) amend, modify or
waive any provision of Section 3 without the written consent of the then Issuing
Lender. Any such waiver and any such amendment, supplement or modification
shall apply equally to each of the Lenders and shall be binding upon the Loan
Parties, the Lenders, the Administrative Agent and all future holders of the
Notes. In the case of any waiver, the Loan Parties, the Lenders and the
Administrative Agent shall be restored to their former position and rights
hereunder and under the other Loan Documents, and any Default or Event of
Default
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<PAGE>
waived shall be deemed to be cured and not continuing; but no such waiver shall
extend to any subsequent or other Default or Event of Default, or impair any
right consequent thereon.
12.2 Notices. All notices, requests and demands to or upon the
-------
respective parties hereto to be effective shall be in writing (including by
facsimile transmission) and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made (a) in the case of delivery by hand,
when delivered, (b) in the case of delivery by mail, three Business Days after
being deposited in the mails, postage prepaid, or (c) in the case of delivery by
facsimile transmission, when sent and receipt has been confirmed, addressed as
follows in the case of the Borrower, the Restricted Subsidiaries and the
Administrative Agent, and as set forth in Schedule 1.1 (or, with respect to any
------------
Lender that is an Assignee, in the applicable Assignment and Acceptance) in the
case of the other parties hereto, or to such other address as may be hereafter
notified by the respective parties hereto:
The Borrower: Jones Cable Holdings II, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
Attention: Treasurer
Fax: (303) 790-7324
(with a copy to General Counsel)
Fax: (303) 799-1644
The Restricted Subsidiaries: c/o Jones Cable Holdings II, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
Attention: Treasurer
Fax: (303) 790-7324
(with a copy to General Counsel)
Fax: (303) 799-1644
The Administrative Agent: The Bank of Nova Scotia
One Liberty Plaza
New York, New York 10006
Attention: Margot Bright
Fax: (212) 225-5091
provided that any notice, request or demand to or upon the Administrative Agent
- --------
or the Lenders pursuant to Section 2 or 3 shall not be effective until received.
--------- -
12.3 No Waiver; Cumulative Remedies. No failure to exercise and
------------------------------
no delay in exercising, on the part of the Administrative Agent or any Lender,
any right, remedy, power or privilege hereunder or under the other Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
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<PAGE>
or further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
12.4 Survival of Representations and Warranties. All
------------------------------------------
representations and warranties made hereunder, in the other Loan Documents and
in any document, certificate or statement delivered pursuant hereto or in
connection herewith shall survive the execution and delivery of this Agreement
and the making of the Loans hereunder.
12.5 Payment of Expenses and Taxes. The Borrower agrees (a) to
-----------------------------
pay or reimburse the Administrative Agent for all its reasonable out-of-pocket
costs and expenses incurred in connection with the development, preparation and
execution of, and any amendment, supplement or modification to, this Agreement
and the other Loan Documents and any other documents prepared in connection
herewith or therewith, and the consummation and administration of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of counsel to the Administrative Agent, (b) to
pay or reimburse each Lender and the Administrative Agent for all its costs and
expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement, the other Loan Documents and any such other
documents (including costs and expenses incurred in connection with any
restructure or workout), including, without limitation, the reasonable fees and
disbursements of counsel to each Lender and of counsel to the Administrative
Agent, (c) without duplication of amounts payable pursuant to Sections 4.9 and
------------
4.10, to pay, indemnify, and hold each Lender and the Administrative Agent
- ----
harmless from, any and all recording and filing fees and any and all liabilities
with respect to, or resulting from any delay in paying, stamp, excise and other
taxes, if any, which may be payable or determined to be payable in connection
with the execution and delivery of, or consummation or administration of any of
the transactions contemplated by, or any amendment, supplement or modification
of, or any waiver or consent under or in respect of, this Agreement, the other
Loan Documents and any such other documents, and (d) without duplication of
amounts payable pursuant to Sections 4.9 and 4.10, to pay, indemnify, and hold
------------ ----
each Lender, each Issuing Lender and the Administrative Agent, and their
respective officers, directors, employees, affiliates, advisors, agents and
controlling persons (each, an "indemnitee"), harmless from and against any and
----------
all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement, performance and
administration of this Agreement, the other Loan Documents and any such other
documents or the use of the proceeds of the Loans (all the foregoing in this
clause (d), collectively, the "indemnified liabilities"), provided, that the
----------------------- --------
Borrower shall have no obligation hereunder to any indemnitee with respect to
indemnified liabilities arising from the gross negligence or willful misconduct
of such indemnitee. The agreements in this Section shall survive repayment of
the Loans and all other amounts payable hereunder.
12.6 Successors and Assigns; Participations and Assignments. (a)
------------------------------------------------------
This Agreement shall be binding upon and inure to the benefit of the Borrower,
the Lenders, the Administrative Agent and their respective successors and
assigns, except that neither the Borrower nor the
71
<PAGE>
Restricted Subsidiaries may assign or transfer any of its rights or obligations
under this Agreement without the prior written consent of each Lender.
(b) Any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to one or more banks or other
entities ("Participants") participating interests in any Loan owing to such
------------
Lender or any L/C Obligation of such Lender, any Commitment of such Lender or
any other interest of such Lender hereunder and under the other Loan Documents.
In the event of any such sale by a Lender of a participating interest to a
Participant, such Lender's obligations under this Agreement to the other parties
to this Agreement shall remain unchanged, such Lender shall remain solely
responsible for the performance thereof, such Lender shall remain the holder of
any such Loan for all purposes under this Agreement and the other Loan
Documents, and the Borrower and the Administrative Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents. In no event
shall any Participant under any such participation have any right to approve any
amendment or waiver of any provision of any Loan Document, or any consent to any
departure by any Loan Party therefrom, except to the extent that such amendment,
waiver or consent would reduce the principal of, or interest on, the Loans or
any fees payable hereunder, or postpone the date of the final scheduled maturity
of the Loans, in each case to the extent subject to such participation. The
Borrower agrees that if amounts outstanding under this Agreement are due or
unpaid, or shall have been declared or shall have become due and payable upon
the occurrence of an Event of Default, each Participant shall, to the maximum
extent permitted by applicable law, be deemed to have the right of setoff in
respect of its participating interest in amounts owing under this Agreement to
the same extent as if the amount of its participating interest were owing
directly to it as a Lender under this Agreement, provided that, in purchasing
--------
such participating interest, such Participant shall be deemed to have agreed to
share with the Lenders the proceeds thereof as provided in Section 12.7(a) as
---------------
fully as if it were a Lender hereunder. The Borrower also agrees that each
Participant shall be entitled to the benefits of Sections 4.9, 4.10 and 4.11
------------ ---- ----
with respect to its participation in the Commitments and the Loans outstanding
from time to time as if it were a Lender; provided that, in the case of Section
-------- -------
4.10, such Participant shall have complied with the requirements of said Section
- ----
and provided, further, that no Participant shall be entitled to receive any
-------- -------
greater amount pursuant to any such Section than the transferor Lender would
have been entitled to receive in respect of the amount of the participation
transferred by such transferor Lender to such Participant had no such transfer
occurred.
(c) Any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time and from time to time assign to any
Person (an "Assignee") all or any part of its rights and obligations under this
--------
Agreement and the other Loan Documents pursuant to an Assignment and Acceptance,
substantially in the form of Exhibit A, executed by such Assignee and such
---------
assigning Lender and delivered to the Administrative Agent for its acceptance
and recording in the Register (with a copy to the Borrower); provided that, (i)
--------
no such assignment (other than to any Lender or any affiliate thereof) shall be
in an aggregate principal amount of less than $5,000,000 and $1,000,000
multiples thereof, (ii) after giving effect to any such assignment, the
assigning Lender (together with any Lender which is an affiliate of such
assigning Lender) shall
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<PAGE>
retain no less than 51% of its original Commitment, unless otherwise agreed to
by the Borrower, (iii) no such assignment may be made unless such assigning
Lender also assigns a percentage of its interest in the Tranche B Agreement
equal to the percentage of the Total Commitment being assigned by such Lender
under this Agreement and to the same Assignee receiving such percentage of its
interest hereunder and (iv) each assignment (other than to any Lender or any
affiliate thereof) shall be subject to the prior written consent of the Borrower
(which consent shall not be unreasonably withheld). Upon such execution,
delivery, acceptance and recording, from and after the effective date determined
pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be
a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Lender hereunder with a Commitment as set
forth therein, and (y) the assigning Lender thereunder shall, to the extent
provided in such Assignment and Acceptance, be released from its obligations
under this Agreement.
(d) Any Non-U.S. Lender that could become completely exempt from
withholding of any tax, assessment or other charge or levy imposed by or on
behalf of the United States or any taxing authority thereof ("U.S. Taxes") in
----------
respect of payment of any Obligations due to such Non-U.S. Lender under this
Agreement if the Obligations were in registered form for U.S. federal income tax
purposes may request the Borrower (through the Administrative Agent), and the
Borrower agrees thereupon, to exchange any promissory note(s) evidencing such
Obligations for promissory note(s) registered as provided in paragraph (f) below
and substantially in the form of Exhibit L (an "Alternative Note"). Alternative
--------- ----------------
Notes may not be exchanged for promissory notes that are not Alternative Notes.
(e) Each Non-U.S. Lender that could become completely exempt from
withholding of U.S. Taxes in respect of payment of any Obligations due to such
Non-U.S. Lender if the Obligations were in registered form for U.S. Federal
income tax purposes and that holds Alternative Note(s) (an "Alternative
-----------
Noteholder") (or, if such Alternative Noteholder is not the beneficial owner
- ----------
thereof, such beneficial owner) shall deliver to the Borrower prior to or at the
time such Non-U.S. Lender becomes an Alternative Noteholder a Form W-8
(Certificate of Foreign Status of the U.S. Department of Treasury) (or any
successor or related form adopted by the U.S. taxing authorities), together with
an annual certificate stating that (i) such Alternative Noteholder or beneficial
owner, as the case may be, is not a "bank" within the meaning of Section 881(c)
of the Code, is not a 10-percent shareholder (within the meaning of Section
871(h)(3)(B) of the Code) of the Borrower and is not a controlled foreign
corporation related to the Company (within the meaning of Section 864(d)(4) of
the Code) and (ii) such Alternative Noteholder or beneficial owner, as the case
may be, shall promptly notify the Borrower if at any time such Alternative
Noteholder or beneficial owner, as the case may be, determines that it is no
longer in a position to provide such certification to the Borrower (or any other
form of certification adopted by the U.S. taxing authorities for such purposes).
(f) An Alternative Note and the Obligation(s) evidenced thereby may
be assigned or otherwise transferred in whole or in part only by registration of
such assignment or transfer of such Alternative Note and the Obligation(s)
evidenced thereby on the Register (and each Alternative
73
<PAGE>
Note shall expressly so provide). Any assignment or transfer of all or part of
such Obligation(s) and the Alternative Note(s) evidencing the same shall be
registered on the Register only upon surrender for registration of assignment or
transfer of the Alternative Note(s) evidencing such Obligation(s), duly endorsed
by (or accompanied by a written instrument of assignment or transfer duly
executed by) the Alternative Noteholder thereof, and thereupon one or more new
Alternative Note(s) in the same aggregate principal amount shall be issued to
the designated Assignee(s). No assignment of an Alternative Note and the
Obligation(s) evidenced thereby shall be effective unless it has been recorded
in the Register as provided in this Section 12.6(f).
---------------
(g) The Administrative Agent, on behalf of the Borrower, shall
maintain at the address of the Administrative Agent referred to in Section 12.2
------------
a copy of each Assignment and Acceptance delivered to it and a register (the
"Register") for the recordation of the names and addresses of the Lenders
- ---------
(including Alternative Noteholders) and the Commitments of, and principal
amounts of the Loans owing to, each Lender from time to time. The entries in
the Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Administrative Agent and the Lenders may (and, in the case of any
Loan or other obligation hereunder not evidenced by a Note, shall) treat each
Person whose name is recorded in the Register as the owner of a Loan or other
obligation hereunder as the owner thereof for all purposes of this Agreement and
the other Loan Documents, notwithstanding any notice to the contrary. Any
assignment of any Loan or other obligation hereunder not evidenced by a Note
shall be effective only upon appropriate entries with respect thereto being made
in the Register. The Register shall be available for inspection by the Borrower
or any Lender at any reasonable time and from time to time upon reasonable prior
notice.
(h) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee together with payment to the Administrative
Agent of a registration and processing fee of $3,000, the Administrative Agent
shall (i) promptly accept such Assignment and Acceptance and (ii) on the
effective date determined pursuant thereto record the information contained
therein in the Register and give notice of such acceptance and recordation to
the Lenders and the Borrower.
(i) Subject to Section 12.15, the Borrower authorizes each Lender to
-------------
disclose to any Participant or Assignee (each, a "Transferee") and any
----------
prospective Transferee, subject to the Transferee agreeing to be bound by the
provisions of Section 12.15, any and all financial information in such Lender's
-------------
possession concerning the Borrower and the Restricted Subsidiaries which has
been delivered to such Lender by or on behalf of the Borrower pursuant to this
Agreement or which has been delivered to such Lender by or on behalf of the
Borrower in connection with such Lender's credit evaluation of the Borrower and
its Restricted Subsidiaries prior to becoming a party to this Agreement.
(j) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this Section concerning assignments of Loans
and Notes relate only to absolute assignments and that such provisions do not
prohibit assignments creating security interests,
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<PAGE>
including, without limitation, any pledge or assignment by a Lender of any Loan
or Note to any Federal Reserve Bank in accordance with applicable law.
12.7 Adjustments; Set-off. (a) If any Lender (a "benefitted
-------------------- ----------
Lender") shall at any time receive any payment of all or part of its Loans, or
- ------
interest thereon, or receive any collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in Section 9(f), or otherwise), in a greater proportion
------------
than any such payment to or collateral received by any other Lender, if any, in
respect of such other Lender's Loans, or interest thereon, such benefitted
Lender shall purchase for cash from the other Lenders a participating interest
in such portion of each such other Lender's Loan, or shall provide such other
Lenders with the benefits of any such collateral, or the proceeds thereof, as
shall be necessary to cause such benefitted Lender to share the excess payment
or benefits of such collateral or proceeds ratably with each of the Lenders;
provided, however, that if all or any portion of such excess payment or benefits
- -------- -------
is thereafter recovered from such benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided
by law, each Lender shall have the right, without prior notice to the Borrower,
any such notice being expressly waived by the Borrower to the extent permitted
by applicable law, upon any amount becoming due and payable by the Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise) to set-
off and appropriate and apply against such amount, to the extent permitted by
applicable law, any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by such Lender or
any branch or agency thereof to or for the credit or the account of the
Borrower. Each Lender agrees promptly to notify the Borrower and the
Administrative Agent after any such set-off and application made by such Lender,
provided that, to the extent permitted by applicable law, the failure to give
- --------
such notice shall not affect the validity of such set-off and application.
12.8 Counterparts; When Effective. This Agreement may be
----------------------------
executed by one or more of the parties to this Agreement on any number of
separate counterparts (including by facsimile transmission), and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with the Borrower and the Administrative Agent. This Agreement
shall become effective when the Administrative Agent has received counterparts
hereof executed by the Borrower, the Administrative Agent and each Lender (such
date herein referred to as the "Effective Date").
--------------
12.9 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
75
<PAGE>
12.10 Integration. This Agreement and the other Loan Documents
-----------
represent the agreement of JIC, the Borrower, the Administrative Agent and the
Lenders with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Administrative Agent or any
Lender relative to subject matter hereof not expressly set forth or referred to
herein or in the other Loan Documents.
12.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
-------------
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
12.12 SUBMISSION TO JURISDICTION; WAIVERS. (a) EACH PARTY HERETO,
-----------------------------------
IN EACH CASE FOR ITSELF AND ITS SUCCESSORS AND ASSIGNS, HEREBY IRREVOCABLY AND
UNCONDITIONALLY:
(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH
IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN
RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF
THE STATE OF NEW YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN
SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO
THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH
ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO
PLEAD OR CLAIM THE SAME;
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING
MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL
(OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO IT AT ITS
ADDRESS SET FORTH IN SECTION 12.2 OR SCHEDULE 1.1, AS APPLICABLE, OR AT
------------ ------------
SUCH OTHER ADDRESS OF WHICH THE ADMINISTRATIVE AGENT SHALL HAVE BEEN
NOTIFIED PURSUANT TO SECTION 12.2; AND
------------
(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT TO SUE IN ANY OTHER JURISDICTION.
76
<PAGE>
(b) THE BORROWER AND EACH SUBSIDIARY WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION
OR PROCEEDING REFERRED TO IN THIS SECTION ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES.
12.13 Acknowledgements. The Borrower and each Restricted
----------------
Subsidiary hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to the Borrower or any Subsidiary arising out of
or in connection with this Agreement or any of the other Loan Documents,
and the relationship between the Administrative Agent and the Lenders, on
one hand, and the Borrower or any Subsidiary, on the other hand, in
connection herewith or therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among
the Lenders or among the Borrower, the Subsidiaries and the Lenders.
12.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE SUBSIDIARIES, THE
---------------------
ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
12.15 Confidentiality. Each Lender agrees to keep confidential
---------------
all non-public information provided to it by or on behalf of the Borrower or any
of the Restricted Subsidiaries pursuant to this Agreement or any other Loan
Document; provided that nothing herein shall prevent any Lender from disclosing
--------
any such information (i) to the Administrative Agent or any other Lender, (ii)
to any Assignee or Participant, (iii) to its employees, directors, agents,
attorneys, accountants and other professional advisors, (iv) upon demand of any
Governmental Authority having jurisdiction over such Lender, (v) in response to
any order of any court or other Governmental Authority or as may otherwise be
required pursuant to any Requirement of Law, (vi) which has been publicly
disclosed other than in breach of this Agreement, or (vii) in connection with
the exercise of any remedy hereunder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGES FOLLOW.]
77
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
JONES CABLE HOLDINGS II, INC.
By: /s/ J. Roy Pottle
------------------------------------
Name: J. Roy Pottle
----------------------------------
Title: Treasurer
---------------------------------
<PAGE>
The Administrative Agent, the Documentation
-------------------------------------------
Agent and the Syndication Agent:
-------------------------------
THE BANK OF NOVA SCOTIA,
as the Administrative Agent
By: /s/ Margot C. Bright
------------------------------------
Name: Margot C. Bright
----------------------------------
Title: Authorized Signatory
---------------------------------
NATIONSBANK OF TEXAS, N.A.,
as the Documentation Agent
By: /s/ David G. Jamel
------------------------------------
Name: David G. Jamel
----------------------------------
Title: Vice President
---------------------------------
SOCIETE GENERALE,
as the Syndication Agent
By: /s/ Elaine I. Khalil
------------------------------------
Name: Elaine I. Khalil
----------------------------------
Title: Vice President
---------------------------------
<PAGE>
The Managing Agents and the Lenders:
-----------------------------------
THE BANK OF NOVA SCOTIA, as a
Managing Agent and as a Lender
By: /s/ Margot C. Bright
------------------------------------
Name: Margot C. Bright
----------------------------------
Title: Authorized Signatory
---------------------------------
NATIONSBANK OF TEXAS, N.A., as a
Managing Agent and as a Lender
By: /s/ David B. James
------------------------------------
Name: David B. James
----------------------------------
Title: Vice President
---------------------------------
SOCIETE GENERALE, as a Managing Agent
and as a Lender
By: /s/ Elaine I. Khalil
------------------------------------
Name: Elaine I. Khalil
----------------------------------
Title: Vice President
---------------------------------
The Co-Agents and the Lenders:
-----------------------------
CORESTATES BANK, N.A., as a Co-Agent
and as a Lender
By: /s/ Philip D. Harrison
------------------------------------
Name: Philip D. Harrison
----------------------------------
Title: Assistant Vice President
---------------------------------
<PAGE>
CREDIT LYONNAIS NEW YORK
BRANCH, as a Co-Agent and as a Lender
By: /s/ James E. Morris
------------------------------------
Name: James E. Morris
----------------------------------
Title: Vice President
---------------------------------
PNC BANK, NATIONAL ASSOCIATION,
as a Co-Agent and as a Lender
By: /s/ Christopher Chaplin
------------------------------------
Name: Christopher Chaplin
----------------------------------
Title: Banking Officer
---------------------------------
MELLON BANK, N.A., as a Co-Agent and as
a Lender
By: /s/ Stephen R. Viehe
------------------------------------
Name: Stephen R. Viehe
----------------------------------
Title: Vice President
---------------------------------
ROYAL BANK OF CANADA, as a Co-Agent
and as a Lender
By: /s/ Edward Salazar
------------------------------------
Name: Edward Salazar
----------------------------------
Title: Senior Manager
---------------------------------
<PAGE>
THE CHASE MANHATTAN BANK,
as a Co-Agent and as a Lender
By: /s/ Ann B. Kerns
------------------------------------
Name: Ann B. Kerns
----------------------------------
Title: Vice President
---------------------------------
TORONTO DOMINION (TEXAS), INC.,
as a Co-Agent and as a Lender
By: /s/ Lisa Allison
------------------------------------
Name: Lisa Allison
----------------------------------
Title: Vice President
---------------------------------
BANQUE PARIBAS, as a Co-Agent and as a
Lender
By: /s/ Sonia Isaacs
------------------------------------
Name: Sonia Isaacs
----------------------------------
Title: Vice President
---------------------------------
BANK OF AMERICA, as a Co-Agent and as
a Lender
By: /s/ Shannon T. Ward
------------------------------------
Name: Shannon T. Ward
----------------------------------
Title: Vice President
---------------------------------
<PAGE>
ABN AMRO BANK N.V., as a Lender
By: /s/ James J. Johnston
------------------------------------
Name: James J. Johnston
----------------------------------
Title: Vice President
---------------------------------
By: /s/ Mary L. Honda
------------------------------------
Name: Mary L. Honda
----------------------------------
Title: Vice President
---------------------------------
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as a Lender
By: /s/ Donald H. Patrick
------------------------------------
Name: Donald H. Patrick
----------------------------------
Title: Vice President
---------------------------------
CREDIT AGRICOLE, as a Lender
By: /s/ David Bauhl
------------------------------------
Name: David Bauhl
----------------------------------
Title: Head of Corporate Banking
---------------------------------
THE DAI-ICHI KANGYO BANK, LTD.,
as a Lender
By: /s/ Masatsugu Morishita
------------------------------------
Name: Masatsugu Morishita
----------------------------------
Title: Joint General Manager
---------------------------------
<PAGE>
FIRST HAWAIIAN BANK, as a Lender
By: /s/
------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
THE FIRST NATIONAL BANK OF
MARYLAND, as a Lender
By: /s/ W. Blake Hampson
------------------------------------
Name: W. Blake Hampson
----------------------------------
Title: Vice President
---------------------------------
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY, as a Lender
By: /s/ Augustine Chance Jr.
------------------------------------
Name: Augustine Chance Jr.
----------------------------------
Title: Vice President
---------------------------------
SAKURA BANK, as a Lender
By: /s/ Ofusa Sato
------------------------------------
Name: Ofusa Sato
----------------------------------
Title: Senior Vice President
---------------------------------
<PAGE>
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., LOS ANGELES AGENCY,
as a Lender
By: /s/ Genchi Imai
-------------------------------------
Name: Genchi Imai
----------------------------------
Title: Joint General Manager
---------------------------------
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, as a Lender
By: /s/ Shusai Nagai
------------------------------------
Name: Shusai Nagai
----------------------------------
Title: General Manager
---------------------------------
COLORADO NATIONAL BANK, as a Lender
By: /s/ Leslie M. Kelly
------------------------------------
Name: Leslie M. Kelly
----------------------------------
Title: Vice President
---------------------------------
THE FUJI BANK, LIMITED, LOS ANGELES
AGENCY, as a Lender
By: /s/ Nobuhiro Umemura
------------------------------------
Name: Nobuhiro Umemura
----------------------------------
Title: Joint General Manager
---------------------------------
<PAGE>
EXHIBIT 99(b)(1)
APPRAISAL REPORT:
FAIR MARKET VALUATION
OF
CABLE TV FUND 12-BCD VENTURE
ALBUQUERQUE, NEW MEXICO
As of April 30, 1997
Prepared for:
JONES INTERCABLE, INC.
Englewood, Colorado
Prepared by:
THE STRATEGIS GROUP, INC.
1130 Connecticut Avenue, N.W.
Suite 325
Washington, D.C. 20036
(202) 530-7500
May 27, 1997
(C) Copyright 1997 The Strategis Group, Inc.
<PAGE>
APPRAISAL REPORT:
FAIR MARKET VALUATION
OF
CABLE TV FUND 12-BCD VENTURE
ALBUQUERQUE, NEW MEXICO
TABLE OF CONTENTS
-----------------
I. EXECUTIVE SUMMARY................................................... 1
A. Introduction, Purpose, and Methodology........................... 1
B. Conclusions...................................................... 2
II. PURPOSE OF APPRAISAL................................................ 3
III. INDUSTRY OVERVIEW................................................... 4
A. Historical Background............................................ 4
B. Industry Characteristics......................................... 6
1. General Background............................................ 6
2. Regulation.................................................... 8
3. Financial/Economic............................................ 9
4. Competition................................................... 10
IV. SYSTEM DESCRIPTION.................................................. 13
A. History and Market............................................... 13
B. Services......................................................... 16
C. Rates............................................................ 22
D. Subscribers...................................................... 24
E. System Mileage................................................... 25
F. Physical Plant................................................... 25
G. Franchises....................................................... 27
H. Management....................................................... 27
I. Financial History................................................ 28
V. TOTAL SYSTEM VALUE.................................................. 29
A. Valuation Procedure and Methods.................................. 29
B. Discounted Cash Flow Methodology................................. 31
1. Net Cash Flow/Return on Equity................................ 32
2. Net Cash Flow/Return On Investment............................ 33
3. Cash Flow Projections......................................... 33
4. Residual Value................................................ 35
5. Discount Rates................................................ 36
C. Direct Income Methodology........................................ 37
D. Value Conclusions................................................ 38
<PAGE>
TABLE OF CONTENTS
-----------------
VI. CONTINGENCIES AND LIMITING CONDITIONS............................... 39
VII. STATEMENT OF VALUE.................................................. 41
VIII. QUALIFICATIONS...................................................... 42
A. Qualifications of The Strategis Group, Inc. ..................... 42
B. Qualifications of Andrew R. Gefen................................ 43
C. Qualifications of Susan Donovan.................................. 44
EXHIBITS:
A. Valuation Methods and Summary of Values
B-1. Profit and Loss/Sources and Uses-Return on Equity - Low Value
B-2. Profit and Loss/Sources and Uses-Return on Equity - High Value
C-1. Debt Amortization-Return on Equity - Low Value
C-2. Debt Amortization-Return on Equity - High Value
D. Return on Investment
E. Cable Television Subscribers
F. Cable Television Service Rates
G. Cash Flow Projections
H. Capital Expenditures
I. Depreciation Schedule
J. Assumptions and Inputs
<PAGE>
APPRAISAL REPORT:
FAIR MARKET VALUATION
OF
CABLE TV FUND 12-BCD VENTURE
ALBUQUERQUE, NEW MEXICO
I. EXECUTIVE SUMMARY
A. INTRODUCTION, PURPOSE, AND METHODOLOGY
The Strategis Group, Inc. was retained by Jones Intercable, Inc. ("Jones")
to conduct a fair market valuation as of April 30, 1997, of the Cable TV Fund
12-BCD Venture cable television system serving Albuquerque, New Mexico (the
"System"). This appraisal will be used by Jones as an independent estimate of
the fair market value of the System as of April 30, 1997, with the resulting
value to be used in conjunction with the purchase of the System by Jones.
Fair market value is the cash price a willing buyer would give a willing
seller in an arm's length transaction in order to complete the sale. It is
assumed that both buyer and seller have been informed of all relevant facts and
neither is under any compulsion to conclude the transaction. The Strategis
Group also assumes that the tangible assets will remain in their present
location and will continue to be employed in their highest and best use, i.e.,
the delivery of cable television signals to subscribers.
The Strategis Group used five generally accepted cable television valuation
methods using the income approach to valuation in establishing the range of
total fair market values of the System as a going concern. The first method
used a multiple of the past year's operating income derived from comparable
asset values of privately-held and publicly-traded cable companies. The second
method used a lower multiple of the annualized current month's operating income.
The third method applied a slightly lower multiple of next year's projected
operating income. The fourth method was a discounted
1
<PAGE>
net cash flow analysis in which a purchase price (estimated fair market value)
was calculated to achieve a target after-tax return on equity, given particular
operating and financing assumptions specific to the System's assets. The fifth
method was a discounted cash flow analysis that measured the net present value
of the pre-tax operating cash flows (less capital expenditures, plus the
residual value of the System) that represent the return on total investment.
B. CONCLUSIONS
The Strategis Group's conclusions as to the range of values are based upon
information and data supplied by System management, an onsite inspection by a
representative of The Strategis Group of a representative portion of the System
and service area, and general cable industry information. In The Strategis
Group's opinion, the data which support the valuations are reliable and sound.
Our estimate of the overall fair market value of the System as a business
enterprise, free and clear of any encumbrances, is $233,440,000.
2
<PAGE>
II. PURPOSE OF APPRAISAL
The Strategis Group, Inc. was retained by Jones Intercable, Inc. ("Jones")
to conduct a fair market valuation as of April 30, 1997 of the Cable TV Fund 12-
BCD Venture cable television system (the "System"), serving Albuquerque, New
Mexico. This appraisal will be used by Jones as an independent estimate of the
fair market value of the System as of April 30, 1997.
Fair market value is the cash price a willing buyer would give a willing
seller in an arm's length transaction in order to complete the sale. It is
assumed that both buyer and seller have been informed of all relevant facts and
neither is under any compulsion to conclude the transaction and that the
tangible assets will remain in their present location and will continue to be
employed in their highest and best use, i.e., the delivery of cable television
signals to subscribers.
3
<PAGE>
III. INDUSTRY OVERVIEW
A. HISTORICAL BACKGROUND
Cable television was born in the late 1940s. The first systems were built
during the period 1948 to 1964. Most of these early systems were located in
rural areas where off-air television reception was limited and picture quality
was poor. The cable system basically provided a reception service, offering up
to 12 channels with no unique programming. Systems generally enjoyed high
levels of penetration, ranging from approximately 70% to 90% of homes passed.
During the period 1965 to 1972, cable systems were built in medium-sized
markets, importing distant television signals via terrestrial microwave.
Rulings by the Federal Communications Commission (FCC) in 1965 and 1966
initiated a regulatory period that lasted two decades. FCC constraints were
placed on importing distant signals which inhibited the construction of systems
in the largest 100 markets. The U.S. Supreme Court affirmed the FCC's
regulatory authority over the cable television industry. The typical cable
television system generally remained a 12- to 24- channel reception service with
some additional program selections via imported signals. Programming unique to
cable television did not exist. Basic penetrations of between 50% and 60% of
homes passed were typical for newly-cabled markets.
In 1972, the FCC eased its restrictions on signal importation, thus making
it feasible for cable television operators to enter the nation's top 100 markets
with differentiated product. Satellite delivered premium television services
(HBO, Showtime) and Super Stations (WTBS) were introduced in 1975. Cable
exclusive networks, such as ESPN, CNN, USA, and others, soon followed. During
the mid- to late-1970's, new 24- to 36-channel cable television systems emerged
as a result of these communications satellite services. Significant increases
in programming options allowed cable systems to attract ample numbers of
subscribers to attain operational profitability even where off-air broadcast
reception and leisure-time options were above average. The smallest 50 of the
4
<PAGE>
top 100 markets were built first, followed by the larger metropolitan areas.
Premium, or pay, services were the primary force behind basic penetration gains
reaching 30% to 45% of homes passed in these new markets.
During the period 1979 to 1983, the remaining major markets were
franchised. Cable channel options increased dramatically, both in pay services
(Disney, Cinemax, Bravo, Movie Channel) and basic services (MTV, Lifetime,
Nickelodeon, regional sports, CNN, and others). Systems with 54 and more
channels were built, offering an abundance of program alternatives. Cable
system operators instituted price increases for pay services and established
elaborate tiering structures to compensate for local constraints on basic
service pricing. In newer cable markets, basic penetrations of homes passed
began to edge above the 40% level.
In 1984, the U.S. Congress approved and President Reagan signed the Cable
Communications Policy Act, the first comprehensive cable legislation to be
enacted. The most significant feature of the legislation was the ultimate
removal of price controls on basic cable service in all but the very smallest
cable systems. Discretionary price increases of up to 5% were allowed in 1985
and 1986, and all price controls were removed in January 1987. During the
period 1984 to 1992, the mix of cable offerings and pricing changed as growth in
pay subscriptions slowed down and local constraints on basic price increases
were removed. Basic penetrations continued to rise in major markets, and
nationwide penetration reached 60% of homes passed by cable. New revenue
sources emerged in the form of pay-per-view, advertising, and home shopping.
The industry emphasized programming quality and marketing in order to increase
overall penetration levels above the 60% level.
The Cable Television Consumer Protection and Competition Act of 1992 was
passed on October 5, 1992, which imposed significant new regulations,
particularly on subscriber rates and programming packaging. Generally,
programming packages were specifically segregated between the "basic tier" and
the "satellite programming tier(s)" since the level of regulation was different
for each of them. After the new regulations
5
<PAGE>
were implemented, the overall cable industry experienced a slight reduction in
revenues in 1993, but learned to cope with the new regulations in 1994 and
continued its overall growth due to added services, increased subscriber
penetrations and repackaging of programming services.
The Telecommunications Act of 1996, passed on February 8, 1996, revised the
Communications Act of 1934 and the Cable Act of 1992 in fundamental ways. It
highlighted competition in local loop telephone, video distribution, and long
distance telephone, and de-regulated cable rates beginning in 1999. The goal
was to create a competitive telecommunications marketplace. The FCC is in the
process of promulgating regulations to implement the law so its effect is still
uncertain.
B. INDUSTRY CHARACTERISTICS
1. General Background
Cable television is a capital intensive business. The right to operate a
cable system is authorized by the local government. Substantial up-front
capital is required in plant and equipment with second entrants facing even
greater capital construction costs due primarily to space limitations on utility
poles. A considerable percentage of total operating costs are fixed. Similar
to utilities, once cable television has exceeded its break-even requirements,
operating margins grow very rapidly and remain fairly predictable from year to
year.
Unlike most businesses, market analysis in cable is better pursued on the
basis of system type than generic geographic or demographic criteria. The
classification of a cable system in any individual market tends to reflect the
competitive characteristics and demand dynamics resident in that market. In
general, there are two primary categories of cable systems--classic and modern.
Classic cable systems are those built in locations where reception of over-the-
air television signals has historically been poor or limited. They were the
earliest systems built, usually serving communities with lower densities (40 to
90 homes per mile), higher subscriber penetrations (60% to 90% of homes
6
<PAGE>
passed), lower average revenues per subscriber ($14 to 20 per month), and higher
cash flow margins (45% to 65%) relative to modern systems. They usually were
built with fewer channels but may have been upgraded at a later time.
Expectations for additional growth in these markets tends to be lower than the
industry average. The downside risk of investing in these systems is relatively
low.
Modern cable systems have been constructed since the introduction of pay
and other cable-specific programming in the mid-1970's. They tend to serve
urban and suburban communities which have higher densities (70 to 120 and more
homes per mile), better quality off-air programming, and more extensive
competition for consumers' leisure time. These systems were built with broader
channel capacity (36 to 54 or more channels), individual subscriber
addressability, local programming capability, and the capacity for advertising
sales. They tend to have lower penetration (30% to 55%) than classic systems.
More rapid growth has been experienced in these systems than in classic systems
because of higher household growth rates, more potential for penetration gains,
and greater opportunities for ancillary revenues. They are also more risky
because of greater off-air competition and higher overall operating costs.
It is estimated that 32,255 communities are served throughout the United
States by approximately 13,000 operating cable systems. The industry is
structured into over 500 MSOs which manage these systems on a wholly-owned,
partially-owned, or management contract basis. Economic forces within the
industry are causing significant shifts in the ownership of these companies,
resulting in increasing consolidation of the industry into the hands of fewer,
larger operators.
Management characteristics in the industry vary considerably between the
MSO headquarters and system operating levels and between different categories of
systems. At the corporate level, nearly all of the mid-to-large sized MSOs have
a strong representation of professionally trained and field-seasoned management
among their ranks. Strong emphasis is placed on strategic, financial planning
and operating control functions at this level, and the staffing reflects those
requirements.
7
<PAGE>
System-level management requirements vary significantly with the category
of system under consideration. Classic cable operations primarily require
custodial management to oversee customer service and maintenance functions.
Strategic, marketing, and financial management tends to be handled at the
corporate level. Billing functions are processed through service bureaus
specializing in cable systems. Very little management complexity is left at the
system level, and the positions tend to be filled accordingly. Large-scale,
urban cable operations are much more dynamic and demanding. They require far
more sophisticated and versatile management capabilities. The physical plant,
budgets, and operating staffs in these systems are considerably larger. More of
the strategic, marketing, and financial planning functions are handled locally.
The political liaison requirements with the cities are far more complex. Not
surprisingly, the caliber of management found in these systems is substantially
higher than that found in classic systems, and tends to be professionally
trained, financially aware, and politically astute.
2. Regulation
Historically, the extent to which the cable television industry has been
regulated at the local, state and federal levels, has varied. Following the
deregulation of service prices in the 1984 Cable Communications Policy Act, the
next several years saw regulatory constraints on cable reduced at both the local
and federal levels. Subsequent public perception of the industry as abusing its
newly-won pricing freedom and additional consolidation in the industry led to
enactment of the Cable Television Consumer Protection and Competition Act of
1992 on October 5, 1992, ushering in a new period of extensive regulation. Many
aspects of such regulation are currently the subject of judicial, administrative
or legislative proceedings or proposals. This law required the FCC to regulate
the operation of cable television systems in a number of areas, including rates
that may be charged by systems.
On September 1, 1993, rate changes mandated by the FCC under the 1992 Act
went into effect for most systems. The FCC implemented a benchmark rate
structure
8
<PAGE>
that was intended to reduce the federally regulated portion of the average cable
subscriber's monthly bill by 10%. Most of the resulting reductions in
subscriber bills were attributable to the decline in equipment and additional
outlet charges. However, with the mandated reconfiguration of basic service and
the expanded basic tier, some subscribers' bills increased. For cable
operators, the effects of the rate change were estimated to reduce revenue by 3%
to 5% on an industrywide basis.
In February 1994, the FCC announced further rate reductions of 7% in order
to fully implement the 1992 Cable Act. As an alternative, cable systems were
permitted to file Cost of Service showings if implementation of the mandated
rate reductions was not feasible. By yearend 1995, widescale telecommunications
reform appeared imminent; although, the extent to which or even whether this
reform would entail relief from rate regulation was unclear. The likelihood
that providers of cable and telephony services would be allowed engage in both
businesses was a near certainty, however, the timetable for these changes was
uncertain.
The Telecommunications Act of 1996, passed on February 8, 1996, revised the
Communications Act of 1934 and the Cable Act of 1992 in fundamental ways. It
highlighted competition in local loop telephone, video distribution, and long
distance telephone, and de-regulated cable rates beginning in 1999. The goal
was to create a competitive telecommunications marketplace. The FCC is in the
process of promulgating regulations to implement the law so its effect is still
uncertain.
3. Financial/Economic
Cable's rapid financial growth and expectations for future growth have
drawn the attention of the capital markets and helped fuel consolidation within
the industry. With most cable markets already franchised and constructed,
growth-oriented MSOs turned to acquisitions as their primary method of
expansion. A flurry of acquisitions occurred during the period of 1986 through
1989, with the peak being reached in 1988. Most of these acquisitions were made
by companies already in the cable business who were seeking national
consolidation or regional clustering of cable television systems to
9
<PAGE>
produce greater economies of scale and operating efficiencies. The number of
transactions decreased in 1990 due to federal government restrictions on banks
pertaining to highly leveraged transactions (HLT), uncertainty about the
regulatory environment, and other factors.
HLT restrictions caused less money to be available for the expansion,
upgrading, and trading of cable systems in 1990 and 1991. These restrictions
were subsequently removed in June 1992, and while the number of acquisitions
increased, they did not reach the same levels seen in the latter half of the
1980's. Passage of the Cable Television Consumer Protection and Competition Act
of 1992 and the resultant rate regulation decreased the overall attractiveness
of the cable industry to potential investors.
During the early- to mid-1990s, several of the largest MSOs formed or were
exploring alliances with both long distance and local telephone companies, as
both the cable and telephone industries were planning to enter one another's
primary lines of business. Simultaneously, a number of mid-sized MSOs were
developing exit strategies based on the belief that success in the evolving
cable industry would require a critical mass of subscribers and access to
substantial amounts of capital.
While the development of voice, video and data delivery technologies holds
the promise of substantial new services and revenues for the industry, the near-
term outlook based on established programming services continues to be positive.
Operators expect to continue to increase operating income by continuing to
attract more subscribers, exploit current and additional opportunities for
ancillary revenues, and improve operating efficiencies.
4. Competition
During the next several years, the cable industry may face additional
competition which could emerge in the form of system overbuilds, the
introduction of new technologies, and entry into the video distribution business
by telephone companies.
10
<PAGE>
The long-term viability of overbuilds in most cable markets is questionable
at best. An overbuilder splits up the subscriber base, incurring higher costs
per subscriber and lower margins overall. Many attempted overbuilders have been
bought out by the incumbent or have simply gone out of business. The likelihood
of a successful overbuild in all but a few markets is very small.
Cable television has begun to face increasing competition from new
distribution technologies including direct-broadcast satellite (DBS), satellite
master antenna television (SMATV), and multichannel multipoint distribution
service (MMDS). The ultimate success or failure of any of these television
delivery systems will depend largely on a combination of the three
interconnected factors of technology, regulation, and economics. The Strategis
Group anticipates that the threat to cable television by these technologies in
the next few years will not be material, although various technologies are
proving adept at providing services in certain niche markets. MMDS and SMATV
typically have little or no effect on mature cable systems, except in large
urban areas where a high percentage of homes passed are in multiple dwelling
units (MDUs). DBS presents a greater competitive threat. The DBS industry,
which is still very young, has thus far focused on building its customer base in
areas not wired for cable television. As of 1994, leaders in the DBS industry
predicted that between 10% and 20% of television households nationwide would use
their service within ten years. However, DBS is hampered by the fact that it
does not carry off-air broadcast signals.
Telephone companies have long shown an interest in expanding into video
distribution. For the most part, this competition has not materialized as a
result of existing regulatory restraints and technical limitations. By the end
of 1993, there was widespread recognition that technological developments would
force dramatic changes in such regulation, as the telecommunications industry
entered a consolidation period characterized by mergers, joint ventures, and
acquisitions.
Fiber optics are increasingly being utilized as telephone and cable
companies begin experimenting with `full service' networks with the capability
of delivering voice,
11
<PAGE>
video and data services to the home. Several of the largest MSOs, in
conjunction with telephone companies, have built these experimental systems to
determine their feasibility from both technological and marketing perspectives.
As of the mid- to late-1990s, the telephone industry is in the experimental
stage with regard to using fiber optic cable to deliver services to the home.
Cable companies, for their part, are focusing on the delivery of digital program
and data services via hybrid fiber and coaxial cable networks. For
technological, financial, and regulatory reasons, the full convergence of
telecommunications services and service providers is most likely years away.
12
<PAGE>
IV. SYSTEM DESCRIPTION
A. HISTORY AND MARKET
At the time of the appraisal, the System served 112,613 subscribers.
Approximately 85% of subscribers resided in the City of Albuquerque, while the
remainder resided in surrounding areas of Bernalillo, Sandoval, and Valencia
counties. The provision of cable service was governed by nine franchise
agreements held with local authorities. As of April 30, 1997, the weighted
average remaining life of the nine franchise agreements was 3.4 years.
Albuquerque is located in the north central part of New Mexico,
approximately 125 miles south of Colorado and 200 miles west of Texas. Much of
the land in the region, as throughout the state, is uninhabited desert or has
been reserved for the use of Native American tribes. The City of Albuquerque is
spread out geographically and its population is roughly 350,000. The nearest
community of substantial size in the same region is Santa Fe, with a population
of about 100,000, approximately 55 miles to the northeast of Albuquerque.
System management indicates that demographic and economic growth in the
service area has been steady in the past several years and is projected to
continue at a comparable pace. The workforce is comprised of approximately 65%
white collar, 20% blue collar, and 15% service-related workers, and an estimated
40% of the population is Hispanic. The metropolitan area's largest employers
include: the public school system, with about 11,000 employees; Kirtland Air
Force Base (AFB), with 6,000 military and 7,000 civilian employees; the
University of New Mexico, with 6,000 employees; and the city government with
6,000 employees. Private sector employers include Sandia National Laboratories
(energy and environmental research), with 7,500 employees; Intel
(microprocessors), with 4,200 employees; and Motorola (ceramic production), with
2,300 employees. The unemployment rate in the Albuquerque Metropolitan
Statistical Area (MSA) was 4.1% in March 1997. This rate compares favorably
with statewide
13
<PAGE>
unemployment of 6.6% and national unemployment of 5.5% during this period,
according to the U.S. Bureau of Labor Statistics.
At the time of the appraisal, Direct Broadcast Satellite (DBS) service had
been available in Albuquerque for nearly three years, with Direct TV having
launched service in the summer of 1994. As of the appraisal date, Echostar and
PrimeStar were also active in the market. System management estimated that, as
of April 30, 1997, the three DBS operators had a combined penetration of almost
3% of homes in the service area. A survey conducted several months prior to the
valuation date of System subscribers who had disconnected their cable service,
revealed that 10% of these former customers had purchased equipment to receive
DBS service.
Other providers of video services in Albuquerque included Sierra Cable, a
regional multichannel multipoint Distribution Service (MMDS, or wireless cable)
operator with subscribers generally outside the System's service area, and
several `shared tenant' service providers. ICS and New Mexico Lightwave offered
video, security, and telephone services in multiple dwelling units. System
management indicated that one of the two companies was reportedly experiencing
difficulty with service delivery. On a combined basis, the two companies had
very few customers.
Table I presents demographic data published in Marketing Statistics'
Demographics USA 1996 for the New Mexico counties of Bernalillo, Sandoval, and
Valencia. Data for population, households, and Effective Buying Income (EBI)
were estimated for 1995 and projected for 2000. Also presented, for comparison
purposes, are data for the state of New Mexico and the nation as a whole.
Bernalillo County, which encompassed Albuquerque and the overwhelming
majority of System subscribers, had a population of approximately 526,100 in
1995. At the time of the appraisal, its population was forecast to grow at an
annual rate of 1.12% through 2000, which was somewhat lower than anticipated
statewide growth in population of 1.59%. Population in the U.S. as a whole was
forecast to grow by 0.83%. Higher population growth rates were projected for
Sandoval and Valencia counties.
14
<PAGE>
Sandoval County, with a population of 81,500 in 1995, was forecast to grow by
3.50% annually through 2000 to 96,800. Valencia County's 1995 population of
58,000 was forecast to increase by 3.47% per year to 68,800 over the same
period.
Average household EBI in Bernalillo County was $38,734 in 1995. While this
figure was lower than the national average household EBI of $40,598, it was
notably higher than the statewide figure for New Mexico of $34,067. Growth in
household EBI was forecast at 4.04% annually in Bernalillo County, and at 3.64%
and 2.97% throughout New Mexico and the U.S. as a whole, respectively. Sandoval
County's household EBI was comparable, at $38,596, to Bernalillo's household
EBI, although it was projected to grow at a more rapid pace of 5.18% per year
through 2000. Household EBI in Valencia County was somewhat more modest, at
$32,820, with a projected growth rate of 3.16%. This information is presented
in Table I.
<TABLE>
<CAPTION>
TABLE I
Annual
1995 2000 Growth Rate
Estimate Projection 1995-2000
---------- ----------- ---------
<S> <C> <C> <C>
Bernalillo County, NM
- ---------------------
Total Population 526,100 556,300 1.12%
Total Households 203,700 218,500 1.41%
Median Age 33.7 N/A
Effective Buying Income (EBI)
Total EBI (000's) $7,890,216 $10,315,727 5.51%
Average Household EBI $ 38,734 $ 47,212 4.04%
Sandoval County, NM
- -------------------
Total Population 81,500 96,800 3.50%
Total Households 27,200 32,900 3.88%
Median Age 31.9 N/A
Effective Buying Income (EBI)
Total EBI (000's) $1,049,815 $ 1,634,854 9.26%
Average Household EBI $ 38,596 $ 49,692 5.18%
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
TABLE I (CONTINUED)
Annual
1995 2000 Growth Rate
Estimate Projection 1995-2000
-------------- -------------- ---------
<S> <C> <C> <C>
Valencia County, NM
- -------------------
Total Population 58,000 68,800 3.47%
Total Households 19,300 23,300 3.84%
Median Age 33.0 N/A
Effective Buying Income (EBI)
Total EBI (000's) $ 633,420 $ 893,328 7.12%
Average Household EBI $ 32,820 $ 38,340 3.16%
State of New Mexico
- -------------------
Total Population 1,700,400 1,840,200 1.59%
Total Households 609,200 668,300 1.87%
Median Age 32.7 N/A
Effective Buying Income (EBI)
Total EBI (000's) $ 20,753,479 $ 27,222,357 5.58%
Average Household EBI $ 34,067 $ 40,734 3.64%
United States of America
- ------------------------
Total Population 264,900,900 276,107,000 0.83%
Total Households 97,647,400 102,813,100 1.04%
Median Age 34.5 N/A
Effective Buying Income (EBI)
Total EBI (000's) $3,964,285,118 $4,832,437,673 4.04%
Average Household EBI $ 40,598 $ 47,002 2.97%
</TABLE>
B. SERVICES
Tables II (A)-(C) present programming services offered to System
subscribers as of the appraisal date. The majority of subscribers, roughly
110,000, were able to receive the 58 channel program line-up shown in Table II
(A). Limited basic service was comprised of 19 channels, ten of which were
local off-air broadcast signals, two of which carried local access programming,
and seven of which were satellite delivered services. Expanded basic service
encompassed 31 satellite delivered services carried on channels 8-10, 17-18, and
29-56. Premium services available included Cinemax, HBO,
16
<PAGE>
The Movie Channel, and Showtime. The Encore 1 PLEX channel was available on an
a la carte basis to limited basic subscribers. Also offered were two general
audience movie/event pay-per-view (PPV) services and Spice for adults.
<TABLE>
<CAPTION>
TABLE II (A)
ALBUQUERQUE
- ------------------------------------------------------------------------------------------------------
CABLE
(OFF-AIR) NAME OR
CHANNELS CALL LETTERS SOURCE DESCRIPTION
- ------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
2 (2) KASA Albuquerque, NM Fox
- ------------------------------------------------------------------------------------------------------
3 CINEMAX SATELLITE PAY MOVIES
- ------------------------------------------------------------------------------------------------------
4 (4) KOB-TV Albuquerque, NM NBC
- ------------------------------------------------------------------------------------------------------
5 (5) KNME-TV Albuquerque, NM PBS
- ------------------------------------------------------------------------------------------------------
6 Knowledge TV Satellite Educational
- ------------------------------------------------------------------------------------------------------
7 (7) KOAT-TV Albuquerque, NM ABC
- ------------------------------------------------------------------------------------------------------
8 ESPN Satellite 24-Hour Sports
- ------------------------------------------------------------------------------------------------------
9 CNN Satellite 24-Hour News
- ------------------------------------------------------------------------------------------------------
10 CNN Headline News Satellite 24-Hour News
- ------------------------------------------------------------------------------------------------------
11 (11) KCHF Santa Fe, NM Independent
- ------------------------------------------------------------------------------------------------------
12 WTBS Satellite Independent - Atlanta, GA
- ------------------------------------------------------------------------------------------------------
13 (13) KRQE Albuquerque, NM CBS
- ------------------------------------------------------------------------------------------------------
14 Government Access Local Local Government
- ------------------------------------------------------------------------------------------------------
15 (41) KLUZ-TV Albuquerque, NM Univision
- ------------------------------------------------------------------------------------------------------
16 WGN-TV Satellite Independent - Chicago, IL
- ------------------------------------------------------------------------------------------------------
17 TNT Satellite Movies, Sports, Variety
- ------------------------------------------------------------------------------------------------------
18 USA Network Satellite Sports, Variety
- ------------------------------------------------------------------------------------------------------
19 Teach and Learn Network Satellite Educational
- ------------------------------------------------------------------------------------------------------
20 Prevue Channel Satellite Channel Guide
- ------------------------------------------------------------------------------------------------------
21 HBO SATELLITE PAY MOVIES, SPECIALS
- ------------------------------------------------------------------------------------------------------
22 (32) KAZQ Albuquerque, NM Educational
- ------------------------------------------------------------------------------------------------------
23 (23) KNAT Albuquerque, NM Religious Programming
- ------------------------------------------------------------------------------------------------------
24 Jones Computer Network Satellite Computer Users' Programming
- ------------------------------------------------------------------------------------------------------
25 Galavision Satellite Spanish Programming
- ------------------------------------------------------------------------------------------------------
26 Court TV/ Satellite/ Trial Coverage/
EWTN Satellite Religious Programming
- ------------------------------------------------------------------------------------------------------
27 Public Access Satellite Local Interest
- ------------------------------------------------------------------------------------------------------
28 (50) KASY-TV Albuquerque, NM Independent
- ------------------------------------------------------------------------------------------------------
29 Encore 1 PLEX Satellite Movies
- ------------------------------------------------------------------------------------------------------
30 MTV Satellite Music Videos
- ------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
TABLE II (A) (CONTINUED)
ALBUQUERQUE
- -----------------------------------------------------------------------------------------------------
CABLE
(OFF-AIR) NAME OR
CHANNELS CALL LETTERS SOURCE DESCRIPTION
- -----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
31 A&E Satellite Biographies, Mysteries, Specials
- -----------------------------------------------------------------------------------------------------
32 ESPN II Satellite 24-Hour Sports
- -----------------------------------------------------------------------------------------------------
33 Discovery Channel Satellite Science, Nature
- -----------------------------------------------------------------------------------------------------
34 Lifetime Satellite Women's Programming
- -----------------------------------------------------------------------------------------------------
35 The Family Channel Satellite Family Programming
- -----------------------------------------------------------------------------------------------------
36 Nickelodeon Satellite Childrens' Programming
- -----------------------------------------------------------------------------------------------------
37 The Disney Channel Satellite Movies, Family Shows
- -----------------------------------------------------------------------------------------------------
38 The Weather Channel Satellite 24-Hour Weather
- -----------------------------------------------------------------------------------------------------
39 HSN Satellite Home Shopping
- -----------------------------------------------------------------------------------------------------
40 American Movie Classics Satellite Classic Movies
- -----------------------------------------------------------------------------------------------------
41 CNBC Satellite Consumer, Business News
- -----------------------------------------------------------------------------------------------------
42 VH-1 Satellite Music Videos
- -----------------------------------------------------------------------------------------------------
43 The Nashville Network Satellite Country Music Videos
- -----------------------------------------------------------------------------------------------------
44 Great American Country Satellite Country Music Videos
- -----------------------------------------------------------------------------------------------------
45 C-SPAN Satellite U.S. House Coverage
- -----------------------------------------------------------------------------------------------------
46 E! Television Satellite Entertainment Information
- -----------------------------------------------------------------------------------------------------
47 C-SPAN 2 Satellite U.S. Senate Coverage
- -----------------------------------------------------------------------------------------------------
48 MSNBC Satellite News, Computer Information
- -----------------------------------------------------------------------------------------------------
49 Product Information Network Satellite Infomercial Service
- -----------------------------------------------------------------------------------------------------
52 Comedy Central Satellite Comedy Programming
- -----------------------------------------------------------------------------------------------------
53 Sci-Fi Channel Satellite Science Fiction
- -----------------------------------------------------------------------------------------------------
54 The History Channel Satellite Documentaries, Movies
- -----------------------------------------------------------------------------------------------------
55 fX Satellite Variety, Movies
- -----------------------------------------------------------------------------------------------------
56 Leased Access Local Variety
- -----------------------------------------------------------------------------------------------------
95 THE MOVIE CHANNEL SATELLITE PAY MOVIES
- -----------------------------------------------------------------------------------------------------
96 SHOWTIME SATELLITE PAY MOVIES, SPECIALS
- -----------------------------------------------------------------------------------------------------
97 REQUEST 1 SATELLITE PAY-PER-VIEW
- -----------------------------------------------------------------------------------------------------
98 REQUEST 4 SATELLITE PAY-PER-VIEW
- -----------------------------------------------------------------------------------------------------
99 SPICE SATELLITE ADULT PAY-PER-VIEW
- -----------------------------------------------------------------------------------------------------
</TABLE>
Table II (B) presents the programming available to the approximately 1,000
subscribers served from the Bernalillo headend in the northern part of the
System. Limited basic service included ten local broadcast stations and five
satellite-delivered services. The System's expanded basic service was comprised
of 23 satellite-delivered
18
<PAGE>
services, while available premium services included HBO, Showtime, The Movie
Channel, and Cinemax. Pay-per-view channels included two general audience
movie/event services.
<TABLE>
<CAPTION>
TABLE II (B)
BERNALILLO
- ------------------------------------------------------------------------------------------------------
CABLE
(OFF-AIR) NAME OR
CHANNELS CALL LETTERS SOURCE DESCRIPTION
- ------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
2 (2) KASA Albuquerque, NM Fox
- ------------------------------------------------------------------------------------------------------
3 CINEMAX SATELLITE PAY MOVIES
- ------------------------------------------------------------------------------------------------------
4 (4) KOB-TV Albuquerque, NM NBC
- ------------------------------------------------------------------------------------------------------
5 (5) KNME-TV Albuquerque, NM PBS
- ------------------------------------------------------------------------------------------------------
6 Knowledge TV Satellite Educational
- ------------------------------------------------------------------------------------------------------
7 (7) KOAT-TV Albuquerque, NM ABC
- ------------------------------------------------------------------------------------------------------
8 ESPN Satellite 24-Hour Sports
- ------------------------------------------------------------------------------------------------------
9 CNN Satellite 24-Hour News
- ------------------------------------------------------------------------------------------------------
10 CNN Headline News Satellite 24-Hour News
- ------------------------------------------------------------------------------------------------------
11 (11) KCHF Santa Fe, NM Independent
- ------------------------------------------------------------------------------------------------------
12 WTBS Satellite Independent - Atlanta, GA
- ------------------------------------------------------------------------------------------------------
13 (13) KRQE Albuquerque, NM CBS
- ------------------------------------------------------------------------------------------------------
14 Jones Computer Network Satellite Computer Users' Programming
- ------------------------------------------------------------------------------------------------------
15 (41) KLUZ-TV Albuquerque, NM Univision
- ------------------------------------------------------------------------------------------------------
16 THE MOVIE CHANNEL SATELLITE PAY MOVIES
- ------------------------------------------------------------------------------------------------------
17 TNT Satellite Movies, Sports, Variety
- ------------------------------------------------------------------------------------------------------
18 USA Network Satellite Sports, Variety
- ------------------------------------------------------------------------------------------------------
19 Prevue Channel Satellite Channel Guide
- ------------------------------------------------------------------------------------------------------
20 SHOWTIME SATELLITE PAY MOVIES, SPECIALS
- ------------------------------------------------------------------------------------------------------
21 HBO SATELLITE PAY MOVIES, SPECIALS
- ------------------------------------------------------------------------------------------------------
22 (32) KAZQ Albuquerque, NM Educational
- ------------------------------------------------------------------------------------------------------
23 (23) KNAT Albuquerque, NM Religious Programming
- ------------------------------------------------------------------------------------------------------
24 WGN-TV Satellite Independent - Chicago, IL
- ------------------------------------------------------------------------------------------------------
25 Galavision Satellite Spanish Programming
- ------------------------------------------------------------------------------------------------------
28 (50) KASY-TV Albuquerque, NM Independent
- ------------------------------------------------------------------------------------------------------
29 Encore 1 PLEX Satellite Movies
- ------------------------------------------------------------------------------------------------------
30 MTV Satellite Music Videos
- ------------------------------------------------------------------------------------------------------
31 A&E Satellite Biographies, Mysteries, Specials
- ------------------------------------------------------------------------------------------------------
32 ESPN II Satellite 24-Hour Sports
- ------------------------------------------------------------------------------------------------------
33 Discovery Channel Satellite Science, Nature
- ------------------------------------------------------------------------------------------------------
34 Lifetime Satellite Women's Programming
- ------------------------------------------------------------------------------------------------------
35 The Family Channel Satellite Family Programming
- ------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
TABLE II (B) (CONTINUED)
BERNALILLO
- -----------------------------------------------------------------------------------------------------
CABLE
(OFF-AIR) NAME OR
CHANNELS CALL LETTERS SOURCE DESCRIPTION
- -----------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
36 Nickelodeon Satellite Childrens' Programming
- -----------------------------------------------------------------------------------------------------
37 The Disney Channel Satellite Pay Movies, Family Shows
- -----------------------------------------------------------------------------------------------------
38 The Weather Channel Satellite 24-Hour Weather
- -----------------------------------------------------------------------------------------------------
39 American Movie Classics Satellite Classic Movies
- -----------------------------------------------------------------------------------------------------
40 Comedy Central Satellite Comedy Programming
- -----------------------------------------------------------------------------------------------------
41 Great American Country Satellite Country Music Videos
- -----------------------------------------------------------------------------------------------------
42 The Nashville Network Satellite Country Music Videos
- -----------------------------------------------------------------------------------------------------
43 Product Information Network Satellite Infomercial Service
- -----------------------------------------------------------------------------------------------------
44 The History Channel Satellite Documentaries, Movies
- -----------------------------------------------------------------------------------------------------
45 Sci-Fi Channel Satellite Science Fiction
- -----------------------------------------------------------------------------------------------------
46 fX Satellite Variety, Movies
- -----------------------------------------------------------------------------------------------------
97 REQUEST 1 SATELLITE PAY-PER-VIEW
- -----------------------------------------------------------------------------------------------------
98 REQUEST 4 SATELLITE PAY-PER-VIEW
- -----------------------------------------------------------------------------------------------------
</TABLE>
Table II (C) presents programming available to the remaining subscribers
served from the Bosque Farms headend, located in the southern part of the
System. The program line-up is similar to the Bernalillo service. Limited
basic included the same ten local broadcast stations and six satellite services,
while expanded basic included 20 satellite-delivered services. Premium channels
included HBO and Cinemax, and pay-per-view services included two general
audience movie/event channels and Spice for adults. This information is
presented in the following table.
20
<PAGE>
<TABLE>
<CAPTION>
TABLE II (C)
BOSQUE FARMS
- ------------------------------------------------------------------------------------------------------
CABLE
(Off-Air) NAME OR
CHANNELS CALL LETTERS SOURCE DESCRIPTION
- ------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
2 (2) KASA Albuquerque, NM Fox
- ------------------------------------------------------------------------------------------------------
3 Cinemax SATELLITE PAY MOVIES
- ------------------------------------------------------------------------------------------------------
4 (4) KOB-TV Albuquerque, NM NBC
- ------------------------------------------------------------------------------------------------------
5 (5) KNME-TV Albuquerque, NM PBS
- ------------------------------------------------------------------------------------------------------
6 Knowledge TV Satellite Educational
- ------------------------------------------------------------------------------------------------------
7 (7) KOAT-TV Albuquerque, NM ABC
- ------------------------------------------------------------------------------------------------------
8 ESPN Satellite 24-Hour Sports
- ------------------------------------------------------------------------------------------------------
9 CNN Satellite 24-Hour News
- ------------------------------------------------------------------------------------------------------
10 CNN Headline News Satellite 24-Hour News
- ------------------------------------------------------------------------------------------------------
11 (11) KCHF Santa Fe, NM Independent
- ------------------------------------------------------------------------------------------------------
12 WTBS Satellite Independent - Atlanta, GA
- ------------------------------------------------------------------------------------------------------
13 (13) KRQE Albuquerque, NM CBS
- ------------------------------------------------------------------------------------------------------
14 C-SPAN Satellite U.S. House Coverage
- ------------------------------------------------------------------------------------------------------
15 (41) KLUZ-TV Albuquerque, NM Univision
- ------------------------------------------------------------------------------------------------------
16 C-SPAN 2 Satellite U.S. Senate Coverage
- ------------------------------------------------------------------------------------------------------
17 TNT Satellite Movies, Sports, Variety
- ------------------------------------------------------------------------------------------------------
18 USA Network Satellite Sports, Variety
- ------------------------------------------------------------------------------------------------------
19 Time/Local Messages Local Local Information
- ------------------------------------------------------------------------------------------------------
20 KASY-TV Albuquerque, NM Independent
- ------------------------------------------------------------------------------------------------------
21 HBO SATELLITE PAY MOVIES, SPECIALS
- ------------------------------------------------------------------------------------------------------
22 (32) KAZQ Albuquerque, NM Educational
- ------------------------------------------------------------------------------------------------------
23 (23) KNAT Albuquerque, NM Religious Programming
- ------------------------------------------------------------------------------------------------------
24 WGN-TV Satellite Independent - Chicago, IL
- ------------------------------------------------------------------------------------------------------
25 The Nashville Network Satellite Country Music Videos
- ------------------------------------------------------------------------------------------------------
26 MTV Satellite Music Videos
- ------------------------------------------------------------------------------------------------------
27 The Weather Channel Satellite 24-Hour Weather
- ------------------------------------------------------------------------------------------------------
28 American Movie Classics Satellite Classic Movies
- ------------------------------------------------------------------------------------------------------
29 Lifetime Satellite Women's Programming
- ------------------------------------------------------------------------------------------------------
30 Comedy Central Satellite Comedy Programming
- ------------------------------------------------------------------------------------------------------
31 A&E Satellite Biographies, Mysteries, Specials
- ------------------------------------------------------------------------------------------------------
32 ESPN II Satellite 24-Hour Sports
- ------------------------------------------------------------------------------------------------------
33 Discovery Channel Satellite Science, Nature
- ------------------------------------------------------------------------------------------------------
34 Cartoon Network Satellite Cartoons
- ------------------------------------------------------------------------------------------------------
35 The Family Channel Satellite Family Programming
- ------------------------------------------------------------------------------------------------------
36 Nickelodeon Satellite Childrens' Programming
- ------------------------------------------------------------------------------------------------------
37 The Disney Channel Satellite Movies, Family Shows
- ------------------------------------------------------------------------------------------------------
38 Great American Country Satellite Country Music Videos
- ------------------------------------------------------------------------------------------------------
39 HSN Satellite Home Shopping
- ------------------------------------------------------------------------------------------------------
97 REQUEST 1 SATELLITE PAY-PER-VIEW
- ------------------------------------------------------------------------------------------------------
98 REQUEST 4 SATELLITE PAY-PER-VIEW
- ------------------------------------------------------------------------------------------------------
99 SPICE SATELLITE ADULT PAY-PER-VIEW
- ------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
C. RATES
The average monthly programming rates, equipment rental rates, and
installation charges to subscribers for the preceding services as of the date of
the appraisal, are outlined in Table III. Comparison data for basic service,
pay services, and monthly revenue per subscriber were taken from The Strategis
Group publications Cable Trends: 1996 and 1997, which present year end 1995 and
1996 operating and financial data, respectively.
As shown in Table III, subscribers paid between $8.77 and $10.49 per month
for limited basic service and between $11.97 and $16.13 for expanded basic
service. The majority of subscribers to the System were served from the
Albuquerque headend and paid a combined basic and expanded basic rate that was
higher, at $26.62, than the average combined basic and expanded basic rate for
the nation, which was $19.90 as of 1995.
A la carte pay service rates in Albuquerque ranged from $6.88 for Showtime
and The Movie Channel to $11.50 for HBO. In Bernalillo a la carte rates were
uniform at $10.45 with the exception of Cinemax, while in Bosque Farms HBO was
$11.49 and Cinemax was $10.45. Subscribers at Kirtland AFB paid a la carte
rates ranging from $5.95 for Showtime to $9.95 for HBO. Packages of multiple
premium services were available at reduced rates. On a nationwide basis, the
average rate per pay unit was $9.70 in 1995, which fell within the range of a la
carte rates for pay services charged by the System.
Pay-per-view general audience movies were $4.15 throughout the System, with
the exception of Kirtland AFB where the rate was $3.95. Adult movies were $6.25
in Albuquerque and Bosque Farms and $5.95 on Kirtland AFB.
Addressable converter rentals were $3.57 per month except on Kirtland AFB
where they were $3.40 per month. Non-addressable converter monthly rental rates
were $1.05 except on Kirtland AFB where they were $1.00. Installation charges
were $18.21
22
<PAGE>
for subscribers in pre-wired homes, $26.48 in unwired homes, and $31.50 for
reconnection of service. Corresponding installation fees for subscribers on
Kirtland AFB were $17.34, $25.22, and $30.00.
Average revenue per subscriber per month on a nationwide basis was $34.90
as of the end of 1996, according to The Strategis Group research. This figure
includes revenues from basic, pay, and PPV services, as well as local
advertising, equipment rental, and miscellaneous income. During the twelve
months prior to April 30, 1997, the System generated monthly average revenue of
$38.25 per subscriber, which was somewhat higher than the nationwide average for
1996.
<TABLE>
<CAPTION>
TABLE III
---------------------------------------------------------------------------
BOSQUE KIRTLAND UNITED
ALBUQUERQUE BERNALILLO FARMS AFB STATES/1/
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Basic Service $10.49 $ 8.77 $ 8.98 $ 9.61 $19.90
---------------------------------------------------------------------------
Expanded Basic $16.13 $12.98 $11.97 $14.66 N/A
---------------------------------------------------------------------------
Pay Services (a la carte): $ 9.70
HBO $11.50 $10.45 $11.49 $ 9.95
Cinemax $10.45 $ 6.88 $10.45 $ 9.25
Encore PLEX $ 7.30 N/A N/A N/A
Showtime $ 6.88 $10.45 N/A $ 5.95
The Movie Channel $ 6.88 $10.45 N/A $ 6.55
---------------------------------------------------------------------------
Pay Per View:
Movie $ 4.15 $ 4.15 $ 4.15 $ 3.95
Adult Movie $ 6.25 N/A $ 6.25 $ 5.95 N/A
---------------------------------------------------------------------------
Converters:
Non-Addressable $ 1.05 $ 1.05 $ 1.05 $ 1.00
Addressable $ 3.57 $ 3.57 $ 3.57 $ 3.40 N/A
---------------------------------------------------------------------------
Installation Charges: N/A
Pre-Wired $18.21 $18.21 $18.21 $17.34
Unwired $26.48 $26.48 $26.48 $25.22
Reconnect $31.50 $31.50 $31.50 $30.00
---------------------------------------------------------------------------
Revenue/Subscriber/Month $38.25 $34.90
---------------------------------------------------------------------------
/1/Source: The Strategis Group's Cable Trends: 1996 and 1997
</TABLE>
23
<PAGE>
D. SUBSCRIBERS
Table IV presents the number of homes passed, basic subscribers, expanded
basic subscribers, pay units, converter rentals, and addressable homes for the
System as of April 30, 1997. These figures are compared with similar figures
for the United States as a whole, taken from The Strategis Group's Cable Trends:
1997.
At the time of the appraisal, the System's basic penetration rate, at 48.1%
of homes passed, was lower than the corresponding rate for the nation of 65.8%.
Pay penetration for the System stood at 54.1%, which was well below the national
rate of 76.4%. Addressable home penetration for the System, at 20.5%, was also
lower than the national average of 48.1%.
<TABLE>
<CAPTION>
TABLE IV
---------------------------------------
SYSTEM United States/1/
---------------------------------------
<S> <C> <C>
Homes Passed 234,101 95,500,000
---------------------------------------
Basic Subscribers 112,613 62,800,000
% of Homes Passed 48.1% 65.8%
---------------------------------------
Expanded Basic Subscribers 108,992 N/A
% of Basic Subscribers 96.8% N/A
---------------------------------------
Total Pay Units 60,912 48,000,000
% of Basic Subscribers 54.1% 76.4%
---------------------------------------
Converters 42,728 N/A
% of Basic Subscribers 37.9% N/A
---------------------------------------
Addressable Homes 23,096 30,200,000
% of Basic Subscribers 20.5% 48.1%
---------------------------------------
/1/Source: The Strategis Group's Cable Trends: 1997
</TABLE>
24
<PAGE>
E. SYSTEM MILEAGE
According to System management, mileage figures for the System are based on
estimates from System maps. Since a complete walk-out of the current System
would be prohibitively expensive, The Strategis Group used the following
approach to corroborate the plant mileage:
1. Interviewed knowledgeable System personnel to ascertain the source and
reliability of the mileage estimates.
2. Noted the configuration of the System on area maps and the existence
and condition of plant in a representative portion of the area served
by the System.
3. Related average density of the System to general observations of
densities while inspecting the System and service area.
Table V presents management's best estimate of the number of route miles of
plant as represented by total strand and trench in the System as of the
appraisal date. Coaxial mileage was approximately 37.9% aerial and 62.1%
underground. Approximately 3.8% of total plant miles were fiber optic cable.
Based upon the above procedures and cost limitations, these estimates appear to
be reasonable.
<TABLE>
<CAPTION>
TABLE V
Aerial Underground Sub-Total
----------- ----------------- --------------
<S> <C> <C> <C>
Coaxial Plant 970.7 1,590.4 2,561.1
Fiber Optic Plant 64.2 13.9 78.1
TOTAL MILEAGE 2,639.2
</TABLE>
F. PHYSICAL PLANT
As of the valuation date, the System's administrative offices were
maintained at 4611 Montbel Place, Northeast, Albuquerque. The System's
advertising sales department was located in separate office facilities at 1700A
Louisiana Street,
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Albuquerque. Subscribers received signals processed at one of three headends.
The main headend, serving roughly 110,000 subscribers, was located at 2633
Tennessee Street, Northeast, Albuquerque. Also maintained at this site were
advertising sales and local access production facilities and bench technician
repair facilities. In the north portion of the System, a headend serving
roughly 1,000 subscribers was maintained at 1429 Camino del Pueblo in
Bernalillo. In the southern part of the System a third headend, serving the
remaining subscribers, was maintained in Bosque Farms. The System also
maintained microwave equipment to transmit signals to subscribers residing west
of the Rio Grande River. Overall, the System passed approximately 233,798 homes
with an estimated 2,639.2 miles of plant, for an overall density of 89 homes per
mile.
At the main headend equipment from a variety of manufacturers was in use,
however, items made by Scientific-Atlanta (S/A) and General Instruments (GI)
were predominant. Among these items were S/A 6150 signal processors, 6350
modulators, and Power Vu digital satellite receivers. GI equipment included
M/A-Com Videocipher II's, DSR-4400 MPEG digital satellite receivers, DSR-4500
NTSC satellite receivers, and 1500S satellite receivers. Other items in use
included Barco Pulsar TV modulators and Standard Agile IRD-II Videocipher RS
units.
For the fiber optic portion of the distribution plant, the System used an
Antec Laser Link II Plus transmitter and an AT&T LGX distribution frame. For
local advertising on 19 channels, a SeaChange Technology Digital Advertising
Insertion System and Sony PVW-2800 Betacam equipment was used.
Off-air antennas were mounted on a 160-foot self-supporting tower. Three
4.5-meter S/A dishes and one 5-meter Simulsat dish were used for program
reception, and emergency power was provided by an Onan 45 kVa propane generator.
The coaxial portion of the System's distribution plant fed from the main
headend, totaled approximately 2,400 miles. Of this mileage, about 88% was
built at a capacity of 450-MHz, while the remainder was built to 750-MHz
specifications. Plant fed from the Bernalillo headend, at approximately 90
miles, had a 400-MHz capacity.
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The 65 miles of plant served from Bosque Farms had approximately 30% built to a
330-MHz capacity and 70% to a 450-MHz capacity. Overall, the System's plant was
generally in good condition, with the exception of approximately 340 miles of
plant located in the North/South Valley of Albuquerque, which will require a
complete rebuild in the near future.
Addressable homes totaled 23,096 in the System, and there were a total of
42,728 converters in the field. Converters provided to subscribers included S/A
and Panasonic standard set-top models, and Jerrold CFT-2000 addressable models.
G. FRANCHISES
As of April 30, 1997, the System operated under a total of nine franchise
agreements with different local government authorities. Table VI identifies
each agreement and its expiration date. As of the appraisal date, the weighted
average remaining life of the franchise agreements was 3.4 years.
<TABLE>
<CAPTION>
TABLE VI
Franchise Expiration
- --------- ----------
<S> <C>
City of Albuquerque September 1, 1999
Kirtland AFB August 28, 1999
Bosque Farms September 13, 1999
Bernalillo County August 5, 2011
Sandoval County March 3, 2002
Bernalillo August 17, 2001
Los Ranchos de Albuquerque May 14, 2011
Valencia County January 21, 2000
Corrales April 21, 2006
Weighted Average Remaining Life 3.4 Years
</TABLE>
H. MANAGEMENT
At the time of the appraisal, the System operated with approximately 252
employees. The largest group of employees were in the technical department.
Among the 96 employees in this group, 27 were installers/technicians, 12 were
service
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technicians, and 10 were responsible for maintenance. The second largest group
comprised the construction department with 42 employees. Customer service
representatives (CSRs) at the System totaled 37, for an average of approximately
3,000 subscribers per CSR. Residential and commercial sales and marketing
duties were handled by a staff of 27, including 13 salespersons. Administrative
employees, including management, numbered 25 and advertising sales at the System
were handled by a staff of 18, including eight account executives. The
advertising production staff had seven members, four of which were production
technicians.
The Strategis Group's representative met and spoke extensively with the
System's General Manager and acting Engineering Manager. Both were experienced
industry professionals and appeared to be well-versed on the System's
characteristics, including strengths and weaknesses.
I. FINANCIAL HISTORY
Unaudited financial statements for the year ending December 31, 1996,
showed that the System earned revenues of $49,487,925. Operating expenses
totaled $28,558,232, which resulted in operating income of $20,929,693 and an
operating profit margin of 42.3%. Statements for the first four months of 1997
indicated that operating profits of $7,252,729 were generated on revenues of
$17,214,712 for an operating margin of 42.1%. On an annualized basis, 1997
revenues would total $51,644,136 and operating profits would be $21,758,187.
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<PAGE>
V. TOTAL SYSTEM VALUE
The Strategis Group has estimated the fair market value for the System as a
business enterprise to be $233,440,000, as of April 30, 1997. Fair market value
is the cash price a willing buyer would give a willing seller in an arm's length
transaction in order to complete the sale. It is assumed that both buyer and
seller have been informed of all relevant facts and neither is under any
compulsion to conclude the transaction and that the tangible assets will remain
in their present location and will continue to be employed in their highest and
best use, i.e., the delivery of cable television signals to subscribers.
A. VALUATION PROCEDURE AND METHODS
The Strategis Group used the following basic methodology to determine the
overall fair market value of the System:
1. Performed an onsite review to observe a representative portion of the
market and homes passed, reviewed the number of subscribers, and
determined the quality and attractiveness of the services provided.
2. Made inquiries of management to ascertain and/or verify items relevant
to the appraisal.
3. Estimated the availability of additional homes passed and the
probability of future growth.
4. Reviewed selected financial records and other documents to verify
certain financial data.
5. Estimated the expected changes in operations that a buyer most likely
would institute.
6. Applied generally accepted methods of estimating the fair market value
of the entity as a whole.
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<PAGE>
A business valuation typically is performed using one or more of three
approaches: the cost approach, the market approach, and the income approach.
Since the System will be relying to a large degree on intangible assets to
generate income, the cost approach is not appropriate in this case. The market,
or comparable sales, approach has not been used because of the difficulty in
choosing sales that reflect the same profitability, size, and growth as the
System. Therefore, this valuation has been based on the income approach to
valuation. The income approach is the best approach to valuing the System
because it reflects the future earnings potential of the System.
There are various established methods of determining a business entity's
total fair market value using the income approach. The most commonly accepted
methods are as follows:
1. Capitalization of projected net cash flow.
2. Capitalization of single-year operating profit.
3. Dividend capitalization.
4. Market price-to-book equity.
5. Price-earnings multiple.
Of the methods listed above, The Strategis Group normally relies primarily
upon the capitalization of projected net cash flow, or "discounted cash flow"
approach, to estimate total value. The Strategis Group generally favors
discounted cash flow methodology because it considers the broadest range of
factors that will affect both the present and future income, and therefore
value, of a cable television system. Accordingly, The Strategis Group usually
gives greater consideration to the discounted cash flow methods in its final
judgment concerning the fair market value of a cable television system.
The Strategis Group has prepared two discounted cash flow valuations for
the System, one which analyzes the projected return on equity and one which
analyzes the projected return on investment. The Strategis Group also has
considered the second
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<PAGE>
general methodology listed above, i.e., capitalization of operating profit, in
conducting its valuation of the System. The methodologies are described in
Parts V-B and V-C of this report. The values for the overall fair market value
of the System are presented in Exhibit A.
The remaining methods listed above, although widely used in other
industries, generally are inappropriate for valuing cable television systems.
Dividend capitalization, based upon actual dividends or capacity, usually is
irrelevant since few publicly-traded cable companies pay dividends and earnings
(which should be reflective of a dividend capacity) are not reflective of the
capacity to generate operating income. A comparison of market price-to-book
equity also is not valid usually since book equity varies widely from one
company to another as to how much intangible and tangible value is reflected on
the books. Finally, an analysis of price-earnings multiples generally is not
appropriate because they also vary widely within the industry and are not
representative of the financial position of most cable systems.
B. DISCOUNTED CASH FLOW METHODOLOGY
The Strategis Group has generated two discounted cash flow models to arrive
at a total System value. The return-on-equity model is based upon a
hypothetical purchase price that would achieve a target after-tax return on
equity based on the present value of the projected net cash flows. The return-
on-investment model measures the net present value of the projected pre-tax
operating cash flows, less capital expenditures, plus the residual value of the
System, that represent the return on total investment.
Both the return-on-equity and return-on-investment methods are dependent
upon projections of the System's future net cash flow and residual value and on
selection of an appropriate discount rate. The Strategis Group's calculations
are based on detailed projections of a variety of factors which will affect
future cash flow including housing growth, plant mileage, basic and pay
subscriber growth, subscriber rates, operating expenditures, and capital
expenditures. The projections and assumptions used in The
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<PAGE>
Strategis Group's discounted cash flow models are set forth in Exhibits E, F, G,
and H. Exhibit E provides details of The Strategis Group's projections for plant
mileage, housing, and subscriber growth. Exhibit F shows the rates subscribers
were charged at the time of the appraisal for various services and The Strategis
Group's projections for future growth. Exhibit G lists revenues and operating
expenses for all years throughout the projection period, and Exhibit H details
capital expenditures anticipated for the System. In addition, Exhibit J includes
miscellaneous assumptions such as the average remaining life of the franchises
under which the System operates, tax rates, the net fair market value of
beginning tangible assets, the breakdown between debt and equity and the
interest rate anticipated on the debt, and the multiples and discount rates used
in the various appraisal methods. The Strategis Group's determination and use of
these factors is discussed further below.
1. Net Cash Flow/Return on Equity
This method involves the use of multiple year projected operations for the
System and a predetermined target after-tax return on equity for a hypothetical
outside buyer. The seven-year projection period is based on the average
remaining franchise life of the System. A complete discussion of the selection
of the projection period is provided in Part V-B-3 of this report.
Based on the use of typical debt-to-equity ratios and debt services, The
Strategis Group has made certain assumptions concerning the capital structure
that a "typical, prudent outside buyer" might experience as well as the probable
interest rates that would be applicable in connection with any debt financing
that might be incurred, as shown in Exhibit J. To calculate future cash flows,
The Strategis Group has projected future subscribers, revenues, operating
expenses, and capital expenditures. The Strategis Group has then tested various
hypothetical purchase prices, i.e., potential fair market values, to determine a
value that yields the desired return on equity, as shown in Exhibits C-1 and C-
2.
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<PAGE>
Using the return-on-equity model, The Strategis Group has generated low and
high cash flow projections for the System shown in Exhibits B-1 and B-2. The
difference between the two projections reflects the range of potential returns
on equity that a buyer could reasonably expect to realize depending upon the
initial purchase price paid for the System.
2. Net Cash Flow/Return On Investment
This discounted cash flow method, similar to the preceding method, is used
to measure the net present value of the pre-tax operating cash flow, less
capital expenditures, plus the residual value of the System, that represent the
return on the total investment rather than that which could result from an
assumed purchase with a predetermined debt-to-equity ratio. To calculate future
cash flows, The Strategis Group has used the same projections for future
subscribers, revenues, operating expenses, and capital expenditures as in the
return-on-equity method. The projected cash flows for the System, plus the
last-year residual value of the System, less capital expenditures, are then
discounted to their present value using an acceptable discount factor based on
the weighted average cost of money, as shown in Exhibit J. The Strategis Group
has used the return on investment model, like the return on equity model, to
generate low and high values for the System. These values, shown in Exhibit D,
represent the present value of the future pre-tax operating cash flows and
reflect more conservative and more optimistic assumptions, respectively, as to
the likely return on investment that the System will generate over time.
3. Cash Flow Projections
There are many factors that affect the projections of a specific cable
system's cash flow. With respect to the System, The Strategis Group has
analyzed the franchise area, the costs incurred to meet franchise obligations,
the length of the franchise period, the degree of competition, and the historic
results of the System's operations. The Strategis Group also has examined
factors that affect the industry, such as possibility of
33
<PAGE>
regulation, competitive threats, rapid technical changes, and the development of
additional programming services. These factors have been incorporated into The
Strategis Group's projections of the System's future cash flows.
The most critical factors in the expected cash flow of a specific cable
system are the opportunities for growth in the territory in which it operates,
i.e., its franchise area and the duration of the franchise. In making its cash
flow projections, The Strategis Group has carefully reviewed the demographics of
counties represented in the service area. Demographic information was gathered
from direct observation during The Strategis Group's onsite visit, discussion
with System management, Marketing Statistics' Demographics USA 1996, U.S. Census
Bureau data, and information obtained from the local Chamber of Commerce.
The Strategis Group also has reviewed information pertaining to the
System's franchises in order to calculate their remaining life and made
inquiries of System management personnel to ascertain any relevant terms that
may affect the value of the System. The Strategis Group has calculated a
weighted average remaining life of 3.4 years for the franchises.
The projection period used for the cash flows normally is the weighted
average remaining life of the franchises, except when the weighted life of the
franchises falls below seven or exceeds ten years. When the franchise life
falls below seven years, The Strategis Group uses a seven-year projection
period, amortizing the franchises over fifteen years as mandated by the Internal
Revenue Service (IRS). When the franchise life exceeds ten years, a ten-year
projection period is used, with the franchises amortized over fifteen years.
The Strategis Group believes that the cash flows realized from a projection
period less than seven years generally are not reflective of the value of a
system than an investor would consider when utilizing discounted cash flow
methodology. The Strategis Group also believes that the operating income
resulting from income and expense projections beyond ten years is increasingly
uncertain and might produce less accurate values for the System.
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<PAGE>
The Strategis Group's cash flow projections are also based in part on
historical operating data such as subscriber rates, the ratio of subscribers to
homes passed, and the age and condition of the System's distribution plant. The
Strategis Group also has relied on information provided by System management
personnel, discussions with System personnel, and The Strategis Group's
familiarity with typical industry expenses and operating trends to project the
future financial performance of the System. As shown in Exhibits E through H,
The Strategis Group has projected increases in the number of basic and pay
subscribers, projected changes in service rates, and estimated expenditures for
future installation of cable plant and other future capital requirements.
4. Residual Value
Under both the return-on-equity and the return-on-investment approaches,
The Strategis Group has calculated a residual value for the System following the
seven-year projection period. The residual represents the anticipated value of
the System at the end of the projection period. This value is added to the
System's cash flow stream in the final year of the projection period and then
discounted back to present value.
The residual is calculated as a multiple of the projected annual net cash
flow in the final year of the discounted cash flow analysis. The multiple used
reflects the degree of likelihood that the System will have significant future
income, and therefore value, at the end of the projection period. If the
franchise is likely to be renewed on the same terms as the current franchise,
and if there is a realistic expectation of continued growth in income, a higher
multiple will be applied. On the other hand, if the franchise is not likely to
be renewed, or is renewed on terms and conditions significantly different from
the current franchise, or if competitive or technological factors jeopardize the
operator's future income, a lower multiple is appropriate.
Based on its experience and familiarity with the cable industry, and its
analysis of the System, The Strategis Group has calculated the System's residual
value using seventh-year cash flow times a multiple of nine, as shown in Exhibit
J. This multiple reflects The Strategis Group's view that the System is likely
to have significant value in
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<PAGE>
seven years, but that certain unknowns and uncertainties must be factored into
the multiple nonetheless. Currently, the Cable Act of 1984 puts operators in a
favorable position in that cable franchises are generally likely to be renewed.
However, the 1984 Act provides no guarantee of renewal, and it is expected that
the negotiation process required to obtain a renewal will result in new
franchises that will be on terms significantly different and probably less
favorable than current franchises. In addition, concerns about how re-
regulation of the cable industry will affect the Act's renewal provisions could
have the effect of reducing or eliminating the operator's expectation of
renewal.
5. Discount Rates
A critical component of both the return-on-equity and the return-on-
investment approaches is the selection of the rate at which future cash flows
are discounted to their present value. The discount rate represents the
investor's expected return on capital, i.e., the rate of return that reasonably
reflects the risk being undertaken by the investor.
Considering the relative risk associated with the cable industry in
comparison to other industries, and the risk associated with the System in
particular, The Strategis Group has adopted a range of discount rates for its
discounted cash flow methods. In the after-tax return-on-equity model, The
Strategis Group has applied a discount rate of 14.0% for its low valuation, and
a rate of 12.0% for its high valuation. In the pre-tax return-on-investment
model, the low valuation discount rate is 16.6%, while the high valuation rate
is 15.1%. The discount rates used in the two discounted cash flow methods are
indicated on Exhibit A and summarized in Exhibit J.
The Strategis Group has calculated the discount rate for the return-on-
equity model by first establishing a risk-free rate of return (the current rate
of return available on Treasury bills or Treasury bonds as of the valuation
date) and then adding the historical premium for risk that the market has
actually provided the holders of representative cable television stocks. This
assumes that using such historical data will provide a reasonable guide to
future return expectations after recognition for risk.
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<PAGE>
The discount rate incorporates systematic risk, which is the sensitivity of
the return on the subject investment to changes in the return for the market as
a whole. The Strategis Group also has considered in our selection of the
discount rates unsystematic risk, which is any risk premium directly associated
with the industry, particular company, or the subject system. Thus, internal
risk factors, such as the possibility of competition, municipal and customer
relations, rate structure, franchise stability, etc., have been examined in our
selection of the discount rates.
The discount rate used in the return-on-investment model is determined by
the "band of investment" method. The rate is based on an average of the rate
applicable to equity and the cost of debt weighted in the proportions that are
utilized for the particular system.
C. DIRECT INCOME METHODOLOGY
An alternative valuation method to the discounted cash flow method is the
direct income method, in which the estimate of the cable system's value is based
on current net operating income times a multiple selected by the appraiser. The
Strategis Group has applied several alternative versions of this method to the
System. In the first model, The Strategis Group used the System's actual annual
net operating income for the 12-month period preceding the valuation date,
whenever the appropriate data was available. When data was insufficient to
ascertain the actual net operating income for the past full year, The Strategis
Group estimated the past year's annual net operating income based on available
financial information for the past several months. In the second, the System's
current cash flow as of the appraisal date was annualized to create a "running
rate" net operating income projection. In the third model, The Strategis Group
used the System's projected net operating income for the twelve months following
the appraisal date. The results of these models are set forth in Exhibit A.
The multiples applied to each of these income figures are derived from a
variety of cable industry data. First, The Strategis Group has looked at the
income and stock
37
<PAGE>
value of several publicly traded cable companies as of the appraisal date. From
this analysis, The Strategis Group has derived a range of multiples that it
believes are applicable to privately held cable systems, which includes
adjustments for control and marketability. Taking into account multiples derived
from the sale of other cable television systems, The Strategis Group has arrived
at a composite figure for each model. In the historical income model, The
Strategis Group has applied a low multiple of 10.5 and a high multiple of 11.5.
The running rate and projected income models use slightly lower multiples to
account for the additional risk and uncertainty of using projections rather than
historical data. The multiples used in each of the three direct income
approaches are indicated in Exhibit A and summarized again in Exhibit J.
D. VALUE CONCLUSIONS
The valuations yielded by each of the methods described above are shown in
Exhibit A. In arriving at a final System valuation, The Strategis Group
considered both discounted cash flow methods, i.e., the return-on-equity and
return-on-investment methods, and the direct income methods. Based upon the
foregoing analysis and a consideration of the various methods, The Strategis
Group concludes that the fair market value of the System as a business
enterprise as of April 30, 1997, was $233,440,000.
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<PAGE>
VI. CONTINGENCIES AND LIMITING CONDITIONS
Our conclusions as to the value of the System are based upon the following,
which to the best of our knowledge and belief are reliable and sound:
1. Information and data obtained during an onsite inspection by a
representative of The Strategis Group of a representative portion of
the System and communities served.
2. Personal and telephone interviews with the System's employees.
3. Selected documents including:
a. Various operating data and maps.
b. Miscellaneous internal data and documents.
The following limiting conditions apply to the subject appraisal:
1. The Strategis Group is under no obligation to update the appraisal to
account for events or additional data subsequent to the appraisal
date. The appraisal is based on laws and regulations in place as of
April 30, 1997, and does not reflect subsequent changes, if any, in
the relevant laws and regulations.
2. Neither this report nor any portions thereof may be used for any
purpose other than as stated herein nor may it be reproduced or
excerpted without the prior written consent of The Strategis Group.
3. No copies of this report will be furnished to entities other than the
client without the client's specific permission or direction unless
ordered by a court of competent jurisdiction.
4. The comments and judgments of The Strategis Group as to the physical
and terminal state of the cable system were made by representatives
who are expert in valuing cable television assets but not by qualified
cable television engineers. Consequently, readers should not rely on
any
39
<PAGE>
statement made herein for any purpose other than those set forth in
this appraisal.
5. The Strategis Group did not consider, or factor into the appraisal,
any impact on value that might be caused by the presence of toxic
waste or hazardous material including electromagnetic radiation or
other forms of radio frequency radiation.
40
<PAGE>
VII. STATEMENT OF VALUE
The Strategis Group certifies that a personal inspection of a
representative portion of the communities and System was made by a qualified
representative of this firm and that, to the best of our knowledge, the
statements contained in this appraisal are correct and that the opinions stated
are based on consideration of the relevant factors. In addition, neither The
Strategis Group nor any of its representatives have any current interest or
contemplated future interest in the entities appraised. In addition, the fee
paid for this report by Jones Intercable, Inc. is in no way dependent on the
values determined herein.
Based on the various analyses, computations, and considerations discussed
in this report, it is our professional judgment, subject to the assumptions and
limitations stated in this report, that the range of values as stated in this
report are true and correct. Therefore, it is the professional opinion of The
Strategis Group that the fair market value of the Cable TV Fund 12-BCD Venture
cable television system serving Albuquerque, New Mexico as a business
enterprise, as of April 30, 1997, free and clear of any encumbrances, is
$233,440,000.
THE STRATEGIS GROUP, INC.
/S/ ANDREW R. GEFEN
------------------------------------
By: Andrew R. Gefen
Vice President, Financial Consulting
/S/ SUSAN DONOVAN
------------------------------------
By: Susan Donovan
Senior Financial Consultant
May 27, 1997
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<PAGE>
VIII. QUALIFICATIONS
A. QUALIFICATIONS OF THE STRATEGIS GROUP, INC.
The Strategis Group (formerly Malarkey-Taylor Associates-EMCI) has served
the communications industry for nearly 30 years specializing in the field of
cable, cellular, paging, mobile radio, and broadcasting technologies. We have
completed thousands of projects for clients in the communications industry and
in the financial and investment communities. Our organization is composed of a
multi-disciplinary team of professionals who combine academic training in
accounting, finance, engineering, marketing, management, economics, and law with
many years of experience solving problems for hundreds of clients in both the
public and private sectors.
A large portion of our financial, engineering, and managerial
professionals' time is devoted to the appraisal of cable television systems,
cellular telephone systems, paging systems, and broadcast stations. Since 1964,
we have appraised hundreds of communications properties for purposes of
financing, ownership transfers, property tax assessments, and estate planning
and probating. Our appraisal experience has included independent fair market
valuations and purchase price allocations, including valuation of both tangible
assets and intangible assets such as franchises, licenses, subscriber lists,
leases, and contracts. The Strategis Group has supplied expert testimony on
cable, cellular, paging, and broadcast property values in court and other legal
hearings.
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<PAGE>
B. QUALIFICATIONS OF ANDREW R. GEFEN
Andrew R. Gefen is Vice President, Financial Consulting for The Strategis
Group. He has provided valuation, financial, accounting and consulting services
to numerous cellular telephone, cable television, broadcasting, and paging
companies. Mr. Gefen is involved in the fair market valuation and asset
appraisal of publicly and privately held cellular telephone systems, cable
television systems, broadcast stations, paging systems, programming networks,
and Multichannel Multipoint Distribution Service (MMDS) systems. He has valued
over 100 cellular telephone systems and over 200 cable television systems with
an aggregate value of over $3 billion.
Mr. Gefen has provided expert testimony on the valuation of cellular
telephone systems, MMDS systems, cable television systems, and paging systems.
He has also assisted in the development of a statewide cellular telephone
network, and provided consulting services to professional sports leagues, cable
television programming networks, and U.S. Government agencies. His work has
included valuation and due diligence projects in several countries in Europe and
Latin America.
He has acquired an in-depth knowledge of the values of cellular systems,
cable television systems, broadcast stations, and paging systems, including
their market characteristics, growth prospects, construction costs, operating
cost structures, and other industry issues. Mr. Gefen has substantial
experience in the tax issues arising from the purchase and sale of cable and
broadcast properties. In addition, he has supported the taxpayer's values of
tangible and intangible assets during Internal Revenue Service reviews.
Mr. Gefen was previously with the communications consulting firm of Frazier,
Gross & Kadlec, Washington, D.C., as the Manager of the Appraisal Group where he
directed and participated in the asset appraisals of over 200 communications
properties, primarily in the radio and television industry.
EXPERIENCE
Vice President, Financial Consulting, The Strategis Group, Inc., Washington,
D.C., 1988-present.
Business Analyst and Project Manager, American Management Systems, Arlington,
VA.
Planning Consultant, Panelvision Corporation, Pittsburgh, Pennsylvania.
Programmer and Chief Announcer, WBRU (FM), Providence, Rhode Island.
EDUCATION
M.S., Industrial Administration (M.B.A.), Carnegie-Mellon University,
Pittsburgh, Pennsylvania.
B.A., Economics, Brown University, Providence, Rhode Island.
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C. QUALIFICATIONS OF SUSAN DONOVAN
Susan Donovan is a Senior Financial Consultant, in Financial Consulting
at The Strategis Group. She provides valuation, financial and consulting
services to cable television, broadcasting, and wireless companies. Ms. Donovan
is involved in the fair market valuation and asset appraisal of publicly and
privately held cable television systems, broadcast stations, and paging systems.
She has acquired an in-depth knowledge of the values of these properties,
including their market characteristics, growth prospects, construction costs,
operating cost structures, and other industry issues.
Ms. Donovan was previously with the communications consulting firms of
Broadcast Investment Analysts, Inc. and Frazier, Gross & Kadlec, both of
Washington, D.C., where she participated in asset appraisal and fair market
valuations for numerous broadcast properties.
EXPERIENCE
Senior Financial Consultant, Financial Consulting, The Strategis Group, Inc.,
Washington, D.C., 1993-present.
Financial Analyst, Broadcast Investment Analysts, Inc., Washington, D.C., 1988-
1992.
Research Analyst, Frazier, Gross & Kadlec, Washington, D.C., 1986-1988.
Assistant Editor and Editorial Coordinator, TV Digest (presently Warren
Publishing), Washington, D.C., 1985-1986.
EDUCATION
M.B.A., George Mason University, Fairfax, Virginia.
B.A., Political Science, Trinity College, Washington, D.C.
44
<PAGE>
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT A
ALBUQUERQUE, NEW MEXICO ---------
AS OF APRIL 30, 1997
----------------------------
<TABLE>
<CAPTION>
VALUATION METHODS
- -----------------
LOW HIGH
--- ----
<S> <C> <C>
I. MULTIPLE OF PAST YEAR'S OPERATING INCOME
OPERATING INCOME, PER BOOKS (4/30/97) $21,205,858 $21,205,858
VALUATION MULTIPLE 10.5 11.5
---- ----
ESTIMATED FAIR MARKET VALUE $222,661,506 $243,867,363
------------ ------------
II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME
ESTIMATED OPERATING INCOME
TOTAL CURRENT YEAR'S REVENUE $53,564,425 $53,564,425
OPERATING MARGIN, PER BOOKS (4/30/97) 42.3% 42.3%
----- -----
"RUNNING RATE" OPERATING INCOME 22,657,752 22,657,752
VALUATION MULTIPLE 10.0 11.0
---- ----
ESTIMATED FAIR MARKET VALUE $226,577,517 $249,235,269
------------ ------------
III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME
OPERATING INCOME $24,148,194 $24,148,194
VALUATION MULTIPLE 9.5 10.5
--- ----
ESTIMATED FAIR MARKET VALUE $229,407,846 $253,556,040
------------ ------------
IV. DISCOUNTED CASH FLOW RETURN ON EQUITY
TARGET RETURN ON EQUITY 14.0% 12.0%
ESTIMATED FAIR MARKET VALUE $220,489,882 $240,054,504
------------ ------------
V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT
TARGET RETURN ON INVSTMT 16.6% 15.1%
ESTIMATED FAIR MARKET VALUE $219,992,327 $238,088,179
------------ ------------
SUMMARY OF VALUES
- -----------------
I. MULTIPLE OF PAST YEAR'S OPERATING INCOME $222,661,506 $243,867,363
II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME 226,577,517 249,235,269
III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME 229,407,846 253,556,040
IV. DISCOUNTED CASH FLOW RETURN ON EQUITY 220,489,882 240,054,504
V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT 219,992,327 238,088,179
----------- -----------
RANGE OF ESTIMATED FAIR MARKET VALUES $223,146,000 $243,733,000
ESTIMATED FAIR MARKET VALUE $233,440,000
============
</TABLE>
<PAGE>
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT B
ALBUQUERQUE, NEW MEXICO LOW ANALYSIS
AS OF APRIL 30, 1997 ------------
----------------------------
<TABLE>
<CAPTION>
RETURN ON EQUITY METHOD
PROFIT AND LOSS - LOW VALUE
- ---------------------------
YEAR ENDING APRIL 30, 1998 1999 2000 2001 2002 2003 2004 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $55,071,766 $60,848,471 $66,840,107 $75,543,056 $84,426,831 $91,603,182 $98,776,702 $533,110,116
OPERATING EXPENSES 30,923,572 33,411,086 36,429,726 40,753,252 44,474,887 48,088,372 51,702,980 285,783,875
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
OPERATING INCOME $24,148,194 $27,437,385 $30,410,381 $34,789,805 $39,951,944 $43,514,810 $47,073,723 $247,326,241
OPERATING MARGIN 0.44 0.45 0.45 0.46 0.47 0.48 0.48
PARENT SERVICES/MGT FEE (5%) 2,753,588 3,042,424 3,342,005 3,777,153 4,221,342 4,580,159 4,938,835 26,655,506
FRANCHISE AMORTIZATION (15) 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 47,788,533
SUBSCRIBER LIST (8) 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 45,710,000
NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0
DEPRECIATION 10,703,257 20,314,998 19,524,367 20,114,171 19,202,616 19,066,868 18,715,048 127,641,325
INTEREST 10,909,398 10,943,908 12,280,395 12,706,767 11,953,801 10,768,646 9,172,451 78,735,367
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
PRE-TAX INCOME ($13,574,982)($20,220,878)($18,093,321)($15,165,219) ($8,782,748) ($4,257,797) $890,455 ($79,204,490)
INCOME TAX (EXPENSE)/
BENEFIT 4,615,494 6,875,099 6,151,729 5,156,175 2,986,134 1,447,651 (302,755) 26,929,526
--------- --------- --------- --------- --------- --------- -------- ----------
NET INCOME ($8,959,488)($13,345,780)($11,941,592)($10,009,045) ($5,796,614) ($2,810,146) $587,701 ($52,274,963)
SOURCES AND USES OF CASH
- ------------------------
SOURCES OF CASH -
PRE TAX INCOME ($13,574,982)($20,220,878)($18,093,321)($15,165,219) ($8,782,748) ($4,257,797) $890,455 ($79,204,490)
FRANCHISE AMORTIZATION (15) 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 47,788,533
SUBSCRIBER LIST (8) 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 45,710,000
NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0
DEPRECIATION 10,703,257 20,314,998 19,524,367 20,114,171 19,202,616 19,066,868 18,715,048 127,641,325
EQUITY 109,093,984 109,093,984
DEBT 109,093,984 345,096 13,364,875 11,108,859 0 0 0 133,912,814
RESIDUAL VALUE IN YEAR 7 423,663,505 423,663,505
----------- ---------- ---------- ---------- ---------- ---------- ----------- -----------
TOTAL SOURCES OF CASH $228,673,175 $13,796,149 $28,152,855 $29,414,744 $23,776,802 $28,166,004 $456,625,942 $808,605,671
USES OF CASH -
PURCHASE PRICE - CURRENT $220,489,882 $220,489,882
CAPITAL EXPENDITURES 8,080,224 13,799,218 21,307,710 21,885,084 11,925,256 12,204,051 7,591,559 96,793,102
DEBT RETIREMENT 0 0 6,845,145 7,529,660 11,851,546 15,961,953 91,724,510 133,912,814
TAXES PAID ON NET INCOME 0 0 0 0 0 0 0 0
TAXES PAID ON SALE (RESIDUAL) 84,427,402 84,427,402
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL USES OF CASH $228,570,106 $13,799,218 $28,152,855 $29,414,744 $23,776,802 $28,166,004 $183,743,471 $535,623,200
ANNUAL CASH INCREASE/
(DECREASE) $103,069 ($3,069) $0 $0 $0 $0 $272,882,471 $272,982,471
CUMULATIVE CASH 103,069 100,000 100,000 100,000 100,000 100,000 272,982,471
</TABLE>
<PAGE>
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT B
ALBUQUERQUE, NEW MEXICO HIGH ANALYSIS
AS OF APRIL 30, 1997 -------------
----------------------------
<TABLE>
<CAPTION>
RETURN ON EQUITY METHOD
PROFIT AND LOSS - HIGH VALUE
- ----------------------------
YEAR ENDING APRIL 30, 1998 1999 2000 2001 2002 2003 2004 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $55,071,766 $60,848,471 $66,840,107 $75,543,056 $84,426,831 $91,603,182 $98,776,702 $533,110,116
OPERATING EXPENSES 30,923,572 33,411,086 36,429,726 40,753,252 44,474,887 48,088,372 51,702,980 285,783,875
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
OPERATING INCOME $24,148,194 $27,437,385 $30,410,381 $34,789,805 $39,951,944 $43,514,810 $47,073,723 $247,326,241
OPERATING MARGIN 0.44 0.45 0.45 0.46 0.47 0.48 0.48
PARENT SERVICES/MGT FEE (5%) 2,753,588 3,042,424 3,342,005 3,777,153 4,221,342 4,580,159 4,938,835 26,655,506
FRANCHISE AMORTIZATION (15) 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 47,788,533
SUBSCRIBER LIST (8) 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 45,710,000
NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0
DEPRECIATION 10,703,257 20,314,998 19,524,367 20,114,171 19,202,616 19,066,868 18,715,048 127,641,325
INTEREST 11,939,111 12,088,043 13,623,445 14,206,223 13,382,186 12,339,870 10,900,797 88,479,673
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
PRE-TAX INCOME ($14,604,695)($21,365,013)($19,436,370)($16,664,675)($10,211,133) ($5,829,020) ($837,890) ($88,948,796)
INCOME TAX (EXPENSE)/
BENEFIT 4,965,596 7,264,104 6,608,366 5,665,989 3,471,785 1,981,867 284,883 30,242,591
--------- --------- --------- --------- --------- --------- ------- ----------
NET INCOME ($9,639,099)($14,100,908)($12,828,004)($10,998,685) ($6,739,348) ($3,847,153) ($553,008) ($58,706,205)
SOURCES AND USES OF CASH
- ------------------------
SOURCES OF CASH -
PRE TAX INCOME ($14,604,695)($21,365,013)($19,436,370)($16,664,675)($10,211,133) ($5,829,020) ($837,890) ($88,948,796)
FRANCHISE AMORTIZATION (15) 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 47,788,533
SUBSCRIBER LIST (8) 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 45,710,000
NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0
DEPRECIATION 10,703,257 20,314,998 19,524,367 20,114,171 19,202,616 19,066,868 18,715,048 127,641,325
EQUITY 119,391,108 119,391,108
DEBT 119,391,108 1,489,318 15,354,021 13,319,021 0 0 0 149,553,468
RESIDUAL VALUE IN YEAR 7 423,663,505 423,663,505
----------- --------- ---------- ---------- ---------- ---------- ----------- -----------
TOTAL SOURCES OF CASH $248,237,711 $13,796,236 $28,798,952 $30,125,450 $22,348,417 $26,594,781 $454,897,596 $824,799,142
USES OF CASH -
PURCHASE PRICE - CURRENT $240,054,504 $240,054,504
CAPITAL EXPENDITURES 8,080,224 13,799,218 21,307,710 21,885,084 11,925,256 12,204,051 7,591,559 96,793,102
DEBT RETIREMENT 0 0 7,491,242 8,240,366 10,423,161 14,390,730 109,007,969 149,553,468
TAXES PAID ON NET INCOME 0 0 0 0 0 0 0 0
TAXES PAID ON SALE (RESIDUAL) 74,462,367 74,462,367
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL USES OF CASH $248,134,728 $13,799,218 $28,798,952 $30,125,450 $22,348,417 $26,594,781 $191,061,894 $560,863,441
ANNUAL CASH INCREASE/
(DECREASE) $102,982 ($2,982) $0 $0 $0 $0 $263,835,702 $263,935,702
CUMULATIVE CASH 102,982 100,000 100,000 100,000 100,000 100,000 263,935,702
</TABLE>
<PAGE>
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT C
ALBUQUERQUE, NEW MEXICO LOW ANALYSIS
AS OF APRIL 30, 1997 ------------
----------------------------
<TABLE>
<CAPTION>
RETURN ON EQUITY METHOD
DEBT AMORTIZATION - LOW VALUE
- -----------------------------
TOTAL YEAR 1 CASH
REQUIREMENTS $218,187,967
YEAR 1 DEBT
REQUIREMENTS 109,093,984
YEAR 1 EQUITY
REQUIREMENTS 109,093,984
FINANCING AVAILABLE $137,838,075 $156,963,263 $178,343,001 $197,667,475 $226,133,730 $259,687,636 $282,846,262
UNUSED LEVERAGE 28,744,091 47,524,183 62,384,192 78,129,466 118,447,267 167,963,126 215,542,574
SENIOR DEBT: 1998 1999 2000 2001 2002 2003 2004 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BEGINNING DEBT $0 $109,093,984 $109,093,984 $102,248,839 $94,719,179 $86,436,553 $77,325,665
DEBT ADDED 109,093,984 0 0 0 0 0 0 109,093,984
TOTAL ANNUAL PAYMENTS 10,909,398 10,909,398 17,754,543 17,754,543 17,754,543 17,754,543 17,754,543 110,591,514
INTEREST 10,909,398 10,909,398 10,909,398 10,224,884 9,471,918 8,643,655 7,732,567 68,801,219
PRINCIPAL REPAYMENT 0 0 6,845,145 7,529,660 8,282,626 9,110,888 10,021,977 41,790,295
ENDING BALANCE 109,093,984 109,093,984 102,248,839 94,719,179 86,436,553 77,325,665 67,303,688
LINE OF CREDIT:
BEGINNING DEBT $0 $0 $345,096 $13,709,971 $24,818,830 $21,249,910 $14,398,845 $0
BORROWINGS 0 345,096 13,364,875 11,108,859 0 0 0 24,818,830
PRINCIPAL PAYMENTS 0 0 0 0 3,568,920 6,851,065 14,398,845 24,818,830
INTEREST 0 34,510 1,370,997 2,481,883 2,481,883 2,124,991 1,439,884 9,934,148
SENIOR DEBT COVERAGE 4.5 4.0 3.4 2.7 2.2 1.8 1.4
LOC DEBT COVERAGE 0.0 0.0 0.5 0.7 0.5 0.3 0.0
TOTAL DEBT COVERAGE 4.5 4.0 3.8 3.4 2.7 2.1 1.4
</TABLE>
<PAGE>
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT C
ALBUQUERQUE, NEW MEXICO HIGH ANALYSIS
AS OF APRIL 30, 1997 -------------
----------------------------
<TABLE>
<CAPTION>
RETURN ON EQUITY METHOD
DEBT AMORTIZATION - HIGH VALUE
- ------------------------------
TOTAL YEAR 1 CASH
REQUIREMENTS $238,782,215
YEAR 1 DEBT
REQUIREMENTS 119,391,108
YEAR 1 EQUITY
REQUIREMENTS 119,391,108
FINANCING AVAILABLE $159,043,933 $181,111,457 $205,780,386 $228,077,856 $260,923,534 $299,639,580 $326,361,072
UNUSED LEVERAGE 39,652,825 60,231,032 77,037,182 94,255,997 137,524,836 215,015,327 252,704,747
SENIOR: 1998 1999 2000 2001 2002 2003 2004 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BEGINNING DEBT $0 $119,391,108 $119,391,108 $111,899,865 $103,659,499 $94,595,096 $84,624,253
DEBT ADDED 119,391,108 0 0 0 0 0 0 $119,391,108
TOTAL ANNUAL PAYMENTS 11,939,111 11,939,111 19,430,353 19,430,353 19,430,353 19,430,353 19,430,353 121,029,986
INTEREST 11,939,111 11,939,111 11,939,111 11,189,987 10,365,950 9,459,510 8,462,425 75,295,204
PRINCIPAL REPAYMENT 0 0 7,491,242 8,240,366 9,064,403 9,970,843 10,967,928 45,734,783
ENDING BALANCE 119,391,108 119,391,108 111,899,865 103,659,499 94,595,096 84,624,253 73,656,325
LINE OF CREDIT:
BEGINNING DEBT $0 $0 $1,489,318 $16,843,339 $30,162,360 $28,803,602 $24,383,716 $0
BORROWINGS 0 1,489,318 15,354,021 13,319,021 0 0 0 30,162,360
PRINCIPAL PAYMENTS 0 0 0 0 1,358,758 4,419,886 24,383,716 30,162,360
INTEREST 0 148,932 1,684,334 3,016,236 3,016,236 2,880,360 2,438,372 13,184,470
SENIOR DEBT COVERAGE 4.9 4.4 3.7 3.0 2.4 1.9 1.6
LOC DEBT COVERAGE 0.0 0.1 0.6 0.9 0.7 0.6 0.0
TOTAL DEBT COVERAGE 4.9 4.4 4.2 3.8 3.1 2.5 1.6
</TABLE>
<PAGE>
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT D
ALBUQUERQUE, NEW MEXICO ---------
AS OF APRIL 30, 1997
----------------------------
<TABLE>
<CAPTION>
RETURN ON INVESTMENT METHOD
PROFIT AND LOSS
- ---------------
YEAR ENDING APRIL 30, 1998 1999 2000 2001 2002 2003 2004 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $55,071,766 $60,848,471 $66,840,107 $75,543,056 $84,426,831 $91,603,182 $98,776,702 $533,110,116
OPERATING EXPENSES 30,923,572 33,411,086 36,429,726 40,753,252 44,474,887 48,088,372 51,702,980 285,783,875
------------ ----------- ----------- ----------- ----------- ----------- ----------- ------------
OPERATING INCOME 24,148,194 27,437,385 30,410,381 34,789,805 39,951,944 43,514,810 47,073,723 247,326,241
PLUS: RESIDUAL VALUE 423,663,505 423,663,505
LESS: CAPITAL
EXPENDITURES 8,080,224 13,799,218 21,307,710 21,885,084 11,925,256 12,204,051 7,591,559 96,793,102
------------ ----------- ----------- ----------- ----------- ----------- ----------- ------------
TOTAL CASH FLOW $16,067,970 $13,638,166 $9,102,671 $12,904,721 $28,026,688 $31,310,759 $463,145,669 $574,196,644
NET PRESENT
VALUE @ 16.6% $219,992,327
------------
NET PRESENT
VALUE @ 15.1% $238,088,179
------------
</TABLE>
<PAGE>
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT E
ALBUQUERQUE, NEW MEXICO ---------
AS OF APRIL 30, 1997
----------------------------
<TABLE>
<CAPTION>
CABLE TELEVISION SUBSCRIBERS
- ----------------------------
YEAR ENDING APRIL 30, 1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
BEGINNING MILES 2,639.2
MILES ADDED 99.0 101.4 95.7 97.9 91.4 93.3 95.3
CUMULATIVE MILES 2,738.2 2,839.7 2,935.3 3,033.2 3,124.6 3,217.9 3,313.2
DENSITY OF ADDITIONAL PLANT 59 59 59 59 59 59 59
HOMES PASSED - BEGINNING 233,798
NEW HOMES & EXTENSIONS 5,845 5,991 5,650 5,780 5,398 5,512 5,627
HOMES PASSED - ENDING 239,643 245,634 251,284 257,063 262,461 267,973 273,601
GROWTH IN HOMES 2.5% 2.5% 2.3% 2.3% 2.1% 2.1% 2.1%
BASIC - BEGINNING SUBSCRIBERS 112,613 116,627 123,227 129,830 136,672 143,479 149,172
AVERAGE SUBSCRIBERS 114,620 119,927 126,528 133,251 140,076 146,326 152,106
ENDING SUBSCRIBERS 116,627 123,227 129,830 136,672 143,479 149,172 155,041
PENETRATION 48.7% 50.2% 51.7% 53.2% 54.7% 55.7% 56.7%
EXPANDED BASIC - BEGINNING 108,992 112,876 119,264 125,656 132,278 138,866 144,376
AVERAGE SUBSCRIBERS 110,934 116,070 122,460 128,967 135,572 141,621 147,215
ENDING SUBSCRIBERS 112,876 119,264 125,656 132,278 138,866 144,376 150,055
PENETRATION 96.8% 96.8% 96.8% 96.8% 96.8% 96.8% 96.8%
PAY TV - BEGINNING UNITS 60,912 64,249 69,117 73,470 76,659 79,760 82,178
AVERAGE UNITS 62,581 66,683 71,294 75,065 78,209 80,969 83,407
ENDING UNITS 64,249 69,117 73,470 76,659 79,760 82,178 84,636
PENETRATION 55.1% 56.1% 56.6% 56.1% 55.6% 55.1% 54.6%
PAY PER VIEW - BEGINING UNITS/MO 16,747 20,155 26,352 33,503 42,110 51,820 59,673
AVERAGE UNITS 18,451 23,253 29,927 37,807 46,965 55,746 63,230
ENDING UNITS 20,155 26,352 33,503 42,110 51,820 59,673 66,788
AVERAGE BUY RATE/MO 73.5% 75.0% 77.0% 80.0% 83.0% 86.0% 87.0%
CONVERTER RENTALS - BEGINNING 42,728 46,583 52,916 60,945 69,624 77,396 84,942
AVERAGE SUBSCRIBERS 44,656 49,750 56,931 65,285 73,510 81,169 88,939
ENDING SUBSCRIBERS 46,583 52,916 60,945 69,624 77,396 84,942 92,935
PENETRATION 39.9% 42.9% 46.9% 50.9% 53.9% 56.9% 59.9%
ADDRESSABLE HOMES 23,096 27,418 35,131 43,505 52,631 62,427 69,379
AVERAGE HOMES 25,257 31,274 39,318 48,068 57,529 65,903 73,069
ENDING HOMES 27,418 35,131 43,505 52,631 62,427 69,379 76,759
PENETRATION 23.5% 28.5% 33.5% 38.5% 43.5% 46.5% 49.5%
BASIC CHURN RATE 32% 32% 32% 32% 32% 32% 32%
</TABLE>
<PAGE>
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT F
ALBUQUERQUE, NEW MEXICO ---------
AS OF APRIL 30, 1997
----------------------------
<TABLE>
<CAPTION>
SERVICE RATES
- -------------
CURRENT RATES
- -------------
BASIC $9.91
EXPANDED BASIC 15.14
PAY 8.78
PAY PER VIEW 8.50
CONVERTER RENTALS 2.66
INSTALLATIONS-NEW 18.21
INSTALLATIONS-CHURN 31.50
YEAR ENDING APRIL 30, 1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PERCENTAGE RATE INCREASES
- -------------------------
BASIC 1% 5% 3% 3% 3% 3% 3%
EXPANDED BASIC 2% 6% 3% 10% 9% 3% 3%
PAY 0% 1% 1% 1% 1% 1% 1%
PAY PER VIEW 0% 3% 3% 3% 3% 3% 3%
CONVERTER RENTALS 0% 3% 3% 3% 3% 3% 3%
INSTALLATIONS-NEW 0% 3% 3% 3% 3% 3% 3%
INSTALLATIONS-CHURN 0% 3% 3% 3% 3% 3% 3%
AVERAGE RATES
- -------------
BASIC $10.03 $10.49 $10.80 $11.12 $11.46 $11.80 $12.16
EXPANDED BASIC 15.39 16.26 16.75 18.40 20.05 20.65 21.27
PAY 8.78 8.87 8.95 9.04 9.13 9.23 9.32
PAY PER VIEW 8.50 8.76 9.02 9.29 9.57 9.85 10.15
CONVERTERS RENTALS 2.66 2.74 2.82 2.91 3.00 3.09 3.18
INSTALLATIONS-NEW 18.21 18.76 19.32 19.90 20.50 21.11 21.74
INSTALLATIONS-CHURN 31.50 32.45 33.42 34.42 35.45 36.52 37.61
</TABLE>
<PAGE>
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT G
ALBUQUERQUE, NEW MEXICO ---------
AS OF APRIL 30, 1997
----------------------------
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30, 1998 1999 2000 2001 2002 2003 2004 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
BASIC $13,799,632 $15,090,557 $16,398,913 $17,788,333 $19,260,354 $20,723,306 $22,188,256 $125,249,351
EXPANDED BASIC 20,488,254 22,650,098 24,613,868 28,475,200 32,617,894 35,095,440 37,576,370 201,517,125
PAY TV 6,592,052 7,094,464 7,660,842 8,146,688 8,572,846 8,964,102 9,326,384 56,357,378
PAY PER VIEW 1,881,994 2,442,993 3,238,505 4,213,874 5,391,711 6,591,797 7,701,050 31,461,924
CONVERTER RENTALS 1,426,030 1,636,370 1,928,743 2,278,111 2,642,090 3,004,891 3,391,293 16,307,528
INSTALLATIONS 683,593 761,467 823,661 892,218 961,706 1,018,290 1,089,687 6,230,621
COMMERCIAL 1,498,068 1,543,010 1,589,300 1,636,979 1,686,089 1,736,671 1,788,772 11,478,889
ADVERTISING 4,776,221 5,349,367 5,937,798 6,590,955 7,250,051 7,975,056 8,772,561 46,652,009
MISCELLANEOUS 3,925,922 4,280,145 4,648,477 5,520,698 6,044,090 6,493,629 6,942,329 37,855,290
----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------
TOTAL REVENUES $55,071,766 $60,848,471 $66,840,107 $75,543,056 $84,426,831 $91,603,182 $98,776,702 $533,110,116
OPERATING EXPENSES:
OPERATIONS $8,459,119 $9,143,026 $9,883,296 $10,757,092 $11,671,879 $12,517,825 $13,376,378 $75,808,614
GENERAL & ADMINISTRATIVE 5,174,038 5,544,762 5,960,387 6,456,533 6,972,778 7,447,847 7,924,625 45,480,971
SALES & MARKETING 4,095,245 4,367,893 4,788,564 5,250,166 5,721,397 6,205,869 6,738,518 37,167,652
PROGRAMMING 13,195,170 14,355,405 15,797,479 18,289,461 20,108,833 21,916,831 23,663,460 127,326,638
----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------
TOTAL OPERATING EXPENSES $30,923,572 $33,411,086 $36,429,726 $40,753,252 $44,474,887 $48,088,372 $51,702,980 $285,783,875
----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------
OPERATING INCOME $24,148,194 $27,437,385 $30,410,381 $34,789,805 $39,951,944 $43,514,810 $47,073,723 $247,326,241
OPERATING MARGIN 43.8% 45.1% 45.5% 46.1% 47.3% 47.5% 47.7%
TOTAL REVENUE/BASIC SUB/MONTH $40.04 $42.28 $44.02 $47.24 $50.23 $52.17 $54.12
CASH FLOW/BASIC SUB/MONTH $17.56 $19.07 $20.03 $21.76 $23.77 $24.78 $25.79
OPERATIONS % OF REVENUE 15% 15% 15% 14% 14% 14% 14%
G & A PERCENTAGE OF REVENUE 9% 9% 9% 9% 8% 8% 8%
SALES & MARKETING % OF REVENUE 7% 7% 7% 7% 7% 7% 7%
PROGRAMMING % OF REVENUE 24% 24% 24% 24% 24% 24% 24%
</TABLE>
<PAGE>
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT H
ALBUQUERQUE, NEW MEXICO ---------
AS OF APRIL 30, 1997
----------------------------
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES
- --------------------
YEAR ENDING APRIL 30, 1998 1999 2000 2001 2002 2003 2004 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSUMPTIONS AND INPUTS:
- -----------------------
BV OF EXISTING PLANT $66,820,102
ADDITIONAL MILES OF PLANT 99.0 101.4 95.7 97.9 91.4 93.3 95.3
AERIAL PLANT PER MILE $26,000 $26,520 $27,050 $27,591 $28,143 $28,706 $29,280
UNDERGROUND PLANT PER MILE $33,500 $34,170 $34,853 $35,550 $36,261 $36,987 $37,726
PERCENTAGE OF PLANT AERIAL 15% 15% 15% 15% 15% 15% 15%
PERCENTAGE OF PLANT UNDERGROUND 85% 85% 85% 85% 85% 85% 85%
AVERAGE COST PER CONVERTER $125 $128 $130 $133 $135 $138 $141
PERCENTAGE CONVERTER USE 40% 43% 47% 51% 54% 57% 60%
PERCENTAGE REPLACEMENT 3% 3% 3% 5% 5% 5% 5%
INSTALLATION COST PER SUBSCRIBER $35 $36 $36 $37 $38 $39 $39
MISC. CAPITAL PER SUBSCRIBER $5 $5 $5 $5 $5 $6 $6
INFLATION FACTOR FOR CAPITALS 0% 2% 2% 2% 2% 2% 2% 113%
ANNUAL COSTS:
- -------------
PLANT ADDITIONS - AERIAL $385,989 $403,551 $388,160 $405,029 $385,881 $401,865 $418,510 $2,788,985
- UNDERGROUD 2,818,213 2,946,442 2,834,065 2,957,233 2,817,428 2,934,126 3,055,658 20,363,166
PLANT REBUILD/UPGRADE 2,516,354 7,700,044 15,104,164 15,098,245 5,032,748 5,032,748 0 50,484,304
AVERAGE COST OF NEW CONVERTERS 200,388 361,369 403,132 462,354 496,820 447,375 495,200 2,866,638
CONVERTER REPLACEMENT 168,676 191,564 225,684 438,667 498,759 563,774 629,364 2,716,489
INSTALLATION COSTS 1,417,505 1,584,622 1,694,304 1,816,518 1,935,507 2,016,386 2,136,345 12,601,187
MISC. CAPITAL EXPENDITURES 573,099 611,626 658,201 707,036 758,112 807,777 856,482 4,972,333
---------- ----------- ----------- ----------- ----------- ----------- ---------- -----------
TOTAL CAPITAL EXPENDITURES $8,080,224 $13,799,218 $21,307,710 $21,885,084 $11,925,256 $12,204,051 $7,591,559 $96,793,102
AS A % OF OPERATING INCOME 33.5% 50.3% 70.1% 62.9% 29.8% 28.0% 16.1%
</TABLE>
<PAGE>
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT I
ALBUQUERQUE, NEW MEXICO ---------
AS OF APRIL 30, 1997
----------------------------
<TABLE>
<CAPTION>
DEPRECIATION
- ------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ESTIMATED DEPRECIATION RATES 14.3% 24.5% 17.5% 12.5% 8.9% 8.9% 8.9%
DEPRECIATION - BEG. & ADTNS. 1998 1999 2000 2001 2002 2003 2004 TOTAL
------ ------ ------ ------ ------ ------ ------ -------
YEAR 1 $10,703,257 $18,343,090 $13,100,067 $9,355,051 $6,688,599 $6,681,109 $6,688,599 $71,559,772
YEAR 2 1,971,908 3,379,429 2,413,483 1,723,522 1,232,270 1,230,890 11,951,503
YEAR 3 3,044,872 5,218,258 3,726,718 2,661,333 1,902,778 16,553,960
YEAR 4 3,127,379 5,359,657 3,827,701 2,733,447 15,048,184
YEAR 5 1,704,119 2,920,495 2,085,727 6,710,342
YEAR 6 1,743,959 2,988,772 4,732,731
YEAR 7 1,084,834 1,084,834
----------- ----------- ----------- --------- ---------- ---------- ---------- ------------
TOTAL DEPRECIATION $10,703,257 $20,314,998 $19,524,367 $20,114,171 $19,202,616 $19,066,868 $18,715,048 $127,641,325
</TABLE>
<PAGE>
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT J
ALBUQUERQUE, NEW MEXICO ---------
AS OF APRIL 30, 1997
----------------------------
<TABLE>
<CAPTION>
ASSUMPTIONS AND INPUTS
- ----------------------
<S> <C> <C>
REMAINING LIFE OF FRANCHISES (YEARS) 3
AVERAGE SUBSCRIBER LIFE (YEARS) 8
INCOME TAX RATE 34%
CAPITAL GAIN RATE 34%
NET FMV OF EXISTING ASSETS $66,820,102
SUBSCRIBERS IN FRANCHISES 100%
LOW HIGH
ANALYSIS ANALYSIS
-------- --------
DEBT PERCENTAGE 50% 50%
EQUITY PERCENTAGE 50% 50%
RESIDUAL MULTIPLE (ROE & ROI) 9.0 9.0
MULT OF PAST YEAR'S OPERATING INCOME 10.5 11.5
MULT OF CURRENT YEAR'S OPERATING INCOME 10.0 11.0
MULT OF NEXT YEAR'S OPERATING INCOME 9.5 10.5
TARGET RETURN ON EQUITY 14.0% 12.0%
TARGET RETURN ON INVESTMENT 16.6% 15.1%
</TABLE>
<PAGE>
EXHIBIT 99(b)(2)
FAIR MARKET VALUE APPRAISAL FOR THE
ALBUQUERQUE, NEW MEXICO
CABLE TELEVISION SYSTEM
APRIL 30, 1997
PREPARED FOR
JONES INTERCABLE, INC.
TIMOTHY J. BURKE
PREPARED BY
WESTERN CABLESYSTEMS, INC
R. MICHAEL KRUGER, PRESIDENT
CABLE TELEVISION MANAGEMENT,
CONSULTING, AND APPRAISALS
513 WILCOX, #230
CASTLE ROCK, CO 80104
303-688-4462
<PAGE>
BACKGROUND AND LIMITING CONDITIONS
----------------------------------
Western was asked by Jones to prepare an analysis of the fair market value as a
going concern of the assets of the Albuquerque, New Mexico cable television
system as of April 30, 1997. This appraisal report is being issued pursuant to
the June 20, 1997 engagement letter between Jones and Western. This report
presents key data, our analysis and assumptions, and our conclusions.
The assets being appraised include, as an assemblage, all of the tangible and
intangible assets and personal property necessary to operate the cable
television system as a going concern, consistent with past practice and industry
norms. The assets include the antennas and signal receiving equipment, strand,
conduit, cables, amplifiers, passive devices, drops, converters, tools, test
equipment, subscriber records, franchises, pole attachment agreements,
easements, supplier and programming contracts, and goodwill. Financial assets
such as cash, accounts receivable, and liabilities, are not considered.
The appraisal is based on financial data provided by Jones, including Income
Statements for the 12 months ended December 31, 1994, 1995, and 1996, and the
four months ended April 30, 1997, and the operational data presented herein,
such as passings and subscriber counts.
The appraiser visited the system on June 24, 1997. The system manager and
acting engineer were interviewed to obtain data including subscriber history,
technical data, demographics, and local economic information. The appraiser
toured representative portions of the general market area.
The work herein is based on data provided by Jones, and we assume no
responsibility for the accuracy of such data. Western has used customary
techniques and industry knowledge available to Western in preparing this report.
Western does not warrant or represent that the appraised value is that which
would actually be obtained in an open market transaction, or that the value
would be upheld in litigation or administrative proceeding. Accordingly,
Western (including its officers, employees, and owners) does not indemnify or
hold harmless any user of this report in any manner against any costs, losses,
or damages arising out of the use of the appraised value or other conclusions
contained herein.
Albuquerque, NM, 4/97, Page 2
<PAGE>
GENERAL DESCRIPTION
- -------------------
The company serves substantially all of the Albuquerque, New Mexico metropolitan
area. The community is located in north-central New Mexico. Other than Santa
Fe, the closest large metro areas are Denver, Phoenix, and El Paso, all several
hours distant. As of April 30, 1997, key data are:
Homes Passed 233,070
Residential Basic Subs 112,530 (48%)
Commercial/Bulk EBU's (14,361 units) 3,940
Total EBU's 116,470
Pay Units 60,912 (54%)
Plant Miles 2,561
Homes Per Mile 91
Number of headends 3
Channels in use 56
Plant Channel Capacity 60
The Albuquerque headend serves 94% of the customers; outlying headends in Bosque
Farms and Bernalillo serve the balance.
The demographics are predominantly middle-class family. The ethnic composition
is about 38% Hispanic, of which about half speak Spanish as a primary or
exclusive language. There are about 10% Oriental and black, and 52% white.
The older "inner" areas consist mostly of commercial and small industrial areas,
and smaller homes and apartments in an urban setting. Outlying areas have a
number of new subdivisions with more expensive homes and uppper-middle income
families, with accompanying malls, commercial areas, and some service-business
offices. We did not see any major "poverty" areas, and the number of very high-
priced homes, while increasing, is still relatively low. New homes in most
areas are priced around $180,000. Older homes, particularly in the central
areas, sell at around $110,000.
Albuquerque has a stable and diverse economy. Historically, it has had a mix of
small industry and service business. In the past 30 years, a "high-tech"
community has steadily grown, as a result of nearby advanced government research
facilities such as Sandia Labs and Los Alamos. While the stability of this
segment has fluctuated due to government spending changes, other high-tech is
starting to augment government-oriented facilities. Intel located a chip plant
here several years ago, and continues to expand. Other computer-based companies
are also relocating and expanding here. There have been several small startups
and expansions recently, but no significant reductions. The University of New
Mexico is here, and the area serves as a regional center for finance, medicine,
etc. Overall, the economy is steady and healthy, but not "explosive".
Albuquerque, NM, 4/97, Page 3
<PAGE>
PASSINGS GROWTH
---------------
The company reported a passing count of 200,483 at 1/1/93, and 233,070 at
4/30/97. Growth over the four year period was fairly steady, at an average of
8,146, at a rate of 3.8%. However, management indicates that a substantial part
of this growth came from database correction, audits, changes in definition,
etc. Local management estimates that actual growth in homes has been about
3,500 homes per year in the past 12-18 months. The system budget calls for
about 4,100 new homes in 1997. We would support this lower estimate, based on
our general observations of the extent of housing development that we saw in our
visit. We also believe that the housing boom in the Rockies of the past few
years may be slowing. We used growth of 4,100 homes for the first year, and
2.5% annual growth in the 10-year projections.
New development is coming principally from small builders, and most is on the
west side. A few high-end projects are underway in the east. There are no
immediate barriers to growth, but in the long term water will be a key issue.
Over 90% of the water is from nonrenewable groundwater, and levels are falling.
This is becoming an issue, and could eventually slow growth.
There are a few unserved areas along the foothills, but they do not have
sufficient density to warrant cable. The company presently serves them in a
limited fashion using MMDS (see below). In aggregate, ther areas are small and
not likely to be served soon.
The Rio Rancho system is surrounded by Jones. It has about 8,000 customers, and
may be acquired in the future, but there are no discussions underway.
Otherwise, there are no potential expansions of the system.
SUBSCRIBER PENETRATION
----------------------
Basic penetration has been just under 50% for several years. Management
indicates that there is a relative lack of interest in television. The high
Hispanic level is a key factor, as this is a tough market across the industry.
The availability of good offair signals is also a major factor.
Penetration in similar Southwest markets is also similar. Nearby Santa Fe is at
51%. Tucson is around 45%. Carlsbad and Roswell, which have very limited
offair, are in the 60%-70% range. El Paso is similar to Albuquerque, but does
reach 63%.
While the current system performance is reasonable, we believe the proposed
changes in service this fall, coupled with a new emphasis on targeted marketing
to Hispanics, will slowly increase penetration.
Albuquerque, NM, 4/97, Page 4
<PAGE>
SUBSCRIBER RATES AND SERVICES
-----------------------------
The company offers very traditional programming and packages, at industry-norm
rate levels:
Channels Rate
Basic 19 10.49
Tier 30 16.13
Total 46 $26.62
Pay channels 4 6.88-10.50
Pay-per-view 3 varies
Converters 1.05- 3.57
Remote control free
Installation 18.21-36.75
Approximately 97% of the customers take the tier, which includes the Disney
Channel.
Basic includes 10 offair, 3 local/access channels, WTBS, WGN, Spanish-language,
and several "filler" channels. The tier is all the better-quality satellite
services. Pay includes Cinemax, HBO, Movie Channel, and Showtime. Pay-per-view
offerings consist of Viewers Choice and various events.
There is no monthly fee for additional outlets. There are a number of small
transaction fees, including late charges. Applicable FCC and franchise fees
are added as a separate charge on bills. There are package discounts and
promotional rates available from time to time.
The system took a rate increase of $1.47 in February, 1997. No further
increases are planned. The company expects to revise and slightly expand its
lineup this fall, and an increase next year seems likely.
RATE REGULATION
---------------
The City of Albuquerque certified to regulate rates. The company filed a 1994
cost-of-service showing which was not seriously contested. The company believes
it has adequate room to continue taking regular annual increases. There are no
issues or problems at present with rates, and none are expected.
Albuquerque, NM, 4/97, Page 5
<PAGE>
NON-SUBSCRIBER REVENUE
----------------------
The company has an extensive advertising sales department. Due to the company's
dominance in the market, sales are strong. This area should continue to show
steady growth.
The company has recently introduced some Sprint long-distance service options,
but they are insignificant at present, and not likely to expand quickly. There
is no other significant revenue source (fiber rental, tower rental, local phone)
at present. It is reasonable to expect that data communication and fiber
leasing could be a small source of revenue in the future.
STAFF AND OPERATIONS
--------------------
The system leases its main office and warehouse in a centrally located
industrial park. An older building houses the studio operations, and has room
for expansion as needed.
The system has a normal complement of test equipment, including fiber testing
and splicing. The inventory is at normal 30-60 day levels. Vehicles are in
good condition. The office staff is well-equipped, and uses centralized
Cabledata billing services.
The system offers customary business-day service Monday through Saturday. The
Jones national CSR center offers after-hours backup and technicians are
dispatched on outages if necessary.
Management reports about 32% annual customer turnover, and 25% annual service
call volume. Both are normal.
System staffing can be summarized as:
Item Office Field/Cons Mkt/Ad
---- ------ ---------- ------
Number of employees 68 138 46
Subs/employee 1,647 811 -
Average Wages 31,000 29,000 -
In addition, the company uses extensive field contract labor; the dollar amounts
are equivalent to about 29 field personnel.
The office staffing and wage rates appear normal. The field staffing,
particularly if one adds in the contract labor, appears to be more extensive
than we would expect for the circumstances. Levels are not extraordinarily
high, but we believe the system could absorb more growth without field staff
expansion. Field wages are reasonable.
Albuquerque, NM, 4/97, Page 6
<PAGE>
MARKETING
---------
The system uses in-house commissioned direct salespeople on a regular basis.
Direct mail, special promotions, and newspaper are used regularly, and most
nonsubscribers are contacted every 1-2 months. Spanish-language staff and
promotions are used regularly. Increasingly, the company is doing targeted
marketing toward the Hispanic population.
FRANCHISES
----------
The major Albuquerque franchise (85% of the customers) expires in 1999. Eight
others expire in 1999 through 2011. Renewal discussions have started with
Albuquerque. Management expects that there will be a number of demands for
access support, etc., but overall expects that renewal will be accomplished
without major problems.
COMPETITION
-----------
Residents can get good reception on 10 offair signals with standard antennas.
The only major concern is that only one offair station has Hispanic
broadcasting.
There is no cable overbuild, and none is likely. Management stated that US West
has not indicated any intent to provide video services here.
There are three licensed MMDS systems. Jones owns one, and uses it to serve
rural areas. It has about 100 customers. UNM has an 8-channel system used for
educational purposes. A third operator offers 16 channels for $25. He markets
principally in the outskirts, and is not an issue with only about 100 customers.
DBS competition is a factor. DirecTV started national service here, and this
continues to be a target market. An outside data service (Skytrends) estimates
that about 5% of overall passings are now DBS customers. Since customers have
easy access to offair signals, DBS can be a threat here.
Albuquerque, NM, 4/97, Page 7
<PAGE>
TECHNICAL PROFILE
-----------------
Coaxial Strand Mileage: 2,561, 38% aerial, 62% underground
Fiber Strand Miles: 78
Headend Electronics: High-quality S-A
Plant Electronics: Magnavox
Amplifier Cascade: 25 maximum
Power: Headend and 95% of system has standby
Trunk Cable: Old is 750 P3, new is 875/1000 P3
Distribution Cable: 500 P3; new areas 500/540/715
Pay Security: Addressable and traps
Percent of Addressable Subs: 21%
Converter Types: Predominantly GI 550 MHZ and Panasonic.
The older areas were built in 1978-82. The system has expanded steadily over
the years to serve new areas. There has been no major rebuild, but several of
the oldest areas were upgraded to 450 Mhz operation. An approximate breakout of
the age and capacity of the plant is:
Miles Percent
----- --------
330-400 old plant 111 4%
450 mhz 1982-1992 approx. 1949 77%
450 mhz newer areas 187 7%
750 mhz new plant 291 12%
There are a few problems with the oldest electronics and cable, but the company
is able to maintain service to high levels with careful maintenance.
Management is developing a plan for upgrading to 550 mhz throughout. The
industry norm for large markets is generally 550 mhz. The timing is uncertain,
but it is likely that an upgrade will follow franchise renewal in 2-3 years.
Management's present estimate is $30,000,000 which is in the range of
$15,000/mile. Considering the extent of undergound cable, this is reasonable.
DETERMINATION OF OPERATING INCOME
---------------------------------
Appraising the value of cable television systems involves calculation of
historic and projected operating income (commonly called "cashflow"). Operating
income is defined as direct operating revenues less expenses, before capital
expenditures, depreciation, and management fees. The operating income
considered in appraisals is typically that which will be derived by the buyer,
using his cost structure and nominal predictable changes in operations.
FIRST-YEAR PROJECTION:
- ----------------------
We prepared a detailed Projected-Year statement of operating income, attached.
Projections are based on the company's historic income statements for 1994,
1995, and 1996. We also calculated and used a "running rate" operating income by
multiplying by 3 the results for the first four months of 1997. We used this
historic data to prepare an estimate of projected operating income for the first
year after April 30, 1997, shown in the last column.
Albuquerque, NM, 4/97, Page 8
<PAGE>
The Projected-Year subscriber revenues are based on the current subscriber
count, plus allowances for growth, and on 1997 rates, plus a small allowance for
increases late in 1997 or early in 1998. Other revenue items were based on
consideration of past results and trends.
Certain Projected-Year expense items such as programming costs which are based
on subscribers or revenue have been adjusted to match the subscriber and revenue
projections for the projected year, using prior-year unit costs or ratios plus
an allowance for increases where appropriate. Overhead items, such as
maintenance and property tax have been based principally on longer-term trends.
In preparing our detailed analysis, we reviewed key operating ratios, such as
programming cost per subscriber, staffing ratios, copyright and bad debt expense
levels, etc. and compared them to industry norms and our experience. All were
in normal ranges except as mentioned below. A brief discussion of key
individual items follows.
Passings: Increase by 4,100 (1.8%) in the next 12 months, based on management
expectation and our review of housing construction.
Basic Penetration: Increase slightly, reflecting target marketing, lineup
improvements, and less DBS pressure.
Pay Penetration: No change, reflecting recent trends.
Average Basic+Tier Revenue/Subscriber: Use current rates plus 2%.
Average Pay Revenue/Unit: Has been dropping; use present levels.
Pay-Per-View Revenues Per Subscriber: Appears to be growing, but levels are
relatively high. Use only a small gain rate.
Advertising: Fluctuating; use the 1996 level.
Salary: Ratios and wage levels are reasonable, as discussed above, but the
system can absorb growth without increases in the field. Increase office
payroll by inflation and some growth.
Bad Debt: This area is high at 2.5%, and has grown sharply; reduce it somewhat
to 2%.
Basic Programming: Use the 1997 level plus increases of 10% to cover price
hikes and new channels.
Premium/PPV Programming: We used the 1997 level of 52%.
Marketing/Sales: Industry norms vary from 1% of revenue in classic systems with
little need for sales, to 4% in urban markets. This system is at about 4%, but
should be able to decline a bit as a percentage, given target marketing and its
competitive situation; use 3.9%.
Albuquerque, NM, 4/97, Page 9
<PAGE>
TEN-YEAR CASHFLOW PROJECTIONS
- -----------------------------
Another appraisal technique involves projection of free cashflow for 10 years;
free cashflow is equal to operating income less capital expenditures, but still
before depreciation and interest, and taxes. Our ten-year projection for this
system is shown on the two-page spreadsheet enclosed. We started with the data
contained in the first-year projection spreadsheet, and extended it with the
variables and assumptions shown.
Revenue items used are the same as for the first-year analysis. However, they
include forecasts for system growth in areas such as passings, penetration, and
revenue/subscriber. The small amount of commercial revenue was converted to
EBU's.
We have considered the potential for new services not now offered, and have not
included either the revenues or the capital and operating costs in our operating
income analysis. These items are quite uncertain. Albuquerque does not have
any expectations on these items that are more certain or more promising than the
industry generally. We thus believe the market multiples (discussed later)
adequately reflect the industry's opinions on future revenue streams.
Passings growth was assumed to be 2.5% over the long run.
Penetration increases: We limited penetration gains until immediately after the
rebuild, at which time growth should increase based on the added services coming
from the rebuild.
Addressable Subs & PPV Revenue/Sub: Management estimates that PPV homes will
grow at 8% per year; we used a higher growth rate based on the strong PPV
performance.
Basic Rate Increases: Rates are at reasonable levels, and in this situation the
system should be able to keep pace with inflation for a few years. After the
rebuild, it should be possible to exceed inflation.
The ten-year model uses summary expense variables which were calculated from the
one-year information as follows:
Personnel: Salaries, Tax/benefit, Professional services, contract labor,
and capitalized labor
Per-Subscriber: Office rent, Office Operation, Basic Programming, LO
Programming
Revenue-related: Franchise fee, copyright, bad debt, marketing, and
advertising sales
Premium Programming: Pay and pay-per-view
Per-Mile: Insurance, Property Tax, Pole Rent, Power, System Maintenance
Personnel costs are forecasted based on current personnel costs, plus annual
percentage increases to reflect growth and inflation. We calculated the amounts
for the other expense categories on a per-sub or per-mile, or percentage of
revenue basis, as noted.
Albuquerque, NM, 4/97, Page 10
<PAGE>
The per-sub and per-mile costs were increased over the 10-year period for
inflation. The percentage costs were held to the same percentage of revenue
over 10 years, on the assumption that gradual increases in unit costs can be
passed on to customers.
Capital costs were forecast for several items. New plant costs were calculated
using new plant mileage derived from passings growth and an average per-mile
cost for new plant. Drops were calculated on the assumption that a certain
percentage of existing drops are replaced each year, and new drops are added
equal to growth plus a churn allowance. Costs for new addressable (or other
advanced) subscriber devices were allowed based on the increase in addressable
subscribers. Capitalized labor is based on 1996/97 levels, plus inflation. We
did not include the full charge for capitalized labor as a line item, because
some of the costs are likely to be included in other capital cost lines. The
capital costs for vehicles and miscellaneous is estimated from system size and
current vehicle count. We used the rebuild cost estimates discussed earlier in
the text.
DETERMINATION OF APPRAISED VALUE
--------------------------------
GENERAL METHODOLOGY
- -------------------
Appraisal of income-producing property typically relies on one or more of three
main approaches.
Replacement cost, which is the cost to assemble and put the property into
operation, is not typically used in the cable television industry for valuing a
property as a going concern. In addition to tangible assets, cable television
business sales include a very substantial intangible value for franchise,
goodwill, and customer lists. Although these intangibles can be valued
separately, it is quite difficult. Thus, replacement cost is not used to
estimate fair market value of a cable system.
Market value as determined by comparable transactions is a very common approach.
Transaction value is typically reported on the basis of either per-subscriber
cost or operating income multiple. We consider both ratios, but place much more
reliance on the income multiple; per-subscriber values can vary widely depending
on operating results, but multiples of operating income are more predictable
because they tie directly to profitability.
The Income Approach is widely used in business valuation. Our method involves
determination of the discounted present value of free cashflow generated over
ten years, plus an allowance for the terminal value after ten years.
INCOME APPROACH
- ---------------
Ten-year free cashflow was projected, as discussed previously. The annual free
cashflow was discounted using an average cost of capital calculated as shown on
the spreadsheet.
We then added a terminal value based on the resale value of the system in year
10. The terminal value was calculated at 6.0 x year 10 cashflow. The industry
will increasingly feel the effects
Albuquerque, NM, 4/97, Page 11
<PAGE>
of increased competition. Sale multiples on existing income sources (which in
part reflect perceived growth opportunities into other areas) will gradually
decline as the opportunities for growth into new lines are realized or
abandoned. Non-cable businesses currently trade in the 3-7 x cashflow range.
Selection of 6 x should reflect the industry's maturity.
The terminal value was then discounted to a present value using the same
discount rate. The discounted cashflow and discounted terminal values were
added, to arrive at the estimate of potential system value shown on the
worksheet, which is $205,791,000.
MARKET VALUE
- ------------
The prices of cable system transactions are frequently evaluated to determine
the ratio of operating income (income before depreciation, interest, and
management fees) to purchase price; sales results are frequently reported in the
trade press. Per-subscriber values are also widely reported. We consider
principally the multiple of first year projected operating income. To facilitate
our analysis, we compared this system to the overall market with respect to
some key factors:
Future passing and subscriber growth: Albuquerque in the long run should have
average growth rates.
Demographics: Demographics are perhaps a bit below average, due to the ethnic
mix and relatively less higher-income residents.
Competitive situation: Competition from DBS could be a problem, since offair
reception is good. The system lineup is somewhat weak. This system may face a
bit more than normal pressure.
System Capacity/Quality: The need for rebuild/upgrade is a negative. The
system will feel pressure for a rebuild during franchise renewal. We believe
that buyers paying "market prices" expect at least 450 mhz plant, and many
companies indicate that they explicitly consider costs required to take the
system to 550 mhz or more.
General Operations: With regard to matters such as staff, franchise problems,
etc., the system is normal.
New Revenues: The system has average potential for these items.
System marketability: The system is of an attractive size, but is relatively
isolated. It would have average marketability compared to systems of similar
size.
Overall, Albuquerque would be at or slightly below market norms compared to
comparably-sized systems.
Albuquerque, NM, 4/97, Page 12
<PAGE>
COMPARABLE TRANSACTION DATA
We then select an appropriate multiplier from information available about other
reasonably similar transactions, and the general state of the cable market. We
reviewed announcements in the trade press, information from brokers, recent
issues of the Cable TV Investor Newsletter, published by Paul Kagan Associates,
----------------------------
and other private sources. Some of the key transactions we considered are:
Minneapolis: US West sold this 290,000-sub system to Charter for $2,069/sub,
and a 10 x multiple. The system has 51% penetration. However, it is perhaps a
better market with more growth potential.
Buffalo/Erie: These 166,000 customers were sold from TCI to a joint venture
controlled by Adelphia. The price was reported ast 10 x, or $2,108/sub.
Penetration is 60%.
Bangor, Maine: This is a somewhat smaller system at 53,000 customers at 62%
penetration. Cablevision sold to Frontier at 9 x operating income, and
$1,471/sub.
Myrtle Beach and Hampton, Virginia (each around 45,000 customers) were traded by
Time Warner and Cox; the transactions were valued at 9.5 x, and about
$1,600/sub.
Hickory, NC was purchased from Prime by Charter for 9.7 x cashflow, and $1,946
per customer. This system is contiguous to numerous other Charter operations,
and has been recently upgraded.
US West reported a deal to purchase 40,000 customers in Michigan from Booth at
the equivalent of about $1,875 per customer.
The market has been slow this spring, and generally in the buyer's favor, but
has been improving slightly. Concern over competition from DBS has continued,
although concerns about phone competition are diminishing a bit. Capital
required for system upgrades is a factor. We believe that the multiple for
large systems is generally in the range of 9-10 x first-year operating income.
Some large systems with unusually good prospects or other favorable factors
trade at higher prices. Smaller systems trade in the 7-9 range, with increased
variability to reflect buyer interests and system characteristics.
Albuquerque can be valued at a multiple of 10.0 x operating income. Our
calculation using the market value multiples follows:
Projected operating income 22,236,000
Multiple 10.0
Estimated value $222,360,000
Resultant value per EBU $1,909
Albuquerque, NM, 4/97, Page 13
<PAGE>
APPRAISED VALUE
- ---------------
The range of values as calculated by the two different approaches is
$205,791,000 to $222,360,000. The values are reasonably consistent, and we
place reliance on each. The DCF approach may better reflect the growth
prospects for Albuquerque, which are perhaps a bit below some of the "comparable
transactions" and the DCF does explicitly consider rebuild costs, which are a
factor. We believe a midpoint is appropriate. We find the appraised value to
be $214,100,000.
The multiples calculated by dividing the appraised value by current subscriber
count and projected income are:
Appraised Value 214,100,000
Subscriber EBU's at 4/30/97 116,470
Projected operating income 22,236,000
Multiple 9.63
Per-subscriber $1,838
Overall, the foregoing ratios conform to the general market conditions and
analysis presented above.
The appraised fair market value of the Independence system as of April 30, 1997
is $214,100,000. The appraised value represents the price which a willing buyer
would pay to a willing seller, neither being under any prior obligation to
complete the transaction, for the assemblage of system assets as a going
concern, without any discount imputed for brokers' fees or sale costs. We
believe the appraisal reflects the relevant and material general market factors,
assumptions, and limitations, all of which are presented in this report. The
appraisal was prepared using standard appraisal techniques, and conforms to
Standards 7-10 of the Uniform Standards of Professional Appraisal Practice.
Albuquerque, NM, 4/97, Page 14
<PAGE>
QUALIFICATIONS OF THE APPRAISER
-------------------------------
The appraisal was prepared by R. Michael Kruger, owner and President of Western
Cablesystems, Inc. Since 1979, he has appraised hundreds of systems for a
variety of clients including major MSO's, independent operators, and clients
outside the CATV industry. Kruger has extensive background as a CATV executive.
From 1974 to 1979, he held various operating positions at ATC, one of the
industry's largest operators. In 1979, he joined a small MSO, and until mid-
1986 was president of the 30,000 - subscriber company. There, in addition to
his operating duties, Kruger prepared CATV system appraisals.
Kruger formed Western Cablesystems, Inc. in 1986, and is its sole owner and
principal. Western has been directly involved in all aspects of system
operations and finance, including several acquisitions and sales, partnership
formation, debt placement, franchising, and system construction and startup.
From 1986 through 1996, Western purchased, built, and operated cable systems
that served approximately 21,000 customers.
In addition to continuing appraisal work, Kruger has performed consulting
engagements for a wide range of topics and clients, including the economic
feasibility of international cable and restructuring of individual systems to
achieve financial improvements.
Kruger received a BS/MS in engineering from the Massachusetts Institute of
Technology in 1967/68. In 1974, he received a Masters in Business
Administration (MBA) from the Stanford University Graduate School of Business.
Albuquerque, NM, 4/97, Page 15
<PAGE>
<TABLE>
<CAPTION>
ALBUQUERQUE OPERATING INCOME CALCULATION
1994 ACTUAL 1995 ACTUAL 1996 ACTUAL 4/30/97 DATA PROJ. YEAR
(Dollars Annualized)
<S> <C> <C> <C> <C> <C>
SUBSCRIBER BASE:
Ending Passings 215,651 223,809 231,709 233,070 237,170
Ending Basic Subs 106,835 109,911 112,460 112,530 116,925
Ending Pay Units 58,838 57,189 60,373 60,912 63,291
Ending Basic Pen. 49.5% 49.1% 48.5% 48.3% 49.3%
Ending Pay Pen. 55.1% 52.0% 53.7% 54.1% 54.1%
Average Basic Subs 102,779 108,373 111,186 112,495 114,727
Average Pay Units 59,953 58,014 58,781 60,643 62,101
Ending Addr. Homes est. 18,900 20,600 22,400 23,096 24,944
REVENUE/SUB
Avg. Basic $/Sub $ 21.52 $ 23.13 $ 24.25 $ 25.14 $ 25.64
Avg. Pay $/Unit $ 9.18 $ 8.91 $ 8.86 $ 8.78 $ 8.78
Avg. PPV $/Addr Home $ 49.57 $ 69.19 $ 69.62 $ 87.92 $ 90.00
Avg. Adv. $/Basic $ 30.54 $ 33.01 $ 36.69 $ 32.98 $ 37.00
REVENUES
Basic, Tier, AO, Con 26,540,210 30,081,554 32,350,525 33,938,952 35,304,702
Commercial Basic 890,516 957,015 956,428 1,188,774 1,188,774
Premium Service 6,607,511 6,201,686 6,247,157 6,387,900 6,541,581
Com'l Premium 191,889 211,147 234,533 259,032 259,032
Pay Per View 936,947 1,425,273 1,559,572 2,030,502 2,244,931
Guide Revenue 420,875 388,846 305,524 309,579 309,579
Installation 794,223 774,352 685,577 650,559 625,000
Late/Other/Shop/Equip/Leas 705,829 877,797 1,207,478 1,207,407 1,200,000
Advertising Sales 3,139,269 3,577,614 4,078,980 3,710,124 4,244,914
Fran. Fee Passthru 1,570,763 1,761,254 1,862,151 1,961,307 2,024,822
Total Revenue 41,798,032 46,256,538 49,487,925 51,644,136 53,943,335
EXPENSES
Salary-Admin. 1,512,696 1,696,534 1,908,288 2,143,743 2,272,368
Salary-LO 0 0 0 0 0
Salary-Field 3,586,311 3,641,193 4,167,040 4,061,064 4,000,000
Tax/Benefit 1,374,146 1,411,048 1,652,673 1,783,857 1,756,263
T & E 95,121 128,344 147,801 84,618 100,000
Vehicle 379,678 377,357 378,501 314,841 380,000
Labor/OH Capitalize -2,325,050 -3,397,791 -4,010,911 -4,327,809 -3,500,000
Basic Programming 4,569,820 6,180,004 7,468,696 8,350,149 9,361,756
Computer Billing 1,151,002 1,277,058 1,359,867 1,485,990 1,500,000
Franchise/FCC/Dev Fees 1,883,200 2,061,803 2,281,536 2,279,049 2,427,450
Copyright 195,101 197,457 203,187 212,589 225,000
Bad Debt/Coll. 643,913 847,144 920,835 1,269,924 1,078,867
Premium Service 3,185,503 2,523,969 3,032,782 3,312,357 3,392,046
Pay-Per-View 505,724 687,056 885,820 1,081,764 1,196,003
Premium-Com'l 157,161 149,140 189,945 208,980 194,274
Merchandise 56,678 38,951 42,569 51,273 45,000
Real Estate Rent 307,876 300,028 269,404 267,600 270,000
Power 200,504 192,610 217,504 225,960 233,869
Insurance 418,179 578,175 585,009 611,751 550,000
Pole Rent 175,686 180,804 161,963 166,620 170,000
Property Tax 178,988 172,567 272,360 337,980 350,000
System Operation 578,568 421,620 419,078 398,091 400,000
Field Contract Labor 686,200 809,500 907,685 610,944 600,000
Professional Service 123,203 88,519 101,005 132,864 100,000
Office Costs 556,167 562,231 648,319 715,083 675,000
Marketing 2,596,091 2,781,166 2,571,288 2,139,486 2,103,790
Advert. Sales Cost 1,396,163 1,537,684 1,775,988 1,967,181 1,825,313
Total Expenses 24,188,629 25,444,171 28,558,232 29,885,949 31,706,998
0
Op. Income 17,609,403 20,812,367 20,929,693 21,758,187 22,236,337
Margin 42.1% 45.0% 42.3% 42.1% 41.2%
</TABLE>
Page 1
<PAGE>
<TABLE>
<CAPTION>
DISCOUNTED CASHFLOW MODEL FOR APPRAISAL OF ALBUQUERQUE
Change Rate Current Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beginning Passings 233,070 237,170 243,099 249,177 255,406 261,791 268,336
Growth 2.50% 4,100 5,929 6,077 6,229 6,385 6,545 6,708
Ending Passings 233,070 237,170 243,099 249,177 255,406 261,791 268,336 275,044
Passings Growth 2.50% 2.50% 2.50% 2.50% 2.50% 2.50%
Ending Basic EBU's 116,470 120,788 125,023 129,395 133,907 139,872 146,052 152,454
Ending Pay Units 60,912 63,291 65,510 67,801 70,165 73,291 76,529 79,884
Ending Basic EBU Pen. 49.97% 50.93% 51.43% 51.93% 52.43% 53.43% 54.43% 55.43%
Basic Penetration Change 0.50% 0.50% 0.50% 1.00% 1.00% 1.00%
Pay/Basic Penetration 0.00% 52.30% 52.40% 52.40% 52.40% 52.40% 52.40% 52.40% 52.40%
Average Basic EBU's 118,629 122,906 127,209 131,651 136,889 142,962 149,253
Average Pay Units 62,102 64,401 66,655 68,983 71,728 74,910 78,206
Addr Terminal Sub % 19.80% 20.70% 25.70% 30.70% 35.70% 40.70% 45.70% 50.00%
Ending Plant Miles 2,561 2,612 2,686 2,762 2,840 2,920 3,002 3,086
New Miles 80 51 74 76 78 80 82 84
New Drops 1.1 4,750 4,659 4,809 4,963 6,562 6,798 7,042
Rebuild Miles 0 400 600 600 460 0 0
Replace Drops % 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Basic Revenue/EBU $307.63 $316.86 $326.36 $336.15 $346.24 $363.55 $381.73
Basic Rev/EBU Increase 3.00% 3.00% 3.00% 3.00% 5.00% 5.00%
Guide Rev/EBU 2.00% $ 2.61 $ 2.66 $ 2.72 $ 2.77 $ 2.82 $ 2.88 $ 2.94
Pay Revenue/Unit 2.00% $109.51 $111.70 $113.93 $116.21 $118.54 $120.91 $123.32
PPV Rev/Addr. Sub 7.00% $ 91.42 $ 97.82 $104.67 $111.99 $119.83 $128.22 $137.20
Late/Shop/Oth $/EBU 5.00% $ 10.12 $ 10.62 $ 11.15 $ 11.71 $ 12.30 $ 12.91 $ 13.56
Advertising Rev/EBU 7.00% $ 35.14 $ 37.60 $ 40.24 $ 43.05 $ 46.07 $ 49.29 $ 52.74
Personnel Cost Incr. % 3.00% 5.85% 6.17% 6.16% 6.15% 6.63% 6.61% 6.59%
Per-Sub Expense 3.50% $ 98.95 $102.41 $106.00 $109.71 $113.55 $117.52 $121.63
% of Rev. Expense % 14.20% 14.20% 14.20% 14.20% 14.20% 14.20% 14.20%
Pay/PPV Expense % 52.87% 52.87% 52.87% 52.87% 52.87% 52.87% 52.87%
Per-Mile Expense 4.00% $ 652 $ 678 $ 705 $ 734 $ 763 $ 794 $ 825
Capex per drop 2.00% $ 40 $ 41 $ 42 $ 42 $ 43 $ 44 $ 45
Capex per new mile 3.00% $25,000 $25,750 $26,523 $27,318 $28,138 $28,982 $29,851
Capex per rebuild mile $ 0 $15,000 $15,000 $15,000 $13,043
Capex per new adr. sub 1.00% $ 150 $ 152 $ 153 $ 155 $ 156 $ 158 $ 159
REVENUE
Basic/Tier/Com'l 36,493,476 38,943,345 41,516,086 44,254,650 47,396,133 51,973,724 56,973,833
Guide 309,579 327,154 345,381 364,589 386,679 411,910 438,637
Pay 6,800,613 7,193,429 7,594,201 8,016,550 8,502,262 9,057,040 9,644,700
Pay-per-view 2,244,931 3,089,800 4,087,571 5,263,616 6,676,378 8,377,186 10,238,540
Installation 3.00% 625,000 643,750 663,063 682,954 703,443 724,546 746,283
Late/Other/Shop 1,200,000 1,305,423 1,418,687 1,541,634 1,683,128 1,845,687 2,023,251
Advertising 4,244,914 4,621,687 5,118,353 5,667,863 6,305,940 7,046,692 7,871,751
Franch. Fee billed 3.90% 2,024,822 2,176,100 2,355,520 2,551,663 2,779,424 3,081,970 3,412,436
Total Revenue 53,943,335 58,300,689 63,098,862 68,343,519 74,433,388 82,518,755 91,349,431
EXPENSES
Personnel 5,608,631 5,954,783 6,321,730 6,710,701 7,155,795 7,628,797 8,131,408
Per-Sub costs 11,951,756 12,803,800 13,715,290 14,690,305 15,881,829 17,163,983 18,543,384
Per-mile costs 1,703,869 1,822,300 1,948,787 2,083,870 2,228,128 2,382,175 2,546,669
Percent of Rev. costs 7,660,420 8,279,202 8,960,584 9,705,371 10,570,185 11,718,377 12,972,409
Pay & PPV Costs 4,782,323 5,436,679 6,176,080 7,021,142 8,024,853 9,217,367 10,512,146
Total Expenses 31,706,999 34,296,764 37,122,471 40,211,389 43,860,790 48,110,699 52,706,016
OPERATING INCOME 22,236,336 24,003,924 25,976,391 28,132,131 30,572,599 34,408,056 38,643,415
Operating Ratio 41.22% 41.17% 41.17% 41.16% 41.07% 41.70% 42.30%
Change Rate Current Year 8 Year 9 Year 10
- ----------------------------------------------------------------------------------------
Beginning Passings 275,044 281,921 288,969
Growth 2.50% 6,876 7,048 7,224
Ending Passings 233,070 281,921 288,969 296,193
Passings Growth 2.50% 2.50% 2.50%
Ending Basic EBU's 116,470 159,085 165,951 173,062
Ending Pay Units 60,912 83,358 86,956 90,682
Ending Basic EBU Pen. 49.97% 56.43% 57.43% 58.43%
Basic Penetration Change 1.00% 1.00% 1.00%
Pay/Basic Penetration 0.00% 52.3% 52.40% 52.40% 52.40%
Average Basic EBU's 155,769 162,518 169,507
Average Pay Units 81,621 85,157 88,819
Addr Terminal Sub % 19.80% 60.00% 70.00% 80.00%
Ending Plant Miles 2,561 3,172 3,260 3,350
New Miles 80 86 88 90
New Drops 1.1 7,294 7,553 7,822
Rebuild Miles 0 0 0
Replace Drops % 10.00% 10.00% 10.00%
Basic Revenue/EBU $393.18 $404.97 $417.12
Basic Rev/EBU Increase 3.00% 3.00% 3.00%
Guide Rev/EBU 2.00% $ 3.00 $ 3.06 $ 3.12
Pay Revenue/Unit 2.00% $125.79 $128.31 $130.87
PPV Rev/Addr. Sub 7.00% $146.80 $157.08 $168.07
Late/Shop/Oth $/EBU 5.00% $ 14.23 $ 14.95 $ 15.69
Advertising Rev/EBU 7.00% $ 56.43 $ 60.38 $ 64.61
Personnel Cost Incr. % 3.00% 6.57% 6.55% 6.53%
Per-Sub Expense 3.50% $125.89 $130.30 $134.86
% of Rev. Expense % 14.20% 14.20% 14.20%
Pay/PPV Expense % 52.87% 52.87% 52.87%
Per-Mile Expense 4.00% $ 858 $ 893 $ 928
Capex per drop 2.00% $ 46 $ 47 $ 48
Capex per new mile 3.00% $30,747 $31,669 $32,619
Capex per rebuild mile
Capex per new adr. sub 1.00% $ 161 $ 162 $ 164
REVENUE
Basic/Tier/Com'l 61,245,056 65,815,442 70,705,072
Guide 466,943 496,917 528,651
Pay 10,267,088 10,926,146 11,623,923
Pay-per-view 13,720,231 17,869,464 22,791,495
Installation 3.00% 768,671 791,731 815,483
Late/Other/Shop 2,217,162 2,428,881 2,659,997
Advertising 8,790,498 9,813,339 10,951,816
Franch. Fee billed 3.90% 3,783,340 4,198,155 4,662,364
Total Revenue 101,258,989 112,340,076 124,738,801
EXPENSES
Personnel 8,665,426 9,232,760 9,835,431
Per-Sub costs 20,027,122 21,622,787 23,338,509
Per-mile costs 2,722,311 2,909,847 3,110,075
Percent of Rev. costs 14,379,652 15,953,262 17,713,988
Pay & PPV Costs 12,681,947 15,224,061 18,195,218
Total Expenses 58,476,457 64,942,717 72,193,222
OPERATING INCOME 42,782,532 47,397,359 52,545,579
Operating Ratio 42.25% 42.19% 42.12%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
CAPITAL EXPENDITURES
Drops 673,144 700,170 738,604 779,086 889,731 945,244 1,003,966
Addr. Converters 291,308 1,079,869 1,161,873 1,248,799 1,424,064 1,547,813 1,509,661
New plant 1,281,250 1,908,477 2,014,875 2,127,204 2,245,796 2,370,999 2,503,182
Rebuild 0 6,000,000 9,000,000 9,000,000 6,000,000 0 0
Labor capitalized 35.00% 3,500,000 3,500,000 2,212,605 2,348,745 2,504,528 2,670,079 2,845,993
Vehicles 5.00% 250,000 262,500 275,625 289,406 303,877 319,070 335,024
Other 3.00% 50,000 50,000 51,500 53,045 54,636 56,275 57,964
Total Capex 6,045,702 13,501,016 15,455,083 15,846,285 13,422,632 7,909,481 8,255,789
CAPITAL EXPENDITURES
Drops 1,066,076 1,131,758 1,201,211
Addr. Converters 3,091,568 3,364,743 3,655,705
New plant 2,642,735 2,790,067 2,945,613
Rebuild 0 0 0
Labor capitalized 35.00% 3,032,899 3,231,466 3,442,401
Vehicles 5.00% 351,775 369,364 387,832
Other 3.00% 59,703 61,494 63,339
Total Capex 10,244,755 10,948,892 11,696,101
DISCOUNTED FREE CASHFLOW
Operating Income 22,236,336 24,003,924 25,976,391 28,132,131 30,572,599 34,408,056 38,643,415
Less Capital Expenditures 6,045,702 13,501,016 15,455,083 15,846,285 13,422,632 7,909,481 8,255,789
Free cashflow 16,190,634 10,502,908 10,521,309 12,285,845 17,149,967 26,498,575 30,387,625
DISCOUNTED FREE CASHFLOW
Operating Income 42,782,532 47,397,359 52,545,579
Less Capital Expenditures 10,244,755 10,948,892 11,696,101
Free cashflow 32,537,777 36,448,467 40,849,478
Discount Rate 12.70% Discount Rate Calculation
Net Present Value of Free Cashflow 110,413,035 Proportion Rate
Equity 30.00% 20.00%
Senior Debt 60.00% 9.00%
Sub. Debt 10.00% 13.00%
Blended 12.70%
TERMINAL VALUE
Year 10 operating income 52,545,579
Multiple 6
Terminal Value 315,273,475
Discounted at 12.70% 95,378,014
POTENTIAL VALUE
NPV of Free Cashflow 110,413,035
NPV of Terminal Value 95,378,014
Total Potential Value 205,791,049
RATIOS
Starting EBU's 116,470
First-year Op. Income 22,236,336
Value per EBU $1,767
Op. Income Multiple 9.25
</TABLE>
<PAGE>
EXHIBIT 99(b)(3)
================================================================================
CABLE TV FUND 12 CABLE TELEVISION SYSTEM
ALBUQUERQUE, NEW MEXICO
APPRAISAL OF NON-CURRENT ASSETS AS OF APRIL 30, 1997
PREPARED FOR:
THE JONES GROUP, LTD.
JUNE 20, 1997
[LOGO OF BOND & PICARO APPEARS HERE]
================================================================================
<PAGE>
CABLE TV FUND 12 CABLE TELEVISION SYSTEM
ALBUQUERQUE, NEW MEXICO
APPRAISAL OF NON-CURRENT ASSETS AS OF APRIL 30, 1997
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction 1
System Background 1
Industry Overview 2
Executive Summary 7
Valuation Method 7
Conclusion 10
Cable TV Fund 12 Cable Television System, Albuquerque, New Mexico
System Background 13
Demographic Profile 16
Media Overview 20
Market Analysis 21
Discounted Cash Flow Analysis 26
Comparable Sales Analysis 32
Conclusion 34
</TABLE>
Exhibits
--------
A. Qualifications of James R. Bond, Jr., Julie A. Kroskin, and Tracy A.
Hogan
<PAGE>
CABLE TV FUND 12 CABLE TELEVISION SYSTEM
ALBUQUERQUE, NEW MEXICO
APPRAISAL OF NON-CURRENT ASSETS AS OF APRIL 30, 1997
INTRODUCTION
------------
Bond & Pecaro, Inc. has been retained to determine the fair market value
of the non-current assets of the Cable TV Fund 12 cable television system in
Albuquerque, New Mexico, ("the Albuquerque System") as of April 30, 1997. Among
these assets were towers, electronic equipment, office equipment, vehicles, a
cable television distribution plant, cable television franchises, and a cable
television subscriber base.
SYSTEM BACKGROUND
- -----------------
The Albuquerque System serves the City of Albuquerque; the Villages of
Corrales, Bosque Farms, Los Ranchos de Albuquerque, North Valley, Paradise
Hills, Peralta, South Valley, and Taylor Ranch; the Town of Bernalillo;
unincorporated portions of the Counties of Bernalillo, Sandoval, and Valencia;
and the Kirkland Air Force Base. Most of the system's cable distribution plant
operates at 450 mHz with a capacity of up to 63 channels. There were two vacant
channels available for use as of April 30, 1997.
The system is approximately 25% addressable and provides impulse pay-per-
view services to subscribers. The system has approximately 1,604 miles of
underground cable
-1-
<PAGE>
distribution plant and 1,035 miles of aerial cable plant. Approximately 233,798
homes are passed by the system's cable distribution plant.
As of April 30, 1997, the system had 112,603 basic subscribers, representing
a basic subscriber penetration of 48.2%. The system had 60,912 pay
subscriptions as of April 30, 1997, yielding a pay to basic ratio of 54.1%.
The Albuquerque System operates under the provisions of 10 cable television
franchises. The terms of each of the franchises are as follows:
<TABLE>
<CAPTION>
Expiration
Franchise Date
--------- ----------
<S> <C>
City of Albuquerque 09/01/99
Village of Corrales 04/21/06
Village of Bosque Farms 09/13/99
Village of Los Ranchos de Albuquerque 05/14/11
Town of Bernalillo 08/17/01
Bernalillo County 08/05/11
Sandoval County 03/03/02
Valencia County 01/21/00
Kirkland Air Force Base 08/28/99
</TABLE>
INDUSTRY OVERVIEW
- -----------------
The cable television industry developed in the late 1940s in order to
provide television service to communities in rural Pennsylvania that were too
isolated to receive over-the-air broadcasts. Since that time, the industry has
grown and diversified to provide a broad range of educational, entertainment,
cultural, and sports programming to large urban areas and rural communities
alike.
-2-
<PAGE>
According to Broadcasting & Cable Yearbook 1997, the cable industry in the
----------------------------------
United States consists of approximately 11,800 operating systems serving over
34,000 communities throughout the United States. Approximately 100 additional
cable television franchises have been approved but have yet to be constructed.
Each system has been granted a franchise by its local municipal government.
Franchises are awarded competitively, and the winning bidder must generally
provide guarantees that expensive investments in local employment, local
programming, and system technical design will be made.
The construction of a cable television system is extremely capital
intensive. The cost of installing aerial cable often comprises the single
largest investment made by a cable television system operator. Underground
cable television installation is even more expensive, when considered on a per-
mile basis. Additionally, investments must be made in headend facilities,
satellite receiving equipment, office facilities, and subscriber equipment such
as converter units, that ultimately deliver cable television service to
households.
Numerous changes have occurred in the development of cable television
technology. Original systems used vacuum tube electronics and provided only a
few off-air channels to subscribers. By contrast, modern systems are capable of
providing over 100 channels of service, including satellite signals and locally
originated programs. These systems use solid state amplifiers and addressable
converter equipment to control subscriber service levels.
-3-
<PAGE>
Cable television systems provide entertainment, news, music, and other forms
of programming to the public. The cable operator must pay a fee, usually
calculated on a per-subscriber basis, to program suppliers. These fees may
either be determined on a fixed basis or calculated as a percentage of system
revenues.
In order to cover the costs of operation, systems sell "basic" services such
as local television signals, local origination programs, and some satellite
services for a fixed monthly fee to all subscribers. Customers also have the
option to subscribe to additional "premium" or "pay" services, such as Home Box
Office and Showtime, which offer movies, sports, entertainment, and cultural
programming.
In some cases, cable systems generate additional revenues by selling
advertising time to local and national businesses, government agencies, and
political organizations which seek to deliver information to the general public.
Given the substantial fixed costs resulting from the capital requirements of
the business, as well as high programming costs, cable operators seek to
maximize system penetration. Two types of system penetration are of paramount
importance in the industry.
The first is basic penetration, which is a measure of the number of homes
subscribing to cable television as a proportion of the homes which are passed by
cable; if 400 homes subscribed to cable service in a community of 1,000 homes,
basic penetration would be 40%.
The second important measure is pay penetration, which gauges the popularity
of pay services among those households which subscribe to basic cable service.
If each of the 400
-4-
<PAGE>
cable households in the example subscribed to two pay services, pay penetration
would be 200%. Approximately 67% of all households in the United States are
currently served by cable television.
The linkage between basic penetration, pay penetration, and customer
development is fundamental to the cable industry. Operators constantly seek to
provide programming and services that will develop the widest appeal among local
households. The more effectively the cable operator is able to meet the
preferences of the public, the larger the system's subscriber base will be.
This relationship between subscribers and revenues is axiomatic in the cable
industry and is the primary determinant of success or failure among system
operators.
The cable industry has become increasingly competitive in recent years.
Overall financial performance of the industry has fallen short of expectations
that were developed in the early 1980s, when a large number of cable television
facilities were constructed. Traditional broadcast stations continue to be the
mainstay of television viewing in the United States. In recent years, the FCC
has issued many additional licenses for new independent television stations
throughout the country. Moreover, cable operators have come under increasing
competitive pressure from videocassette rental outlets, satellite program
services, and other competing technologies.
In order to build the largest possible subscriber base, systems invest
heavily in tangible assets, such as distribution equipment and satellite
equipment, and intangible assets such as marketing systems and programming
agreements. Similarly, investments in
-5-
<PAGE>
equipment and intangible assets, such as managerial talent, may be oriented
toward controlling costs and increasing profitability.
It is in this marketplace, one defined by heavy capital investment, the
relationship between subscriber base size and revenues, and increasing
competition, that the Albuquerque System operates.
To inspect the physical plant and gather relevant financial and market data
necessary for the appraisal, James R. Bond, Jr. of the firm visited the offices
and technical facilities of the system in Albuquerque on May 15 and 16, 1997.
In performing this analysis, various sources were employed. These include
1997 Broadcasting & Cable Yearbook; 1997 Television and Cable Factbook; Market
- ---------------------------------- ----------------------------------
Statistics Demographics USA 1996, County Edition; the National Association of
-------------------------------------
Broadcasters and Bond & Pecaro, Inc. The Television Industry: 1997 Television
-----------------------------------------
Market-by-Market Review; Paul Kagan Associates Cable TV Investor; other industry
- ----------------------- -----------------
publications; internal financial statements and reports provided by the
Albuquerque System; and financial information and projections supplied by The
Jones Group, Ltd. Additionally, the appraiser relied upon information furnished
by system management relative to the age, condition, and adequacy of the
system's physical plant. These materials are assumed to be accurate with
respect to factual matters.
-6-
<PAGE>
CABLE TV FUND 12 CABLE TELEVISION SYSTEM
ALBUQUERQUE, NEW MEXICO
APPRAISAL OF NON-CURRENT ASSETS AS OF APRIL 30, 1997
EXECUTIVE SUMMARY
-----------------
An analysis to determine the fair market value of the non-current assets
of the Albuquerque System has been made. Fair market value is defined as the
price in cash or cash equivalents that would be paid by a willing buyer to a
willing seller in an arm's length transaction in which neither party acts under
any compulsion to buy or sell. The effective date of this analysis is April 30,
1997.
VALUATION METHOD
- ----------------
In order to determine the fair market value of the non-current assets of
the Albuquerque System, a discounted cash flow projection was developed. This
income approach measures the expected economic benefits these assets bring to
their holder. The fair market value of the assets of the system may therefore be
expressed by discounting these future benefits.
It is generally accepted that the value of a telecommunications business
lies in the fact that it is a "going concern." That is, its value reflects the
revenues and, ultimately, the after-tax cash flow that the business may
reasonably be expected to generate over a period of years. The potential resale
value of the business at the end of that period is also
-7-
<PAGE>
an important factor in the valuation of such properties. A number of factors
contribute to going concern value, including the formation of a business plan;
the construction of the system headend facility; the development of a functional
general, administrative, and technical organization; establishment of a sales
and marketing organization; and the coordination of all of these functions into
a well defined and efficient operating organization.
The market, or comparable sales, approach provides a useful means by which
assumptions made in the development of the discounted cash flow analysis can be
tested against marketplace transactions.
The discounted cash flow model incorporates variables such as capital
expenditures, homes passed by the system, basic penetration, pay penetration,
system revenue projections, anticipated system operating expenses and profits,
and various discount rates. The variables used in the analysis reflect
historical system and market growth trends as well as anticipated system
performance and market conditions.
The capital expenditures provision reflects the amount of investment
required to expand and maintain a competitive cable television business in the
Albuquerque, New Mexico area.
The discounted cash flow projection period of ten years was judged to be an
appropriate time horizon for the analysis. Cable operators and investors
typically expect to recover their investments within a ten year period. It is
over this period that projections
-8-
<PAGE>
regarding market demographics, system basic and pay penetration, and operating
profit margins can be made with the highest degree of accuracy.
Over this ten year period, household growth in the Albuquerque area,
anticipated market penetration percentages, and system operating performance
expectations were used to project the system's operating profits.
Income taxes were deducted from the projected operating profits to
determine after-tax net income. Depreciation and amortization expenses were
added back to the after-tax income stream and projected capital expenditures
were subtracted to calculate the system's net after-tax cash flow.
The stream of annual cash flow was adjusted to present value using a
discount rate appropriate for the cable television industry. The discount rate
used is based upon an after-tax rate calculated for the cable television
industry.
Additionally, it was necessary to project the system's residual value at
the end of the ten year projection period. In order to determine this value, an
operating cash flow multiple was applied to the system's 2007 operating cash
flow projection. The terminal value represents the hypothetical value of the
system at the end of the projection period. Taxes were deducted from the
indicated terminal value. The net terminal value was then discounted to present
value.
The results of these approaches are considered and given appropriate weight
in the consolidation portion of the analysis. In order to verify the results of
the discounted cash flow analysis, the appraiser also utilized a comparable
sales approach, relying upon an
-9-
<PAGE>
analysis of subscriber multiples. The results of this analysis support the
conclusion resulting from application of the income approach.
CONCLUSION
- ----------
Based upon the application of the income and market approaches, the
indicated fair market value of the non-current assets of the Albuquerque System
as of April 30, 1997 is determined to be $221,349,800.
Recipients of this report agree that all of the information contained
herein is of a confidential nature. This report may not, in whole or in part,
be reproduced or distributed to others. Each recipient agrees to treat it in a
confidential manner, and will not, directly or indirectly, disclose or permit
its agents or affiliates to disclose any such information without the consent of
Bond & Pecaro, Inc.
This analysis is based upon a number of projections. Projections are
inherently subject to varying degrees of uncertainty. Their accuracy depends,
among other things, upon the reliability of the underlying assumptions and the
occurrence of events beyond the control of Bond & Pecaro, Inc.
Certain information and assumptions are based upon historical industry
data. Some of the assumptions set forth inevitably will prove not to have been
correct. Consequently, the results of operations will vary from those set forth
in the projections and such variations may be material.
-10-
<PAGE>
Bond & Pecaro, Inc. makes no representations or warranties as to the
accuracy or completeness of the information or projections and assumptions
contained herein, or otherwise furnished in connection with this analysis.
Neither Bond & Pecaro, Inc. nor its personnel assume any liability for damages,
direct or indirect, arising out of or related to this report, the information or
assumptions or projections contained herein, any omissions from this report, or
any information otherwise provided regarding this report.
Neither this firm nor any of its employees has any present or anticipated
economic interest in the Cable TV Fund 12 cable television system or The Jones
Group, Ltd. The compensation received by the firm was in no way contingent upon
the values or the conclusions developed herein.
This appraisal was prepared for The Jones Group, Ltd. in connection with
internal management requirements. The report is not to be otherwise cited or
disseminated without the prior written consent of Bond & Pecaro, Inc.
-11-
<PAGE>
All information and conclusions contained in this report are based upon the
best knowledge and belief of the undersigned, whose qualifications are attached
hereto.
BOND & PECARO, INC.
1201 Connecticut Ave., N.W. BY /s/ James R. Bond, Jr.
Suite 450 -----------------------
Washington, D.C. 20036 James R. Bond, Jr.
(202) 775-8870
June 20, 1997
BY /s/ Julie A. Kroskin
-----------------------
Julie A. Kroskin
BY /s/ Tracy A. Hogan
-----------------------
Tracy A. Hogan
-12-
<PAGE>
CABLE TV FUND 12 CABLE TELEVISION SYSTEM
ALBUQUERQUE, NEW MEXICO
APPRAISAL OF NON-CURRENT ASSETS AS OF APRIL 30, 1997
CABLE TV FUND 12 CABLE TELEVISION SYSTEM
----------------------------------------
SYSTEM BACKGROUND
- -----------------
The Albuquerque System serves the City of Albuquerque; the Villages of
Corrales, Bosque Farms, Los Ranchos de Albuquerque, North Valley, Paradise
Hills, Peralta, South Valley, and Taylor Ranch; the Town of Bernalillo;
unincorporated portions of the Counties of Bernalillo, Sandoval, and Valencia;
and the Kirkland Air Force Base, in New Mexico.
The technical operations of the Albuquerque System are conducted at five
sites. These consist of an office facility located at 4611 Montbell Place in
Albuquerque, an advertising office at 1700 Louisiana Street in Albuquerque, and
headend facilities located in Albuquerque, Bernalillo, and Bosque Farms, New
Mexico.
CABLE TV FUND 12 HISTORICAL PERFORMANCE
- ---------------------------------------
The Albuquerque System financial statements were provided for the years
ending 1994, 1995, 1996, and projections for 1997. As shown in Table 1, the
system's net revenues increased from approximately $41.8 million in 1994 to
$49.5 million in 1996, reflecting a compound annual growth rate of approximately
8.8%. System revenues are projected to be $55.6 million in 1997.
-13-
<PAGE>
Operating cash flow at the Albuquerque System increased at an average
annual rate of approximately 9% during the 1994 to 1996 period. The system's
operating profit margin remained relatively constant between 1994 and 1996,
varying between 42.1% and 45.0%.
-14-
<PAGE>
TABLE 1
-------
HISTORICAL CABLE TV FUND 12 FINANCIAL PERFORMANCE
(Dollar Amounts Shown in Thousands)
<TABLE>
<CAPTION>
Projected
1997 1996 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
System Net Revenue $55,571.2 $49,488.0 $46,256.5 $41,798.1
Total Operating Expenses $32,199.1 $28,558.2 $25,444.2 $24,188.6
Operating Cash Flow $23,372.1 $20,929.8 $20,812.3 $17,609.5
Operating Cash Flow Margin 42.1% 42.3% 45.0% 42.1%
</TABLE>
Source: The Jones Group, Ltd. financial statements for years ending 1994,
1995, 1996, and projections for the year 1997.
-15-
<PAGE>
DEMOGRAPHIC PROFILE
- -------------------
According to Broadcasting & Cable Yearbook 1997, the Albuquerque System is
----------------------------------
located within the Albuquerque-Santa Fe DMA,/1/ which ranks 48th in the
country by Nielsen.
Population, income, retail sales, employment composition, and other
economic characteristics of the Albuquerque-Santa-Fe market were considered in
this analysis.
POPULATION GROWTH
- -----------------
The current and projected populations of the Albuquerque-Santa-Fe market
are shown in Table 2. In 1995, the Albuquerque-Santa-Fe market population was
approximately 665,600. The population of the market area is projected to
increase at an annual rate of 1.6% through the year 2000, based upon forecasts
contained in Market Statistics Demographics USA 1996, County Edition. This
-------------------------------------
mirrors the projected annual rate of population growth for the State of New
Mexico, and is above the 0.8% annual increase projected for the United States.
- ---------------------------
/1/ Nielsen Media Research defines a DMA as a "group of counties in which
stations in the metro area receive the largest audience share. DMAs are
non-overlapping areas used for planning, buying, and evaluating television
audiences. Each county in the United States is assigned to only one DMA."
-16-
<PAGE>
INCOME GROWTH
- -------------
Summary income data for the Albuquerque-Santa-Fe market are also contained
in Table 2. Current income levels and projected growth rates for the market are
compared with averages for the State of New Mexico and for the United States.
Total Effective Buying Income ("EBI")/1/ in the Albuquerque-Santa-Fe
market during the 1995-2000 period is projected to increase from approximately
$9.6 billion to $12.8 billion. Per capita EBI is projected to increase from
$14,383 to $17,792 over the same period. EBI per household is approximately
12.3% higher than the average for the State of New Mexico but almost 5.8% lower
than the national average.
The projected income growth rate for the Albuquerque-Santa-Fe market is
well above that of the state and nation. The per capita and per household
income growth rates for the Albuquerque-Santa-Fe market are also higher than
state and national levels.
RETAIL SALES GROWTH
- -------------------
Retail sales data provide additional information regarding economic
activity in the Albuquerque-Santa-Fe market. As reflected in Table 2, total,
per capita, and per household retail sales for the market are projected to grow
at compound annual rates of 6.0%, 4.3%, and 4.0%, respectively, during the 1995-
2000 period.
- --------------------------
/1/ EBI is defined by Market Statistics Demographics USA 1996, County
-----------------------------
Edition as "personal income less personal tax and non-tax payments."
-------
-17-
<PAGE>
Projected retail sales in the area are compared to those for the State of
New Mexico and the United States. Using these measures, the total retail sales
growth in the Albuquerque-Santa-Fe market exceeds state and national averages.
For example, total retail sales growth during the 1995-2000 period is expected
to average 6.0% in the Albuquerque-Santa-Fe market, compared to 5.6% in the
State of New Mexico, and 4.0% in the United States as a whole. Retail sales per
capita of $10,015 in the market are well above the national average of $8,891
and also the New Mexico average of $8,606.
EMPLOYMENT COMPOSITION
- ----------------------
Major employers in the Albuquerque DMA include the Albuquerque Public
Schools (10,596 employees), the University of New Mexico (6,228 employees), and
Sandia National Labs (7,488 employees).
The estimated unemployment rate in the Albuquerque-Santa-Fe market as
of April 1997 was 4.0%, representing a significant decline from a 5.0% level at
the end of 1996./1/ The current rate is considerably lower than the 6.3%
unemployment rate for the State of New Mexico and the 4.9% national average.
- -----------------------
/1/ Unemployment data from the Bureau of Labor Statistics.
-18-
<PAGE>
TABLE 2
-------
DEMOGRAPHIC AND ECONOMIC PROJECTIONS FOR THE ALBUQUERQUE-SANTA FE DMA,
THE STATE OF NEW MEXICO, AND THE UNITED STATES
<TABLE>
<CAPTION>
Annual
1995 2000 Change
---- ---- ------
<S> <C> <C> <C> <C>
POPULATION
(THOUSANDS) Albuquerque 665.6 721.9 1.6%
New Mexico 1,700.4 1,840.2 1.6%
U.S. 264,900.9 276,107.0 0.8%
HOUSEHOLDS
(THOUSANDS) Albuquerque 250.2 274.7 1.9%
New Mexico 609.2 668.3 1.9%
U.S. 97,647.4 102,813.1 1.0%
AVERAGE HOUSEHOLD SIZE
Albuquerque 2.7 2.6 -0.8%
New Mexico 2.8 2.8 0.0%
U.S. 2.7 2.7 0.0%
TOTAL EFFECTIVE BUYING INCOME
(MILLIONS) Albuquerque $ 9,573.5 $ 12,843.9 6.1%
New Mexico 20,753.5 27,222.4 5.6%
U.S. 3,964,285.1 4,832,437.7 4.0%
EBI PER CAPITA
Albuquerque $ 14,383 $ 17,792 4.3%
New Mexico 12,205 14,793 3.9%
U.S. 14,965 17,502 3.2%
EBI PER HOUSEHOLD
Albuquerque $ 38,263 $ 46,756 4.1%
New Mexico 34,067 40,734 3.6%
U.S. 40,598 47,002 3.0%
TOTAL RETAIL SALES
(MILLIONS) Albuquerque $ 6,666.2 $ 8,921.1 6.0%
New Mexico 14,633.7 19,171.5 5.6%
U.S. 2,355,241.6 2,871,024.8 4.0%
RETAIL SALES PER CAPITA
Albuquerque $ 10,015 $ 12,358 4.3%
New Mexico 8,606 10,418 3.9%
U.S. 8,891 10,398 3.2%
RETAIL SALES PER HOUSEHOLD
Albuquerque $ 26,644 $ 32,476 4.0%
New Mexico 24,021 28,687 3.6%
U.S. 24,120 27,925 3.0%
</TABLE>
Source: Market Statistics Demographics USA 1996, County Edition.
-------------------------------------
-19-
<PAGE>
MEDIA OVERVIEW
- --------------
The Albuquerque System faces competition from area television stations,
local radio stations, newspapers, direct broadcast satellite systems (DBS), and
videocassette rental outlets for audience share and advertising revenues.
There are 10 commercial television stations operating in the Albuquerque-
Santa-Fe market:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Call Letters Channel Affiliation
- ------------ ------- -----------
<S> <C> <C>
KKTO 2 Fox
KOB-TV 4 NBC
KOAT-TV 7 ABC
KCHF 11 Independent
KRQE 13 CBS
KNAT 23 Independent
KRPV 27 Independent
KHFT 29 Independent
KLUZ-TV 41 Independent
KASC 50 Independent
- -------------------------------------------------------------------
</TABLE>
Of the radio stations licensed to the Albuquerque-Santa-Fe market, 24
achieved a measurable audience share in the last Arbitron rating period, as
reported in Duncan's American Radio, Fall 1996. These include six AM radio
-------------------------
stations and 18 FM radio stations.
The Albuquerque-Santa-Fe market is also served by the following cable
television operators: TCI Cablevision of New Mexico, Inc. (17,218 subscribers)
and Santa Fe Cablevision Co., (16,973 subscribers). The major daily newspaper
serving the area is the
-20-
<PAGE>
Albuquerque Journal, with a total circulation of 113,235 daily and 164,021 on
- -------------------
Sundays. Three DBS systems are active in the Albuquerque-Santa-Fe market:
DirecTV, EchoStar, and PrimeStar. Additionally, there are 69 videocassette
rental outlets in the Albuquerque area.
MARKET ANALYSIS
- ---------------
HOMES PASSED
- ------------
The initial parameter upon which the discounted cash flow projection is
based is homes passed, or "passings." Two factors affect the number of homes
passed, new plant construction and household growth. Plant expansion improves
system coverage by allowing the system to offer service to previously unserved
areas. Household growth is the result of new construction and occupancies in
areas that are already served by the system.
It has been assumed that the number of households in the Albuquerque System
franchise area will increase at a rate equivalent to the average growth
projected for the areas served by the system as a whole, or approximately 1.9%
per year.
BASIC AND EXPANDED BASIC PENETRATION
- ------------------------------------
Basic and expanded basic subscriber penetration at the system are currently
48.2% and 96.8% (expressed as a ratio of basic subscribers), respectively.
System basic penetration has shown modest but consistent growth during the past
three years. It is likely
-21-
<PAGE>
that basic and expanded basic penetration will continue to demonstrate a modest
growth trend over the projected 10 year period.
For the purpose of this analysis, the appraiser has assumed that basic
subscriber penetration will gradually increase from its current level to
approximately 71.6% by 2007, as shown in Table 3. Basic subscribers at the
system are projected to increase at an annual rate of 6.0% through the year
2007. Expanded basic subscriber penetration has been projected to remain at a
96.8% ratio of basic subscribers through 2007. These rates are derived from the
historical and anticipated performance of the system, as reflected in management
projections, and expectations for the cable television industry in general.
PAY PENETRATION
- ---------------
As of April 30, 1997, pay penetration at the Albuquerque System attained a
level of 54.1%. Pay penetration is projected to increase from 55% at the end of
1997 to approximately 64.0% by 2007, as indicated in Table 3. This estimate is
reasonable in light of the historical performance of the system, as reflected in
management projections, and expectations for the anticipated performance of the
cable television industry in general.
RATES
- -----
System service rates are projected in Table 4. These are based upon
prevailing rates in the Albuquerque System with provisions for anticipated
increases, where appropriate.
-22-
<PAGE>
As of April 30, 1997, monthly service rates ranged from $8.77 to $10.49 for
basic service, $11.97 to $16.13 for expanded basic service, $5.95 to $11.50 for
each pay service, and $3.40 to $3.57 for each addressable converter (with remote
control unit rentals). Installation fees ranged from $17.34 to $36.75, depending
upon the type of installation service performed.
Due to regulatory and competitive restrictions, service rates for basic and
expanded basic services are expected to grow with inflation, while premium
channel service rates are expected to remain relatively flat. These assumptions
are consistent with industry expectations for service rate growth.
-23-
<PAGE>
TABLE 3
-------
CABLE TV FUND 12 CABLE TELEVISION SYSTEM SUBSCRIBER PROJECTIONS
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1998 1999 2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ---- ---- ---- ----
Subscribers
Homes Passed/1/ 238,240 242,767 247,379 252,080 256,869 261,750 266,723 271,791 276,955
Basic Subscribers:
Beginning of Year 112,603 117,157 124,186 131,637 139,535 147,907 156,781 166,188 176,159
Net Additions 4,554 7,029 7,451 7,898 8,372 8,874 9,407 9,971 10,570
End of Year 117,157 124,186 131,637 139,535 147,907 156,781 166,188 176,159 186,729
Average Basic 114,880 120,672 127,912 135,586 143,721 152,344 161,485 171,174 181,444
Subscribers/2/
Tier 1 Subscribers 113,408 120,212 127,425 135,070 143,174 151,764 160,870 170,522 180,754
(EOY)/2/
Premium Subscribers (EOY) 64,436 69,420 74,770 80,512 86,674 93,285 100,378 107,985 116,145
Basic Service Penetration 49.2% 51.2% 53.2% 55.4% 57.6% 59.9% 62.3% 64.8% 67.4%
Tier 1 Penetration (% Subs.) 96.8% 96.8% 96.8% 96.8% 96.8% 96.8% 96.8% 96.8% 96.8%
Premium Penetration (% Subs.) 55.0% 55.9% 56.8% 57.7% 58.6% 59.5% 60.4% 61.3% 62.2%
<C> <C>
2006 2007
---- ----
Subscribers
Homes Passed/1/ 282,217 287,579
Basic Subscribers:
Beginning of Year 186,729 197,933
Net Additions 11,204 8,004
End of Year 197,933 205,937
Average Basic
Subscribers/2/ 192,331 201,935
Tier 1 Subscribers
(EOY)/2/ 191,599 199,347
Premium Subscribers (EOY) 124,896 131,800
Basic Service Penetration 70.1% 71.6%
Tier 1 Penetration (% Subs.) 96.8% 96.8%
Premium Penetration (% Subs.) 63.1% 64.0%
Note: 1997 projections adjusted for a partial year.
- ------------------------------------
</TABLE>
/1/ Number of households in the Albuquerque area are projected to increase
at 1.9% per year. See text.
/2/ Basic and expanded subscribers are projected to increase at an annual
rate of 6.0%. See text.
-24-
<PAGE>
TABLE 4
-------
CABLE TV FUND 12 CABLE TELEVISION SYSTEM REVENUE PROJECTIONS
(Dollar Amounts Shown in Thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ---- ----
Service Revenue:
Basic Service Revenue $14,130.2 $15,219.1 $16,531.3 $17,962.4 $19,523.1 $21,206.3 $23,040.6 $25,039.3
Tier 1 Service Revenue 20,763.3 22,357.4 24,293.2 26,396.5 28,681.4 31,163.1 33,858.3 36,784.5
Basic Commercial & Pay
Revenue/1/ 1,220.7 1,251.2 1,282.5 1,314.6 1,347.5 1,381.2 1,415.7 1,451.1
Premium Service Revenue 6,716.1 7,172.0 7,725.7 8,320.0 8,957.8 9,642.2 10,376.5 11,164.1
Pay Per View Revenue/2/ 1,754.6 1,973.9 2,220.6 2,498.2 2,810.5 3,161.8 3,557.0 4,001.6
--------- --------- --------- --------- --------- --------- --------- ---------
Subtotal Service Revenue $44,584.9 $47,973.6 $52,053.3 $56,491.7 $61,320.3 $66,554.6 $72,248.1 $78,440.6
Other Revenue:
Advertising Revenue $ 4,588.9 $ 5,162.5 $ 5,807.8 $ 6,533.8 $ 7,350.5 $ 8,269.3 $ 9,303.0 $10,465.9
Installation 702.7 720.3 738.3 756.8 775.7 795.1 815.0 835.4
Equipment Rentals 1,483.6 1,632.0 1,795.2 1,974.7 2,172.2 2,389.4 2,628.3 2,891.1
Franchise Fees/3/ 1,910.5 2,025.2 2,146.7 2,275.5 2,412.0 2,556.7 2,710.1 2,872.8
FCC Pass Thru Revenue/3/ 63.4 67.2 71.2 75.5 80.0 84.8 89.9 95.3
Other Revenue 1,672.6 1,839.9 2,023.9 2,226.3 2,448.9 2,693.8 2,963.2 3,259.5
--------- --------- --------- --------- --------- --------- --------- ---------
Subtotal Other Revenue $10,421.7 $11,447.1 $12,583.1 $13,842.6 $15,239.3 $16,789.2 $18,509.6 $20,420.0
Total Revenue $55,006.6 $59,420.7 $64,636.4 $70,334.3 $76,559.6 $83,343.8 $90,757.7 $98,860.6
2005 2006 2007
---- ---- ----
Service Revenue:
Basic Service Revenue $27,194.8 $29,542.0 $31,792.6
Tier 1 Service Revenue 39,961.2 43,408.9 46,725.9
Basic Commercial & Pay
Revenue/1/ 1,487.4 1,524.6 1,562.7
Premium Service Revenue 12,008.9 12,915.0 13,753.8
Pay Per View Revenue/2/ 4,501.8 5,064.5 5,697.6
--------- --------- ---------
Subtotal Service Revenue $85,154.1 $92,455.0 $99,532.6
Other Revenue:
Advertising Revenue $11,774.1 $13,245.9 $14,901.6
Installation 856.3 877.7 899.6
Equipment Rentals 3,180.2 3,498.2 3,848.0
Franchise Fees 3,045.1 3,227.8 3,421.5
FCC Pass Thru Revenue 101.0 107.1 113.5
Other Revenue 3,585.5 3,944.1 4,338.5
---------- --------- ----------
Subtotal Other Revenue $ 22,542.2 $24,900.8 $27,522.7
Total Revenue $107,696.3 $117,355.8 $127,055.3
- ------------------------------------
</TABLE>
/1/ Basic commercial and pay revenue projected to increase at a 2.5% annual
rate.
/2/ Pay Per View revenue projected to increase at a 12.5% annual rate.
/3/ Franchise Fees and FCC Pass Through Revenue projected to increase based
upon a subscriber growth rate of 6%. See text.
-25-
<PAGE>
THE CABLE TV FUND 12 CABLE TELEVISION SYSTEM DISCOUNTED CASH FLOW ANALYSIS
- -------------------------------------------------------------------------
SYSTEM REVENUE PROJECTIONS
- --------------------------
Most of the revenue projections appearing in Table 4 are calculated by
multiplying the number of subscribers to a particular level of service by the
projected rate.
Commercial service revenue is projected to increase at an annual rate of
2.5%, based upon management expectations for the system. Similarly, pay-per-
view service revenue is projected to increase at a 12.5% annual rate through
2007, based upon management's projections.
Commercial advertising revenue is projected to increase at a 12.5% annual
rate through 2007. Annual installation revenue was projected to grow at a
compound annual rate of 2.5% during the projection period. Equipment rental
revenues, as well as other revenues, are also projected to increase by 10%
annually through 2007.
As indicated in Table 4, total system revenues are projected to increase
from $55.0 million in 1997 to $127.1 million in 2007.
OPERATING PROFIT MARGINS
- ------------------------
Operating profit margins are based upon historical operating performance of
the Albuquerque System. Operating profits are defined as profit before interest,
depreciation, tax, and corporate allocation charges. During the past three
years, system operating profit
-26-
<PAGE>
margins have been within the 42.1% to 45.0% range. For the purposes of this
analysis, the system's 1996 operating profit margin of 42.3% has been used.
DEPRECIATION
- ------------
Depreciation expense for each year has been determined using the MACRS
schedule for Five, Seven, 15, and 39 Year Property, based upon the reported cost
of fixed assets present at the system.
FEDERAL, STATE, AND LOCAL TAX RATES
- -----------------------------------
An estimated tax rate of 38.1% was applied to the projected taxable income
of the system. This estimated rate reflects the effective combined federal,
state, and local tax rates in effect on April 30, 1997.
SUBSEQUENT CAPITAL EXPENDITURES
- -------------------------------
Subsequent annual capital expenditures were estimated to approximate $13.4
million annually, based upon management projections. These expenditures are
necessary in order to replace assets that become irreparable, technically
obsolete, or for other reasons are no longer useful to the system. In addition,
as the system matures, additional equipment and facilities will be necessary to
improve and expand its productive capacity.
-27-
<PAGE>
NET AFTER-TAX CASH FLOW
- -----------------------
Net after-tax cash flow was determined in two steps. After taxes were
subtracted from the system's taxable income, non-cash depreciation expenses were
added back to net income to yield after-tax cash flow. From the after-tax cash
flow, the provision for subsequent capital expenditures was deducted to
calculate net after-tax cash flows.
DISCOUNT RATE
- -------------
A discount rate of 12% was used to calculate the present value of the net
after-tax cash flows. In order to account for the risk associated with
investments in the cable television industry and the system in particular, a
premium was added to a base discount rate to develop the 12% rate employed in
this analysis. The base rate reflects application of the Weighted Average Cost
of Capital ("WACC") model.
RESIDUAL CASH FLOW MULTIPLE
- ---------------------------
The residual cash flow multiple refers to the factor used to estimate the
system's value at the end of the projection period. A multiplier of 10 was
applied to the Year 10 operating cash flow. Generally, multiples used in the
valuation of cable television systems of this type range from 8.0 to 12.0 times
operating cash flow, depending upon market conditions and profit potential.
Exceptional circumstances will warrant multiples outside of this range.
-28-
<PAGE>
The selected multiple of 10 was used to estimate the value of the system at
the end of the investment period. This multiple reflects the state of the
market for cable television systems as of April 30, 1997, tempered by the
economic conditions of the system's franchise service area, the necessity for a
system rebuild, the uncertainty introduced by re-regulation of the cable
television industry, and the prospects for increased competition from wireless
cable companies and DBS operators.
PRESENT VALUE OF RESIDUAL
- -------------------------
In the analysis, capital gains taxes were deducted from the discounted
terminal value at a rate of 38.1%. This result was then discounted for present
value using a rate of 12%.
The results of the discounted cash flow analysis are summarized in Tables 5
and 6. Based upon the assumptions outlined above, the indicated fair market
value of the system's non-current assets is $221,349,800. This value
incorporates the cumulative present value of the net after-tax cash flow of
$102,873,500 and the discounted residual value of $118,476,300.
-29-
<PAGE>
TABLE 5
-------
CABLE TV FUND 12 CABLE TELEVISION SYSTEM DISCOUNTED CASH FLOW ANALYSIS
(Dollar Amounts Shown in Thousands)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ----
Projected System
Revenues/1/ $55,006.60 $59,420.70 $64,636.40 $70,334.30 $76,559.60 $83,343.80 $90,757.70
Operating Profit
Margin/2/ 42.3% 42.3% 42.3% 42.3% 42.3% 42.3% 42.3%
Operating Cash Flow/3/ $ 23,267.8 $ 25,135.0 $ 27,341.2 $ 29,751.4 $ 32,384.7 $ 35,254.4 $ 38,390.5
Less: Depreciation 21,157.9 30,540.4 28,365.1 26,924.4 26,331.5 27,065.6 27,813.4
---------- ---------- ---------- ---------- ---------- ---------- ----------
Taxable Income $ 2,109.9 ($5,405.4) ($1,023.9) $ 2,827.0 $ 6,053.2 $ 8,188.8 $ 10,577.1
Taxes 803.9 (2,059.5) (390.1) 1,077.1 2,306.3 3,119.9 4,029.9
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income $ 1,306.0 ($3,345.9) ($633.8) $ 1,749.9 $ 3,746.9 $ 5,068.9 $ 6,547.2
Add Back: Depreciation 21,157.9 30,540.4 28,365.1 26,924.4 26,331.5 27,065.6 27,813.4
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net After-Tax Cash Flow $ 15,140.7 $ 27,194.5 $ 27,731.3 $ 28,674.3 $ 30,078.4 $ 32,134.5 $ 34,360.6
Capital Expenditures/4/ 9,031.6 13,400.0 13,400.0 13,400.0 13,400.0 13,400.0 13,400.0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net After-Tax Cash Flow $ 6,109.1 $ 13,794.5 $ 14,331.3 $ 15,274.3 $ 16,678.4 $ 18,734.5 $ 20,960.6
Present Value Net
After-Tax Cash Flow $ 5,880.2 $ 12,076.0 $ 11,201.7 $ 10,659.7 $ 10,392.5 $ 10,422.9 $ 10,411.9
Cumulative Present Value
Net After-Tax Cash Flow $ 5,880.2 $ 17,956.2 $ 29,157.9 $ 39,817.6 $ 50,210.1 $ 60,633.0 $ 71,044.9
Cumulative Present Value
Net After-Tax Cash Flow $102,873.5
==========
2004 2005 2006 2007
---- ---- ---- ----
Projected System
Revenues/1/ $98,860.60 $107,696.30 $117,355.80 $127,055.30
Operating Profit
Margin/2/ 42.3% 42.3% 42.3% 42.3%
Operating Cash Flow/3/ $ 41,818.0 $ 45,555.5 $ 49,641.5 $ 53,744.4
Less: Depreciation 26,170.1 23,934.3 23,934.2 22,643.6
---------- ----------- ----------- -----------
Taxable Income $ 15,647.9 $ 21,621.2 $ 25,707.3 $ 31,100.8
Taxes 5,961.8 8,237.7 9,794.5 11,849.4
---------- ----------- ----------- -----------
Net Income $ 9,686.1 $ 13,383.5 $ 15,912.8 $ 19,251.4
Add Back: Depreciation 26,170.1 23,934.3 23,934.2 22,643.6
---------- ----------- ----------- -----------
Net After-Tax Cash Flow $ 35,856.2 $ 37,317.8 $ 39,847.0 $ 13,657.8
Capital Expenditures/4/ 13,400.0 13,400.0 13,400.0 4,368.4
---------- ----------- ----------- -----------
Net After-Tax Cash Flow $ 22,456.2 $ 23,917.8 $ 26,447.0 $ 9,289.4
Present Value Net
After-Tax Cash Flow $ 9,959.7 $ 9,471.4 $ 9,350.8 $ 3,046.7
Cumulative Present Value
Net After-Tax Cash Flow $ 81,004.6 $ 90,476.0 $ 99,826.8 $ 102,873.5
</TABLE>
- ------------------------------------------
/1/ See Table 4.
/2/ Based upon actual year end 1996 system operating cash flow margin. See
text.
/3/ 1997 and 2007 net after-tax cash flows adjusted for partial years.
/4/ 1997 and 2007 capital expenditures adjusted for partial years.
-30-
<PAGE>
TABLE 6
-------
VALUATION OF CABLE TV FUND 12 CABLE TELEVISION SYSTEM
(INCOME APPROACH)
(Dollar Amounts Shown in Thousands)
<TABLE>
<CAPTION>
<S> <C>
Year 10 Operating Cash Flow/1/ $ 53,744.4
10 X Cash Flow Multiple/2/ 537,444.0
Capital Gains Tax 169,474.7
----------
Future Residual Value $367,969.3
Discounted to Present Value @ 12% $118,476.3
Plus: Cumulative Present Value
Net After-Tax Cash Flow/1/ 102,873.5
----------
Valuation of Albuquerque System (Income Approach) $221,349.8
==========
</TABLE>
- ---------------------------------------
/1/ See Table 5.
/2/ See text.
-31-
<PAGE>
COMPARABLE SALES ANALYSIS
- -------------------------
The value of $221.3 million yielded by the discounted cash flow analysis of
the Albuquerque System corresponds to a 10.6 times multiple of the system's 1996
cash flow. This multiple is slightly above the range of prices paid by
purchasers of similar cable properties but is consistent with the expectation of
increased revenues in the Albuquerque area and continued above average market
growth.
In recent years, there have been many sales of cable television systems in
the United States. Table 7 identifies six cable television system sales which
occurred within the past year. These sales have been selected based upon their
comparability to the Albuquerque System. The prices paid for these comparable
systems range from $5.5 million to $171.2 million.
As shown in Table 7, the price per subscriber has been computed for each of
these sales. This measure is calculated by dividing the reported purchase price
of the cable television system by the total number of basic subscribers. The
average price per subscriber paid for the six comparable cable television system
sales transactions listed in Table 7 is approximately $1,971.
-32-
<PAGE>
TABLE 7
-------
CABLE TELEVISION SYSTEM COMPARABLE SALES
<TABLE>
<CAPTION>
Price
Price Per Sub
Date Location Seller Buyer (mil.) (000)
- ---- -------- ------ ----- ----- -------
<S> <C> <C> <C> <C> <C>
Oct. 96 Roseville, CA Jones 87-A Roseville Cable $ 31.0 $1,938
Sept. 96 Rosenburg, TX Jones Spacelink TCI 5.5 1,896
Jan. 97 Palo Alto, CA Palo Alto Co-Op. Sun Country Cable 54.1 2,042
Jan. 97 Jonesburo, AR TCI TCA 41.0 2,000
Feb. 97 Independence, MO Jones Intercable Jones Intercable 171.2 2,004
Feb. 97 Hickory, NC Prime Cable Charter Communications, Inc. 68.1 1,946
------ ------
Average $ 61.8 $1,971
====== ======
</TABLE>
Source: Announced cable television sales data from Paul Kagan Associates
Cable TV Investor.
-----------------
Note: Price per subscriber calculations may show slight rounding discrepancy.
-33-
<PAGE>
CABLE TV FUND 12 CABLE TELEVISION SYSTEM
ALBUQUERQUE, NEW MEXICO
APPRAISAL OF NON-CURRENT ASSETS AS OF APRIL 30, 1997
CONCLUSION
-----------
Based upon the application of the income approach, employing a discounted
cash flow analysis, the fair market value of the non-current assets of the Cable
TV Fund 12 cable television system was determined to be $221,349,800.
Assumptions employed in this analysis include subscriber growth, system
revenue projections, and operating profit margins. These assumptions and the
results of the discounted cash flow analysis were confirmed through an
independent analysis of comparable sales transactions.
-34-
<PAGE>
EXHIBIT A
QUALIFICATIONS OF JAMES R. BOND, JR., JULIE A. KROSKIN, AND TRACY A. HOGAN
<PAGE>
PROFESSIONAL EXPERIENCE AND QUALIFICATIONS
------------------------------------------
JAMES R. BOND, JR.
------------------
James R. Bond, Jr. is a principal in the consulting firm of Bond & Pecaro, Inc.,
a Washington based consulting firm specializing in valuations, asset appraisals,
and related financial services for the communications industry. In this
capacity, he is routinely retained to examine and study economic issues which
affect media businesses.
Before the formation of Bond & Pecaro, Inc., Mr. Bond was a Vice President with
Frazier, Gross & Kadlec, Inc. Mr. Bond joined that firm in 1978, was appointed
Manager of Asset Appraisal Services in 1979, and in 1982 was named Vice
President. In this capacity he engaged in the development and preparation of
asset appraisal reports for owners of broadcast and cable television properties.
Mr. Bond has been retained to appraise, for a fee, the assets of over 1,500
radio, television, radio common carrier, and cable television properties. He is
a member of the Society of Broadcast Engineers (SBE), the Cable Television Tax
Professionals Institute (CTTPI), and the Society of Cable Television Engineers
(SCTE). He is a member and director of the Broadcast and Cable Television
Financial Management Association (BCFM), and serves on the National Association
of Broadcasters (NAB) Tax Advisory Panel and Depreciation Task Force. Mr. Bond
is a Certified Senior Radio Broadcast Engineer (SBE), a Certified Senior
Television Broadcast Engineer (SBE), and holds an FCC First Class Radiotelephone
Operator License.
He has testified as an expert witness in connection with numerous
telecommunications valuation matters before federal, state, and local courts.
Mr. Bond received a Bachelor of Arts degree in Radio, Television, and Motion
Pictures for the University of North Carolina at Chapel Hill in 1976. Mr. Bond
also holds a Masters Degree in Business Administration for the University of
Virginia in Charlottesville, Virginia.
<PAGE>
PROFESSIONAL EXPERIENCE AND QUALIFICATIONS
------------------------------------------
JULIE A. KROSKIN
----------------
Julie A. Kroskin is an associate in the firm of Bond & Pecaro, Inc., a
Washington based consulting firm specializing in valuations, asset appraisals,
and related financial services for the communications industry.
Ms. Kroskin received a Bachelor of Arts degree in Radio, Television and Film
from the University of Maryland at College Park.
Prior to her association with Bond & Pecaro, Inc., Ms. Kroskin worked as a
customer and technical support representative at American Cablecom in
Beltsville, Maryland.
<PAGE>
PROFESSIONAL EXPERIENCE AND QUALIFICATIONS
------------------------------------------
TRACY A. HOGAN
--------------
Tracy A. Hogan is an associate with the consulting firm of Bond & Pecaro, Inc.,
a Washington based consulting firm specializing in valuations, asset appraisals,
and related financial services for the communications industry.
Ms. Hogan received a Bachelor of Arts degree Cum Laude in German, with
distinction in her major field of study, from the University of Wisconsin at Eau
Claire. Additionally, she minored in Telecommunications and Radio/Television
Production.
Prior to her association with Bond & Pecaro, Inc., Ms. Hogan was station manager
for the campus cable television station at the University of Wisconsin at Eau
Claire. She has also worked in television and radio production.
<PAGE>
Exhibit 99(d)(1)
[LOGO OF JONES INTERCABLE, INC. APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
NOTICE OF VOTE OF THE LIMITED PARTNERS OF CABLE TV FUND 12-B, LTD.
To the Limited Partners of Cable TV Fund 12-B, Ltd.:
A special vote of the limited partners of Cable TV Fund 12-B, Ltd. (the
"Partnership") is being conducted through the mails on behalf of the
Partnership by Jones Intercable, Inc., the general partner of the Partnership,
for the purpose of obtaining limited partner approval of the sale of the
Albuquerque, New Mexico cable television system (the "Albuquerque System")
owned by the Cable TV Fund 12-BCD Venture, a joint venture in which the
Partnership has a 9 percent ownership interest, for $222,963,267 in cash,
subject to normal closing adjustments. The Albuquerque System is proposed to
be sold to Jones Communications of New Mexico, Inc., an indirect wholly owned
subsidiary of the General Partner. Information relating to this matter is set
forth in the accompanying Proxy Statement.
If the limited partners approve the proposed sale of the Albuquerque System
and if the transaction is closed, the Cable TV Fund 12-BCD Venture will repay
a portion of its debt and $125,000,000 of net sale proceeds will be
distributed to the three constituent partnerships of the Cable TV Fund 12-BCD
Venture in proportion to their ownership interests. The Partnership
accordingly will receive 9 percent of such proceeds, estimated to total
approximately $11,474,475, and the Partnership will distribute this portion of
the net sale proceeds to its partners of record as of the closing date of the
sale of the Albuquerque System. Of this amount, approximately $8,605,856 will
be distributed to the limited partners and approximately $2,868,619 will be
distributed to the general partner. It is estimated that the limited partners
will receive $77.50 for each $500 limited partnership interest, or $155 for
each $1,000 invested in the Partnership. Once the distribution of the net
proceeds from the sale of the Albuquerque System has been made, limited
partners will have received a total of $977 for each $500 limited partnership
interest, or $1,954 for each $1,000 invested in the Partnership, taking into
account the prior distributions to limited partners made in 1995 and 1996.
Only limited partners of record at the close of business on October 31, 1997
are entitled to notice of, and to participate in, this vote of limited
partners. It is very important that all limited partners participate in the
voting. The Cable TV Fund 12-BCD Venture's ability to complete the transaction
discussed in the Proxy Statement and the Partnership's ability to make a
distribution to its partners of its portion of the net proceeds of the sale of
the Albuquerque System pursuant to the terms of the Partnership's limited
partnership agreement (the "Partnership Agreement") are dependent upon the
approval of the transaction by the holders of a majority of the Partnership's
limited partnership interests.
The proposal that is the subject of this proxy solicitation will be adopted
only if approved by the holders of a majority of the limited partnership
interests. Each limited partnership interest entitles the holder thereof to
one vote on the proposal. Because the Partnership Agreement requires that the
proposal to sell the Albuquerque
<PAGE>
System be approved by the holders of a majority of the limited partnership
interests, abstentions and non-votes will be treated as votes against the
proposal. A properly executed consent returned to the general partner on which
a limited partner does not mark a vote will be counted as a vote for the
proposed sale of the Albuquerque System. Because limited partners do not have
dissenters' or appraisal rights in connection with the proposed sale of the
Albuquerque System, if the holders of a majority of the limited partnership
interests approve the proposal, all limited partners will receive a
distribution of the net sale proceeds in accordance with the procedures
prescribed by the Partnership Agreement regardless of how or whether they vote
on the proposal.
Jones Intercable, Inc., as the general partner of the Partnership, urges you
to sign and return the enclosed proxy card as promptly as possible. The proxy
card should be returned in the enclosed envelope.
JONES INTERCABLE, INC.
General Partner
[SIGNATURE OF ELIZABETH M. STEELE APPEARS HERE]
Elizabeth M. Steele
Secretary
Dated: November 10, 1997
<PAGE>
[LOGO OF JONES INTERCABLE, INC. APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY STATEMENT
VOTE OF THE LIMITED PARTNERS OF CABLE TV FUND 12-B, LTD.
This Proxy Statement is being furnished in connection with the solicitation
of the written consents of the limited partners of Cable TV Fund 12-B, Ltd.
(the "Partnership") by Jones Intercable, Inc., the general partner of the
Partnership (the "General Partner"), on behalf of the Partnership, for the
purpose of obtaining limited partner approval of the sale of the Albuquerque,
New Mexico cable television system (the "Albuquerque System") owned by the
Cable TV Fund 12-BCD Venture (the "Venture"), a joint venture in which the
Partnership has a 9 percent ownership interest, for $222,963,267 in cash,
subject to normal working capital closing adjustments. The Albuquerque System
is proposed to be sold to Jones Communications of New Mexico, Inc., an
indirect wholly owned subsidiary of the General Partner.
Proxies in the form enclosed, properly executed and duly returned, will be
voted in accordance with the instructions thereon. Limited partners are urged
to sign and return the enclosed proxy as promptly as possible. Proxies cannot
be revoked except by delivery of a proxy dated as of a later date. Officers
and other employees of the General Partner may solicit proxies by mail, by
fax, by telephone or by personal interview. The deadline for the receipt of
proxy votes is December 15, 1997, unless extended, but the vote of the
Partnership's limited partners will be deemed to be concluded on the date that
the General Partner, on behalf of the Partnership, is in receipt of proxies
executed by the holders of a majority of the limited partnership interests
either consenting to or disapproving of the proposed transaction. The General
Partner may extend the deadline for receipt of proxy votes if a majority of
the limited partners fail to express an opinion on the transaction by December
15, 1997. If the General Partner extends the deadline for receipt of proxy
votes, the limited partners will be informed by mail of the reason for the
extension and the new deadline. The cost of the proxy solicitation will be
paid by the General Partner.
The Partnership has only one class of limited partners and no limited
partner has a right of priority over any other limited partner. The
participation of the limited partners is divided into limited partnership
interests and each limited partner owns one limited partnership interest for
each $500 of capital contributed to the Partnership.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE>
As of September 15, 1997, the Partnership had 111,035 limited partnership
interests outstanding held by 7,641 persons. There is no established trading
market for such interests. To the best of the General Partner's knowledge, no
person or group of persons beneficially own more than five percent of the
limited partnership interests. During late 1996 and early 1997, Smithtown Bay,
LLC and Madison Partnership Liquidity Investors 30, LLC, two firms
unaffiliated with the Partnership, the General Partner and each other,
conducted tender offers for interests in the Partnership. As of September 15,
1997, Smithtown Bay, LLC and its affiliates owned 4,996 limited partnership
interests, or 4.5 percent of the limited partnership interests. As of such
date, Madison Partnership Liquidity Investors 30, LLC and its affiliates owned
530 limited partnership interests, or 0.5 percent of the limited partnership
interests. Pursuant to the terms of agreements between the Partnership and the
General Partner and such firms, all of the limited partnership interests held
by these firms will be voted in the same manner as the majority of all other
limited partners who vote on the sale of the Albuquerque System. Thus, for
example, if the limited partnership interests voted in favor of the
transaction constitute a majority of all limited partnership interests voted
but not a majority of all limited partnership interests, these firms will be
required to vote their limited partnership interests in favor of the
transaction, and in such event the votes of these firms could be sufficient to
cause the transaction to be approved by a majority of all limited partnership
interests, which is the vote necessary to cause the transaction to be
approved. The General Partner owns 6 limited partnership interests. Officers
and directors of the General Partner own no limited partnership interests. The
6 limited partnership interests owned by the General Partner will be voted in
favor of the proposed transaction. Only limited partners of record at the
close of business on October 31, 1997 will be entitled to notice of, and to
participate in, the vote.
As of the date of this Proxy Statement, the Partnership's only asset is its
9 percent ownership interest in the Venture. Cable TV Fund 12-C, Ltd. ("Fund
12-C") has a 15 percent ownership interest in the Venture and Cable TV Fund
12-D, Ltd. ("Fund 12-D") has a 76 percent ownership interest in the Venture.
As of the date of this Proxy Statement, the Venture owns the Albuquerque
System and the cable television system serving areas in and around Palmdale
and Lancaster, California (the "Palmdale/Lancaster System"). The Venture sold
its cable television system serving Houghton and Hancock, Michigan
(the"Houghton/Hancock System") in 1987, the Venture sold its cable television
system serving California City, California (the "California City System") in
1992 and the Venture sold its cable television system serving Tampa, Florida
(the "Tampa System") in 1996. The Partnership sold its cable television system
serving Augusta, Georgia (the "Augusta System") in 1995.
Upon the consummation of the proposed sale of the Albuquerque System, the
Venture will repay its outstanding Senior Notes balance of $47,479,874 plus a
make whole premium that, based on current market interest rates, is estimated
to total approximately $3,125,000 and, subject to an amendment to the
Venture's credit facility, the Venture will repay approximately $48,959,637 of
the then outstanding balance of its credit facility, and then the remaining
$125,000,000 of net sale proceeds will be distributed to the three constituent
partnerships of the Venture in proportion to their ownership interests in the
Venture. The Partnership accordingly will receive 9 percent of such proceeds,
estimated to total approximately $11,474,475, and the Partnership will
distribute this portion of the net sale proceeds to its partners of record as
of the closing date of the sale of the Albuquerque System. Because limited
partners have already received distributions in an amount in excess of the
capital initially contributed to the Partnership by the limited partners, the
Partnership's portion of the net proceeds from the Albuquerque System's sale
will be distributed 75 percent to the limited partners and 25 percent to the
General Partner. Based upon pro forma financial information as of June 30,
1997, as a result of the Albuquerque System's sale, the limited partners of
the Partnership, as a group, will receive approximately $8,605,856 and the
General Partner will receive approximately $2,868,619. Limited partners will
receive $77.50 for each $500 limited partnership interest, or $155 for each
$1,000 invested in the Partnership, from the Partnership's portion of the net
proceeds of the Albuquerque System's sale. Once the Partnership has completed
the distribution of its portion of the net proceeds from the sale of the
Albuquerque System, limited partners of the Partnership will have received a
total of $977 for each $500 limited partnership interest, or $1,954 for each
$1,000 invested in the Partnership, taking into account the prior
distributions to limited partners made in 1995 and 1996 from the net proceeds
of the sales of the Augusta System and the Tampa System.
Although the General Partner expects that the Palmdale/Lancaster System will
be sold in the next few years, the General Partner cannot predict when this
remaining asset of the Venture will be sold and thus the General
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Partner cannot predict when the Partnership will be terminated and dissolved.
Thus, after the sale of the Albuquerque System by the Venture, the Partnership
will continue to be a public entity subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). A vote of the limited partners will be required in the future to
approve the sale of the Palmdale/Lancaster System prior to its sale regardless
of the entity to which it is sold.
Limited partners should note that there are certain income tax consequences
of the proposed sale of the Albuquerque System, which are outlined herein
under the caption "Federal Income Tax Consequences."
The Board of Directors of the General Partner has approved the proposed sale
of the Albuquerque System and the General Partner recommends approval of the
transaction by the holders of the Partnership's limited partnership interests.
In determining the fairness of the proposed transaction, the General Partner
followed the procedures mandated by Section 2.3(b)(iv)(b) of the Partnership's
limited partnership agreement (the "Partnership Agreement"), which provides
that the Partnership's cable television systems may be sold to the General
Partner or to one of its affiliates if the price paid by the General Partner
or such affiliate is determined by the average of three separate, independent
appraisals of the fair market value of the system to be sold. Because the
purchase price to be paid to the Venture is equal to the average of three
separate, independent appraisals of the fair market value of the Albuquerque
System, the Board of Directors of the General Partner has concluded that the
consideration to be paid to the Venture for the Albuquerque System is fair to
all unaffiliated limited partners of the Partnership.
The proposal that is the subject of this proxy solicitation will be adopted
only if approved by the holders of a majority of the limited partnership
interests. Each limited partnership interest entitles the holder thereof to
one vote on the proposal. Because the Partnership Agreement requires that the
proposal to sell the Albuquerque System be approved by the holders of a
majority of the limited partnership interests, abstentions and non-votes will
be treated as votes against the proposal. A properly executed consent returned
to the General Partner on which a limited partner does not mark a vote will be
counted as a vote for the proposed sale of the Albuquerque System. Because
limited partners do not have dissenters' or appraisal rights in connection
with the proposed sale of the Albuquerque System, if the holders of a majority
of the limited partnership interests approve the proposal, all limited
partners will receive a distribution of the Partnership's portion of the net
sale proceeds in accordance with the procedures prescribed by the Partnership
Agreement regardless of how or whether they vote on the proposal.
The General Partner has also prepared proxy statements that are being
delivered to the limited partners of Fund 12-C and Fund 12-D in connection
with their votes to approve the sale of the Albuquerque System by the Venture.
The closing of the sale of the Albuquerque System will occur only if the
transaction is approved by the holders of a majority of the limited
partnership interests of each of the three constituent partnerships of the
Venture. Copies of the proxy statements being delivered to the limited
partners of the Venture's two other constituent partnerships have been filed
with the Securities and Exchange Commission (the "Commission") and can be
obtained either from the Commission or from the General Partner upon written
request to Elizabeth M. Steele, Secretary, Jones Intercable, Inc., 9697 East
Mineral Avenue, Englewood, Colorado 80112, (303) 792-3111. See also "Certain
Information About the Partnership and the General Partner."
The approximate date on which this Proxy Statement and Form of Proxy are
being sent to limited partners is November 10, 1997.
SPECIAL FACTORS
THE PARTNERSHIP'S INVESTMENT OBJECTIVES
The Partnership was formed to acquire, develop, operate and, ultimately,
sell cable television systems. The primary objectives of the Partnership have
been to obtain capital appreciation in the value of the Partnership's cable
television properties; to generate tax losses that could be used to offset
taxable income of limited partners from other sources; and to obtain equity
build-up through debt reduction. It was contemplated from the outset of
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the Partnership's existence that capital appreciation in Partnership cable
television properties would be converted to cash by a sale of such properties
at such time as the General Partner determined that the Partnership's
investment objectives had substantially been achieved and after a holding
period of approximately five to seven years. It also was contemplated from the
outset of the Partnership's existence that the General Partner or one of its
affiliates could be the purchaser of the Partnership's cable television
properties.
The Venture was formed to pool the financial resources of three public
partnerships sponsored by the General Partner with identical investment
objectives and to enable them to acquire a greater number of and/or larger
cable television systems than any one of the partnerships could acquire on
their own. The Venture acquired the Albuquerque System in August 1986. Based
upon the track record of prior public partnerships sponsored by the General
Partner that had liquidated or were in the process of liquidating their assets
during the period that limited partnership interests in the Partnership were
being sold and based upon disclosures made to prospective investors about the
Partnership's investment objectives in the Cable TV Fund 12 prospectus and
accompanying sales brochure, investors in the Partnership reasonably could
have anticipated that the Partnership's investment objectives would be
achieved and its assets liquidated after a holding period of approximately
five to seven years. Due to the uncertain and then adverse regulatory
environment that developed in the early 1990s for the cable television
industry, the resultant decline in the prices for cable television systems and
the subsequent inactivity in the cable television system marketplace, the
General Partner determined that it would be prudent to delay the sale of the
Albuquerque System until market conditions improved, and as a result the
Albuquerque System has been held by the Venture for more than 11 years.
The purpose of the sale of the Albuquerque System, from the Partnership's
perspective, is to attain the Partnership's primary investment objective with
respect to the Albuquerque System, i.e., to convert the Partnership's capital
appreciation in the Albuquerque System to cash. The sale proceeds will be used
to repay a substantial portion of the Venture's debt, and the remaining sale
proceeds will be distributed to the three constituent partnerships of the
Venture. The Partnership in turn will distribute its portion of the net sale
proceeds to the partners of the Partnership in accordance with the
distribution procedures established by the Partnership Agreement. The sale of
the Albuquerque System is thus the necessary final step in the Partnership's
accomplishment of its investment objectives with respect to the Albuquerque
System.
PRIOR ACQUISITIONS AND SALES
The Partnership was formed in June 1985 as a Colorado limited partnership in
connection with a public offering of its limited partnership interests. The
Partnership acquired the Augusta System in August 1985, and it sold the
Augusta System in October 1995 to a subsidiary of the General Partner for a
sales price of $142,618,000, which price represented the average of three
separate, independent appraisals of the fair market value of the Augusta
System. The transaction was approved by the holders of approximately 75
percent of the Partnership's limited partnership interests in a vote of the
limited partners held in August 1995. The Partnership subsequently paid all of
its indebtedness and distributed the net sale proceeds to its partners. The
limited partners of the Partnership, as a group, received $96,079,375 from the
Augusta System's net sale proceeds and the General Partner received
$13,520,625 from the Augusta System's net sale proceeds.
In March 1986, the Partnership invested $12,437,500 of limited partner
capital contributions in the Venture, through which it acquired a 9 percent
ownership interest in the Venture. The Venture ultimately acquired five cable
television systems: the Houghton/Hancock System was acquired in May 1986, the
California City System was acquired in April 1986, the Albuquerque System was
acquired in August 1986, the Palmdale/Lancaster System was acquired in April
1986 and the Tampa System was acquired in December 1986.
The Houghton/Hancock System was sold in August 1987 to an unaffiliated cable
television system operator for a sales price of $5,000,000 and the California
City System was sold in April 1992 to an unaffiliated cable television system
operator for a sales price of $2,608,000. The sale proceeds from the Venture's
sales of the Houghton/Hancock System and the California City System were used
to reduce the Venture's indebtedness. None of the sale proceeds were
distributed to the Venture's three constituent partnerships and thus none of
the sale proceeds were distributed to the Partnership or its partners. No vote
of the limited partners of the Partnership was required in connection with the
sale of either of these systems because neither of these systems constituted
all or substantially all of the Partnership's assets.
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The Venture sold the Tampa System in February 1996 to a subsidiary of the
General Partner for a sales price of $110,395,667, which price was determined
by the average of three separate, independent appraisals of the fair market
value of the Tampa System. Because the Venture's debt arrangements did not
allow the Venture to make distributions on the sale of Venture assets, in
February 1996 the Venture's debt arrangements were amended to permit a
$55,000,000 distribution to the Venture's three constituent partnerships from
the Tampa System's sale proceeds, and the balance of the Tampa System's sale
proceeds was used to reduce Venture indebtedness. The Partnership's portion of
this distribution was $5,049,000, of which $3,787,000 was distributed to the
limited partners and $1,262,000 was distributed to the General Partner. No
vote of the limited partners of the Partnership was required in connection
with the sale of the Tampa System because the assets of the Tampa System did
not constitute all or substantially all of the Partnership's assets.
Immediately following its acquisition of the Tampa System, the subsidiary of
the General Partner that had acquired the Tampa System conveyed the Tampa
System, along with certain other cable television systems owned by the
subsidiary of the General Partner, and cash in the amount of $3,500,000, to
Time Warner Entertainment Advance/Newhouse Partnership ("Time Warner"), an
unaffiliated cable television system operator, in exchange for cable
television systems owned by Time Warner serving communities in Prince Georges
County, Maryland and Reston, Virginia. The Venture's sale of the Tampa System
and the subsequent exchange of the Tampa System for Time Warner systems are
the subject of litigation filed by several limited partners of Fund 12-D. See
"Special Factors, Legal Proceedings."
Limited partners of the Partnership have received distributions from the
Augusta System sale and the Tampa System sale totaling $99,866,375. All
distributions to date have given the Partnership's limited partners an
approximate return of $899 for each $500 limited partnership interest, or
$1,798 for each $1,000 invested in the Partnership.
The Partnership intends to make a distribution of the Partnership's portion
of the net proceeds of the sale of the Venture's Albuquerque System to its
partners. Following this distribution, the Partnership will continue to own
its 9 percent interest in the Venture, and the Venture will continue to own
and operate the Palmdale/Lancaster System until it too is sold. A vote of the
limited partners of the Partnership will be required in the future to approve
the sale of the Palmdale/Lancaster System prior to its sale regardless of the
entity to which it is sold.
THE GENERAL PARTNER'S OBJECTIVES
The purpose of the transaction from the General Partner's perspective is to
enable the Venture to sell the Albuquerque System at a fair price and to
enable the General Partner through an indirect wholly owned subsidiary to
acquire a cable television system operating in a marketplace in which the
General Partner itself desires to own and operate a cable television system.
The General Partner currently is one of the ten largest cable television
system operators in the United States, with owned and managed systems totaling
approximately 1.4 million basic subscribers. A key element of the General
Partner's strategy is to increase the number of owned subscribers clustered in
attractive demographic areas. The General Partner is making progress in
clustering its owned subscribers in two primary groups of cable systems. The
General Partner's Maryland/Virginia cluster is based primarily on geography.
The General Partner's suburban cluster is based on similar market and
operating characteristics, rather than geography. The General Partner believes
that its clustering strategy may allow it to obtain both economies of scale
and operating efficiencies, for example in areas such as marketing,
administration and capital expenditures. The General Partner desires to add
the Albuquerque System to its suburban cluster, which currently includes the
cable systems serving the communities of Savannah and Augusta, Georgia, Pima
County, Arizona and Independence, Missouri.
In contrast to the Partnership, which is a Colorado limited partnership with
a finite term and which sought cable television properties with high growth
potential during a holding period of approximately five to seven years, the
General Partner, a Colorado corporation with perpetual existence, is seeking
to acquire cable television systems that can generate a steady stream of
income and may appreciate in value over a longer holding period. The
Albuquerque System satisfies this objective of the General Partner. The
General Partner also may be in a better position than the Partnership and the
Venture to access both debt and equity to finance the long-term development of
the Albuquerque System. The General Partner may be able to leverage the
Albuquerque System at a higher level than the Venture has done and,
accordingly, the General Partner may be able to generate a
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greater return on its investment in the Albuquerque System than the
Partnership and the Venture would be able to do within the same time. Because
the General Partner's investment horizon is much longer term than the
Partnership's investment horizon, and the General Partner will not need to
sell the Albuquerque System to achieve its investment objectives, it can
better withstand the costs associated with meeting the competition and the
regulatory risks inherent in long-term holding and development of the
Albuquerque System.
RELEVANT PROVISIONS OF THE PARTNERSHIP AGREEMENT
Section 2.2(k) of the Partnership Agreement provides that the sale of all or
substantially all of the Partnership's assets is subject to the approval of
the holders of a majority of the Partnership's limited partnership interests.
Because its investment in the Venture is the Partnership's sole remaining
asset and because the Albuquerque System represents 63.9 percent of the
Venture's assets and 64.3 percent of the Venture's revenues, the sale of the
Albuquerque System is being submitted for limited partner approval to the
limited partners of the Partnership, Fund 12-C and Fund 12-D.
Section 2.3(b)(iv)(b) of the Partnership Agreement permits the Partnership
to sell any or all of its cable television systems directly to the General
Partner or one or more of its affiliates if the system to be sold has been
held by the Partnership for at least three years, or if it is part of, or
related to, another system that has been held for three years, and provided
that the price paid to the Partnership by the General Partner or any such
affiliate is determined by the average of three separate, independent
appraisals of the particular cable television system or systems being sold,
and that the cost of such appraisals is not borne by the Partnership. Because
the Albuquerque System has been held by the Venture for at least three years
and the purchase price to be paid to the Venture is equal to the average of
three separate, independent appraisals of the fair market value of the
Albuquerque System obtained at the General Partner's expense, these
requirements of the Partnership Agreement have been satisfied.
LEGAL PROCEEDINGS
The General Partner is a defendant in a now consolidated civil action filed
by limited partners of Fund 12-D derivatively on behalf of the Partnership,
Fund 12-C and Fund 12-D. The consolidated complaint generally alleges that the
General Partner breached its fiduciary duty to the plaintiffs and to the other
limited partners of the Partnership, Fund 12-C and Fund 12-D and the Venture
in connection with the Venture's sale of the Tampa System to a subsidiary of
the General Partner and the subsequent trade of the Tampa System to Time
Warner. The consolidated complaint also sets forth a claim for breach of
contract and a claim for breach of the implied covenant of good faith and fair
dealing. Among other things, the plaintiffs assert that the subsidiary of the
General Partner that acquired the Tampa System paid an inadequate price for
the Tampa System. The price paid for the Tampa System was determined by the
average of three separate, independent appraisals of the Tampa System's fair
market value as required by the limited partnership agreements of the
Partnership, Fund 12-C and Fund 12-D. The plaintiffs have challenged the
adequacy and independence of the appraisals. The consolidated complaint seeks
damages in an unspecified amount and an award of attorneys' fees, and the
complaint also seeks punitive damages and certain equitable relief.
The General Partner has filed its answer to the consolidated complaint and
has generally denied the substantive allegations in the complaint and has
asserted a number of affirmative defenses. The General Partner believes that
the price paid to the Venture for the Tampa System was fair, that it
represented the fair market value of the Tampa System as determined by the
processes dictated by the partnership agreements of the Venture's three
constituent partnerships and that it has meritorious defenses to this
litigation. The General Partner intends to defend this lawsuit vigorously.
The case is pending in Arapahoe County District Court in the State of
Colorado. Discovery in the case is continuing and depositions of the parties
and their experts have been or are being taken. A trial is set for February
1998.
Pursuant to the indemnification provisions of the limited partnership
agreements of the three constituent partnerships of the Venture, the General
Partner may be entitled to indemnification from the partnerships for its legal
fees and expenses, and for any amounts paid in settlement, in defending the
above-described lawsuit. Such amounts may be significant.
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In voting on the proposed sale of the Albuquerque System, limited partners
should consider that the General Partner determined both the sales price of
the Tampa System and the sales price of the Albuquerque System in a
substantially similar way, i.e., both prices were determined by averaging
three separate, independent appraisals of the fair market value of the
respective systems obtained in accordance with the provisions of Section
2.3(b)(iv)(b) of the three partnerships' limited partnership agreements.
Limited partners should be aware that The Strategis Group, Inc. and Western
Cablesystems, Inc., two of the three appraisal firms that rendered appraisals
of the Tampa System, also rendered appraisals of the Albuquerque System for
purposes of determining the Albuquerque System's sale price. Limited partners
should also consider that Bond & Pecaro, Inc., the other firm that rendered an
appraisal of the Albuquerque System for purposes of determining the
Albuquerque System's sale price, also serves as the General Partner's expert
witness in the Tampa litigation, aiding the General Partner in the defense of
this litigation.
REASONS FOR THE TIMING OF THE SALE
The Partnership has a finite legal existence of 17 years, 12 of which have
passed. It was not intended or expected, however, that the Partnership would
hold its cable systems for 17 years. Although it was not possible at the
outset of the Partnership to determine precisely how quickly the investment
objectives with respect to any particular system would be achieved, investors
were informed that the General Partner's past experience with prior
partnerships had shown that five to seven years was the average length of time
from the acquisition of a cable system to its sale. Investors in the
Partnership also were able to examine the track record of the General
Partner's prior partnerships because such track record was set forth in the
prospectus delivered in connection with the Partnership's initial public
offering. At the time of the formation of the Partnership, the track record
showed that prior partnerships had rarely held their cable systems for any
longer than six years.
When investing in the Partnership, by virtue of the provisions of the
Partnership Agreement, the limited partners vested in the General Partner the
right and responsibility to determine when the Partnership's investment
objectives had been substantially achieved. The Albuquerque System was
acquired by the Venture because, in the opinion of the General Partner at the
time of the Albuquerque System's acquisition, it had the potential for capital
appreciation within a reasonable period of time. It is the General Partner's
opinion that during the more than 11 years that the Albuquerque System has
been held by the Venture, the Partnership's investment objectives with respect
to the Albuquerque System have been achieved. The General Partner used no
specific benchmarks or measurement tools in determining that the Partnership's
investment objectives have been achieved. The General Partner conducted a
subjective evaluation of a variety of factors including the length of the
holding period, the prospect for future growth as compared to the potential
risks, the cash on cash return to investors, the after-tax internal rate of
return to limited partners and the amount of gain to be recognized on the sale
of assets.
The Albuquerque System was acquired by the Venture in August 1986 for an
aggregate purchase price of approximately $84,625,700. In addition, an
affiliate of the General Partner received a brokerage fee of approximately
$3,217,200 from the Venture in connection with the Albuquerque System's
acquisition. At acquisition, the Albuquerque System consisted of approximately
1,770 miles of cable plant passing approximately 160,000 homes and serving
approximately 57,500 basic subscribers. As of April 30, 1997, the date of the
three appraisals of the Albuquerque System's fair market value discussed
below, the Albuquerque System consisted of approximately 2,640 miles of cable
plant passing approximately 232,200 homes and serving approximately 112,440
basic subscribers. The increase in the value of the Albuquerque System during
the holding period is demonstrated by the fact that the Albuquerque System was
purchased for $84,625,700 and is proposed to be sold for $222,963,267, a
difference of $138,337,567.
In evaluating whether now was the time for the Venture to sell the
Albuquerque System, the General Partner generally considered the benefits to
the limited partners that might be derived by the Venture's holding the
Albuquerque System for an additional period of time. The General Partner
assumed that the Albuquerque System might continue to appreciate in value and,
if so, the Albuquerque System would be able to be sold for a greater sales
price in the future. The General Partner weighed these assumptions about the
Albuquerque System's continuing growth against the risks to investors from a
longer holding period, i.e., the risks that regulatory, technology and/or
competitive developments could cause the Albuquerque System to decline in
value, which would result in a lesser sales price in the future. A longer
holding period would expose investors to the risk that
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competition from direct broadcast satellite companies, telephone companies
and/or neighboring cable companies could diminish the number of subscribers to
the Albuquerque System's basic and premium services, thereby decreasing the
value of the Albuquerque System. A longer holding period also would expose
investors to the risk that changes in the regulations promulgated by the
governmental agencies that oversee cable operations could make cable systems a
less desirable investment, thereby decreasing the value of the Albuquerque
System. The General Partner's decision to sell the Albuquerque System was
greatly influenced by the fact that the originally contemplated holding period
had been exceeded.
The General Partner is in a better position than the Partnership to bear the
risks of investment in the Albuquerque System. The Partnership is limited in
its ability to obtain additional equity financing, in part because the limited
partnership interests are non-assessable. The Partnership Agreement also
contains limits on the amounts that the Partnership can borrow. And the
Partnership has only one asset, its interest in the Venture, and the Venture's
only assets are the Albuquerque System and the Palmdale/Lancaster System, all
of which gives the Partnership limited collateral for borrowings. The General
Partner, on the other hand, is one of the nation's largest cable television
companies with longer term investment objectives. For example, if significant
competition to the Albuquerque System were to develop, the General Partner
would be in a better position than the Partnership and the Venture to finance
the marketing campaigns or technological improvements necessary to meet such
competition.
Therefore, in light of all of the above factors, the General Partner has
determined that now is the appropriate time for the Partnership to convert its
capital appreciation in the Albuquerque System to cash through the sale of the
Venture's Albuquerque System.
CERTAIN EFFECTS OF THE SALE
Upon consummation of the sale of the Albuquerque System, the proceeds of the
sale will be used to repay a substantial portion of the Venture's debts and
then the Venture will distribute the remaining sale proceeds to the three
constituent partnerships of the Venture in proportion to their ownership
interests in the Venture, and then the Partnership will distribute its portion
of the net sale proceeds to its partners of record as of the closing date
pursuant to the terms of the Partnership Agreement. Because the limited
partners have already received distributions in an amount in excess of the
capital initially contributed to the Partnership by the limited partners, the
net proceeds from the Albuquerque System's sale will be distributed 75 percent
to the limited partners and 25 percent to the General Partner. Based upon the
Venture's pro forma financial information as of June 30, 1997, as a result of
the Albuquerque System's sale, the limited partners of the Partnership, as a
group, will receive approximately $8,605,856 and the General Partner will
receive approximately $2,868,619. Limited partners will receive $77.50 for
each $500 limited partnership interest, or $155 for each $1,000 invested in
the Partnership, from the Partnership's portion of the net proceeds of the
Albuquerque System's sale. Once the distributions of the net proceeds from the
sale of the Albuquerque System have been made, limited partners will have
received a total of $977 for each $500 limited partnership interest, or $1,954
for each $1,000 invested in the Partnership, taking into account the prior
distributions to limited partners made in 1995 and 1996 from the net proceeds
of the sales of the Augusta System and the Tampa System. Both the limited
partners and the General Partner will be subject to federal income tax on the
income resulting from the sale of the Albuquerque System. See the detailed
information below under the caption "Federal Income Tax Consequences.
After the sale of the Albuquerque System, the Partnership will continue to
own a 9 percent interest in the Venture until such time as the Venture's
remaining system is sold. No specific date or terms have been set for the sale
of the Palmdale/Lancaster System. Based upon the most recent appraisal of the
current fair market value of the Palmdale/Lancaster System, the General
Partner estimates that limited partners of the Partnership would receive a
distribution on the Venture's sale of the Palmdale/Lancaster System equal to
approximately $50 per $500 limited partnership interest, or $100 for each
$1,000 invested in the Partnership. A vote of the limited partners of the
Partnership will be required in the future to approve the sale of the
Palmdale/Lancaster System prior to its sale. After the Palmdale/Lancaster
System is sold, the Venture and the Partnership will be liquidated and
dissolved.
Another effect of the sale is that it will result in an indirect wholly
owned subsidiary of the General Partner acquiring the Albuquerque System.
Thus, as a result of this transaction, the General Partner will make a
substantial equity investment in the Albuquerque System and it will have a
greater equity ownership interest in
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the Albuquerque System than it does now as the general partner of the three
partnerships that comprise the Venture. Instead of the residual 25 percent
interest in the net proceeds from the sale of the Albuquerque System that the
General Partner will receive as the general partner of the three partnerships
that comprise the Venture, the General Partner will have a 100 percent
interest in any future capital appreciation of the Albuquerque System. The
General Partner's acquisition of the Albuquerque System will advance its goal
of increasing the number of owned subscribers in attractive demographic areas
and may allow the General Partner to obtain economies of scale and operating
efficiencies by adding the Albuquerque System to its suburban cluster of
systems with similar market and operating characteristics. The General Partner
also will bear 100 percent of the risk of system losses and any diminution in
system value. As the general partner of the three partnerships that comprise
the Venture, the General Partner earns management fees and receives
reimbursement of its direct and indirect expenses allocable to the operation
of the Albuquerque System. The General Partner's right to receive such fees
and reimbursements related to the Albuquerque System will terminate on the
Venture's sale of the Albuquerque System.
Neither Colorado law nor the Partnership Agreement afford dissenters' or
appraisal rights to limited partners in connection with the proposed sale of
the Albuquerque System. If the proposed transaction is approved by the holders
of a majority of limited partnership interests, all limited partners will
receive a distribution in accordance with the procedures prescribed by the
Partnership Agreement regardless of how or whether they vote on the proposal.
RECOMMENDATION OF THE GENERAL PARTNER AND FAIRNESS OF THE PROPOSED SALE OF
ASSETS
The General Partner believes that the proposed sale of the Albuquerque
System and the distribution of the net proceeds therefrom are both
procedurally and substantively fair to all unaffiliated limited partners of
the Partnership, and it recommends that the limited partners approve the
transaction. The General Partner's recommendation that the limited partners
approve the sale of the Albuquerque System and its fairness determination
should not be deemed to be free from potential conflicts of interest, however,
in light of the fact that one of its subsidiaries is the proposed purchaser of
the Albuquerque System. Because the purchaser of the Albuquerque System would
benefit from a lower sales price, the General Partner has an economic interest
in conflict with the economic interest of the limited partners.
In determining the substantive and procedural fairness of the proposed
transaction, the General Partner's Board of Directors on August 5, 1997
considered each of the following factors, all of which had a positive effect
on its fairness determination. The factors are listed in descending order of
importance, i.e., the first factor listed was given the most weight in the
determination that the proposed transaction is fair, although, as a practical
matter, this is an approximation of the weight given to each factor because
each factor is relevant and the General Partner's Board of Directors was not
able to weigh the relative importance of each factor precisely:
(i) The limited partnership interests are at present illiquid and the
cash to be distributed to limited partners as a result of the proposed sale
of the Albuquerque System will provide limited partners with liquidity and
with the means to realize the appreciation in the value of the Albuquerque
System;
(ii) The purchase price represents a fair market valuation of the
Albuquerque System as determined by the average of three separate,
independent appraisals of the Albuquerque System by qualified independent
appraisers;
(iii) The Venture has held the Albuquerque System for over 11 years, a
holding period beyond that originally anticipated;
(iv) The conditions and prospects of the cable television industry in
which the Venture is engaged, including the developing threat of
competition from DBS services and telephone companies, and the working
capital and other financial needs of the Venture if it were to continue to
own the Albuquerque System;
(v) The terms and conditions of the purchase and sale agreement,
including the fact that the purchase price will be paid in cash, the fact
that the Venture was not required to make many of the representations and
warranties about the Albuquerque System or give indemnities that are
customarily given in transactions of this nature, the fact that the
purchaser's obligation to close is not contingent upon its ability to
obtain financing, and the fact that the Venture will pay no brokerage fees
upon the sale of the Albuquerque System, which it likely would have paid if
the Albuquerque System were being sold to an unaffiliated party; and
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(vi) The sale is being conducted in accordance with the terms of the
Partnership Agreement, including the fact that the proposed transaction
will not occur unless it is approved by the holders of at least a majority
of the limited partnership interests.
Certain officers of the General Partner worked with each of the three
independent appraisers hired to prepare fair market value appraisals of the
Albuquerque System, providing them with current and historical profit and loss
statements for the Albuquerque System and with current subscriber reports. The
officers and directors of the General Partner received the final appraisal
reports. The members of the Board of Directors of the General Partner adopted
the analyses and conclusions of Bond & Pecaro, Inc., which valued the
Albuquerque System at $221,349,800, because such firm's valuation procedures,
assumptions and methodologies most closely approximate the valuation
procedures, assumptions and methodologies used by the General Partner's
management in evaluating cable television systems. The General Partner's Board
of Directors did not specifically adopt the $221,349,800 value placed on the
Albuquerque System by Bond & Pecaro, Inc., but the Board did consider the fact
that the value determined by this appraisal firm was close to the average of
the three appraisals and concluded that this fact supported its fairness
determination.
The General Partner considered the fact that the $222,963,267 purchase price
to be paid to the Venture for the Albuquerque System was determined by the
average of three independent appraisals of the fair market value of the
Albuquerque System to be very persuasive evidence of the fairness of the
proposed transaction. The fair market valuations of the Albuquerque System
were done by respected industry appraisers using customary measures of value.
Based upon the General Partner's knowledge of and experience in the cable
television industry, and its review and consideration of the appraisals, it
has concluded that the values for the Albuquerque System determined by the
three appraisals are fair and within the range of values seen in the
marketplace for comparable cable television systems in similar condition.
The $222,963,267 purchase price represents the current fair market value of
the Albuquerque System on a going concern basis. The $222,963,267 purchase
price for the Albuquerque System also compares favorably to the approximately
$74,980,444 net book value of the Albuquerque System at June 30, 1997. The
liquidation value of a cable television system, i.e., the sale of the system
on other than a going concern basis, is not usually considered to be an
accurate indicator of the value of a cable television system, primarily
because the assets of a cable television system typically are worth less when
considered separately than when considered as a going concern. The assets of a
cable television system consequently are not normally sold or purchased
separately. A fair market valuation of a system should, in the General
Partner's view, be a valuation of the system as a going concern. The
liquidation value of the Albuquerque System therefore was not considered by
the General Partner in reaching its determination of fairness.
Because there has never been an established trading market for the
Partnership's limited partnership interests, the General Partner does not have
access to any reliable, official information about the historical or current
market prices for the Partnership's limited partnership interests in the very
limited secondary market where such interests from time to time have been
sold. The General Partner believes that such secondary market deeply discounts
the underlying value of the limited partnership interests due to their highly
illiquid nature. Therefore, even if trading information were available, the
historical or current market prices for the Partnership's limited partnership
interests would not necessarily be indicative of the value of the
Partnership's 9 percent ownership of the Venture's cable television system
assets. For these reasons, the General Partner did not consider the historical
or current market prices for the limited partnership interests when reaching
its fairness determination.
During the second half of 1996 and the first half of 1997, however, several
limited partners of the Partnership who are not in any way affiliated with the
Partnership or with the General Partner conducted tender offers for interests
in the Partnership at prices ranging from $54 to $70 per $500 limited
partnership interest. The $77.50 per $500 limited partnership interest to be
distributed to limited partners from the Partnership's portion of the net
proceeds of the Albuquerque System's sale compares favorably to these tender
offer prices, especially in light of the fact that the tender offer prices
theoretically reflect the distribution to be received by limited
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partners from the Partnership's portion of the net proceeds from both the
Albuquerque System sale and the future sale of the Palmdale/Lancaster System.
Based upon the most recent appraisal of the current fair market value of the
Palmdale/Lancaster System, the General Partner estimates that limited partners
of the Partnership should receive a distribution on the Venture's sale of the
Palmdale/Lancaster System equal to approximately $50 per $500 limited
partnership interest.
The fact that the Venture has held the Albuquerque System for a period
beyond that originally anticipated was another important factor in the General
Partner's fairness determination--the General Partner believes that the
transaction is fair because a sale at this time will convert an illiquid
investment into a liquid one for all partners. And the current state of the
cable television industry also was considered by the General Partner in making
its fairness determination because the General Partner believes that it is
fair to investors that someone other than the Partnership and the Venture take
on the uncertainties and risks involved in continuing to own and operate the
Albuquerque System.
The fairness of the transaction is also demonstrated in an analysis of
certain of the terms and conditions of the purchase and sale agreement, which
generally are more favorable to the Venture than reasonably could be expected
if the purchaser were not an affiliated company. There is no financing
contingency to closing. Because of the General Partner's existing extensive
knowledge about the Albuquerque System, the Venture has not been required to
make many of the representations and warranties about the quality of the
Albuquerque System's tangible assets, the quantity of the Albuquerque System's
subscribers or the validity of the Albuquerque System's intangible assets
customarily found in cable television system transactions. The Venture likely
would have been required to give such representations and warranties to an
unaffiliated party if the Albuquerque System were being sold to an
unaffiliated party. In addition, the Venture is not required to indemnify the
purchaser for defects discovered by the purchaser after the closing. This
frees the Venture from having to reserve a portion of the sale proceeds to
cover typical indemnification obligations. The Venture also will pay no
brokerage fee in connection with the sale of the Albuquerque System, which it
likely would have paid if the Albuquerque System were being sold to an
unaffiliated party. This will result in more funds from the sale being
available for distribution to the Venture's three constituent partnerships and
thus to their partners.
The General Partner is aware and considered that although consummation of
this transaction will result in a distribution to the Partnership's limited
partners of approximately $155 per $1,000 of limited partnership capital
invested in the Partnership, there are several potential negative consequences
of the transaction to limited partners. For example, the proposed sale will
require the limited partners to recognize, for federal income tax purposes, a
gain resulting from the sale. And although the three fair market valuations
established by the independent appraisals took into account the present value
of the projected future growth of the Albuquerque System and the sales price
(the average of the three appraisals) thus takes into account the present
value of the projected future growth of the Albuquerque System, the proposed
sale will deprive the limited partners of an opportunity to participate in the
actual future growth of the Albuquerque System, if any. The General Partner
nevertheless concluded that the cash distributions to the limited partners of
the Partnership from the sale of the Albuquerque System outweighed these
consequences.
As disclosed above, the proposed transaction is subject to various potential
conflicts of interest arising out of the Partnership's relationships with the
General Partner. Because the General Partner and its affiliates are engaged in
the ownership and operation of cable television systems, they are generally in
the market to purchase cable television systems for their own account. A
potential conflict thus arises from the General Partner's fiduciary duty as
general partner of the Partnership and its management's fiduciary duty to the
General Partner's shareholders when it determines that Partnership cable
television systems will be sold to the General Partner or one of its
affiliates and not to an unaffiliated third party. This potential conflict of
interest was disclosed to limited partners in the prospectus delivered to
investors at the time of the public offering of interests in the Partnership.
Prior to the Partnership's public offering, the General Partner entered into
negotiations with certain state securities administrators as part of the
process of clearing the offering in the "merit" states, i.e., those states
that permit the sale of securities only if the state securities administrator
deems the offering as a whole to be fair, just and equitable. Several of the
merit state securities administrators focused on the potential conflicts of
interest in the event that the Partnership were to sell one or more of its
cable television systems to the General Partner or
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one of its affiliates. The General Partner agreed to include the provision in
the Partnership Agreement that permits the Partnership to sell its cable
television systems directly to the General Partner or one of its affiliates
only after a three-year holding period and only if the General Partner or such
affiliate pays a purchase price that is not less than the average of three
separate independent appraisals of the particular cable television system
being sold. The General Partner has concluded that the mechanisms for
determining the purchase price to be paid to the Partnership provide
sufficient procedural safeguards to minimize the effects of the potential
conflicts of interest inherent in any such transaction. The fact that these
procedures have been carried out in connection with the Venture's proposed
sale of the Albuquerque System, together with the fact that the transaction
also is conditioned upon receipt of the approval of the holders of a majority
of the limited partnership interests in the three partnerships that comprise
the Venture, enable the General Partner to conclude that the proposed
transaction is both procedurally and financially fair to all partners.
The directors of the General Partner who are not employees of the General
Partner did not vote separately to approve the transaction, nor did the
outside directors retain an unaffiliated representative to act solely on
behalf of the limited partners for the purposes of negotiating the terms of
the proposed sale of the Albuquerque System and/or preparing a report
concerning the fairness of the proposed sale. While the directors of the
General Partner who approved the sale recognized that the interests of the
General Partner and the limited partners may not in all respects necessarily
be the same, they recognized also that the purchase price was determined in
accordance with the terms of the Partnership Agreement, that is, by averaging
three separate independent appraisals of the Albuquerque System's fair market
value. The members of the Board of Directors who approved the sale relied on
the specific right of the General Partner under Section 2.3(b)(iv)(b) of the
Partnership Agreement to purchase the Albuquerque System. The members of the
Board of Directors who approved the sale reviewed and considered the
appraisals and, based upon their general knowledge of cable television system
transactions undertaken by the General Partner and its affiliates and by
unaffiliated cable television companies, concluded that the values for the
Albuquerque System determined by the appraisers were fair and were within the
industry norms for comparable transactions. All 13 directors of the General
Partner participated in the August 5, 1997 meeting to discuss and vote on the
Partnership's sale of the Albuquerque System to the General Partner. Each of
Messrs. Glenn R. Jones, James B. O'Brien, James J. Krejci, William E. Frenzel,
Donald L. Jacobs, Howard O. Thrall, Robert E. Cole, Raphael M. Solot, Sanford
Zisman and Robert B. Zoellick voted to approve the transaction. Messrs. Derek
H. Burney and Siim A. Vanaselja abstained on the vote and Mr. Robert Kearney
voted against the transaction. To the best of the General Partner's knowledge
and belief, the abstentions and negative vote were based on opposition to the
General Partner's acquisition of the Albuquerque System on the grounds that
the Albuquerque System does not fit within the General Partner's overall
strategic plan. No director of the General Partner raised any questions or
expressed any reservations about the fairness of the transaction to the
Venture, to its three constituent partnerships or to the limited partners of
the Partnership.
It is anticipated that if the proposed transaction is not consummated, the
General Partner's current management team will continue to manage the
Albuquerque System on behalf of the Venture until such time as the Albuquerque
System could be sold. No other alternatives currently are being considered.
THE APPRAISALS
In determining the price that the General Partner would offer for the
Albuquerque System, in the spring of 1997 the General Partner retained The
Strategis Group, Inc., Kagan Media Appraisals Inc. and Bond & Pecaro, Inc. to
prepare separate appraisals of the fair market value of the Albuquerque System
as of April 30, 1997. Each of the appraisers were asked to determine the cash
price a willing buyer would give a willing seller, neither being under any
compulsion to buy or sell and both having reasonable knowledge of relevant
facts, in an arm's-length transaction to acquire the Albuquerque System. Upon
receipt of the appraisal prepared by Kagan Media Appraisals, Inc., which
appraised the Albuquerque System at only $206,600,000, management of the
General Partner analyzed it and, based upon management's experience in and
knowledge of the cable television industry, management deemed this appraisal
to be too low and rejected it. The General Partner then retained a fourth
appraisal firm, Western Cablesystems, Inc., to prepare an appraisal of the
fair market value of the Albuquerque System as of April 30, 1997. Upon receipt
of the appraisals prepared by The Strategis Group, Inc., Bond & Pecaro, Inc.
and Western Cablesystems, Inc., management of the General Partner examined
each of them and discussed among themselves the merits of the appraisals'
assumptions, methodologies and conclusions, and,
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based on their experience in and knowledge of the cable television industry,
they found each of them to be fair and reasonable. The appraisal reports
prepared by The Strategis Group, Inc., Bond & Pecaro, Inc. and Western
Cablesystems, Inc. were then submitted to the Board of Directors of the
General Partner for review. As disclosed above, a majority of the Board of
Directors of the General Partner approved the transaction based upon a price
determined by averaging these three appraisals.
The written appraisal reports of The Strategis Group, Inc., Bond & Pecaro,
Inc. and Western Cablesystems, Inc. are available for inspection and copying
at the offices of the General Partner during regular business hours by any
interested limited partner of the Partnership or by his or her authorized
representative. Copies of such appraisals will be mailed by the General
Partner to any interested limited partner or to his or her authorized
representative upon written request to the General Partner at the expense of
the requesting limited partner. Copies of these three appraisals also have
been publicly filed with the Securities and Exchange Commission and may be
inspected at the Commission's public reference facilities and at its World
Wide Web site.
The General Partner provided each of the appraisers with the same current
and historical profit and loss statements for the Albuquerque System and with
the same current subscriber reports. The appraisers also gathered information
about the Albuquerque System's subscribers, channel line-up, technology, cable
plant, penetration rates and the local economy from questionnaires that each
individual appraisal firm prepared and provided to the general manager of the
Albuquerque System and from conversations with the Albuquerque System's
management team. From this information, the appraisers used their independent
analyses to project cash flow, determine growth of homes passed, the
Albuquerque System's future penetration and possible rate adjustments. The
appraisals thus reflect the application of the appraisers' expertise to the
data about the Albuquerque System supplied by the General Partner.
The General Partner's $222,963,267 offer for the Albuquerque System was
based on the three separate, independent appraisals of the Albuquerque System
prepared by The Strategis Group, Inc., Bond & Pecaro, Inc. and Western
Cablesystems, Inc. as of April 30, 1997. The Strategis Group, Inc. concluded
that the Albuquerque System's overall fair market value as of April 30, 1997
was $233,440,000. Bond & Pecaro, Inc. concluded that the Albuquerque System's
overall fair market value as of April 30, 1997 was $221,349,800. Western
Cablesystems, Inc. concluded that the Albuquerque System's overall fair market
value as of April 30, 1997 was $214,100,000.
In the General Partner's view, the assumptions regarding system operations
and the cable television system marketplace underlying the three appraisals
have generally remained unchanged since the date of the appraisals.
The Strategis Appraisal
The Strategis Group, Inc. ("Strategis") has served the communications
industry for nearly 30 years. Its team of financial, engineering and
managerial professionals devotes a substantial portion of its time to the
appraisal of cable television systems, cellular telephone systems, paging
systems, mobile radio and broadcast stations. Strategis was selected by the
General Partner to render an opinion as to the fair market value of the
Albuquerque System in light of such overall qualifications. No limitations
were imposed with respect to the appraisal to be rendered by Strategis. The
firm was selected by the General Partner to prepare an independent appraisal
of the Albuquerque System because of the General Partner's familiarity with
the firm and its good reputation in the cable television industry. Strategis
has prepared independent appraisals of other cable television systems owned
and/or managed by the General Partner. The principals of Strategis are not
affiliated in any way with the General Partner.
Strategis used five generally accepted cable television valuation methods
using the income approach to valuation in establishing the range of fair
market values of the Albuquerque System as a going concern. The first method
used a multiple of the past year's operating income derived from comparable
asset values of privately held and publicly traded cable companies. (The
appraisal report did not disclose and the General Partner did not inquire as
to the identities of the companies Strategis used in determining the
multiple.) The second method used a lower multiple of the Albuquerque System's
annualized current month's operating income. The third method applied a
slightly lower multiple of next year's projected operating income. The fourth
method was a discounted
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net cash flow analysis in which a purchase price (estimated fair market value)
was calculated to achieve a target after-tax return on equity, given
particular operating and financing assumptions unique to the Albuquerque
System's assets. The fifth method was a discounted cash flow analysis that
measured the net present value of the pre-tax operating cash flows (less
capital expenditures, plus the residual value of the Albuquerque System) that
represent the return on total investment. For each valuation method, Strategis
established a "high" and a "low" estimated fair market value. The General
Partner did not inquire as to the specific details of how each high and low
estimated fair market value for each valuation methodology was determined
because, given Strategis' expertise, the General Partner concluded that it
could rely upon Strategis' analyses and judgment.
The first valuation method used a multiple of the past year's operating
income of the Albuquerque System derived from comparable asset values of
privately held and publicly traded cable companies. Strategis determined,
based upon its expertise and knowledge of the cable television industry, a
"low" multiple of 10.5 and a "high" multiple of 11.5, concluding that a system
comparable to the Albuquerque System would be unlikely to sell for less than
10.5 times its past year's operating income and would be unlikely to sell for
more than 11.5 times its past year's operating income. While the appraisal
report does not disclose the assumptions of the appraiser in determining these
multiples, the General Partner has no reason to believe that they are not
reasonable. This method resulted in an estimated fair market value ranging
from a low of $222,661,506 to a high of $243,867,363 for the Albuquerque
System.
The second valuation method used a lower multiple of the Albuquerque
System's annualized current month's operating income. Strategis determined,
again based on its expertise and knowledge of the cable television industry, a
"low" multiple of 10 and a "high" multiple of 11, concluding that a system
comparable to the Albuquerque System would be unlikely to sell for less than
10 times the dollar amount of its annualized current month's operating income
and would be unlikely to sell for more than 11 times the dollar amount of its
annualized current month's operating income. These multiples are slightly
lower than those used in the previous methodology because of the increased
risk and time factors involved in using current as compared to historical
information. While the appraisal report does not disclose the assumptions of
the appraiser in determining these multiples, the General Partner has no
reason to believe that they are not reasonable. This method resulted in an
estimated fair market value ranging from a low of $226,577,517 to a high of
$249,235,269 for the Albuquerque System.
The third valuation method applied a slightly lower multiple of next year's
operating income of the Albuquerque System. For this valuation, Strategis
first estimated, through its own analyses of current financial and operating
data provided by the General Partner, next year's operating income for the
Albuquerque System and then, based on its expertise and knowledge of the cable
television industry, set a "low" multiple of 9.5 and a "high" multiple of 10.5
concluding that a system comparable to the Albuquerque System would be
unlikely to sell for less than 9.5 times the system's projected operating
income for the following year and would be unlikely to sell for more than 10.5
times the system's projected operating income for the following year. These
multiples are slightly lower than those used in the previous methodologies
because of the increased risk and time factors involved in using projected as
compared to historical and current information. While the appraisal report
does not disclose the assumptions of the appraiser in determining these
multiples, the General Partner has no reason to believe that they are not
reasonable. This method resulted in an estimated fair market value ranging
from a low of $229,407,846 to a high of $253,556,040 for the Albuquerque
System.
The fourth valuation method was a discounted net cash flow analysis in which
a purchase price (estimated fair market value) was calculated to achieve a
target after-tax return on equity given particular operating and financing
assumptions specific to the Albuquerque System. This method involved the use
of projected operations for the Albuquerque System and a pre-determined target
return on equity for a hypothetical buyer. Based on the firm's use of typical
debt-to-equity ratios and debt services, it tested various purchase prices,
i.e., potential fair market values, to determine a value that yielded the
desired return on equity. Based on system information made available to
Strategis by the General Partner and on information generally available to
Strategis about the cable television industry, the firm made assumptions and
projections of a variety of factors that will affect future cash flow
including housing growth, plant mileage, growth in the number of subscribers
for basic and pay television, adjustments in subscriber rates, increases in
operating expenses and capital expenditures. Strategis also made specific
assumptions concerning the capital structure that a typical, prudent buyer
might experience, as well as
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the probable interest rates that would be applicable in connection with any
debt financing that might be incurred. Strategis did a "high" and a "low"
analysis. In its "high" analysis, Strategis projected that the Albuquerque
System's revenues would grow from $55,071,766 in 1998 to $98,776,702 in 2004;
that the Albuquerque System's operating expenses would grow from $30,923,572
in 1998 to $51,702,980 in 2004; and that net loss would decrease from
$(9,639,099) in 1998 to $(553,008) in 2004. In Strategis' "low" analysis,
revenues and operating expenses are projected to increase to the same levels
by 2004, but net loss of $(8,959,488) in 1998 is projected to become net
income of $587,701 in 2004. Strategis projected that the Albuquerque System
would add approximately 97 miles of cable plant per year between 1998 and
2004, resulting in growth of the Albuquerque System's cable plant from 2,639
miles in 1997 to 3,313 miles in 2004. Strategis projected that the number of
homes passed by the Albuquerque System would grow from 233,798 in 1997 to
273,601 in 2004. Strategis projected that basic subscribers would grow from
112,613 in 1997 to 155,041 in 2004. Strategis projected penetration of the
Albuquerque System increasing from 48.7 percent in 1998 to 56.7 percent in
2004. Strategis projected that premium television subscriptions would grow
from 60,912 in 1997 to 84,636 in 2004. Strategis estimated that the
Albuquerque System would take moderate rate increases between 1998 and 2004,
with, for example, a 1 percent increase in basic rates in 1998, a 5 percent
increase in basic rates in 1999 and 3 percent increases in basic rates each
year thereafter, and a 2 percent increase in expanded basic rates in 1998, a 6
percent increase in such rates in 1999, a 3 percent increase in such rates in
2000, a 10 percent increase in such rates in 2001, a 9 percent increase in
such rates in 2002 and a 3 percent increase in such rates each year
thereafter. Strategis estimated that rate increases for pay television
subscriptions would average 1 percent per year. Strategis estimated that rate
increases for pay-per-view showings, converter rentals and installations would
average 3 percent per year. These projections, if true, would result in an
increase in basic rates from $10.03 in 1998 to $12.16 in 2004, and an increase
in the rates for the expanded basic tier from $15.39 in 1998 to $21.27 in
2004. The "low" value was determined using a 14 percent return on equity and
the "high" value was determined using a 12 percent return on equity. This
method resulted in an estimated fair market value ranging from a low of
$220,489,882 to a high of $240,054,504 for the Albuquerque System.
The fifth valuation method was a discounted cash flow analysis that measured
the net present value of the pre-tax operating cash flows (less capital
expenditures, plus the residual value of the Albuquerque System) that
represent the return on the total investment rather than those that could
result from an assumed "purchase" with a pre-determined debt to equity ratio.
The same set of financial projections that the firm prepared and used in the
fourth valuation methodology were used for growth in subscribers, revenues,
operating expenses and capital expenditures. The projected pre-tax operating
cash flows for the Albuquerque System, plus the last-year residual value of
the Albuquerque System less capital expenditures, were discounted to the
present time at an acceptable current cost of money. This method indicated the
present value of the future pre-tax operating cash flows, using an acceptable
discounted factor based on the weighted average cost of money. The "high"
value was determined using a 15.1 percent target return on investment and the
"low" value was determined using a 16.6 percent target return on investment.
This method resulted in an estimated fair market value ranging from a low of
$219,992,327 to a high of $238,088,179 for the Albuquerque System.
Strategis' valuation methodologies resulted in differing values for the
Albuquerque System. The reason for this is grounded in the basic approach that
the firm takes. The five different methods allow five different views of a
system's value. The first method looks at past performance, but allows nothing
for future performance. The second method looks at the system as it is as of
the date of the appraisal. The third method looks at the system's projected
operating income in the first year following the proposed sale. Both
discounted cash flow methods fully consider the future value of the system by
recognizing projected operating income and expenses, including capital
expenditures. Based upon all of the available information about a system being
appraised, the appraiser decides how to weight each of the five methods. The
final estimated fair market value is not a straight average of all of the
methods. Although the weighting is not shown in the appraisal report,
Strategis generally prefers the discounted cash flow methods since they
consider a broader range of factors that represent all sources of value,
present and future. Strategis accordingly generally gives greater
consideration to the discounted cash flow methods in its final judgment
concerning the fair market value of a cable television system. Strategis'
conclusions as to the range of values were based upon information and data
supplied by the General Partner, Strategis' onsite inspection of the
Albuquerque System in April 1997, interviews with the Albuquerque System's
onsite management team and general cable television industry information. The
fair market value appraisal of
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$233,440,000 reached by Strategis was based on the various valuations
generated by it, and Strategis' general knowledge and expertise in the cable
television industry.
As compensation for rendering an opinion as to the fair market value of the
Albuquerque System, the General Partner paid Strategis a fee of $7,500. Such
fee was not contingent upon the conclusion reached by Strategis in its
opinion. As compensation for rendering opinions as to the fair market value of
other cable television systems owned and/or managed by the General Partner and
its affiliates, and completing the analysis of the allocations of purchase
prices between tangible and intangible assets for various cable television
systems owned and/or managed by the General Partner and its affiliates,
Strategis has received fees and expense reimbursements totaling $241,470
during the two years prior to the date hereof.
The Bond & Pecaro Appraisal
Bond & Pecaro, Inc. ("Bond & Pecaro") is a consulting firm specializing in
valuations, asset appraisals and related financial services for the
communications industry. The firm has appraised assets of more than 1,500
media properties. Bond & Pecaro was selected by the General Partner to render
an opinion as to the fair market value of the Albuquerque System in light of
such overall qualifications. No limitations were imposed with respect to the
appraisal to be rendered by Bond & Pecaro. The firm was selected by the
General Partner to prepare an independent appraisal of the Albuquerque System
because of the firm's reputation in the industry. Bond & Pecaro has prepared
independent appraisals of other cable television systems owned and/or managed
by the General Partner. Bond & Pecaro also is serving as the General Partner's
expert witness aiding the General Partner in its defense of the litigation
filed by limited partners of Fund 12-D challenging the terms of the Venture's
sale of the Tampa System to a subsidiary of the General Partner. See "Special
Factors, Legal Proceedings." The principals of Bond & Pecaro are not
affiliated in any way with the General Partner.
Bond & Pecaro used both the income and the market methodologies to determine
the fair market value of the Albuquerque System as of April 30, 1997. The firm
developed a discounted cash flow analysis to determine the value of the
Albuquerque System based upon its economic potential. The results of this
analysis indicated that the value of the Albuquerque System as of April 30,
1997 was $221,349,800. In order to verify the results of the discounted cash
flow analysis, Bond & Pecaro also utilized a comparable sales approach,
relying upon an analysis of subscriber multiples. The results of this analysis
supported the firm's conclusions about valuation resulting from application of
the income approach.
Bond & Pecaro reported that the initial parameter upon which its discounted
cash flow projection is based is homes passed. Two factors affect the number
of homes passed: new plant construction and household growth. In preparing its
projection, Bond & Pecaro assumed that the number of households in the
Albuquerque System's franchise area will increase at a rate equivalent to the
average growth projected for the areas served by the system as a whole, or
approximately 1.9 percent per year. Bond & Pecaro concluded that the basic
penetration rate would grow substantially over the 10-year projected period
from the current 49.2 percent to approximately 71.6 percent by 2007. The firm
projected that pay penetration of the Albuquerque System will increase from a
level of 54.1 percent in April 1997 to approximately 64.0 percent by 2007.
Bond & Pecaro concluded that due to regulatory and competitive restrictions,
service rates for basic and expanded basic services are expected to grow with
inflation while premium channel service rates are expected to remain
relatively flat throughout the 10-year projected period. Bond & Pecaro
estimated that pay-per-view service revenue will increase at a 12.5 percent
annual rate through 2007, that commercial advertising will increase at a 12.5
percent annual rate through 2007 and that annual installation revenue would
grow at a compound annual rate of 2.5 percent during the projection period.
The firm concluded that equipment rental revenues as well as other revenues
also should increase by 10 percent annually through 2007. Bond & Pecaro
concluded that total system revenues would increase from $55,000,000 in 1997
to $127,100,000 in 2007. For purposes of its appraisal, Bond & Pecaro assumed
that the Albuquerque System would maintain an operating profit margin of 42.3
percent, which was the system's operating profit margin in 1996. Bond & Pecaro
used an estimated tax rate of 38.1 percent to project the taxable income of
the Albuquerque System because the estimated rate reflects the combined
federal, state and local tax rates in effect on April 30, 1997. Capital
expenditures were projected at approximately $13,400,000 annually during the
ten-year period.
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<PAGE>
Bond & Pecaro then determined the net after-tax cash flow for the
Albuquerque System. After taxes were subtracted from the system's taxable
income, non-cash depreciation and amortization expense was added back to net
income to yield after-tax cash flow. From the after-tax cash flow, the
provision for subsequent capital expenditures was deducted to calculate the
net after-tax cash flows. Bond & Pecaro used a discount rate of 12 percent to
calculate the present value of the net after-tax cash flows. In order to
account for the risks associated with investments in the cable television
industry and in the Albuquerque System in particular, Bond & Pecaro added a
premium to a base discount rate to develop the 12 percent rate employed in its
analysis. Bond & Pecaro then applied a multiplier of 10 to the Albuquerque
System's 2007 operating cash flow. Bond & Pecaro's appraisal noted that
multiples used in the valuation of cable television systems of a type similar
to the Albuquerque System range from 8 to 12 times operating cash flow,
depending on market conditions and a system's profit potential. Bond & Pecaro
noted also that exceptional circumstances will warrant multiples outside of
this range. The appraisal report indicated that the selected multiple of 10
was used to estimate the value of the system at the end of the investment
period. According to Bond & Pecaro, this multiple reflects the state of the
market for cable television systems as of April 30, 1997, tempered by the
economic conditions of the system's franchise service area, the necessity for
a system rebuild, the uncertainty introduced by re-regulation of the cable
television industry and the prospects for increased competition from wireless
cable companies and direct broadcast satellite operators. The 10-year
discounted cash flow projection of Bond & Pecaro yielded a value of
$221,349,800 for the Albuquerque System.
In order to correlate this statistical valuation with the realities of the
marketplace, Bond & Pecaro analyzed the sale of six comparable cable
television systems that took place between September 1996 and February 1997.
The sales examined by Bond & Pecaro were selected based upon their
comparability to the Albuquerque System. The prices paid for these comparable
systems ranged from $5.5 million to $171.2 million. With this analysis, Bond &
Pecaro concluded that the average price per subscriber paid for the six
comparable cable television systems sales was approximately $1,971. Bond &
Pecaro concluded that the Albuquerque System's overall fair market value was
$221,349,800. This $221,349,800 value reflects a subscriber multiple of
approximately $1,966 per subscriber, which is consistent with prevailing
subscriber multiples of comparable sales.
A representative of Bond & Pecaro visited the offices and technical
facilities of the Albuquerque System in May 1997 as part of its preparation of
the appraisal report. The firm's representative consulted with system
management regarding market factors and system-specific issues that impacted
the value of the system's tangible and intangible assets. Specific data
provided by the system and the General Partner included historical audited
financial statements for fiscal years 1994 through 1996, 1997 year to date
unaudited financial statements, operating statistical summaries, system
technical data, market demographic data and related materials. Other sources
consulted in the preparation of the appraisal included industry factbooks,
government publications and similar reference materials. Bond & Pecaro also
relied upon information furnished by the Albuquerque System's management
relating to the age, condition and adequacy of the system's physical plant.
As compensation for rendering an opinion as to the fair market value of the
Albuquerque System, the General Partner paid Bond & Pecaro a fee of $11,789.
Such fee was not contingent upon the conclusions reached by Bond & Pecaro in
its opinion. As compensation for rendering opinions as to the fair market
value of other cable television systems owned and/or managed by the General
Partner and its affiliates, Bond & Pecaro has received fees totaling $17,122
during the two years prior to the date hereof.
The Western Cablesystems Appraisal
R. Michael Kruger, the owner and president of Western Cablesystems, Inc.
("Western Cablesystems"), has since 1979 appraised hundreds of cable
television systems for a variety of clients including major multiple system
cable operators, independent operators and clients outside the cable
television industry, according to information provided by Western
Cablesystems. In addition to appraising cable television systems, Western
Cablesystems presently operates several small cable television systems and it
is currently active in the cable television system acquisition marketplace.
Western Cablesystems was selected by the General Partner to render an opinion
as to the fair market value of the Albuquerque System in light of such overall
qualifications. No limitations were imposed with respect to the appraisal to
be rendered by Western Cablesystems. The firm was selected by the General
Partner to prepare an independent appraisal of the Albuquerque System because
of the General Partner's familiarity with the firm and Western Cablesystems'
knowledge of the cable television
17
<PAGE>
industry. Western Cablesystems has prepared independent appraisals of other
cable television systems owned and/or managed by the General Partner. Western
Cablesystems has informed the General Partner that it owns 500 shares of the
General Partner's common stock purchased approximately 15 years ago. The
General Partner believes that Western Cablesystems' equity holdings in the
General Partner are not material and do not compromise Western Cablesystems'
status as an independent appraiser of the Albuquerque System's value. The
principals of Western Cablesystems are not affiliated in any way with the
General Partner.
Western Cablesystems used two appraisal methodologies in determining the
fair market value of the Albuquerque System. Western Cablesystems first
examined the market value of the Albuquerque System as determined by
comparable transactions in the cable television system marketplace. Western
Cablesystems' appraisal report states that transaction values are typically
reported on the basis of either a value-per-subscriber or an operating income
multiple. Western Cablesystems considered both but placed more reliance in its
determination of the fair market value of the Albuquerque System on the
operating income multiples of comparable sales. Western Cablesystems also used
what it termed the "income" approach to value the Albuquerque System. This
methodology involved the determination of the discounted present value of free
cash flow generated over ten years, plus an allowance for the terminal value
of the Albuquerque System after ten years.
Western Cablesystems looked at the Albuquerque System's future growth in the
number of homes passed and the number of subscribers (determining that the
Albuquerque System will have average growth rates in the long run), the
system's demographics (determining that the system's demographics are somewhat
below average due to the system's relatively fewer higher-income residents),
the competitive situation (determining that the Albuquerque System may face
slightly more than normal competition, particularly from DBS, given that the
off-air reception in the Albuquerque area is good and the system's channel
lineup is somewhat weak), the system's channel capacity and quality
(concluding that the Albuquerque System is below average in capacity and
quality and that there will be a need for a rebuild and upgrade of the system
prior to franchise renewal negotiations), the system's general operations
(concluding that the system is normal with respect to matters such as staff
and franchise issues), the system's potential for new revenues (concluding
that the Albuquerque System has average potential for new revenue sources) and
the system's marketability (concluding that although the system is of an
attractive size it is relatively isolated and would therefore have average
marketability compared to systems of similar size). Western Cablesystems
concluded that overall the Albuquerque System would be at or slightly below
market norms compared to comparably sized systems. The appraisal report does
not specifically disclose how the Albuquerque System's future growth
prospects, demographics, competitive situation, marketability and channel
capacity and quality were determined to be average, above average or below
average. The General Partner did not inquire about how Western Cablesystems
made its determinations because the General Partner concluded that, given
Western Cablesystems' expertise, it could rely upon Western Cablesystems'
analyses and judgment in making such determinations.
Western Cablesystems then examined several reasonably similar transactions
involving the sale of cable television systems. These transactions involved
the sales of cable television systems at cash flow multiples ranging from a
low of 9 times cash flow to a high of 10 times cash flow. These transactions
had value-per-subscriber rates ranging from a low of $1,471 to a high of
$2,108. Given all of this data, Western Cablesystems concluded that the
Albuquerque System should command an average multiple of ten times cash flow
which would give the system a value of $222,360,000. At this price, the value
per subscriber for the Albuquerque System would be $1,909, within the range of
reported comparable transaction prices.
For purposes of its income approach analysis, Western Cablesystems projected
the Albuquerque System's ten year free cash flow by making its own assumptions
about growth in basic and pay revenues, other revenue items, salaries, labor
costs, taxes and other expenses including programming costs, pole rent, office
costs, marketing costs and advertising sales costs. The annual free cash flow
was then discounted using an average cost of capital which Western
Cablesystems determined was 12.7 percent. Western Cablesystems then added a
discounted terminal value which was calculated at 6 times the tenth year's
cash flow. Using this income approach, Western Cablesystems estimated the
potential value of the Albuquerque System at $205,791,000.
18
<PAGE>
The range of values as calculated by the two different approaches taken by
Western Cablesystems is $205,791,000 to $222,360,000. The values are
reasonably consistent and Western Cablesystems placed reliance on each
valuation. Western Cablesystems concluded that the discounted cash flow
approach may better reflect the growth prospects for the Albuquerque System
which, in Western Cablesystems' opinion, are somewhat below some of the
comparable transactions examined. Western Cablesystems noted that the
discounted cash flow analysis also explicitly considers the rebuild costs,
which it deemed to be an important factor in valuation. Western Cablesystems
concluded that a midpoint of the two valuations was appropriate and thus
concluded that the appraised value of the Albuquerque System at April 30, 1997
was $214,100,000. Western Cablesystems' appraisal is based on system financial
and operating data provided to Western Cablesystems by the General Partner.
The appraiser also visited the Albuquerque System in June 1997 for the purpose
of inspecting the general market and system data.
As compensation for rendering an opinion as to the fair market value of the
Albuquerque System, the General Partner paid Western Cablesystems a fee of
$7,500. Such fee was not contingent upon the conclusion reached by Western
Cablesystems in its opinion. As compensation for rendering opinions as to the
fair market value of other cable television systems owned and/or managed by
the General Partner and its affiliates and for other services provided,
Western Cablesystems has received fees and expense reimbursements totaling
$65,724 during the two years prior to the date hereof.
COSTS OF THE TRANSACTION
The following is a reasonably itemized estimate of all expenses incurred or
to be incurred in connection with the proposed sale of the Albuquerque System,
all of which will be paid by the General Partner, including without limitation
the cost of soliciting the votes of the holders of limited partnership
interests:
<TABLE>
<S> <C>
Filing fees $ 4,013
Legal fees $10,000
Accounting fees $10,000
Appraisal fees $26,789
Printing costs $30,000
Postage and miscellaneous costs $ 5,000
</TABLE>
PROPOSED SALE OF ASSETS
THE PURCHASE AND SALE AGREEMENT
Pursuant to the terms and conditions of a purchase and sale agreement dated
as of July 28, 1997 (the "Purchase and Sale Agreement") by and between the
Venture as seller and the General Partner as purchaser, the Venture agreed to
sell the Albuquerque System to the General Partner or to a subsidiary of the
General Partner. The General Partner has assigned its rights and obligations
as purchaser to Jones Communications of New Mexico, Inc., an indirect wholly
owned subsidiary. The purchaser intends to finance the acquisition of the
Albuquerque System using cash on hand and borrowings available under credit
facilities dated as of October 29, 1996 among Jones Cable Holdings II, Inc.,
as the borrower, and several lenders, including The Bank of Nova Scotia,
NationsBank of Texas, N.A. and Societe Generale as the managing agents. The
maximum amount available under the credit facilities is $600 million. One $300
million facility reduces quarterly beginning March 31, 2000 through the final
maturity date and the lenders' commitment under the other $300 million
facility terminates on October 27, 1998. Interest on amounts outstanding under
the credit facilities varies from the "base rate," which generally
approximates the prime rate, to the base rate plus 1/4 percent or LIBOR plus
1/2 percent to 1 1/4 percent depending on certain financial covenants. The
effective interest rate on the $58,500,000 outstanding at June 30, 1997 was
6.28 percent. The credit facilities are secured by a pledge of the stock of
all of the subsidiaries of the borrower. Jones Communications of New Mexico,
Inc. is a wholly owned subsidiary of Jones Cable Holdings II, Inc., which in
turn is a wholly owned subsidiary of the General Partner.
Based upon amounts estimated as of June 30, 1997, the aggregate cost of the
acquisition of the Albuquerque System to the purchaser, including working
capital adjustments, will be approximately $224,347,025. Amounts borrowed by
the purchaser to acquire the Albuquerque System will be repaid from cash
generated by the operations of the Albuquerque System and other systems owned
by Jones Cable Holdings II, Inc. and from other sources of funds, including
possible future refinancings.
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<PAGE>
The closing of the sale will occur on a date upon which the Venture and the
purchaser mutually agree. It is anticipated that the closing will occur within
a few weeks after receipt of the approval of the sale by the limited partners
of the Venture's three constituent partnerships. Because the closing is
conditioned upon, among other things, the approval of the limited partners of
the Venture's three constituent partnerships and the consent of governmental
franchising authorities and other third parties, there can be no assurance
that the proposed sale will occur. If all conditions precedent to the
purchaser's obligation to close are not eventually satisfied or waived, the
purchaser's obligation to purchase the Albuquerque System will terminate.
THE ALBUQUERQUE SYSTEM
The assets to be acquired consist primarily of the real and personal,
tangible and intangible assets of the Venture's Albuquerque System. The
purchaser will purchase all of the tangible assets of the Albuquerque System,
including, among other things, the headend equipment, underground and
aboveground cable distribution systems, towers, earth satellite receive
stations, and furniture and fixtures of the Albuquerque System. The purchaser
also will acquire certain of the intangible assets of the Albuquerque System,
including, among other things, all of the franchises, leases, agreements,
permits, licenses and other contracts and contract rights of the Albuquerque
System. Also included in the sale are any parcels of real estate owned by the
Albuquerque System, the subscriber accounts receivable of the Albuquerque
System and all of the Albuquerque System's engineering records, files,
schematics, maps, reports, promotional graphics, marketing materials and
reports filed with federal, state and local regulatory agencies. Certain of
the Albuquerque System's assets will be retained by the Venture, including
cash or cash equivalents on hand and in banks, certain insurance policies and
rights and claims thereunder, and any federal or state income tax refunds to
which the Venture may be entitled.
SALES PRICE
Subject to the working capital adjustments described below, the sales price
for the Albuquerque System is $222,963,267. The sales price will be reduced by
any accounts payable and accrued expenses and vehicle lease obligations
existing on the closing date. The sales price will be increased by any
accounts receivable existing on the closing date. The sales price for the
Albuquerque System also will be adjusted as of the closing date with respect
to all items of income and expense associated with the operation of the
Albuquerque System. This adjustment will reflect, in accordance with generally
accepted accounting principles, that all expenses and income attributable to
the period on or after the closing date are for the account of the purchaser
and those prior to the closing date are for the account of the seller. Please
see Note 4 of the Notes to Unaudited Pro Forma Financial Statements for a
detailed accounting of the estimated closing adjustments.
CONDITIONS TO CLOSING
The purchaser's obligations under the Purchase and Sale Agreement are
subject to the following conditions: (a) the Venture shall have obtained all
material consents and approvals from governmental authorities and third
parties with whom the Venture has contracted that are necessary for the
transfer of the Albuquerque System, (b) all representations and warranties of
the Venture shall be true and correct in all material respects as of the
closing date and (c) termination or expiration of the statutory waiting period
applicable to the Purchase and Sale Agreement and the transactions
contemplated thereby under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"). The Venture must obtain the consent of the
City of Albuquerque and other franchising authorities to the transfer of the
Albuquerque System's cable franchises. It is anticipated that the Venture will
not experience any significant difficulty in obtaining the necessary consents
and approvals to the currently proposed sale. If, however, the Venture fails
to obtain certain non-material consents and approvals of third parties with
whom the Albuquerque System has contracted, the purchaser likely will waive
this condition to closing. In such circumstances, the purchaser would agree to
indemnify the Venture for any liabilities incurred in connection with a
closing without prior receipt of all necessary consents.
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<PAGE>
The Venture's obligations under the Purchase and Sale Agreement are subject
to the following conditions: (a) the receipt of the purchase price for the
Albuquerque System, (b) the limited partners of the Partnership, Fund 12-C and
Fund 12-D shall have approved the Venture's sale of the Albuquerque System and
(c) the statutory waiting periods applicable to the Purchase and Sale
Agreement and the transactions contemplated thereby under the HSR Act shall
have terminated or shall have expired.
FEDERAL INCOME TAX CONSEQUENCES
The purpose of the following discussion of the income tax consequences of
the proposed transaction is to inform the limited partners of the Partnership
of the federal income tax consequences to the Partnership and to its partners
arising from the sale of the Albuquerque System. The tax information included
herein was prepared by the tax department of the General Partner. The tax
information is taken from tax data compiled by the General Partner in its role
as the Partnership's tax administrator and is not based upon the advice or
formal opinion of counsel. The tax discussion that follows is merely intended
to inform the limited partners of factual information and should not be
considered tax advice.
By the expected date of the Albuquerque System's sale, the limited partners
will have received certain tax benefits from their investment in the
Partnership. Assuming maximum federal income tax rates and no other sources of
passive income, limited partners will have received $7,328,310 in tax benefits
from Partnership losses ($132 per $1,000 invested).
The sale of the Albuquerque System will result in a gain for federal income
tax purposes. The amount of this gain allocated to limited partners is
approximately $12,826,023. The General Partner estimates that $10,598,848
($191 per $1,000 invested) of this gain will be treated as ordinary income.
This amount of ordinary income results from the recapture of depreciation on
personal property under Section 1245. The General Partner estimates that the
remainder of the gain, $2,227,175 ($40 per $1,000 invested), will be treated
as long term capital gain under Section 1231. No significant passive loss
carryforwards from the Partnership should be available to offset these gain
allocations.
Assuming the 31 percent rate applies to ordinary income and the 20 percent
rate applies to long term capital gain income, as a result of the sale of the
Albuquerque System, a limited partner will be subject to federal income taxes
of $67 per $1,000 invested in the Partnership. The taxable income will be
recognized in the year of the closing of the sale, which is expected to be
1998.
Limited partners who are non-resident aliens or foreign corporations
("foreign persons") are subject to a withholding tax on their share of the
Partnership's income from the sale of the Albuquerque System. The withholding
rates are 39.6 percent for individual partners and 35 percent for corporate
partners. The tax withheld will be remitted to the Internal Revenue Service
and the foreign person will receive a credit on their U.S. tax return for the
amount of the tax withheld by the Partnership. The tax withheld will be
treated as a distribution to the limited partner.
CERTAIN INFORMATION ABOUT THE PARTNERSHIP
AND THE GENERAL PARTNER
The General Partner acquires, develops and operates cable television systems
for itself and for its managed limited partnerships. Based on the number of
basic subscribers served by the General Partner's owned and managed cable
television systems, the General Partner is one of the ten largest cable
television system operators in the United States serving approximately 1.4
million basic subscribers. The principal executive offices of the Partnership
and the General Partner are located at 9697 East Mineral Avenue, Englewood,
Colorado 80112, and their telephone number is (303) 792-3111.
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<PAGE>
The limited partnership interests of the Partnership are registered pursuant
to Section 12(g) of the Exchange Act. As such, the Partnership currently is
subject to the informational reporting requirements of the Exchange Act and,
in accordance therewith, is obligated to file periodic reports, proxy
statements and other information with the Commission relating to its business,
financial condition and other matters. Reports and other information filed by
the Partnership can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the following regional offices of the Commission: 7 World
Trade Center, Suite 1300, New York, New York 10048 and Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The
Commission also maintains a World Wide Web site that contains reports, proxy
statements and information statements of registrants (including the
Partnership) that file electronically with the Commission at
http://www.sec.gov. The Partnership will continue in existence and will
continue to be subject to the informational reporting requirements of the
Exchange Act after the sale of the Albuquerque System. The Partnership's
registration and reporting requirements under the Exchange Act will not be
terminated until the dissolution of the Partnership after the sale of the
Venture's Palmdale/Lancaster System.
The General Partner also is subject to the informational filing requirements
of the Exchange Act and, in accordance therewith, files periodic reports,
proxy statements and other financial information with the Securities and
Exchange Commission relating to its business, financial condition and other
matters. Information, as of particular dates, concerning the General Partner's
directors and officers, their compensation, options granted to them, the
principal holders of the General Partner's securities and any material
interest of such persons in transactions with the General Partner is required
to be disclosed in certain documents filed with the Commission. Such reports,
proxy statements and other information may be inspected at the above-listed
public reference facilities maintained by the Commission and at the
Commission's World Wide Web site. Copies of such materials may be obtained
upon payment of the Commission's prescribed charges by writing to the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C.
20549.
The name, business address and principal occupation and employment for the
past five years of each of the directors and executive officers of the General
Partner are set forth in Schedule 1 to this Proxy Statement. To the best
knowledge of any of the persons listed on Schedule 1 hereto, except as
disclosed on such schedule, no persons listed on such schedule beneficially
own any limited partnership interests in the Partnership.
Except as disclosed herein, neither the General Partner nor, to the best of
its knowledge, any of the persons listed on Schedule 1 hereto, has any
contract, arrangement, understanding or relationship with any other person
with respect to any limited partnership interest of the Partnership,
including, but not limited to, any contract, arrangement, understanding or
relationship concerning the transfer or the voting of any of such interests,
joint ventures, loan or option arrangements, puts or calls, guaranties of
loans, guaranties against loss or the giving or withholding of proxies.
CERTAIN RELATED PARTY TRANSACTIONS
The General Partner and its affiliates engage in certain transactions with
the Venture. The General Partner believes that the terms of such transactions
are generally as favorable as could be obtained by the Venture from
unaffiliated parties. This determination has been made by the General Partner
in good faith, but none of the terms were or will be negotiated at arm's-
length and there can be no assurance that the terms of such transactions have
been or will be as favorable as those that could have been obtained by the
Venture from unaffiliated parties.
The purchase price for the Albuquerque System was determined in accordance
with the provisions of the Partnership Agreement but the proposed sale of the
Albuquerque System by the Venture to the General Partner or to one of the
General Partner's subsidiaries was not negotiated at arm's-length and thus
there can be no assurance that the terms of such transaction have been or will
be as favorable as those that could have been obtained by the Venture from an
unaffiliated purchaser.
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<PAGE>
The General Partner charges the Venture a management fee relating to the
General Partner's management of the Venture's cable television systems, and
the Venture reimburses the General Partner for certain allocated overhead and
administrative expenses in accordance with the terms of the Partnership
Agreement. These expenses consist primarily of salaries and benefits paid to
corporate personnel, rent, data processing services and other facilities
costs. Such personnel provide engineering, marketing, administrative,
accounting, legal and investor relations services to the Venture. Allocations
of personnel costs are based primarily on actual time spent by employees of
the General Partner with respect to cable television systems managed. Systems
owned by the General Partner and its subsidiaries and all other systems owned
by partnerships for which Jones Intercable, Inc. or one of its subsidiaries is
the general partner are also allocated a proportionate share of these
expenses. No duplicate management or other fees or reimbursements are charged
to the Partnership.
The General Partner from time to time also advances funds to the Venture and
charges interest on the balances payable by the Venture. The interest rate
charged the Venture approximates the General Partner's weighted average cost
of borrowing.
Jones Education Company is an affiliate of the General Partner that, through
a subsidiary, owns and operates Knowledge TV, a network that provides
programming related to computers and technology; business, careers and
finance; health and wellness; and global culture and languages. Jones
Education Company sells its programming to certain cable television systems
owned or managed by the General Partner, including the Venture's systems.
The Great American Country network provides country music video programming
to certain cable television systems owned or managed by the General Partner,
including the Venture's systems. This network is owned and operated by Great
American Country, Inc., a subsidiary of Jones International Networks, Ltd., an
affiliate of the General Partner.
Jones Galactic Radio, Inc. is a company owned by Jones International
Networks, Ltd. Superaudio, a joint venture between Jones Galactic Radio, Inc.
and an unaffiliated entity, provides satellite programming to certain cable
television systems owned or managed by the General Partner, including the
Venture's systems.
The Product Information Network Venture (the "PIN Venture") is a venture
among a subsidiary of Jones International Networks, Ltd. and two unaffiliated
cable system operators. The PIN Venture operates the Product Information
Network ("PIN"), which is a 24-hour network that airs long-form advertising
generally known as "infomercials." The PIN Venture generally makes incentive
payments of approximately 60 percent of its net advertising revenue to the
cable systems that carry its programming. Most of the General Partner's owned
or managed systems carry PIN for all or part of each day. Revenues received by
the Venture from the PIN Venture relating to the Venture's owned cable
television systems totaled $93,246 for the six months ended June 30, 1997 and
$191,011 for the year ended December 31, 1996.
The charges to the Venture for related party transactions were as follows
for the periods indicated:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
FOR THE SIX MONTHS --------------------------------
ENDED JUNE 30, 1997 1996 1995 1994
------------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Management fees....... $2,042,495 $4,118,188 $5,069,985 $4,461,154
Allocation of
expenses............. 2,383,486 5,491,265 7,183,663 6,951,110
Interest expense...... 0 0 220,743 33,627
Amount of notes and
advances outstanding. 0 0 4,198,739 616,810
Highest amount of
notes and advances
outstanding.......... 0 0 4,574,572 929,508
Programming fees:
Jones Education
Company............ 172,847 374,709 428,937 196,004
Great American
Country............ 90,360 141,753 0 0
Superaudio.......... 77,741 116,710 135,861 135,346
</TABLE>
23
<PAGE>
USE OF PROCEEDS FROM ALBUQUERQUE SYSTEM SALE
The following is a brief summary of the Venture's estimated use of proceeds
and of the Partnership's estimated use of its portion of the proceeds from the
Venture's sale of the Albuquerque System. All of the following selected
financial information is based upon amounts as of June 30, 1997 and certain
estimates of liabilities at closing. Final results may differ from these
estimates. A more detailed discussion of the financial consequences of the
sale of the Albuquerque System is set forth below under the caption "Unaudited
Pro Forma Financial Information." All limited partners are encouraged to
review carefully the unaudited pro forma financial statements and notes
thereto.
If the holders of a majority of limited partnership interests of the three
partnerships that comprise the Venture approve the proposed sale of the
Albuquerque System and the transaction is closed, the Venture will repay its
outstanding Senior Notes balance of $47,479,874 plus a make whole premium
that, based on current market interest rates, is estimated to total
approximately $3,125,000 and, subject to an amendment to the Venture's credit
facility, the Venture will repay approximately $48,959,637 of the then
outstanding balance of its credit facility, and then the $125,000,000 net sale
proceeds will be distributed to the three constituent partnerships of the
Venture in proportion to their ownership interests in the Venture. Because the
make whole premium will be calculated as of the closing date using the then-
current market interest rates, the exact amount of the make whole premium
cannot be determined precisely until the closing date. The Partnership will
receive 9 percent of such proceeds, estimated to total approximately
$11,474,475, and the Partnership will distribute this portion of the net sale
proceeds to its partners of record as of the closing date of the sale of the
Albuquerque System and pursuant to the terms of the Partnership Agreement. The
estimated uses of the sale proceeds are as follows:
<TABLE>
<S> <C>
Contract Sales Price of the Albuquerque System................. $222,963,267
Add: Cash on Hand............................................. 217,486
Estimated Net Closing Adjustments........................ 1,383,758
Less:Repayment of Debt......................................... (96,439,511)
Make Whole Premium....................................... (3,125,000)
------------
Cash Available for Distribution to Joint Venturers....... 125,000,000
Cash Distributed to Fund 12-C and Fund 12-D.............. 113,525,525
------------
Cash Available for Distribution by the Partnership....... $ 11,474,475
============
Limited Partners' Share (75%)............................ $ 8,605,856
============
General Partner's Share (25%)............................ $ 2,868,619
============
</TABLE>
Based upon financial information available at June 30, 1997, below is an
estimate of all cash distributions that will have been made to limited
partners after the distribution of the proceeds from the sale of the
Albuquerque System is completed.
<TABLE>
<S> <C>
Summary of Estimated Cash Distributions to Limited Partners:
Return of Limited Partners' Initial Capital on the 1995 Sale
of the Partnership's Augusta System......................... $ 55,517,500
Limited Partners' Share of Residual Proceeds on the 1995 Sale
of the Partnership's Augusta System......................... 40,561,875
Limited Partners' Share of Residual Proceeds on the 1996 Sale
of the Venture's Tampa System............................... 3,787,000
Limited Partners' Share of Residual Proceeds on the 1998 Sale
of the Venture's Albuquerque System......................... 8,605,856
------------
Total Estimated Cash Received by Limited Partners............ $108,472,231
============
Total Cash Received per $1,000 of Limited Partnership
Capital..................................................... $ 1,954
============
Total Cash Received per $500 Limited Partnership Interest ... $ 977
============
</TABLE>
24
<PAGE>
The estimated after-tax internal rate of return on an investment in the
Partnership is approximately 5.65 percent. This internal rate of return
includes the distribution to be made on the sale of the Albuquerque System and
the prior distribution of the net proceeds from the sale of the Venture's
Tampa System and the prior distributions of the net proceeds from the sale of
the Partnership's Augusta System.
Based on financial information available at June 30, 1997, the following
table presents the estimated results of the Partnership when the Venture has
completed the sale of the Albuquerque System:
<TABLE>
<S> <C>
Dollar Amount Raised....................................... $ 55,517,500
Number of Cable Television Systems Purchased Directly...... One
Number of Cable Television Systems Purchased Indirectly.... Five
Date of Closing of Offering................................ September 1985
Date of First Sale of Properties........................... August 1987
Tax and Distribution Data per $1,000 of Limited Partnership
Capital:
Federal Income Tax Results
Ordinary Income (Loss)
--from operations...................................... $ (1,091)
--from recapture....................................... $ 1,963
Capital Gain (Loss).................................... $ 147
Cash Distributions to Investors
Source (on GAAP basis)
--investment income.................................... $ 954
--return of capital.................................... $ 1,000
Source (on cash basis)
--sales................................................ $ 1,954
</TABLE>
25
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF CABLE TV FUND 12-B, LTD.
The following unaudited pro forma financial statements assume that as of
June 30, 1997, the Venture had sold the Albuquerque System for $222,963,267.
The funds available to the Venture, adjusting for the estimated net closing
adjustments of the Albuquerque System, are expected to total approximately
$224,347,025. Such funds plus cash on hand will be used to repay indebtedness
and to distribute $125,000,000 to the three constituent partnerships of the
Venture pursuant to the percentage ownership interests in the Venture of each
partnership and then each partnership will distribute its share of the
distribution pursuant to the terms of their partnership agreements. The
Partnership will receive $11,474,475 from such distribution. Pursuant to the
terms of the Partnership Agreement, the $11,474,475 distribution will be
allocated 75 percent to the limited partners ($8,605,856) and 25 percent to
the General Partner ($2,868,619). The limited partner distribution of
$8,605,856 represents $77.50 per each $500 limited partnership interest or
$155 for each $1,000 invested in the Partnership.
The unaudited pro forma financial statements should be read in conjunction
with the appropriate notes to the unaudited pro forma financial statements.
ALL OF THE FOLLOWING UNAUDITED PRO FORMA FINANCIAL INFORMATION IS BASED UPON
AMOUNTS AS OF JUNE 30, 1997 AND CERTAIN ESTIMATES OF LIABILITIES AT CLOSING.
FINAL RESULTS MAY DIFFER FROM SUCH INFORMATION.
26
<PAGE>
CABLE TV FUND 12-B, LTD.
UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents................ $ 55,348 $ -- $ 55,348
Distribution receivable from cable
television joint venture................ -- 11,474,475 11,474,475
---------- ----------- -----------
Total Assets......................... $ 55,348 $11,474,475 $11,529,823
========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
(DEFICIT)
Liabilities:
Loss in excess of investment in cable
television joint venture.............. $2,297,917 $ (156,025) $ 2,141,892
Accrued distribution to Limited
Partners.............................. -- 8,605,856 8,605,856
Accrued distribution to General
Partner............................... -- 2,868,619 2,868,619
---------- ----------- -----------
Total Liabilities.................... 2,297,917 11,318,447 13,616,364
---------- ----------- -----------
Partners' Capital (Deficit):
General Partner........................ (190,791) 1,560 (189,231)
Limited Partners....................... (2,051,778) 154,465 (1,897,313)
---------- ----------- -----------
Total Partners' Capital (Deficit).... (2,242,569) 156,025 (2,086,544)
---------- ----------- -----------
Total Liabilities and Partners' Capital
(Deficit)............................. $ 55,348 $11,474,475 $11,529,823
========== =========== ===========
</TABLE>
The accompanying notes to unaudited pro forma financial statements are an
integral part of this unaudited balance sheet.
27
<PAGE>
CABLE TV FUND 12-B, LTD.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
----------- ----------- ----------
<S> <C> <C> <C>
EQUITY IN NET INCOME OF CABLE TELEVISION
JOINT VENTURE.............................. $5,722,705 $489,441 $6,212,146
---------- -------- ----------
NET INCOME ................................. $5,722,705 $489,441 $6,212,146
========== ======== ==========
NET INCOME PER LIMITED PARTNERSHIP INTEREST. $ 40.47 $ 43.93
========== ==========
</TABLE>
The accompanying notes to unaudited pro forma financial statements are an
integral part of this unaudited statement.
28
<PAGE>
CABLE TV FUND 12-B, LTD.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
----------- ----------- ---------
<S> <C> <C> <C>
EQUITY IN NET INCOME (LOSS) OF CABLE
TELEVISION
JOINT VENTURE............................... $(146,261) $156,025 $9,764
--------- -------- ------
NET INCOME (LOSS) ........................... $(146,261) $156,025 $9,764
========= ======== ======
NET INCOME (LOSS) PER LIMITED PARTNERSHIP
INTEREST.................................... $ (1.30) $ .08
========= ======
</TABLE>
The accompanying notes to unaudited pro forma financial statements are an
integral part of this unaudited statement.
29
<PAGE>
CABLE TV FUND 12-B, LTD.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1) The Partnership has a 9 percent ownership interest in the Venture through
capital contributions made during 1986 of $12,437,500. The following
calculations present the sale of the Albuquerque System and the resulting
estimated distributions to be received by the Partnership.
2) The unaudited pro forma balance sheet of the Partnership assumes that the
Venture had sold the Albuquerque System for $222,963,267 as of June 30, 1997.
The unaudited statements of operations of the Partnership assumes that the
Venture had sold the Albuquerque System as of January 1, 1996.
3) The Partnership will receive $11,474,475 from the Venture. Pursuant to
the terms of the Partnership Agreement, the $11,474,475 distribution will be
allocated 75 percent to the limited partners ($8,605,856) and 25 percent to
the General Partner ($2,868,619). The limited partner distribution of
$8,605,856 represents $77.50 per each $500 limited partnership interest or
$155 for each $1,000 invested in the Partnership.
4) The estimated gain recognized from the sale of the Albuquerque System and
corresponding estimated distribution to limited partners as of June 30, 1997
has been computed as follows:
GAIN ON SALE OF ASSETS:
<TABLE>
<S> <C>
Contract sales price............................................. $222,963,267
Less: Net book value of investment in cable television properties
at June 30, 1997........................................... (74,980,444)
Make whole premium......................................... (3,125,000)
------------
Gain on sale of assets........................................... $144,857,823
============
Partnership's share of gain on sale of assets.................... $ 13,297,340
============
DISTRIBUTIONS TO PARTNERS:
Contract sales price............................................. $222,963,267
Add:Trade receivables, net....................................... 2,107,358
Prepaid expenses............................................. 1,881,434
Less:Accrued liabilities......................................... (2,378,866)
Subscriber prepayments....................................... (226,168)
------------
Adjusted cash received........................................... 224,347,025
Less:Outstanding debt to third parties........................... (96,439,511)
Make whole premium.......................................... (3,125,000)
Add:Cash on hand................................................. 217,486
------------
Cash available for distribution to joint venturers............... 125,000,000
Cash distributed to Fund 12-C and Fund 12-D...................... 113,525,525
------------
Cash available for distribution by the Partnership............... $ 11,474,475
============
Limited Partners' share (75%).................................... $ 8,605,856
============
General Partner's share (25%).................................... $ 2,868,619
============
</TABLE>
30
<PAGE>
AVAILABLE INFORMATION
The Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 and the Partnership's Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 31, 1997 and June 30, 1997 are being mailed to the
limited partners of the Partnership together with this Proxy Statement. Copies
of the three independent appraisals of the fair market value of the
Albuquerque System and copies of the Purchase and Sale Agreement between the
Venture and the General Partner have been publicly filed with the Securities
and Exchange Commission and may be inspected at the Commission's public
reference facilities and at its World Wide Web site, and such documents also
are available to each limited partner of the Partnership upon written request
to Elizabeth M. Steele, Secretary, Jones Intercable, Inc., 9697 East Mineral
Avenue, Englewood, Colorado 80112, (303) 792-3111. Copies of these documents
will be provided at the expense of the requesting limited partner.
A Rule 13e-3 Transaction Statement furnishing certain additional information
with respect to the transaction described herein has been jointly filed by the
Partnership and the General Partner with the Securities and Exchange
Commission. This document may be inspected at the Commission's public
reference facilities and at its World Wide Web site.
INCORPORATION BY REFERENCE
The Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 and the Partnership's Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 31, 1997 and June 30, 1997 are incorporated by
reference in their entirety in this Proxy Statement.
31
<PAGE>
SCHEDULE 1
EXECUTIVE OFFICERS AND DIRECTORS OF THE GENERAL PARTNER
Set forth below is the name, residence or business address, present
principal occupation or employment and five-year employment history of the
executive officers and directors of the General Partner. Also set forth is the
aggregate number of limited partnership interests of the Partnership
beneficially owned by each such person. The present principal occupation of
each executive officer of the General Partner is as an executive officer of
the General Partner. The Partnership has no officers or employees. All persons
listed except for Messrs. Burney, Kearney and Vanaselja are citizens of the
United States. Messrs. Burney, Kearney and Vanaselja are citizens of Canada.
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Glenn R. Jones Mr. Jones has served as Chairman of the Board of 0
c/o Jones Intercable, Directors and Chief Executive Officer of the
Inc. 9697 E. Mineral General Partner since its formation in 1970. He
Avenue Englewood, CO served as President of the General Partner from
80112 1984 to 1988. Mr. Jones has been involved in
the cable television business in various
capacities since 1961.
Christopher J. Bowick Mr. Bowick is the General Partner's Group Vice 0
c/o Jones Intercable, President/Technology and its Chief Technical
Inc. 9697 E. Mineral Officer. Prior to joining the General Partner
Avenue Englewood, CO in 1991, Mr. Bowick worked as Vice President of
80112 Engineering of Scientific Atlanta's
transmission systems business division.
Derek H. Burney Mr. Burney was appointed a Director of the 0
c/o Bell Canada General Partner in December 1994 and he became
International Inc. Vice Chairman of the General Partner's Board of
1000 rue de la Directors in January 1995. Mr. Burney joined
Gauchetiere Bureau 1100 BCE Inc., Canada's largest telecommunications
Montreal (PQ) company, in January 1993, and he is Chairman
Canada H3B 4Y8 and Chief Executive Officer of Bell Canada
International Inc., a subsidiary of BCE Inc.
Prior to joining BCE Inc., Mr. Burney was
Canada's ambassador to the United States from
1989 to 1992.
Robert E. Cole Mr. Cole was appointed a Director of the General 0
c/o Jones Intercable, Partner in March 1996. Mr. Cole is currently
Inc. self-employed as a partner of First Variable
9697 E. Mineral Avenue Insurance Marketing and is responsible for
Englewood, CO 80112 marketing to National Association of Securities
Dealers, Inc. firms in northern California,
Oregon, Washington and Alaska. From 1993 to
1995, Mr. Cole was the director of marketing
for Lamar Life Insurance Company; from 1992 to
1993, Mr. Cole was senior vice president of PMI
Inc., a third party lender serving the special
needs of corporate owned life insurance (COLI);
and from 1988 to 1992, Mr. Cole was the
principal of a specialty investment banking
firm that provided services to finance the
ownership and growth of emerging companies,
productive assets and real property.
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Kevin P. Coyle Mr. Coyle, Group Vice President/Finance of the 0
c/o Jones Intercable, General Partner, has been the General Partner's
Inc. 9697 E. Mineral Chief Financial Officer since 1990. Mr. Coyle
Avenue Englewood, CO has been an associate of the finance department
80112 of the General Partner since 1981.
William E. Frenzel Mr. Frenzel was appointed a Director of the 0
1775 Massachusetts General Partner in April 1995. He has been a
Avenue, NW Guest Scholar since 1991 with the Brookings
Washington, DC 20036 Institution, a research organization located in
Washington, DC. Until his retirement in January
1991, Mr. Frenzel served for twenty years in
the United States House of Representatives.
Donald L. Jacobs Mr. Jacobs was appointed a Director of the 0
60435 Tekampe Road General Partner in April 1995. Mr. Jacobs is a
Bend, OR 97702 retired executive officer of TRW. Prior to his
retirement in 1992, he was Vice President and
Deputy Manager of the Space and Defense Sector;
prior to that appointment, he was the Vice
President and General Manager of the Defense
Systems Group; and prior to that appointment,
he was President of ESL, Inc., a subsidiary of
TRW.
Larry Kaschinske Mr. Kaschinske has been the Controller and Chief 0
c/o Jones Intercable, Accounting Officer of the General Partner since
Inc. 9697 E. Mineral 1994. Mr. Kaschinske has been an associate of
Avenue Englewood, CO the finance department of the General Partner
80112 since 1984.
Robert Kearney Mr. Kearney was appointed a Director of the 0
c/o Bell Canada General Partner in July 1997. Mr. Kearney is a
International Inc. retired executive officer of Bell Canada. Prior
1000 rue de la to his retirement in December 1993, Mr. Kearney
Gauchetiere was the President and Chief Executive Officer
Bureau 1100 of Bell Canada. He served as Chairman of BCE
Montreal (PQ) Canadian Telecom Group in 1994 and as Deputy
Canada H3B 4Y8 Chairman of BCI Management Limited in 1995.
James J. Krejci Mr. Krejci has been a Director of the General 0
3100 Arapahoe Avenue Partner since 1987. Mr. Krejci is President and
Boulder, CO 80303 CEO of Imagelink Technologies, Inc., a
privately financed company with leading
technology in the desktop or personal computer
videoconferencing market. Prior to joining
Imagelink Technologies in July 1996, he was the
President of the International Division of
International Gaming Technology headquartered
in Reno, Nevada. Prior to joining International
Gaming Technology in May 1994, Mr. Krejci had
been a Group Vice President of the General
Partner since 1987.
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
James B. O'Brien Mr. O'Brien has been President and a Director of 0
c/o Jones Intercable, the General Partner since 1989 and a member of
Inc. the Executive Committee of the General
9697 E. Mineral Avenue Partner's Board of Directors since 1993.
Englewood, CO 80112 Mr. O'Brien has been with the General Partner
since 1982 in various operational management
positions.
Raphael M. Solot Mr. Solot was appointed a Director of the 0
501 South Cherry Street General Partner in March 1996. Mr. Solot is an
Denver, CO 80222 attorney in private practice. He has practiced
law for 32 years with an emphasis on franchise,
corporate and partnership law and complex
litigation.
Elizabeth M. Steele Ms. Steele joined the General Partner in 1987 as 0
c/o Jones Intercable, Vice President/General Counsel and Secretary.
Inc. Prior to that time, Ms. Steele was a partner at
9697 E. Mineral Avenue Davis, Graham & Stubbs, a Denver, Colorado law
Englewood, CO 80112 firm that serves as counsel to the General
Partner.
Howard O. Thrall Mr. Thrall was appointed a director of the 0
c/o Jones Intercable, General Partner in March 1996 and he had
Inc. previously served as a director of the General
9697 E. Mineral Avenue Partner from December 1988 to December 1994.
Englewood, CO 80112 Mr. Thrall is Senior Vice President-Corporate
Development for First National Net, Inc., a
leading service provider for the mortgage
banking industry. From September 1993 through
July 1996, Mr. Thrall served as Vice President
of Sales, Asian Region, for World Airways, Inc.
From 1984 until August 1993, Mr. Thrall was
with the McDonnell Douglas Corporation, where
he was a Regional Vice President, Commercial
Marketing with the Douglas Aircraft Company
subsidiary.
Siim A. Vanaselja Mr. Vanaselja was appointed a Director of the 0
c/o Bell Canada General Partner in August 1996. Mr. Vanaselja
International Inc. joined BCE, Inc., Canada's largest
1000 rue de la telecommunications company, in February 1994
Gauchetiere and he has served in various capacities with
Bureau 1100 that company and its subsidiaries since that
Montreal (PQ) time. He currently serves as Chief Financial
Canada H3B 4Y8 Officer of Bell Canada International Inc., a
BCE Inc. subsidiary. Prior to joining BCE Inc.,
Mr. Vanaselja was a partner in the Toronto
office of KPMG Peat Marwick Thorne.
Ruth E. Warren Ms. Warren has been Group Vice 0
c/o Jones Intercable, President/Operations of the General Partner
Inc. since 1990. Ms. Warren has been with the
9697 E. Mineral Avenue General Partner in various operational
Englewood, CO 80112 management positions since 1980.
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Cynthia A. Winning Ms. Winning joined the General Partner as Group 0
c/o Jones Intercable, Vice President/Marketing in December 1994.
Inc. Prior to joining the General Partner, Ms.
9697 E. Mineral Avenue Winning served in 1994 as the President of PRS
Englewood, CO 80112 Inc., a Denver, Colorado sports and event
marketing company. From 1979 to 1981 and from
1986 to 1994, Ms. Winning served as the Vice
President and Director of Marketing for
Citicorp Retail Services, Inc.
Sanford Zisman Mr. Zisman was appointed a Director of the 0
3773 Cherry Creek North Drive- General Partner in June 1996. Mr. Zisman is a
Denver, CO 80209 member of the law firm Zisman & Ingraham, P.C.
of Denver, Colorado. He has practiced law for
32 years, with an emphasis on tax, business and
estate planning and probate administration.
Robert L. Zoellick Mr. Zoellick was appointed a Director of the 0
3900 Wisconsin General Partner in April 1995. Mr. Zoellick is
Avenue, NW Executive Vice President for Housing and Law of
Washington, DC 20016 Fannie Mae, a federally chartered and
stockholder-owned corporation that is the
largest housing finance investor in the United
States. From August 1992 to January 1993, Mr.
Zoellick served as Deputy Chief of Staff of the
White House and Assistant to the President.
From May 1991 to August 1992, Mr. Zoellick
served concurrently as the Under Secretary of
State for Economic and Agricultural Affairs and
as Counselor of the Department of State. From
1985 to 1988, Mr. Zoellick served at the
Department of Treasury in a number of
capacities, including Counselor to the
Secretary.
</TABLE>
S-4
<PAGE>
===============================================================================
[LOGO OF JONES INTERCABLE APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE PARTNERSHIP BY THE GENERAL PARTNER
The undersigned Limited Partner of Cable TV Fund 12-B, Ltd., a Colorado
limited partnership, hereby votes on the sale of Cable TV Fund 12-BCD Venture's
Albuquerque, New Mexico cable television system to Jones Communications of New
Mexico, Inc., an indirect wholly owned subsidiary of Jones Intercable, Inc.,
for a sales price of $222,963,267 in cash, subject to normal closing
adjustments, pursuant to the terms and conditions of that certain Purchase and
Sale Agreement dated as of July 28, 1997, as follows:
[_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS
(YOU MUST SIGN ON THE REVERSE SIDE OF THIS PROXY CARD FOR YOUR VOTE TO COUNT.)
================================================================================
<PAGE>
================================================================================
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED LIMITED PARTNER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE PROPOSED SALE TRANSACTION.
PLEASE SIGN EXACTLY AS NAME APPEARS
ON LABEL.
DATED: ______________________, 199
___________________________________
Beneficial Owner Signature
(Investor)
___________________________________
Authorized Trustee/Custodian
Signature
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
================================================================================
<PAGE>
================================================================================
[LOGO OF JONES INTERCABLE APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE PARTNERSHIP BY THE GENERAL PARTNER
The undersigned Limited Partner of Cable TV Fund 12-B, Ltd., a Colorado
limited partnership, hereby votes on the sale of Cable TV Fund 12-BCD Venture's
Albuquerque, New Mexico cable television system to Jones Communications of New
Mexico, Inc., an indirect wholly owned subsidiary of Jones Intercable, Inc.,
for a sales price of $222,963,267 in cash, subject to normal closing
adjustments, pursuant to the terms and conditions of that certain Purchase and
Sale Agreement dated as of July 28, 1997, as follows:
[_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS
(YOU MUST SIGN ON THE REVERSE SIDE OF THIS PROXY CARD FOR YOUR VOTE TO COUNT.)
================================================================================
<PAGE>
================================================================================
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED LIMITED PARTNER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE PROPOSED SALE TRANSACTION.
ALL OWNERS MUST SIGN EXACTLY AS
NAME(S) APPEAR ON LABEL.
When limited partnership
interests are held by more than
one person, all owners must sign.
When signing as attorney, as
executor, administrator, trustee
or guardian, please give full
title as such. If a corpo-ration,
please sign in full corporation
name by autho-rized officer. If a
partnership, please sign in
partnership name by authorized
person.
DATED: ______________________, 199
___________________________________
Signature - Investor 1
___________________________________
Signature - Investor 2
___________________________________
Signature - Investor 3
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
================================================================================
<PAGE>
Exhibit 99(d)(2)
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
------ ------
Commission file number: 0-13807
CABLE TV FUND 12-B, LTD.
------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-0969999
-------- ----------
(State of Organization) (IRS Employer Identification No.)
P.O. Box 3309, Englewood, Colorado 80155-3309 (303) 792-3111
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(Address of principal executive office and Zip Code) (Registrant's telephone no.
including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited Partnership
Interests
Indicate by check mark whether the registrants, (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days:
Yes x No
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Aggregate market value of the voting stock held by non-affiliates of the
registrant: N/A
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. X
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DOCUMENTS INCORPORATED BY REFERENCE: None
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Information contained in this Form 10-K Report contains "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. All statements, other than statements of historical facts,
included in this Form 10-K Report that address activities, events or
developments that the Partnership, the Venture or the General Partner expects,
believes or anticipates will or may occur in the future are forward-looking
statements. These forward-looking statements are based upon certain assumptions
and are subject to a number of risks and uncertainties. Actual results could
differ materially from the results predicted by these forward-looking
statements.
PART I.
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ITEM 1. BUSINESS
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THE PARTNERSHIP. Cable TV Fund 12-B, Ltd. (the "Partnership") is a
Colorado limited partnership that was formed pursuant to the public offering of
limited partnership interests in the Cable TV Fund 12 Limited Partnership
Program (the "Program"), which was sponsored by Jones Intercable, Inc. (the
"General Partner"). Cable TV Fund 12-A, Ltd. ("Fund 12-A"), Cable TV Fund 12-C,
Ltd. ("Fund 12-C") and Cable TV Fund 12-D, Ltd. ("Fund 12-D") are the other
partnerships that were formed pursuant to that Program. In 1986, the
Partnership, Fund 12-C and Fund 12-D formed a general partnership known as Cable
TV Fund 12-BCD Venture (the "Venture"), in which the Partnership owns a 9
percent interest, Fund 12-C owns a 15 percent interest and Fund 12-D owns a 76
percent interest. The Partnership and the Venture were formed for the purpose
of acquiring and operating cable television systems.
The Partnership does not directly own any cable television systems.
The Partnership's sole asset is its 9 percent interest in the Venture. The
Venture owns the cable television systems serving Palmdale, Lancaster and Rancho
Vista and the military installation of Edwards Air Force Base, all in California
(the "Palmdale System") and Albuquerque, New Mexico (the "Albuquerque System").
See Item 2. The Palmdale System and the Albuquerque System may collectively be
referred to as the "Systems."
DISPOSITION OF CABLE TELEVISION SYSTEM. On February 28, 1996, the
Venture sold the cable television system serving areas in and around Tampa,
Florida (the "Tampa System") to Jones Cable Holdings, Inc. ("JCH"), a subsidiary
of the General Partner, for a sales price of $110,395,667. This price
represented the average of three separate, independent appraisals of the fair
market value of the Tampa System. Because the Venture's debt arrangements did
not allow the Venture to make distributions on the sale of Venture assets, in
February 1996 the Venture's debt arrangements were amended to permit a
$55,000,000 distribution to the Venture's partners from the sale proceeds, and
the balance of the sale proceeds were used to reduce Venture indebtedness. The
Partnership's portion of this distribution was approximately $5,049,000, of
which approximately $3,787,000 was distributed to limited partners. The
Partnership also then distributed $1,200,000 of proceeds remaining from the
October 1995 sale of the cable television system serving areas in and around
Augusta, Georgia, of which $900,000 was distributed to limited partners and
$300,000 was distributed to the General Partner. All distributions to date have
given the Partnership's limited partners an approximate return of $1,798 for
each $1,000 invested in the Partnership.
On February 29, 1996, JCH consummated an agreement with Time Warner
Entertainment-Advance/Newhouse Partnership ("TWEAN"), an unaffiliated cable
television system operator, pursuant to which JCH conveyed the Tampa System,
along with certain other cable television systems owned by JCH, and cash in the
amount of $3,500,000 to TWEAN in exchange for the cable television systems
serving Andrews Air Force Base, Capitol Heights, Cheltenham, District Heights,
Fairmount Heights, Forest Heights, Morningside, Seat Pleasant, Upper Marlboro,
and portions of Prince George's County, all in Maryland, and a portion of
Fairfax County, Virginia.
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CABLE TELEVISION SERVICES. The Systems offer to subscribers various
types of programming, which include basic service, tier service, premium
service, pay-per-view programs and packages including several of these services
at combined rates.
Basic cable television service usually consists of signals of all four
national television networks, various independent and educational television
stations (both VHF and UHF) and certain signals received from satellites. Basic
service also usually includes programs originated locally by the system, which
may consist of music, news, weather reports, stock market and financial
information and live or videotaped programs of a public service or entertainment
nature. FM radio signals are also frequently distributed to subscribers as part
of the basic service.
The Systems offer tier services on an optional basis to its
subscribers. A tier generally includes most of the cable networks such as
Entertainment and Sports Programming Network (ESPN), Cable News Network (CNN),
Turner Network Television (TNT), Family Channel, Discovery and others, and the
cable television operators buy tier programming from these networks. The
Systems also offer a package that includes the basic service channels and the
tier services.
The Systems also offer premium services to subscribers, which consist
of feature films, sporting events and other special features that are presented
without commercial interruption. The cable television operators buy premium
programming from suppliers such as HBO, Showtime, Cinemax or others at a cost
based on the number of subscribers the cable operator serves. Premium service
programming usually is significantly more expensive than the basic service or
tier service programming, and consequently cable operators price premium service
separately when sold to subscribers.
The Systems also offer to subscribers pay-per-view programming. Pay-
per-view is a service that allows subscribers to receive single programs,
frequently consisting of motion pictures that have recently completed their
theatrical exhibitions and major sporting events, and to pay for such service on
a program-by-program basis.
REVENUES. Monthly service fees for basic, tier and premium services
constitute the major source of revenue for the Systems. At December 31, 1996,
the Systems' monthly basic service rates ranged from $7.99 to $19.80, monthly
basic and tier ("basic plus") service rates ranged from $16.50 to $24.77 and
monthly premium services ranged from $3.00 to $12.95 per premium service. In
addition, the Venture earns revenues from the Systems' pay-per-view programs and
advertising fees. Related charges may include a nonrecurring installation fee
that ranges from $1.90 to $35.54; however, from time to time the Systems have
followed the common industry practice of reducing or waiving the installation
fee during promotional periods. Commercial subscribers such as hotels, motels
and hospitals are charged a nonrecurring connection fee that usually covers the
cost of installation. Except under the terms of certain contracts with
commercial subscribers and residential apartment and condominium complexes, the
subscribers are free to discontinue the service at any time without penalty.
For the year ended December 31, 1996, of the total fees received by the Systems,
basic service and tier service fees accounted for approximately 64% of total
revenues, premium service fees accounted for approximately 13% of total
revenues, pay-per-view fees were approximately 3% of total revenues, advertising
fees were approximately 9% of total revenues and the remaining 11% of total
revenues came principally from equipment rentals, installation fees and program
guide sales. The Venture is dependent upon the timely receipt of service fees
to provide for maintenance and replacement of plant and equipment, current
operating expenses and other costs of the Systems.
FRANCHISES. The Systems are constructed and operated under non-
exclusive, fixed-term franchises or other types of operating authorities
(referred to collectively herein as "franchises") granted by local governmental
authorities. These franchises typically contain many conditions, such as time
limitations on commencement and completion of construction, conditions of
service, including the number of channels, types of programming and the
provision of free service to schools and certain other public institutions, and
the maintenance of insurance and indemnity bonds. The provisions of local
franchises are subject to federal regulation.
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The Venture holds 9 franchises relating to the Systems. These
franchises provide for the payment of fees to the issuing authorities and
generally range from 3% to 5% of the gross revenues of a cable television
system. The 1984 Cable Act prohibits franchising authorities from imposing
annual franchise fees in excess of 5% of gross revenues and also permits the
cable television system operator to seek renegotiation and modification of
franchise requirements if warranted by changed circumstances.
The Venture has never had a franchise revoked. The Venture does not
have any franchises that will expire prior to December 31, 1997. The General
Partner recently has experienced lengthy negotiations with some franchising
authorities for the granting of franchise renewals. Some of the issues involved
in recent renewal negotiations include rate regulation, customer service
standards, cable plant upgrade or replacement and shorter terms of franchise
agreements.
COMPETITION. Cable television systems currently experience
competition from several sources.
Broadcast Television. Cable television systems have traditionally
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competed with broadcast television, which consists of television signals that
the viewer is able to receive directly on his television without charge using an
"off-air" antenna. The extent of such competition is dependent in part upon the
quality and quantity of signals available by such antenna reception as compared
to the services provided by the local cable system. Accordingly, it has
generally been less difficult for cable operators to obtain higher penetration
rates in rural areas where signals available off-air are limited, than in
metropolitan areas where numerous, high quality off-air signals are often
available without the aid of cable television systems.
Traditional Overbuild. Cable television franchises are not exclusive,
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so that more than one cable television system may be built in the same area
(known as an "overbuild"), with potential loss of revenues to the operator of
the original cable television system. The General Partner has experienced
overbuilds in connection with certain systems that it has owned or managed for
limited partnerships, and currently there are overbuilds in the systems owned or
managed by the General Partner. Constructing and developing a cable television
system is a capital intensive process, and it is often difficult for a new cable
system operator to create a marketing edge over the existing system. Generally,
an overbuilder would be required to obtain franchises from the local
governmental authorities, although in some instances, the overbuilder could be
the local government itself. In any case, an overbuilder would be required to
obtain programming contracts from entertainment programmers and, in most cases,
would have to build a complete cable system, including headends, trunk lines and
drops to individual subscribers homes, throughout the franchise areas.
DBS. High-powered direct-to-home satellites have made possible the
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wide-scale delivery of programming to individuals throughout the United States
using small roof-top or wall-mounted antennas. Several companies began offering
direct broadcast satellite ("DBS") service over the last few years and
additional entrants are expected. Companies offering DBS service use video
compression technology to increase channel capacity of their systems to 100 or
more channels and to provide packages of movies, satellite network and other
program services which are competitive to those of cable television systems.
DBS cannot currently offer its subscribers local programming, although at least
one future DBS entrant is attempting to offer customers regional delivery of
local broadcast signals. In addition to emerging high-powered DBS competition,
cable television systems face competition from a major medium-powered satellite
distribution provider and several low-powered providers, whose service requires
use of much larger home satellite dishes. Not all subscribers terminate cable
television service upon acquiring a DBS system. The General Partner has
observed that there are DBS subscribers that also elect to subscribe to cable
television service in order to obtain the greatest variety of programming on
multiple television sets, including local programming not available through DBS
service. The ability of DBS service providers to compete successfully with the
cable television industry will depend on, among other factors, the ability of
DBS providers to overcome certain legal and technical hurdles and the
availability of equipment at reasonable prices.
Telephone. Federal cross-ownership restrictions historically limited
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entry by local telephone companies into the cable television business. The 1996
Telecommunications Act (the "1996 Telecom Act") eliminated this
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cross-ownership restriction, making it possible for companies with considerable
resources to overbuild existing cable operators and enter the business. Several
telephone companies have begun seeking cable television franchises from local
governmental authorities and constructing cable television systems. Ameritech,
one of the seven regional Bell Operating Companies ("BOCs"), which provides
telephone service in a multi-state region including Illinois, has been the most
active BOC in seeking local cable franchises within its service area. It has
already begun cable service in Naperville, Illinois and has also obtained
franchises for Glen Ellyn and Vernon Hills, Illinois, all of which are currently
served by cable systems owned by three partnerships managed by the General
Partner. The General Partner cannot predict at this time the extent of telephone
company competition that will emerge to owned or managed cable television
systems. The entry of telephone companies as direct competitors, however, is
likely to continue over the next several years and could adversely affect the
profitability and market value of the General Partner's owned and managed
systems. The entry of electric utility companies into the cable television
business, as now authorized by the 1996 Telecom Act, could have a similar
adverse effect.
Private Cable. Additional competition is provided by private cable
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television systems, known as Satellite Master Antenna Television (SMATV),
serving multi-unit dwellings such as condominiums, apartment complexes, and
private residential communities. These private cable systems may enter into
exclusive agreements with apartment owners and homeowners associations, which
may preclude operators of franchised systems from serving residents of such
private complexes. Private cable systems that do not cross public rights of way
are free from the federal, state and local regulatory requirements imposed on
franchised cable television operators. In some cases, the Venture has been
unable to provide cable television service to buildings in which private
operators have secured exclusive contracts to provide video and telephony
services. The Venture is interested in providing these same services, but
expects that the market to install and provide these services in multi-unit
buildings will continue to be highly competitive.
MMDS. Cable television systems also compete with wireless program
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distribution services such as multichannel, multipoint distribution service
("MMDS") systems, commonly called wireless cable, which are licensed to serve
specific areas. MMDS uses low-power microwave frequencies to transmit
television programming over-the-air to paying subscribers. The MMDS industry is
less capital intensive than the cable television industry, and it is therefore
more practical to construct MMDS systems in areas of lower subscriber
penetration. Wireless cable systems are now in direct competition with cable
television systems in several areas of the country, including the system in Pima
County, Arizona owned by the General Partner. Telephone companies have recently
acquired or invested in wireless companies, and may use MMDS systems to provide
services within their service areas in lieu of wired delivery systems.
Enthusiasm for MMDS has waned in recent months, however, as Bell Atlantic and
NYNEX have suspended their investment in two major MMDS companies. To date, the
Venture has not lost a significant number of subscribers, nor a significant
amount of revenue, to MMDS operators competing with the Venture's cable
television systems. A series of actions taken by the FCC, however, including
reallocating certain frequencies to the wireless services, are intended to
facilitate the development of wireless cable television systems as an
alternative means of distributing video programming. The FCC recently held
auctions for spectrum that will be used by wireless operators to provide
additional channels of programming over larger distances. In addition, an
emerging technology, Local Multipoint Distribution services ("LMDS"), could also
pose a significant threat to the cable television industry, if and when it
becomes established. LMDS, sometimes referred to as cellular television, could
have the capability of delivering more than 100 channels of video programming to
a subscriber's home. The potential impact, however, of LMDS is difficult to
assess due to the newness of the technology and the absence of any current fully
operational LMDS systems.
Cable television systems are also in competition, in various degrees
with other communications and entertainment media, including motion pictures and
home video cassette recorders.
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REGULATION AND LEGISLATION
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The operation of cable television systems is extensively regulated by
the FCC, some state governments and most local governments. The new 1996
Telecom Act alters the regulatory structure governing the nation's
telecommunications providers. It removes barriers to competition in both the
cable television market and the local telephone market. Among other things, it
also reduces the scope of cable rate regulation.
The 1996 Telecom Act requires the FCC to undertake a host of
implementing rulemakings, the final outcome of which cannot yet be determined.
Moreover, Congress and the FCC have frequently revisited the subject of cable
regulation. Future legislative and regulatory changes could adversely affect
the Venture's operations. This section briefly summarizes key laws and
regulations affecting the operation of the Venture's cable systems and does not
purport to describe all present, proposed, or possible laws and regulations
affecting the Venture.
Cable Rate Regulation. The 1992 Cable Act imposed an extensive rate
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regulation regime on the cable television industry. Under that regime, all
cable systems are subject to rate regulation, unless they face "effective
competition" in their local franchise area. Federal law now defines "effective
competition" on a community-specific basis as requiring either low penetration
(less than 30%) by the incumbent cable operator, appreciable penetration (more
than 15%) by competing multichannel video providers ("MVPs"), or the presence of
a competing MVP affiliated with a local telephone company.
Although the FCC rules control, local government units (commonly
referred to as local franchising authorities or "LFAs") are primarily
responsible for administering the regulation of the lowest level of cable -- the
basic service tier ("BST"), which typically contains local broadcast stations
and public, educational, and government ("PEG") access channels. Before an LFA
begins BST rate regulation, it must certify to the FCC that it will follow
applicable federal rules, and many LFAs have voluntarily declined to exercise
this authority. LFAs also have primary responsibility for regulating cable
equipment rates. Under federal law, charges for various types of cable
equipment must be unbundled from each other and from monthly charges for
programming services. The 1996 Telecom Act allows operators to aggregate costs
for broad categories of equipment across geographic and functional lines. This
change should facilitate the introduction of new technology.
The FCC itself directly administers rate regulation of any cable
programming service tiers ("CPST"), which typically contain satellite-delivered
programming. Under the 1996 Telecom Act, the FCC can regulate CPST rates only
if an LFA first receives at least two rate complaints from local subscribers and
then files a formal complaint with the FCC. When new CPST rate complaints are
filed, the FCC now considers only whether the incremental increase is justified
and will not reduce the previously established CPST rate.
Under the FCC's rate regulations, most cable systems were required to
reduce their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price cap scheme that allows for the
recovery of inflation and certain increased costs, as well as providing some
incentive for expanding channel carriage. The FCC has modified its rate
adjustment regulations to allow for annual rate increases and to minimize
previous problems associated with regulatory lag. Operators also have the
opportunity of bypassing this "benchmark" regulatory scheme in favor of
traditional "cost-of-service" regulation in cases where the latter methodology
appears favorable. Premium cable services offered on a per-channel or per-
program basis remain unregulated, as do affirmatively marketed packages
consisting entirely of new programming product. Federal law requires that the
BST be offered to all cable subscribers, but limits the ability of operators to
require purchase of any CPST before purchasing premium services offered on a
per-channel or per-program basis.
The 1996 Telecom Act sunsets FCC regulation of CPST rates for all
systems (regardless of size) on March 31, 1999. It also relaxes existing
uniform rate requirements by specifying that uniform rate requirements do not
apply where the operator faces "effective competition," and by exempting bulk
discounts to multiple dwelling units, although complaints about predatory
pricing still may be made to the FCC.
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Cable Entry Into Telecommunications. The 1996 Telecom Act provides
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that no state or local laws or regulations may prohibit or have the effect of
prohibiting any entity from providing any interstate or intrastate
telecommunications service. States are authorized, however, to impose
"competitively neutral" requirements regarding universal service, public safety
and welfare, service quality, and consumer protection. State and local
governments also retain their authority to manage the public rights-of-way and
may require reasonable, competitively neutral compensation for management of the
public rights-of-way when cable operators provide telecommunications service.
The favorable pole attachment rates afforded cable operators under federal law
can be gradually increased by utility companies owning the poles (beginning in
2001) if the operator provides telecommunications service, as well as cable
service, over its plant.
Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the FCC and state regulators. One critical
component of the 1996 Telecom Act to facilitate the entry of new
telecommunications providers (including cable operators) is the interconnection
obligation imposed on all telecommunications carriers. Review of the FCC's
initial interconnection order is now pending before the Eighth Circuit Court of
Appeals.
Telephone Company Entry Into Cable Television. The 1996 Telecom Act
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allows telephone companies to compete directly with cable operators by repealing
the historic telephone company/cable cross-ownership ban. Local exchange
carriers ("LECs"), including the BOCs, can now compete with cable operators both
inside and outside their telephone service areas. Because of their resources,
LECs could be formidable competitors to traditional cable operators, and certain
LECs have begun offering cable service. As described above, the General Partner
is now witnessing the beginning of LEC competition in a few of its cable
communities.
Under the 1996 Telecom Act, a LEC providing video programming to
subscribers will be regulated as a traditional cable operator (subject to local
franchising and federal regulatory requirements), unless the LEC elects to
provide its programming via an "open video system" ("OVS"). To qualify for OVS
status, the LEC must reserve two-thirds of the system's activated channels for
unaffiliated entities.
Although LECs and cable operators can now expand their offerings
across traditional service boundaries, the general prohibition remains on LEC
buyouts (i.e., any ownership interest exceeding 10 percent) of co-located cable
systems, cable operator buyouts of co-located LEC systems, and joint ventures
between cable operators and LECs in the same market. The 1996 Telecom Act
provides a few limited exceptions to this buyout prohibition, including a
carefully circumscribed "rural exemption." The 1996 Telecom Act also provides
the FCC with the limited authority to grant waivers of the buyout prohibition
(subject to LFA approval).
Electric Utility Entry Into Telecommunications/Cable Television. The
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1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services (including cable
television) notwithstanding the Public Utilities Holding Company Act. Electric
utilities must establish separate subsidiaries, known as "exempt
telecommunications companies" and must apply to the FCC for operating authority.
Again, because of their resources, electric utilities could be formidable
competitors to traditional cable systems.
Additional Ownership Restrictions. The 1996 Telecom Act eliminates
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statutory restrictions on broadcast/cable cross-ownership (including broadcast
network/cable restrictions), but leaves in place existing FCC regulations
prohibiting local cross-ownership between co-located television stations and
cable systems. The 1996 Telecom Act also eliminates the three year holding
period required under the 1992 Cable Act's "anti-trafficking" provision. The
1996 Telecom Act leaves in place existing restrictions on cable cross-ownership
with SMATV and MMDS facilities, but lifts those restrictions where the cable
operator is subject to effective competition. In January 1995, however, the FCC
adopted regulations which permit cable operators to own and operate SMATV
systems within their franchise area, provided that such operation is consistent
with local cable franchise requirements.
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Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a
cable system from devoting more than 40% of its activated channel capacity to
the carriage of affiliated national program services. A companion rule
establishing a nationwide ownership cap on any cable operator equal to 30% of
all domestic cable subscribers has been stayed pending further judicial review.
There are no federal restrictions on non-U.S. entities having an
ownership interest in cable television systems or the FCC licenses commonly
employed by such systems. Section 310(b)(4) of the Communications Act does,
however, prohibit foreign ownership of FCC broadcast and telephone licenses,
unless the FCC concludes that such foreign ownership is consistent with the
public interest. BCI's investment in the General Partner could, therefore,
adversely affect any plan to acquire FCC broadcast or common carrier licenses.
The Partnership, however, does not currently plan to acquire such licenses.
Must Carry/Retransmission Consent. The 1992 Cable Act contains
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broadcast signal carriage requirements that allow local commercial television
broadcast stations to elect once every three years between requiring a cable
system to carry the station ("must carry") or negotiating for payments for
granting permission to the cable operator to carry the station ("retransmission
consent"). Less popular stations typically elect "must carry," and more popular
stations typically elect "retransmission consent." Must carry requests can
dilute the appeal of a cable system's programming offerings, and retransmission
consent demands may require substantial payments or other concessions. Either
option has a potentially adverse affect on the Venture's business.
Additionally, cable systems are required to obtain retransmission consent for
all "distant" commercial television stations (except for satellite-delivered
independent "superstations" such as WTBS). The constitutionality of the must
carry requirements has been challenged and is awaiting a decision from the U.S.
Supreme Court.
Access Channels. LFAs can include franchise provisions requiring
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cable operators to set aside certain channels for public, educational and
governmental access programming. Federal law also requires cable systems to
designate a portion of their channel capacity (up to 15% in some cases) for
commercial leased access by unaffiliated third parties. The FCC has adopted
rules regulating the terms, conditions and maximum rates a cable operator may
charge for use of the designated channel capacity, but use of commercial leased
access channels has been relatively limited. The FCC released revised rules in
February 1997 which mandate a modest rate reduction and could make commercial
leased access a more attractive option to third party programmers.
Access to Programming. To spur the development of independent cable
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programmers and competition to incumbent cable operators, the 1992 Cable Act
imposed restrictions on the dealings between cable operators and cable
programmers. Of special significance from a competitive business posture, the
1992 Cable Act precludes video programmers affiliated with cable companies from
favoring cable operators over competitors and requires such programmers to sell
their programming to other multichannel video distributors. This provision
limits the ability of vertically integrated cable programmers to offer exclusive
programming arrangements to cable companies.
Other FCC Regulations. In addition to the FCC regulations noted
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above, there are other FCC regulations covering such areas as equal employment
opportunity, subscriber privacy, programming practices (including, among other
things, syndicated program exclusivity, network program nonduplication, local
sports blackouts, indecent programming, lottery programming, political
programming, sponsorship identification, and children's programming
advertisements), registration of cable systems and facilities licensing,
maintenance of various records and public inspection files, frequency usage,
lockbox availability, antenna structure notification, tower marking and
lighting, consumer protection and customer service standards, technical
standards, and consumer electronics equipment compatibility. The FCC is
expected to impose new Emergency Alert System requirements on cable operators
this year. The FCC has the authority to enforce its regulations through the
imposition of substantial fines, the issuance of cease and desist orders and/or
the imposition of other administrative sanctions, such as the revocation of FCC
licenses needed to operate certain transmission facilities used in connection
with cable operations.
Two pending FCC proceedings of particular competitive concern involve
inside wiring and navigational devices. The former rulemaking is considering
ownership of cable wiring located inside multiple dwelling unit
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complexes. If the FCC concludes that such wiring belongs to, or can be
unilaterally acquired by the complex owner, it will become easier for complex
owners to terminate service from the incumbent cable operator in favor of a new
entrant. The latter rulemaking is considering whether cable customers must be
allowed to purchase cable converters from third party vendors. If the FCC
concludes that such distribution is required, and does not make appropriate
allowances for signal piracy concerns, it may become more difficult for cable
operators to combat theft of service.
Copyright. Cable television systems are subject to federal copyright
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licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
revenues to a federal copyright royalty pool (that varies depending on the size
of the system and the number of distant broadcast television signals carried),
cable operators can obtain blanket permission to retransmit copyrighted material
on broadcast signals. The possible modification or elimination of this
compulsory copyright license is the subject of continuing legislative review and
could adversely affect the Venture's ability to obtain desired broadcast
programming. In addition, the cable industry pays music licensing fees to BMI
and is negotiating a similar arrangement with ASCAP. Copyright clearances for
nonbroadcast programming services are arranged through private negotiations.
State and Local Regulation. Cable television systems generally are
--------------------------
operated pursuant to nonexclusive franchises granted by a municipality or other
state or local government entity in order to cross public rights-of-way.
Federal law now prohibits franchise authorities from granting exclusive
franchises or from unreasonably refusing to award additional franchises. Cable
franchises generally are granted for fixed terms and in many cases include
monetary penalties for non-compliance and may be terminable if the franchisee
fails to comply with material provisions.
The terms and conditions of franchises vary materially from
jurisdiction to jurisdiction. Each franchise generally contains provisions
governing cable operations, service rates, franchise fees, system construction
and maintenance obligations, system channel capacity, design and technical
performance, customer service standards, and indemnification protections. A
number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. Although LFAs have considerable
discretion in establishing franchise terms, there are certain federal
limitations. For example, LFAs cannot insist on franchise fees exceeding 5% of
the system's gross revenues, cannot dictate the particular technology used by
the system, and cannot specify video programming other than identifying broad
categories of programming.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the franchise authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal. Similarly, if a franchise
authority's consent is required for the purchase or sale of a cable system or
franchise, such authority may attempt to impose more burdensome or onerous
franchise requirements in connection with a request for consent. Historically,
franchises have been renewed for cable operators that have provided satisfactory
services and have complied with the terms of their franchises.
GENERAL. The Venture's business consists of providing cable
television services to a large number of customers, the loss of any one of which
would have no material effect on the Venture's business. The Systems have had
some subscribers who later terminated the service. Terminations occur primarily
because people move to another home or to another city. In other cases, people
terminate on a seasonal basis or because they no longer can afford or are
dissatisfied with the service. The amount of past due accounts in the Systems
is not significant. The Venture's policy with regard to past due accounts is
basically one of disconnecting service before a past due account becomes
material.
The Venture does not depend to any material extent on the availability
of raw materials; it carries no significant amounts of inventory and it has no
material backlog of customer orders. Neither the Venture nor the Partnership
has any employees because all properties are managed by employees of the General
Partner. The
9
<PAGE>
General Partner has engaged in research and development activities relating to
the provision of new services but the amount of the Venture's funds expended for
such research and development has never been material.
Compliance with federal, state and local provisions that have been
enacted or adopted regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment has had no material
effect upon the capital expenditures, earnings or competitive position of the
Venture.
ITEM 2. PROPERTIES
-------------------
The cable television systems owned by the Venture are described below:
<TABLE>
<CAPTION>
Ownership SYSTEM ACQUISITION DATE
--------- ------ ----------------
<S> <C> <C>
Cable TV Fund 12-B, Ltd., Cable TV Fund Palmdale System April 1986
12-C, Ltd. and Cable TV Fund 12-D, Albuquerque System August 1986
Ltd. own a 9%, 15% and 76% interest,
respectively, through their interest
in Cable TV Fund 12-BCD Venture
</TABLE>
The following sets forth (i) the monthly basic plus service rates
charged to subscribers and (ii) the number of basic subscribers and pay units
for the Systems. The monthly basic service rates set forth herein represent,
with respect to systems with multiple headends, the basic service rate charged
to the majority of the subscribers within the system. In cable television
systems, basic subscribers can subscribe to more than one pay TV service. Thus,
the total number of pay services subscribed to by basic subscribers are called
pay units. As of December 31, 1996, the Palmdale System operated cable plant
passing approximately 92,900 homes, with an approximate 68% penetration rate,
and the Albuquerque System operated cable plant passing approximately 231,300
homes, with an approximate 48% penetration rate. Figures for numbers of
subscribers and homes passed are compiled from the General Partner's records and
may be subject to adjustments.
<TABLE>
<CAPTION>
At December 31,
----------------------
PALMDALE SYSTEM 1996 1995 1994
- --------------- ---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $ 24.77 $ 23.27 $ 21.77
Basic subscribers 63,188 61,993 59,702
Pay units 45,108 46,699 46,214
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
At December 31,
------------------------
ALBUQUERQUE SYSTEM 1996 1995 1994
- ------------------ ---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $ 23.95 $ 22.85 $ 21.35
Basic subscribers 112,460 109,911 106,835
Pay units 61,210 57,189 58,838
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
--------------------------
David Hirsch, derivatively on behalf of Cable TV Fund 12-B, Ltd.,
-----------------------------------------------------------------
Cable TV Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd. v. Jones Intercable, Inc.
- -------------------------------------------------------------------------------
(Arapahoe County District Court, Colorado, Case No. 95-CV-1800, Division 3)
("Hirsch"); Jonathan Fussner and Eileen Fussner, derivatively on behalf of Cable
- -------- --------------------------------------------------------------------
TV Fund 12-B, Ltd., Cable TV Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd. v.
- ----------------------------------------------------------------------------
Jones Intercable, Inc. (Arapahoe County District Court, Colorado, Case No. 96-
- ----------------------
CV-1672, Division 3) ("Fussner").
-------
On September 20, 1995, the General Partner was named as a defendant in
a Complaint filed by David Hirsch, who is a limited partner in Fund 12-D. On
January 25, 1996, the General Partner was served with an Amended Class Action
Complaint and Request for Jury Trial. On February 19, 1996, the General Partner
filed a Motion to Dismiss the Amended Complaint arguing that the action was
improperly brought as a class action. The General Partner argued that the
plaintiff could only bring the action as a derivative claim and that because the
elements of a derivative claim had not been properly pleaded, the Amended
Complaint should be dismissed. After briefing on this motion, the Court entered
an Order on June 24, 1996 granting the General Partner's Motion to Dismiss, and
on July 25, 1996, the Court entered a further Order allowing plaintiff to file
another Amended Complaint. On July 31, 1996, plaintiff Hirsch filed a Second
Amended Complaint.
Plaintiff Hirsch's Second Amended Complaint alleges that he is a
limited partner in Fund 12-D and that he now purports to bring this case as a
derivative action on behalf of the Partnership, Fund 12-C and Fund 12-D. The
suit relates to the purchase by JCH from the Venture of the Tampa System and the
subsequent trade of the Tampa System, along with other cable systems, to Time
Warner for certain of Time Warner's cable systems. JCH was authorized to
purchase the Tampa System from the Venture pursuant to the terms of the limited
partnership agreements of the Partnership, Fund 12-C and Fund 12-D.
Also on July 31, 1996, the same lawyers who represent Mr. Hirsch filed
a Verified Complaint on behalf of Jonathan Fussner and Eileen Fussner as
referenced above. The Fussners also are joint owners of limited partnership
interests in Fund 12-D and their Verified Complaint is identical in all
substantive respects to the Hirsch Second Amended Complaint. On December 13,
------
1996, the Court consolidated the Hirsch and Fussner actions.
------ -------
The Second Amended Complaint in Hirsch and the Verified Complaint in
------
Fussner allege that the General Partner breached its fiduciary duty to the
- -------
plaintiffs and the other limited partners of the Partnership, Fund 12-C and Fund
12-D and the Venture in connection with JCH's purchase of the Tampa System and
the trade of that system to Time Warner. The Hirsch and Fussner Complaints also
------ -------
set forth a claim for unjust enrichment and for breach of the implied covenant
of good faith and fair dealing. Among other things, the plaintiffs assert that
JCH paid an inadequate price for the Tampa System, even though the agreed-upon
price was the average of three separate appraisals, as required by the
applicable partnership agreements. The Hirsch and Fussner cases are now styled
------ -------
as derivative actions and also seek a trial by jury. The plaintiffs in Hirsch
------
and Fussner seek an unspecified amount of damages, including punitive damages,
-------
an award of attorneys' fees and certain equitable relief.
On August 13, 1996, the General Partner filed a Motion to Dismiss the
breach of fiduciary duty and unjust enrichment claims in the Hirsch and Fussner
------ -------
actions. On February 6, 1997, after briefing on this motion, the Court denied
the General Partner's Motion to Dismiss. The General Partner's Answer to the
Complaints in
11
<PAGE>
Hirsch and Fussner was filed on February 25, 1997 and generally denied the
- ------ -------
substantive allegations in the Complaint and asserted a number of affirmative
defenses. There is no trial date set in these cases, and there has been no
discovery conducted by the parties to date.
Martin Ury, derivatively on behalf of Cable TV Fund 12-B, Ltd., Cable
---------------------------------------------------------------------
TV Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd. v. Jones Intercable, Inc.,
- --------------------------------------------------------------------------
Defendant, and Cable TV Fund 12-BCD Venture, Cable TV Fund 12-B, Ltd., Cable TV
- -------------------------------------------------------------------------------
Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd., Nominal Defendants (Arapahoe
- ----------------------------------------------------------------
County District Court, Colorado, Case No. 95-CV-2212, Division 5) ("Ury").
---
On November 17, 1995, plaintiff Martin Ury filed a Complaint against
the General Partner in the above-referenced action in Arapahoe County District
Court. Plaintiff Ury is a limited partner in Fund 12-D. He purports to bring
this case as a derivative action on behalf of the Partnership, Fund 12-C and
Fund 12-D. As in Hirsch and Fussner, discussed above, this case relates to
------ -------
JCH's purchase of the Tampa System and the Time Warner exchange.
The substantive allegations of the Ury Complaint are substantially
---
similar to the allegations in the Hirsch Second Amended Complaint and the
------
Fussner Verified Complaint. The plaintiff in Ury alleges that the General
- ------- ---
Partner breached its fiduciary duties to the limited partnerships and their
limited partners in connection with JCH's purchase of the Tampa System from the
Venture. Specifically, the plaintiff alleges that JCH paid an inadequate price
for the Tampa System, even though the agreed upon price was the average of three
separate appraisals, as required by the applicable limited partnership
agreements. The Complaint seeks damages in an unspecified amount on behalf of
the three limited partnerships and an award of attorneys' fees. The Complaint
does not seek a jury trial or punitive damages.
On February 1, 1996, the General Partner filed a Motion to Dismiss the
Complaint on the ground that it fails to state a claim against the General
Partner upon which relief can be granted. The thrust of the General Partner's
motion was that the General Partner cannot be liable for breach of fiduciary
duty because it acted in accordance with the terms of the limited partnership
agreements in arranging for JCH's purchase of the Tampa System. The General
Partner also argued that plaintiff does not have standing to assert a derivative
claim on behalf of the Partnership or Fund 12-C, since he is only a limited
partner in Fund 12-D. On July 12, 1996, the Court denied the General Partner's
Motion to Dismiss. The General Partner filed its Answer in this case on July
29, 1996, generally denying the substantive allegations in the Complaint,
asserting a number of affirmative defenses and requesting a trial by jury. A
Case Management Order has been entered by the Court, setting the case for a two-
week jury trial commencing on September 22, 1997. The parties have made certain
voluntary disclosures pursuant to Rule 26 of the Colorado Rules of Civil
Procedure, and discovery has begun, although no depositions have been taken to
date.
Because these cases are in their very early stages, it is not possible
at this time to present a realistic evaluation of the probability of a favorable
or unfavorable outcome.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
None.
12
<PAGE>
PART II.
--------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
-------------------------------------------------
AND RELATED SECURITY HOLDER MATTERS
-----------------------------------
While the Partnership is publicly held, there is no public market for
the limited partnership interests, and it is not expected that a market will
develop in the future. During 1996, a limited partner of the Partnership
conducted a "limited tender offer" for interests in the Partnership at a price
of $54 per interest. As of February 14, 1997, the number of equity security
holders in the Partnership was 7,814.
13
<PAGE>
Item 6. Selected Financial Data
- --------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------------------------------------
Cable TV Fund 12-B, Ltd. 1996 1995 1994 1993 1992
- ------------------------ ---------------- ----------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues $ - $ 24,308,934 $ 26,956,006 $ 26,975,209 $ 25,369,064
Depreciation and Amortization - 8,263,976 9,380,877 8,897,796 8,415,058
Operating Income - 602,125 249,558 1,816,948 1,937,255
Equity in Net Income (Loss) of Cable
Television Joint Venture 5,722,705 (1,021,236) (1,182,039) (1,063,449) (1,336,385)
Net Income (Loss) 5,722,705/(b)/ 89,473,978/(a)/(3,368,245) (1,463,979) (2,300,652)
Net Income (Loss) per Limited
Partnership Unit 40.47/(b)/ 682.72/(a)/ (30.03) (13.05) (20.51)
Weighted Average Number of Limited
Partnership Units Outstanding 111,035 111,035 111,035 111,035 111,035
General Partner's Capital (Deficit) (189,328) 143,472 (304,152) (270,470) (255,830)
Limited Partners' Capital (Deficit) (1,906,981) (1,699,774) 17,673,872 21,008,435 22,457,774
Total Assets 55,348 1,269,060 60,347,311 66,085,025 70,507,101
Debt - - 39,959,041 43,831,074 46,797,508
General Partner Advances - - 112,495 163,266 289,033
For the Year Ended December 31,
----------------------------------------------------------------------------
Cable TV Fund 12-BCD Venture 1996 1995 1994 1993 1992
- ---------------------------- ------------ ------------ ------------ ------------ ------------
Revenues $ 82,363,752 $101,399,697 $ 92,823,076 $ 89,131,530 $ 83,567,527
Depreciation & Amortization 21,993,546 26,666,735 24,809,654 25,772,299 26,764,820
Operating Income (Loss) 2,029,571 4,127,622 289,904 779,887 (1,087,963)
Net Income (Loss) 62,338,836/(b)/ (11,124,567) (12,876,242) (11,584,416) (14,884,365)
Partners' Capital (Deficit) (22,391,482) (29,730,318) (18,605,751) (5,729,509) 5,854,907
Total Assets 120,899,336 163,486,029 170,675,914 169,670,552 175,554,620
Debt 138,345,878 180,770,267 180,402,748 167,698,697 160,440,488
Jones Intercable, Inc. Advances - 4,198,739 616,810 188,430 511,646
</TABLE>
(a) Net income resulted primarily from the sale of the Augusta System by Cable
TV Fund 12-B, Ltd. in October 1995.
(b) Net income resulted primarily from the sale of the Tampa System by Cable TV
Fund 12-BCD Venture in February 1996.
13
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
The following discussion of the financial condition and results of
operations of Cable TV Fund 12-B, Ltd. (the "Partnership") and Cable TV Fund 12-
BCD Venture (the "Venture") contain, in addition to historical information,
forward-looking statements that are based upon certain assumptions and are
subject to a number of risks and uncertainties. The Partnership's and Venture's
actual results may differ significantly from the results predicted in such
forward-looking statements.
FINANCIAL CONDITION
- -------------------
Cable TV Fund 12-B, Ltd. -
- ------------------------
The Partnership owns a 9 percent interest in the Venture. The investment
in cable television joint venture is accounted for under the equity method. The
Partnership's share of losses generated by the Venture have exceeded The
Partnership's initial investment in the Venture; therefore, the investment is
classified as a liability. This liability decreased by $673,705, which
represents the Partnership's share of income generated by the Venture for the
year ended December 31, 1996, reduced by the distribution from the Venture.
On February 28, 1996, the Venture sold the cable television system
serving areas in and around Tampa, Florida (the "Tampa System") to Jones Cable
Holdings, Inc. ("JCH"), a wholly owned subsidiary of the General Partner, for a
sales price of $110,395,667, subject to normal working capital closing
adjustments. This price represented the average of three separate, independent
appraisals of the fair market value of the Tampa System. Because the Venture's
debt arrangements did not originally allow the Venture to make distributions on
the sale of Venture assets, in February 1996 the Venture's debt arrangements
were amended to permit a $55,000,000 distribution to the Venture's partners from
the sale proceeds, and the balance of the sale proceeds were used to reduce
Venture indebtedness. The Partnership's portion of this distribution was
approximately $5,049,000, of which approximately $3,787,000 was distributed to
limited partners and $1,262,000 was distributed to the General Partner in March
1996. The Partnership also then distributed $1,200,000 of proceeds remaining
from the sale of the Augusta System, of which $900,000 was distributed to
limited partners and $300,000 was distributed to the General Partner. These
distributions gave the Partnership's limited partners an approximate return of
$84 for each $1,000 invested in the Partnership. This amount is in addition to
the $1,714 for each $1,000 invested in the Partnership returned to the limited
partners from the Augusta System sale. Because the Tampa System did not
constitute all or substantially all of the Venture's assets, no vote of the
limited partners of the Partnership was required in connection with this
transaction.
Cable TV Fund 12-BCD Venture -
- ----------------------------
It is the General Partner's publicly announced policy that it intends to
liquidate its managed limited partnerships, including the partnerships that
comprise the Venture, as opportunities for sales of partnership cable television
systems arise in the marketplace over the next several years. In accordance
with the General Partner's policy, the Venture sold the Tampa System in February
1996. No specific dates or terms have yet been set for the sale of the
remainder of the Venture's systems.
On February 28, 1996, the Venture sold the Tampa System to JCH. The
sales price of the Tampa System was $110,395,667, subject to normal working
capital closing adjustments. This price represented the average of three
separate, independent appraisals of the fair market value of the Tampa System.
In February 1996, the Venture's debt arrangements were amended to permit a
$55,000,000 distribution to the Venture's partners from the sale proceeds, and
the balance of the sale proceeds were used to reduce Venture indebtedness. The
net sales proceeds were distributed as follows: Fund 12-B received $5,049,000;
Fund 12-C received $8,404,000 and Fund 12-D received $41,547,000.
For the year ended December 31, 1996, the Venture generated net cash from
operating activities totaling $4,632,835 which was available to fund capital
expenditures and non-operating costs. Capital expenditures for the Venture
totaled approximately $17,474,000 during 1996. New plant construction accounted
for approximately 46 percent of the capital expenditures. Service drops to homes
accounted for approximately 29 percent of the capital expenditures. The
remaining expenditures related to various system enhancements. These capital
expenditures were funded primarily from cash generated from operations, advances
from Jones Intercable, Inc. and borrowings from the Venture's credit facility.
Expected capital expenditures for 1997 are approximately $16,052,000. Service
drops to homes are anticipated to account for approximately 27 percent. Rebuild
construction is anticipated to account for 21 percent. New plant construction is
anticipated to account for 17 percent. The remainder of the expenditures are for
various system enhancements in all of the
14
<PAGE>
Venture's systems. These capital expenditures are necessary to maintain the
value of the Venture's systems. Funding for these expenditures is expected to be
provided by cash on hand, cash generated from operations and borrowings from the
Venture's credit facility.
The Venture's debt arrangements at December 31, 1996 consisted of
$55,393,187 of Senior Notes placed with a group of institutional lenders and a
$120,000,000 credit facility with a group of commercial bank lenders. The
Senior Notes and credit facility are equal in standing with the other, and both
are equally secured by the assets of the Venture.
The Senior Notes have a fixed interest rate of 8.64 percent and a final
maturity date of March 31, 2000. The Senior Notes required payments of interest
only to March 1996, with interest and accelerating principal payments required
for the four years thereafter, payable semi-annually in March and September.
Principal payments of approximately $7,385,758 due in 1997 are expected to be
funded from cash on hand, cash generated from operations and borrowings from the
Venture's credit facility. In February 1996, the Venture was required to make a
principal repayment of approximately $33,650,000 from proceeds received from the
sale of the Tampa System. The Senior Notes carry a "make-whole" payment, which
is a prepayment penalty, in the event the notes are prepaid prior to maturity.
The make-whole payment protects the lenders in the event that prepaid funds are
reinvested at a rate below 8.64 percent. The Venture was required to pay a make-
whole payment in February 1996 of approximately $2,217,000.
In February 1996, the Venture was required by the terms of its then-existing
$87,000,000 credit facility to make a principal repayment of $22,000,000 from
proceeds received from the sale of the Tampa System. Simultaneously with the
sale of the Tampa System, the Venture amended this credit facility to increase
the amount available to $120,000,000 to meet the Venture's long-term financing
requirements. The balance outstanding on the Venture's amended credit facility
at December 31, 1996 was $82,130,620, leaving $37,869,380 available for future
needs. At the Venture's option, the credit facility is payable in full on
December 31, 1999 or converts to a term loan that matures on December 31, 2004
payable in consecutive quarterly amounts. Interest on the amended credit
facility is at the Venture's option of the London Interbank Offered Rate plus
1.25 percent, the Prime Rate plus .125 percent or the Certificate of Deposit
Rate plus 1.125 percent. The effective interest rates on amounts outstanding on
the Venture's credit facility as of December 31, 1996 and 1995 were 6.90 percent
and 7.41 percent, respectively.
The Venture has sufficient sources of capital available through its
ability to generate cash from operations and borrowings under its credit
facility to meet its presently anticipated operating needs.
RESULTS OF OPERATIONS
- ---------------------
Cable TV Fund 12-B, Ltd. -
- ------------------------
On October 20, 1995, the Partnership sold the Augusta System, which was
the Partnership's only directly held system, to Jones Cable Holdings, Inc., a
wholly owned subsidiary of the General Partner. The Partnership's continuing
operations are represented by its 9 percent interest in the Venture. Thus,
Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Venture should be consulted for pertinent comments regarding
the Partnership's performance.
Cable TV Fund 12-BCD Venture -
- ----------------------------
1996 compared to 1995
---------------------
Revenues of the Venture decreased $19,035,945, or approximately 19
percent, to $82,363,752 in 1996 from $101,399,697 in 1995. This decrease was
due to the sale of the Tampa System. Disregarding the effect of the Tampa
System sale, revenues increased $4,778,991, or approximately 7 percent, to
$77,478,560 in 1996 from $72,699,569 in 1995. Basic service rate increases
implemented in the Venture's systems combined with an increase in the number of
basic service subscribers primarily accounted for the increase in revenues.
Basic service rate increases accounted for approximately 39 percent of the
increase in basic service revenues in 1996. An increase in the number of basic
service subscribers in the Albuquerque System and the Palmdale System accounted
for approximately 31 percent of the increase in basic service revenues for 1996.
The number of basic service subscribers increased by 3,744 subscribers, or
approximately 2 percent, to 175,648 subscribers in 1996 from 171,904 subscribers
in 1995. No other individual factors were significant to the increases in
revenues.
15
<PAGE>
Operating expenses consist primarily of costs associated with the
operation and administration of the Venture's cable television systems. The
principal cost components are salaries paid to system personnel, programming
expenses, professional fees, subscriber billing costs, rent for leased
facilities, cable system maintenance expenses and marketing expenses.
Operating expenses decreased $9,620,510, or approximately 17 percent, to
$48,731,182 in 1996 from $58,351,692 in 1995. This decrease was due to the sale
of the Tampa System. Disregarding the effect of this sale, operating expenses
increased $3,608,831, or approximately 9 percent, to $44,278,384 in 1996 from
$40,669,553 in 1995. Operating expenses represented 57 percent and 56 percent,
respectively, of revenues for 1996 and 1995. An increase in programming fees
primarily accounted for the increase in operating expenses. No other factor
contributed significantly to the increase in operating expenses.
Management fees and allocated overhead from Jones Intercable, Inc.
decreased $2,644,195, or approximately 22 percent, to $9,609,453 in 1996 from
$12,253,648 in 1995. This decrease was due to the sale of the Tampa System.
Disregarding the effect of this sale, management fees and allocated overhead
from Jones Intercable, Inc. increased $230,923, or approximately 3 percent, to
$9,032,388 in 1996 from $8,801,465 in 1995. This increase was due to the
increase in revenues, upon which such management fees are based.
Depreciation and amortization expense decreased $4,673,189, or
approximately 18 percent, to $21,993,546 in 1996 from $26,666,735 in 1995. This
decrease was due to the sale of the Tampa System. Disregarding the effect of
this sale, depreciation and amortization expense increased $810,250, or
approximately 4 percent, to $21,001,808 in 1996 from $20,191,558 in 1995. This
increase was due to capital additions in 1996.
The Venture's operating income decreased $2,098,051, or approximately 51
percent, to $2,029,571 in 1996 from $4,127,622 in 1995. This decrease was due
to the sale of the Tampa System. Disregarding the effect of this sale,
operating income increased $128,987, or approximately 4 percent, to $3,165,980
in 1996 from $3,036,993 in 1995. This increase was due to the increase in
revenues exceeding the increases in operating expenses, management fees and
allocated overhead from Jones Intercable, Inc. and depreciation and amortization
expense.
The cable television industry generally measures the financial
performance of a cable television system in terms of operating income before
depreciation and amortization. This measure is not intended to be a substitute
or improvement upon the items disclosed on the financial statements, rather it
is included because it is an industry standard. Operating income before
depreciation and amortization decreased $6,771,240, or approximately 22 percent,
to $24,023,117 in 1996 from $30,794,357 in 1995. This decrease was due to the
sale of the Tampa System. Disregarding the effect of this sale, operating
income before depreciation and amortization increased $939,237, or approximately
4 percent, to $24,167,788 in 1996 from $23,228,551 in 1995. This increase was
due to the increase in revenue exceeding the increases in operating expenses and
management fees and allocated overhead from Jones Intercable, Inc.
Interest expense decreased $4,127,956, or approximately 27 percent, to
$11,219,294 in 1996 from $15,347,250 in 1995. This decrease in interest expense
was primarily due to the lower outstanding balance and lower effective interest
rates on the Venture's interest bearing obligations. A portion of the proceeds
from the sale of the Tampa System was used to repay a portion of the Venture's
debt.
The Venture recognized a gain of $71,914,391 related to the sale of the
Tampa System in February 1996. No similar gain was recognized in 1995.
The Venture recognized net income of $62,338,836 in 1996 compared to a
net loss of $11,124,567 in 1995. This change was primarily due to the gain on
the sale of the Tampa System.
1995 compared to 1994
---------------------
Revenues increased $8,576,621, or approximately 9 percent, to
$101,399,697 in 1995 from $92,823,076 in 1994. At December 31, 1995, the
Venture's systems had 236,866 basic subscribers compared to 227,950 basic
subscribers at December 31, 1994, an increase of approximately 4 percent. This
increase in basic subscribers accounted for approximately 39 percent of the
increase in revenues. Basic service rate increases accounted for approximately
37 percent of the increase in revenues. No other single factor significantly
affected the increase in revenues.
16
<PAGE>
Operating expenses in the Venture's systems increased $2,220,438, or
approximately 4 percent, to $58,351,692 in 1995 from $56,131,254 in 1994.
Operating expenses represented approximately 58 percent and approximately 60
percent of revenues in 1995 and in 1994, respectively. The increase in
operating expenses was due to increases in subscriber related costs, programming
fees, property tax expenses and advertising related costs, which were partially
offset by decreases in personnel related costs. No other single factor
significantly affected the increase in operating expenses.
Management fees and allocated overhead from Jones Intercable, Inc.
increased $661,384, or approximately 6 percent, to $12,253,648 in 1995 from
$11,592,264 in 1994 due to the increase in revenues, upon which such fees and
allocations are based.
Depreciation and amortization expense increased $1,857,081, or
approximately 7 percent, to $26,666,735 in 1995 from $24,809,654 in 1994. This
increase was due to the increase in the Venture's depreciable asset base.
The Venture's operating income increased $3,837,718 to $4,127,622 in 1995
from $289,904 in 1994. This increase was the result of the increase in revenue
exceeding the increases in operating expenses, management fees and allocated
overhead from Jones Intercable, Inc. and depreciation and amortization expenses.
Operating income before depreciation and amortization increased
$5,694,799, or approximately 23 percent, to $30,794,357 in 1995 from $25,099,558
in 1994. This increase was due to the increase in revenues exceeding the
increase in operating expenses and management fees and allocated overhead from
Jones Intercable, Inc.
Interest expense increased $2,190,557, or approximately 17 percent, to
$15,347,250 in 1995 from $13,156,693 in 1994 due to higher interest rates and
higher outstanding balances on interest bearing obligations in 1995.
Net loss decreased $1,751,675, or approximately 14 percent, to
$11,124,567 in 1995 from $12,876,242 in 1994 due to the factors discussed above.
17
<PAGE>
Item 8. Financial Statements
- -----------------------------
CABLE TV FUND 12-B, LTD. AND
----------------------------
CABLE TV FUND 12-BCD VENTURE
----------------------------
FINANCIAL STATEMENTS
--------------------
AS OF DECEMBER 31, 1996 AND 1995
--------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page
------------
12-B 12-BCD
---- ------
<S> <C> <C>
Report of Independent Public Accountants 19 28
Balance Sheets 20 29
Statements of Operations 21 31
Statements of Partners' Capital (Deficit) 22 32
Statements of Cash Flows 23 33
Notes to Financial Statements 24 34
</TABLE>
18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Partners of Cable TV Fund 12-B, Ltd.:
We have audited the accompanying balance sheets of CABLE TV FUND 12-B,
LTD. (a Colorado limited partnership) as of December 31, 1996 and 1995, and the
related statements of operations, partners' capital (deficit) and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the General Partner's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Cable TV Fund 12-B,
Ltd. as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 7, 1997.
19
<PAGE>
CABLE TV FUND 12-B, LTD.
------------------------
(A Limited Partnership)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
December 31,
-------------------
<S> <C> <C>
ASSETS 1996 1995
------ ------- ----------
Cash $55,348 $ 204,822
Closing adjustments receivable - 1,064,238
------- ----------
Total assets $55,348 $1,269,060
======= ==========
</TABLE>
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
- -------------------------------------------
LIABILITIES:
Loss in excess of investment in cable television
joint venture $ 2,151,657 $ 2,825,362
----------- ----------
Total liabilities 2,151,657 2,825,362
----------- ----------
<TABLE>
<CAPTION>
COMMITMENTS AND CONTINGENCIES (Note 4)
PARTNERS' CAPITAL (DEFICIT):
<S> <C> <C>
General Partner-
Contributed capital 1,000 1,000
Distributions (14,782,875)(13,220,625)
Accumulated earnings 14,592,547 13,363,097
------------ -----------
(189,328) 143,472
------------ -----------
Limited Partners-
Net contributed capital (111,035 units outstanding at
December 31, 1996 and 1995) 47,645,060 47,645,060
Distributions (99,879,837)(95,179,375)
Accumulated earnings 50,327,796 45,834,541
------------ -----------
(1,906,981) (1,699,774)
------------ -----------
Total liabilities and partners' capital (deficit) $ 55,348 $ 1,269,060
============ ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
20
<PAGE>
CABLE TV FUND 12-B, LTD.
------------------------
(A Limited Partnership)
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------
1996 1995 1994
---------- ------------ ------------
<S> <C> <C> <C>
REVENUES $ - $24,308,934 $26,956,006
COSTS AND EXPENSES:
Operating expenses - 12,587,594 13,932,687
Management fees and allocated overhead from
General Partner - 2,855,239 3,392,884
Depreciation and amortization - 8,263,976 9,380,877
---------- ----------- -----------
OPERATING INCOME - 602,125 249,558
---------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense - (2,160,430) (2,555,513)
Gain on sale of cable television system - 91,692,928 -
Other, net - 360,591 119,749
---------- ----------- -----------
Total other income (expense), net - 89,893,089 (2,435,764)
---------- ----------- -----------
INCOME (LOSS) BEFORE EQUITY IN NET LOSS OF
CABLE TELEVISION JOINT VENTURE - 90,495,214 (2,186,206)
EQUITY IN NET INCOME (LOSS) OF CABLE
TELEVISION JOINT VENTURE 5,722,705 (1,021,236) (1,182,039)
---------- ----------- -----------
NET INCOME (LOSS) $5,722,705 $89,473,978 $(3,368,245)
========== =========== ===========
ALLOCATION OF NET INCOME (LOSS):
General Partner $1,299,450 $13,668,249 $ (33,682)
========== =========== ===========
Limited Partners $4,493,255 $75,805,729 $(3,334,563)
========== =========== ===========
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $ 40.47 $ 682.72 $ (30.03)
========== =========== ===========
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 111,035 111,035 111,035
========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
21
<PAGE>
CABLE TV FUND 12-B, LTD.
------------------------
(A Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
-----------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------
1996 1995 1994
------------ ------------- ------------
<S> <C> <C> <C>
GENERAL PARTNER:
Balance, beginning of year $ 143,472 $ (304,152) $ (270,470)
Distributions (1,562,250) (13,220,625) -
Net income (loss) for year 1,229,450 13,668,249 (33,682)
----------- ------------ -----------
Balance, end of year $ (189,328) $ 143,472 $ (304,152)
=========== ============ ===========
LIMITED PARTNERS:
Balance, beginning of year $(1,699,774) $ 17,673,872 $21,008,435
Distributions (4,700,462) (95,179,375) -
Net income (loss) for year 4,493,255 75,805,729 (3,334,563)
----------- ------------ -----------
Balance, end of year $(1,906,981) $ (1,699,774) $17,673,872
=========== ============ ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
22
<PAGE>
CABLE TV FUND 12-B, LTD.
------------------------
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------
1996 1995 1994
------------ -------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,722,705 $ 89,473,978 $(3,368,245)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization - 8,263,976 9,380,877
Equity in net income loss of cable television
joint venture (5,722,705) 1,021,236 1,182,039
Gain on sale of cable television system - (91,692,928) -
Decrease (increase) in receivables 1,064,238 (203,991) 151,493
Decrease (increase) in deposits, prepaid expenses
and deferred charges - 578,713 (211,913)
Decrease in trade accounts payable,
accrued liabilities and subscriber prepayments - (1,101,929) (250,791)
Decrease in amount due General Partner - (112,495) (50,771)
----------- ------------- -----------
Net cash provided by operating activities 1,064,238 6,226,560 6,832,689
----------- ------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net - (4,063,686) (4,034,659)
Proceeds from sale of cable television system - 142,618,000 -
Distribution from cable television venture 5,049,000 - -
----------- ------------- -----------
Net cash provided by (used in)
investing activities 5,049,000 138,554,314 (4,034,659)
----------- ------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings - 111,262 124,133
Repayment of debt - (40,070,303) (3,996,166)
Distribution to General Partner (1,562,250) (13,220,625) -
Distributions to Limited Partners (4,700,462) (95,179,375) -
----------- ------------- -----------
Net cash used in financing activities (6,262,712) (148,359,041) (3,872,033)
----------- ------------- -----------
Decrease in cash (149,474) (3,578,167) (1,074,003)
Cash, beginning of year 204,822 3,782,989 4,856,992
----------- ------------- -----------
Cash, end of year $ 55,348 $ 204,822 $ 3,782,989
=========== ============= ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ - $ 2,423,008 $ 2,806,739
=========== ============= ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
23
<PAGE>
CABLE TV FUND 12-B, LTD.
------------------------
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(1) ORGANIZATION AND PARTNERS' INTERESTS
------------------------------------
Formation and Business
----------------------
Cable TV Fund 12-B, Ltd. (the "Partnership"), a Colorado limited
partnership, was formed on June 5, 1985, under a public program sponsored by
Jones Intercable, Inc. The Partnership was formed to acquire, construct,
develop and operate cable television systems. The Partnership owned and
operated the cable television system serving the areas in and around Augusta,
Georgia (the "Augusta System") until it was sold, as discussed below. Jones
Intercable, Inc. ("Intercable"), a publicly held Colorado corporation, is the
"General Partner" and manages the Partnership. The General Partner and its
subsidiaries also own and operate cable television systems. In addition, the
General Partner manages cable television systems for other limited partnerships
for which it is general partner and, also, for affiliated entities.
The Partnership owns a 9 percent interest in Cable TV Fund 12-BCD Venture
(the "Venture"), through a capital contribution made to the Venture in April
1986 of $12,437,500. The Venture owns certain cable television systems in New
Mexico and California. The Venture recognized income of $62,338,836 in 1996 and
incurred losses of $11,124,567 and $12,876,242 in 1995 and 1994, respectively,
of which income of $5,722,705, and losses of $1,021,236 and $1,182,039 were
allocated to the Partnership during 1996, 1995 and 1994, respectively.
Sales of Cable Television Systems
---------------------------------
On October 20, 1995, the Partnership sold the Augusta System to Jones
Cable Holdings, Inc. ("JCH"), a wholly-owned subsidiary of the General Partner,
for a sales price of $142,618,000, subject to working capital adjustments. The
sales price represented the average of three separate, independent appraisals of
the Augusta System. The Partnership subsequently paid all of its indebtedness
and distributed the net sales proceeds to its partners of record as of September
30, 1995. The limited partners of the Partnership, as a group, received
$95,179,375 from the net sales proceeds and the General Partner received
$13,220,625 from the net sales proceeds. The distribution to the limited
partners of the Partnership equated to approximately $1,714 for each $1,000
invested in the Partnership. A vote of the limited partners of the Partnership
was conducted for the purpose of obtaining limited partner approval of the sale
of the Augusta System. The transaction was approved by the holders of 74.8
percent of the limited partnership interests of the Partnership. The
Partnership retains its ownership interest in the Venture.
On February 28, 1996, the Venture sold the cable television system
serving areas in and around Tampa, Florida (the "Tampa System") to JCH for a
sales price of $110,395,667, subject to normal working capital closing
adjustments. This price represented the average of three separate, independent
appraisals of the fair market value of the Tampa System. Because the Venture's
debt arrangements did not originally allow the Venture to make distributions on
the sale of Venture assets, in February 1996 the Venture's debt arrangements
were amended to permit a $55,000,000 distribution to the Venture's partners from
the sale proceeds, and the balance of the sale proceeds were used to reduce
Venture indebtedness. The Partnership's portion of this distribution is
approximately $5,049,000, of which approximately $3,787,000 was distributed to
limited partners and $1,262,000 was distributed to the General Partner in March
1996. The Partnership also then distributed $1,200,000 of proceeds remaining
from the sale of the Augusta System, of which $900,000 was distributed to
limited partners and $300,000 was distributed to the General Partner. These
distributions gave the Partnership's limited partners an approximate return of
$84 for each $1,000 invested in the Partnership. This amount is in addition to
the $1,714 for each $1,000 invested in the Partnership returned to the limited
partners from the Augusta System sale. Because the Tampa System did not
constitute all or substantially all of the Venture's assets, no vote of the
limited partners of the Partnership was required in connection with this
transaction.
Contributed Capital
--------------------
The capitalization of the Partnership is set forth in the accompanying
statements of partners' capital (deficit). No limited partner is obligated to
make any additional contributions to partnership capital.
24
<PAGE>
The General Partner purchased its interest in the Partnership by
contributing $1,000 to partnership capital.
All profits and losses of the Partnership are allocated 99 percent to the
limited partners and 1 percent to the General Partner, except for income or gain
from the sale or disposition of cable television properties, which will be
allocated to the partners based upon a formula set forth in the partnership
agreement, and interest income earned prior to the first acquisition by the
Partnership of a cable television system, which was allocated 100 percent to the
limited partners.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Accounting Records
------------------
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting principles.
The Partnership's tax returns are also prepared on the accrual basis.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partner's 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.
Investment in Cable Television Joint Venture
--------------------------------------------
The Partnership's investment in the Venture is accounted for under the
equity method due to the Partnership's influence on the Venture as a General
Partner. The operations of the Venture are significant to the Partnership and
should be reviewed in conjunction with these financial statements. Reference is
made to the accompanying financial statements of the Venture on pages 30 to 40.
Property, Plant and Equipment
-----------------------------
Depreciation of property, plant and equipment was provided primarily
using the straight-line method over the following estimated service lives:
<TABLE>
<CAPTION>
<S> <C>
Cable distribution systems 5 - 12 years
Equipment and tools 3 - 5 years
Office furniture and equipment 5 years
Buildings 10 - 20 years
Vehicles 3 years
</TABLE>
Replacements, renewals and improvements were capitalized and maintenance
and repairs were charged to expense as incurred.
Intangible Assets
-----------------
Costs assigned to franchises were being amortized using the straight-line
method over the following estimated useful lives:
Franchise costs 2 - 5 years
25
<PAGE>
(3) INCOME TAXES
------------
Income taxes have not been recorded in the accompanying financial
statements because they accrue directly to the partners. The federal and state
income tax returns of the Partnership are prepared and filed by the General
Partner.
The Partnership's tax returns, the qualification of the Partnership as
such for tax purposes, and the amount of distributable partnership income or
loss are subject to examination by federal and state taxing authorities. If
such examinations result in changes with respect to the Partnership's
qualification as such, or in changes with respect to the Partnership's recorded
income or loss, the tax liability of the general and limited partners would
likely be changed accordingly.
Taxable loss reported to the partners is different from that reported in
the statements of operations due to the difference in depreciation recognized
under generally accepted accounting principles and the expense allowed for tax
purposes under the Modified Accelerated Cost Recovery System (MACRS). There are
no other significant differences between taxable loss and the net loss reported
in the statements of operations.
(4) COMMITMENTS AND CONTINGENCIES
-----------------------------
David Hirsch, derivatively on behalf of Cable TV Fund 12-B, Ltd., Cable
-----------------------------------------------------------------------
TV Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd. v. Jones Intercable, Inc.
- ------------------------------------------------------------------------
(Arapahoe County District Court, Colorado, Case No. 95-CV-1800, Division 3)
("Hirsch"); Jonathan Fussner and Eileen Fussner, derivatively on behalf of Cable
- -------- --------------------------------------------------------------------
TV Fund 12-B, Ltd., Cable TV Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd. v.
- ----------------------------------------------------------------------------
Jones Intercable, Inc. (Arapahoe County District Court, Colorado, Case No. 96-
- ----------------------
CV-1672, Division 3) ("Fussner").
-------
On September 20, 1995, Intercable was named as a defendant in a Complaint
filed by David Hirsch, who is a limited partner in Cable TV Fund 12-D, Ltd. On
January 25, 1996, Intercable was served with an Amended Class Action Complaint
and Request for Jury Trial. On February 19, 1996, Intercable filed a Motion to
Dismiss the Amended Complaint arguing that the action was improperly brought as
a class action. Intercable argued that the plaintiff could only bring the
action as a derivative claim and that because the elements of a derivative claim
had not been properly pleaded, the Amended Complaint should be dismissed. After
briefing on this motion, the Court entered an Order on June 24, 1996 granting
Intercable's Motion to Dismiss, and on July 25, 1996, the Court entered a
further Order allowing plaintiff to file another Amended Complaint. On July 31,
1996, plaintiff Hirsch filed a Second Amended Complaint.
Plaintiff Hirsch's Second Amendment Complaint alleges that he is a
limited partner in Fund 12-D and that he now purports to bring this case as a
derivative action on behalf of the Partnership, Fund 12-C and Fund 12-D. The
suit relates to the purchase by JCH from the Venture of the Tampa System and the
subsequent trade of the Tampa System, along with other cable systems, to Time
Warner for certain of Time Warner's cable systems. JCH was authorized to
purchase the Tampa System from the Venture pursuant to the terms of the limited
partnership agreements of the Partnership, Fund 12-C and Fund 12-D.
Also on July 31, 1996, the same lawyers who represent Mr. Hirsch filed a
Verified Complaint on behalf of Jonathan Fussner and Eileen Fussner as
referenced above. The Fussners also are joint owners of limited partnership
units in Fund 12-D and their Verified Complaint is identical in all substantive
respects to the Hirsch Second Amended Complaint. On December 13, 1996, the
------
Court consolidated the Hirsch and Fussner actions.
------ -------
The Second Amended Complaint in Hirsch and the Verified Complaint in
------
Fussner allege that Intercable breached its fiduciary duty to the plaintiff and
- -------
the other limited partners of the Partnership, Fund 12-C and Fund 12-D and the
Venture in connection with JCH's purchase of the Tampa System and the trade of
that system to Time Warner. The Hirsch and Fussner Complaints also set forth a
------ -------
claim for unjust enrichment and for breach of the implied covenant of good faith
and fair dealing. Among other things, the plaintiffs assert that JCH paid an
inadequate price for the Tampa System, even though the agreed-upon price was the
average of three separate appraisals, as required by the applicable partnership
agreements. The Hirsch and Fussner cases are now styled as derivative actions
------ -------
and also seek a trial by jury. The plaintiffs in Hirsch and Fussner seek an
------ -------
unspecified amount of damages, including punitive damages, an award of
attorneys' fees, and certain equitable relief.
On August 13, 1996, Intercable filed a Motion to Dismiss the breach of
fiduciary duty and unjust enrichment claims in the Hirsch and Fussner actions.
------ -------
On February 6, 1997, after briefing on this motion, the Court denied
Intercable's Motion to Dismiss. Intercable's Answer to the Complaints in Hirsch
------
and Fussner was filed on February 25,
-------
26
<PAGE>
1997 and generally denied the substantive allegations in the Complaint and
asserted a number of affirmative defenses. There is no trial date set in these
cases, and there has been no discovery conducted by the parties to date.
Martin Ury, derivatively on behalf of Cable TV Fund 12-B, Ltd., Cable TV
------------------------------------------------------------------------
Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd. v. Jones Intercable, Inc.,
- -----------------------------------------------------------------------
Defendant and Cable TV Fund 12-BCD Venture, Cable TV Fund 12-B, Ltd., Cable TV
- ------------------------------------------------------------------------------
Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd., Nominal Defendants (Arapahoe
- ----------------------------------------------------------------
County District Court, Colorado, Case No. 95-CV-2212, Division 5) ("Ury").
---
On November 17, 1995, plaintiff Martin Ury filed a Complaint against
Intercable in the above-referenced action in Arapahoe County District Court.
Plaintiff Ury is a limited partner in Fund 12-D. He purports to bring this case
as a derivative action on behalf of the Partnership, Fund 12-C and Fund 12-D.
As in Hirsch and Fussner, discussed above, this case relates to JCH's purchase
------ -------
of the Tampa System and the Time Warner exchange.
The substantive allegations of the Ury Complaint are substantially
---
similar to the allegations in the Hirsch Second Amended Complaint and Fussner
------ -------
Verified Complaint. The plaintiff in Ury alleges that Intercable breached its
---
fiduciary duties to the limited partnership and its limited partners in
connection with JCH's purchase of the Tampa System from the Venture.
Specifically, the plaintiff alleges that JCH paid an inadequate price for the
Tampa System, even though the agreed upon price was the average of three
separate appraisals, as required by the applicable limited partnership
agreements. The Complaint seeks damages in an unspecified amount on behalf of
the three limited partnerships and an award of attorneys fees. The Complaint
does not seek a jury trial or punitive damages.
On February 1, 1996, Intercable filed a Motion to Dismiss the Complaint
on the ground that it fails to state a claim against Intercable upon which
relief can be granted. The thrust of Intercable's motion was that Intercable
cannot be liable for breach of fiduciary duty because it acted in accordance
with the terms of the limited partnership agreements in arranging for JCH's
purchase of the Tampa System. Intercable also argued that plaintiff does not
have standing to assert a derivative claim on behalf of the Partnership or Fund
12-C, since he is only a limited partner in Fund 12-D. On July 12, 1996, the
Court denied Intercable's Motion to Dismiss. Intercable filed its Answer in
this case on July 29, 1996, generally denying the substantive allegations in the
Complaint, asserting a number of affirmative defenses, and requesting a trial by
jury. A Case Management Order has been entered by the Court, setting the case
for a two-week jury trial commencing on September 22, 1997. The parties have
made certain voluntary disclosures pursuant to Rule 26 of the Colorado Rules of
Civil Procedure, and discovery is at the very early stages, although no
depositions have been taken to date.
Pursuant to the indemnification provisions of Section 9.6 of the limited
partnership agreements of each of the three partnerships that comprise the
Venture, Intercable may be entitled to indemnification from the
partnerships for its legal fees and expenses, and for any amounts paid in
settlement, in defending the above-described lawsuits. Intercable cannot
determine at this time whether such amounts will be material.
(5) SUPPLEMENTARY PROFIT AND LOSS INFORMATION
-----------------------------------------
Supplementary profit and loss information for the respective years are
presented below:
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------
1996 1995 1994
-------- ---------- ----------
<S> <C> <C> <C>
Maintenance and repairs $ - $ 176,793 $ 169,466
===== ========== ==========
Taxes, other than income and payroll taxes $ - $ 194,676 $ 232,068
===== ========== ==========
Advertising $ - $ 258,709 $ 212,018
===== ========== ==========
Depreciation of property, plant and equipment $ - $5,984,399 $6,695,385
===== ========== ==========
Amortization of intangible assets $ - $2,279,577 $2,685,492
===== ========== ==========
</TABLE>
27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Partners of Cable TV Fund 12-BCD Venture:
We have audited the accompanying balance sheets of CABLE TV FUND 12-BCD
VENTURE (a Colorado general partnership) as of December 31, 1996 and 1995, and
the related statements of operations, partners' deficit and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the General Partners' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Cable TV Fund 12-BCD
Venture as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 7, 1997.
28
<PAGE>
CABLE TV FUND 12-BCD VENTURE
----------------------------
(A General Partnership)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
December 31,
---------------------------
ASSETS 1996 1995
------ ------------ -------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 1,514,773 $ 1,384,794
RECEIVABLES:
Trade receivables, less allowance for doubtful receivables of
$417,017 and $486,392 at December 31, 1996 and 1995,
respectively 2,676,246 4,464,773
Affiliated entity - 159,137
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 198,322,316 294,472,892
Less- accumulated depreciation (95,040,023) (155,826,572)
------------ -------------
103,282,293 138,646,320
Franchise costs and other intangible assets, net of accumulated
amortization of $60,652,010 and $56,248,743 at
December 31, 1996 and 1995, respectively 10,389,144 16,856,328
------------ -------------
Total investment in cable television properties 113,671,437 155,502,648
DEPOSITS, PREPAID EXPENSES AND DEFERRED
CHARGES 3,036,880 1,974,677
------------ -------------
Total assets $120,899,336 $ 163,486,029
============ =============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
29
<PAGE>
CABLE TV FUND 12-BCD VENTURE
----------------------------
(A General Partnership)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
December 31,
-----------------------------
LIABILITIES AND PARTNERS' DEFICIT 1996 1995
--------------------------------- ------------- -------------
<S> <C> <C>
LIABILITIES:
Debt $ 138,345,878 $ 180,770,267
Advances from Jones Intercable, Inc. - 4,198,739
Trade accounts payable and accrued liabilities 4,499,549 7,729,433
Subscriber prepayments 445,391 517,908
------------- -------------
Total liabilities 143,290,818 193,216,347
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' DEFICIT:
Contributed capital 135,490,944 135,490,944
Distributions (55,000,000) -
Accumulated deficit (102,882,426) (165,221,262)
------------- -------------
(22,391,482) (29,730,318)
------------- -------------
Total liabilities and partners' deficit $ 120,899,336 $ 163,486,029
============= =============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
30
<PAGE>
CABLE TV FUND 12-BCD VENTURE
----------------------------
(A General Partnership)
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES $ 82,363,752 $101,399,697 $ 92,823,076
COSTS AND EXPENSES:
Operating expenses 48,731,182 58,351,692 56,131,254
Management fees and allocated overhead from
Jones Intercable, Inc. 9,609,453 12,253,648 11,592,264
Depreciation and amortization 21,993,546 26,666,735 24,809,654
------------ ------------ ------------
OPERATING INCOME 2,029,571 4,127,622 289,904
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (11,219,294) (15,347,250) (13,156,693)
Gain on sale of cable television system 71,914,391 - -
Other, net (385,832) 95,061 (9,453)
------------ ------------ ------------
Total other income (expense), net 60,309,265 (15,252,189) (13,166,146)
------------ ------------ ------------
NET INCOME (LOSS) $ 62,338,836 $(11,124,567) $(12,876,242)
============ ============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
31
<PAGE>
CABLE TV FUND 12-BCD VENTURE
----------------------------
(A General Partnership)
STATEMENTS OF PARTNERS' DEFICIT
-------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
CABLE TV FUND 12-B, LTD. (9%):
Balance, beginning of year $ (2,825,362) $ (1,804,126) $ (622,087)
Net income for year 5,722,705 (1,021,236) (1,182,039)
Distributions (5,049,000) - -
------------ ------------ ------------
Balance, end of year $ (2,151,657) $ (2,825,362) $ (1,804,126)
============ ============ ============
CABLE TV FUND 12-C, LTD. (15%):
Balance, beginning of year $ (4,702,099) $ (3,002,488) $ (1,035,256)
Net income for year 9,525,374 (1,699,611) (1,967,232)
Distributions (8,404,000) - -
------------ ------------ ------------
Balance, end of year $ (3,580,725) $ (4,702,099) $ (3,002,488)
============ ============ ============
CABLE TV FUND 12-D, LTD. (76%):
Balance, beginning of year $(22,202,857) $(13,799,137) $ (4,072,166)
Net income for year 47,090,757 (8,403,720) (9,726,971)
Distributions (41,547,000) - -
------------ ------------ ------------
Balance, end of year $(16,659,100) $(22,202,857) $(13,799,137)
============ ============ ============
TOTAL:
Balance, beginning of year $(29,730,318) $(18,605,751) $ (5,729,509)
Net income for year 62,338,836 (11,124,567) (12,876,242)
Distributions (55,000,000) - -
------------ ------------ ------------
Balance, end of year $(22,391,482) $(29,730,318) $(18,605,751)
============ ============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
32
<PAGE>
CABLE TV FUND 12-BCD VENTURE
----------------------------
(A General Partnership)
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------
1996 1995 1994
-------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 62,338,836 $(11,124,567) $(12,876,242)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 21,993,546 26,666,735 24,809,654
Gain on sale of cable television system (71,914,391) - -
Decrease (increase) in trade receivables 1,788,527 (657,502) (852,784)
Increase in deposits, prepaid expenses and
deferred charges (2,072,543) (351,579) (694,816)
Increase (decrease) in trade accounts payable and
accrued liabilities and subscriber prepayments (3,302,401) (14,766) 749,173
Increase (decrease) in amount due Jones Intercable,
Inc. (4,198,739) 3,581,929 428,380
------------- ------------ ------------
Net cash provided by operating activities 4,632,835 18,100,250 11,563,365
------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (17,474,134) (21,474,577) (21,338,471)
Proceeds from sale of cable television system 110,395,667 - -
Franchise costs - - (500,000)
------------- ------------ ------------
Net cash provided by (used in)
investing activities 92,921,533 (21,474,577) (21,838,471)
------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 72,365,824 882,431 16,268,610
Repayment of debt (114,790,213) (514,912) (3,564,559)
Distributions to Joint Venture Partners (55,000,000) - -
------------- ------------ ------------
Net cash provided by (used in)
financing activities (97,424,389) 367,519 12,704,051
------------- ------------ ------------
Increase (decrease) in cash and cash equivalents 129,979 (3,006,808) 2,428,945
Cash and cash equivalents, beginning of year 1,384,794 4,391,602 1,962,657
------------- ------------ ------------
Cash and cash equivalents, end of year $ 1,514,773 $ 1,384,794 $ 4,391,602
============= ============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 12,370,892 $ 15,331,071 $ 12,450,869
============= ============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
33
<PAGE>
CABLE TV FUND 12-BCD VENTURE
----------------------------
(A General Partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(1) ORGANIZATION AND PARTNERS' INTERESTS
------------------------------------
Formation and Business
----------------------
On March 17, 1986, Cable TV Fund 12-B, Ltd. ("Fund 12-B"), Cable TV Fund
12-C, Ltd. ("Fund 12-C") and Cable TV Fund 12-D, Ltd. ("Fund 12-D")
(collectively, the "Venture Partners") formed Cable TV Fund 12-BCD Venture (the
"Venture"). The Venture was formed for the purpose of acquiring certain cable
television systems serving Tampa, Florida; Albuquerque, New Mexico; and
Palmdale, California. Jones Intercable, Inc. ("Intercable"), the "General
Partner" of each of the Venture Partners, manages the Venture. Intercable and
its subsidiaries also own and operate cable television systems. In addition,
Intercable manages cable television systems for other limited partnerships for
which it is general partner and, also, for affiliated entities.
Contributed Capital
-------------------
The capitalization of the Venture is set forth in the accompanying
statements of partners' deficit.
All Venture distributions, including those made from cash flow, from the
sale or refinancing of Partnership property and on dissolution of the Venture,
shall be made to the Venture Partners in proportion to their approximate
respective interests in the Venture as follows:
Cable TV Fund 12-B, Ltd. 9%
Cable TV Fund 12-C, Ltd. 15%
Cable TV Fund 12-D, Ltd. 76%
----
100%
====
Venture Sale of Cable Television System
---------------------------------------
On February 28, 1996, the Venture sold the Tampa System to Jones Cable
Holdings, Inc., a wholly owned subsidiary of Intercable. The sales price of the
Tampa System was $110,395,667, subject to normal working capital closing
adjustments. This price represented the average of three separate, independent
appraisals of the fair market value of the Tampa System. In February 1996, the
Venture's debt arrangements were amended to permit a $55,000,000 distribution to
the Venture's partners from the sale proceeds, and the balance of the sale
proceeds were used to reduce Venture indebtedness. The net sales proceeds were
distributed as follows: Fund 12-B received $5,409,000; Fund 12-C received
$8,404,000 and Fund 12-D received $41,547,000.
The pro forma effect of the sale of the Tampa System on the results of
the Venture's operations for the years ended December 31, 1996 and 1995,
assuming the transaction had occurred at the beginning of the years, is
presented in the following unaudited tabulation:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
----------------------------------------
Unaudited
Pro Forma Unaudited
As Reported Adjustments Pro Forma
----------- ------------- ------------
<S> <C> <C> <C>
Revenues $82,363,752 $ (4,885,192) $77,478,560
=========== ============ ===========
Operating Income $ 2,029,571 $ 1,136,410 $ 3,165,981
=========== ============ ===========
Net Income (Loss) $62,338,836 $(66,983,544) $(4,644,708)
=========== ============ ===========
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1995
------------------------------------------
Unaudited
Pro Forma Unaudited
As Reported Adjustments Pro Forma
------------- ------------- ------------
<S> <C> <C> <C>
Revenues $101,399,697 $(28,700,128) $72,699,569
============ ============ ===========
Operating Income $ 4,127,622 $ (1,090,629) $ 3,036,993
============ ============ ===========
Net Loss $(11,124,567) $ 2,947,184 $(8,177,383)
============ ============ ===========
</TABLE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Accounting Records
------------------
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting principles.
The Venture's tax returns are also prepared on the accrual basis.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partner's 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.
Purchase Price Allocation
-------------------------
The Venture's acquisitions were accounted for as purchases with the
individual purchase prices allocated to tangible and intangible assets based
upon an independent appraisal. The method of allocation of purchase price was
as follows: first, to the fair value of the net tangible assets acquired;
second, to the value of subscriber lists; third, to franchise costs; and fourth,
to costs in excess of interests in net assets purchased. Brokerage fees paid to
an affiliate of Intercable and other system acquisition costs were capitalized
and included in the cost of intangible assets.
Property, Plant and Equipment
-----------------------------
Depreciation is provided using the straight-line method over the
following estimated service lives:
<TABLE>
<CAPTION>
<S> <C>
Cable distribution systems 5 - 15 years
Equipment and tools 3 - 5 years
Office furniture and equipment 5 years
Buildings 20 years
Vehicles 3 years
</TABLE>
Replacements, renewals and improvements are capitalized and maintenance
and repairs are charged to expense as incurred.
Property, plant and equipment and the corresponding accumulated
depreciation are written off as certain assets become fully depreciated and are
no longer in service.
Intangible Assets
-----------------
Costs assigned to franchises and costs in excess of interests in net
assets purchased are amortized using the straight-line method over the following
remaining estimated useful lives:
Franchise costs 1 - 4 years
Costs in excess of interests in
net assets purchased 29 - 30 years
35
<PAGE>
Revenue Recognition
-------------------
Subscriber prepayments are initially deferred and recognized as revenue
when earned.
Cash and Cash Equivalents
-------------------------
For purposes of the Statements of Cash Flows, the Venture considers all
highly liquid investments purchased with an original maturity of three months or
less to be cash equivalents.
Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to the 1996
presentation.
(3) TRANSACTIONS WITH JONES INTERCABLE, INC. AND AFFILIATES
-------------------------------------------------------
Management Fees and Reimbursements
----------------------------------
Intercable manages the Venture and receives a fee for its services equal
to 5 percent of the gross revenues of the Venture, excluding revenues from the
sale of cable television systems or franchises. Management fees paid to
Intercable for the years ended December 31, 1996, 1995 and 1994 were $4,118,188,
$5,069,985 and $4,641,154, respectively.
The Venture reimburses Intercable for certain allocated overhead and
administrative expenses. These expenses represent the salaries and related
benefits paid for corporate personnel, rent, data processing services and other
corporate facilities costs. Such personnel provide engineering, marketing,
administrative, accounting, legal and investor relations services to the
Venture. Such services, and their related costs, are necessary to the
operations of the Venture and would have been incurred by the Venture if it was
a stand alone entity. Allocations of personnel costs are based primarily on
actual time spent by employees of Intercable with respect to each entity
managed. Remaining expenses are allocated based on the pro rata relationship of
the Venture's revenues to the total revenues of all systems owned or managed by
Intercable and certain of its subsidiaries. Systems owned by Intercable and all
other systems owned by partnerships for which Intercable is the general partner
are also allocated a proportionate share of these expenses. Intercable believes
that the methodology used in allocating overhead and administrative expenses is
reasonable. Overhead and administrative expenses allocated to the Venture by
Intercable during the years ended December 31, 1996, 1995 and 1994 were
$5,491,265, $7,183,663 and $6,951,110, respectively.
Payments to/from Affiliates for Programming Services
----------------------------------------------------
The Venture receives programming from Superaudio, Jones Education
Company, Great American Country, Inc. and Product Information Network, all of
which are affiliates of Intercable.
Payments to Superaudio totaled $116,710, $135,861 and $135,346 in 1996,
1995, and 1994, respectively. Payments to Jones Education Company totaled
$374,709, $428,937 and $196,004 in 1996, 1995 and 1994, respectively. Payments
to Great American Country, Inc., which initiated service in 1996, totaled
$141,753 in 1996.
The Venture receives a commission from Product Information Network based
on a percentage of advertising sales and number of subscribers. Product
Information Network paid commissions to the Venture totaling $191,011, $212,844
and $81,592 in 1996, 1995 and 1994, respectively.
The Venture was charged interest during 1996 at an average rate of 8.58
percent on the amounts due the General Partner, which approximated the General
Partner's weighted average cost of borrowing. Total interest charged to the
Venture by the General Partner was $-0-, $220,743 and $33,627 in 1996, 1995 and
1994, respectively.
36
<PAGE>
(4) PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment as of December 31, 1996 and 1995, consisted
of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Cable distribution system $182,058,124 $ 267,586,574
Equipment and tools 4,853,010 8,630,758
Office furniture and equipment 2,189,497 3,402,683
Buildings 5,925,072 8,262,351
Vehicles 2,345,643 5,639,556
Land 950,970 950,970
------------ -------------
198,322,316 294,472,892
Less-accumulated depreciation (95,040,023) (155,826,572)
------------ -------------
$103,282,293 $138,646,320
============ =============
(5) DEBT
----
Debt consists of the following:
December 31,
----------------------------------
1996 1995
------------ ----------------
Lending institutions-
Revolving credit and term loan $ 82,130,620 $ 87,000,000
Senior secured notes 55,393,187 93,000,000
Capital lease obligations 822,071 770,267
------------ -------------
$138,345,878 $ 180,770,267
============ =============
</TABLE>
The Venture's debt arrangements at December 31, 1996 consisted of
$55,393,187 of Senior Notes placed with a group of institutional lenders and a
$120,000,000 credit facility with a group of commercial bank lenders. The
Senior Notes and credit facility are equal in standing with the other, and both
are equally secured by the assets of the Venture.
The Senior Notes have a fixed interest rate of 8.64 percent and a final
maturity date of March 31, 2000. The Senior Notes required payments of interest
only to March 1996, with interest and accelerating principal payments required
for the four years thereafter, payable semi-annually in March and September. In
February 1996, the Venture was required to make a principal repayment of
approximately $33,650,000 from proceeds received from the sale of the Tampa
System. The Senior Notes carry a "make-whole" payment, which is a prepayment
penalty, in the event the notes are prepaid prior to maturity. The make-whole
payment protects the lenders in the event that prepaid funds are reinvested at a
rate below 8.64 percent. The Venture was required to pay a make-whole payment
in February 1996 of approximately $2,217,000. Principal payments due for each of
the five years in the period ending December 31, 2001 and thereafter, are:
$7,385,758, $11,078,637, $36,928,792, $-0-, $-0- and $-0-, respectively.
In February 1996, the Venture was required by the terms of its then-existing
$87,000,000 credit facility to make a principal repayment of $22,000,000 from
proceeds received from the sale of the Tampa System. Simultaneously with the
sale of the Tampa System, the Venture amended this credit facility to increase
the amount available to $120,000,000 to meet the Venture's long-term financing
requirements. The balance outstanding on the Venture's amended credit facility
at December 31, 1996 was $82,130,620, leaving $37,869,380 available for future
needs. At the Venture's option, the credit facility is payable in full on
December 31, 1999 or converts to a term loan that matures on December 31, 2004
payable in consecutive quarterly amounts. Installments due on debt principal of
the credit facility for each of the five years in the period ending December 31,
2001 and thereafter, respectively, are: $-0-, $-0-, $-0-, $8,213,062,
$20,532,655 and $53,384,903, respectively. Interest on the amended credit
facility is at the Venture's option of the London Interbank
37
<PAGE>
Offered Rate plus 1.25 percent, the Prime Rate plus .125 percent or the
Certificate of Deposit Rate plus 1.125 percent. The effective interest rates on
amounts outstanding on the Venture's credit facility as of December 31, 1996 and
1995 were 6.90 percent and 7.41 percent, respectively.
During 1992, 1994 and 1996, the Venture incurred costs associated with
renegotiating its debt arrangements. These costs were capitalized and are being
amortized using the straight-line method over the life of the debt agreements.
At December 31, 1996, the carrying amount of the Venture's long-term debt
did not differ significantly from the estimated fair value of the financial
instruments. The fair value of the Venture's long-term debt is estimated based
on the discounted amount of future debt service payments using rates of
borrowing for a liability of similar risk.
(6) INCOME TAXES
------------
Income taxes have not been recorded in the accompanying financial
statements because they accrue directly to the partners of Fund 12-B, Fund 12-C
and Fund 12-D.
The Venture's tax returns, the qualification of the Venture as such for
tax purposes, and the amount of distributable income or loss, are subject to
examination by federal and state taxing authorities. If such examinations
result in changes with respect to the Venture's qualification as such, or in
changes with respect to the Venture's recorded loss, the tax liability of the
Venture's general partners would likely be changed accordingly.
Taxable losses reported to the partners is different from that reported
in the statements of operations due to the difference in depreciation allowed
under generally accepted accounting principles and the expense allowed for tax
purposes under the Modified Accelerated Cost Recovery System (MACRS). There are
no other significant differences between taxable income or losses and the net
losses reported in the statements of operations.
(7) COMMITMENTS AND CONTINGENCIES
-----------------------------
Office and other facilities are rented under various long-term lease
arrangements. Rent paid under such lease arrangements totaled $373,169,
$331,963 and $345,531, respectively, for the years ended December 31, 1996, 1995
and 1994. Minimum commitments under operating leases for the five years in the
period ending December 31, 2001 and thereafter are as follows:
1997 $518,779
1998 531,324
1999 396,315
2000 345,715
2001 345,046
Thereafter 911,200
----------
$3,048,379
==========
38
<PAGE>
(8) SUPPLEMENTARY PROFIT AND LOSS INFORMATION
-----------------------------------------
Supplementary profit and loss information for the respective years is
presented below:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Maintenance and repairs $ 1,104,878 $ 1,182,963 $ 1,214,978
=========== =========== ===========
Taxes, other than income
and payroll taxes $ 895,669 $ 1,286,357 $ 1,380,350
=========== =========== ===========
Advertising $ 1,183,565 $ 1,298,497 $ 1,275,772
=========== =========== ===========
Depreciation of property,
plant and equipment $15,727,639 $20,285,166 $18,362,998
=========== =========== ===========
Amortization of intangible
assets $ 6,265,907 $ 6,381,569 $ 6,446,656
=========== =========== ===========
</TABLE>
39
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
---------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
PART III.
---------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------
The Partnership itself has no officers or directors. Certain
information concerning the directors and executive officers of the General
Partner is set forth below. Directors of the General Partner serve until the
next annual meeting of the General Partner and until their successors shall be
elected and qualified.
<TABLE>
<CAPTION>
<S> <C> <C>
Glenn R. Jones 67 Chairman of the Board and Chief Executive Officer
Derek H. Burney 57 Vice Chairman of the Board
James B. O'Brien 47 President and Director
Ruth E. Warren 47 Group Vice President/Operations
Kevin P. Coyle 45 Group Vice President/Finance
Christopher J. Bowick 41 Group Vice President/Technology
George H. Newton 62 Group Vice President/Telecommunications
Raymond L. Vigil 50 Group Vice President/Human Resources
Cynthia A. Winning 45 Group Vice President/Marketing
Elizabeth M. Steele 45 Vice President/General Counsel/Secretary
Larry W. Kaschinske 37 Vice President/Controller
Robert E. Cole 64 Director
William E. Frenzel 68 Director
Donald L. Jacobs 58 Director
James J. Krejci 55 Director
John A. MacDonald 43 Director
Raphael M. Solot 63 Director
Howard O. Thrall 49 Director
Siim A. Vanaselja 40 Director
Sanford Zisman 57 Director
Robert B. Zoellick 43 Director
</TABLE>
Mr. Glenn R. Jones has served as Chairman of the Board of Directors
and Chief Executive Officer of the General Partner since its formation in 1970,
and he was President from June 1984 until April 1988. Mr. Jones is the sole
shareholder, President and Chairman of the Board of Directors of Jones
International, Ltd. He is also Chairman of the Board of Directors of the
subsidiaries of the General Partner and of certain other affiliates of the
General Partner. Mr. Jones has been involved in the cable television business
in various capacities since 1961, is a member of the Board of Directors and the
Executive Committee of the National Cable Television Association. Additionally,
Mr. Jones is a member of the Board of Governors for the American Society for
Training and Development, and a member of the Board of Education Council of the
National Alliance of Business. Mr. Jones is also a founding member of the James
Madison Council of the Library of Congress. Mr. Jones has been the recipient of
several awards including the Grand Tam Award in 1989, the highest award from the
Cable Television Administration and Marketing Society; the President's Award
from the Cable Television Public Affairs Association in recognition of Jones
International's educational efforts through Mind Extension University (now
Knowledge TV); the Donald G. McGannon Award for the advancement of minorities
and women in cable from the United Church of Christ Office of Communications;
the STAR Award from American Women in Radio and Television, Inc. for exhibition
of a commitment to the issues and concerns of women in television and radio; the
Cableforce 2000 Accolade awarded by Women in Cable in recognition of the General
Partner's innovative employee programs; the Most Outstanding Corporate
Individual Achievement Award from the International Distance Learning Conference
for his contributions to distance education; the Golden Plate Award from the
American Academy of Achievement for his advances in distance education; the Man
of the Year named by the
41
<PAGE>
Denver chapter of the Achievement Rewards for College Scientists; and in 1994
Mr. Jones was inducted into Broadcasting and Cable's Hall of Fame.
Mr. Derek H. Burney was appointed a Director of the General Partner in
December 1994 and Vice Chairman of the Board of Directors on January 31, 1995.
Mr. Burney joined BCE Inc., Canada's largest telecommunications company, in
January 1993 as Executive Vice President, International. He has been the
Chairman of Bell Canada International Inc., a subsidiary of BCE, since January
1993 and, in addition, has been Chief Executive Officer of BCI since July 1993.
Prior to joining BCE, Mr. Burney served as Canada's ambassador to the United
States from 1989 to 1992. Mr. Burney also served as chief of staff to the Prime
Minister of Canada from March 1987 to January 1989 where he was directly
involved with the negotiation of the U.S. - Canada Free Trade Agreement. In July
1993, he was named an Officer of the Order of Canada. Mr. Burney is also a
director of Bell Cablemedia plc, Mercury Communications Limited, Videotron
Holdings plc, Tele-Direct (Publications) Inc., Teleglobe Inc., Bimcor Inc.,
Maritime Telegraph and Telephone Company, Limited, Moore Corporation Limited,
Northbridge Programming Inc. and certain subsidiaries of Bell Canada
International.
Mr. James B. O'Brien, the General Partner's President, joined the
General Partner in January 1982. Prior to being elected President and a
Director of the General Partner in December 1989, Mr. O'Brien served as a
Division Manager, Director of Operations Planning/Assistant to the CEO, Fund
Vice President and Group Vice President/Operations. Mr. O'Brien was appointed
to the General Partner's Executive Committee in August 1993. As President, he
is responsible for the day-to-day operations of the cable television systems
managed and owned by the General Partner. Mr. O'Brien is a board member of
Cable Labs, Inc., the research arm of the U.S. cable television industry. He
also serves as the Vice Chairman and a director of the Cable Television
Administration and Marketing Association and as a director and a member of the
Executive Committee of the Walter Kaitz Foundation, a foundation that places
people of ethnic minority groups in positions with cable television systems,
networks and vendor companies.
Ms. Ruth E. Warren joined the General Partner in August 1980 and has
served in various operational capacities, including system manager and Fund Vice
President, since then. Ms. Warren was elected Group Vice President/Operations
of the General Partner in September 1990.
Mr. Kevin P. Coyle joined The Jones Group, Ltd. in July 1981 as Vice
President/Financial Services. In September 1985, he was appointed Senior Vice
President/Financial Services. He was elected Treasurer of the General Partner
in August 1987, Vice President/Treasurer in April 1988 and Group Vice
President/Finance and Chief Financial Officer in October 1990.
Mr. Christopher J. Bowick joined the General Partner in September 1991
as Group Vice President/Technology and Chief Technical Officer. Previous to
joining the General Partner, Mr. Bowick worked for Scientific Atlanta's
Transmission Systems Business Division in various technical management
capacities since 1981, and as Vice President of Engineering since 1989.
Mr. George H. Newton joined the General Partner in January 1996 as
Group Vice President/Telecommunications. Prior to joining the General Partner,
Mr. Newton was President of his own consulting business, Clear Solutions, and
since 1994 Mr. Newton has served as a Senior Advisor to Bell Canada
International. From 1990 to 1993, Mr. Newton served as the founding Chief
Executive Officer and Managing Director of Clear Communications, New Zealand,
where he established an alternative telephone company in New Zealand. From 1964
to 1990, Mr. Newton held a wide variety of operational and business assignments
with Bell Canada International.
Mr. Raymond L. Vigil joined the General Partner in June 1993 as Group
Vice President/Human Resources. Previous to joining the General Partner, Mr.
Vigil served as Executive Director of Learning with USWest. Prior to USWest,
Mr. Vigil worked in various human resources posts over a 14-year term with the
IBM Corporation.
Ms. Cynthia A. Winning joined the General Partner as Group Vice
President/Marketing in December 1994. Previous to joining the General Partner,
Ms. Winning served since 1994 as the President of PRS Inc.,
42
<PAGE>
Denver, Colorado, a sports and event marketing company. From 1979 to 1981 and
from 1986 to 1994, Ms. Winning served as the Vice President and Director of
Marketing for Citicorp Retail Services, Inc., a provider of private-label credit
cards for ten national retail department store chains. From 1981 to 1986, Ms.
Winning was the Director of Marketing Services for Daniels & Associates cable
television operations, as well as the Western Division Marketing Director for
Capital Cities Cable. Ms. Winning also serves as a board member of Cities in
Schools, a dropout intervention/prevention program.
Ms. Elizabeth M. Steele joined the General Partner in August 1987 as
Vice President/General Counsel and Secretary. From August 1980 until joining
the General Partner, Ms. Steele was an associate and then a partner at the
Denver law firm of Davis, Graham & Stubbs, which serves as counsel to the
General Partner.
Mr. Larry Kaschinske joined the General Partner in 1984 as a staff
accountant in the General Partner's former Wisconsin Division, was promoted to
Assistant Controller in 1990, named Controller in August 1994 and was elected
Vice President/Controller in June 1996.
Mr. Robert E. Cole was appointed a Director of the General Partner in
March 1996. Mr. Cole is currently self-employed as a partner of First Variable
Insurance Marketing and is responsible for marketing to National Association of
Securities Dealers, Inc. firms in northern California, Oregon, Washington and
Alaska. From 1993 to 1995, Mr. Cole was the Director of Marketing for Lamar
Life Insurance Company; from 1992 to 1993, Mr. Cole was Senior Vice President of
PMI Inc., a third party lender serving the special needs of Corporate Owned Life
Insurance (COLI) and from 1988 to 1992, Mr. Cole was the principal and co-
founder of a specialty investment banking firm that provided services to finance
the ownership and growth of emerging companies, productive assets and real
property. Mr. Cole is a Certified Financial Planner and a former United States
Naval Aviator.
Mr. William E. Frenzel was appointed a Director of the General Partner
in April 1995. Mr. Frenzel has been a Guest Scholar since 1991 with the
Brookings Institution, a research organization located in Washington D. C.
Until his retirement in January 1991, Mr. Frenzel served for twenty years in the
United States House of Representatives, representing the State of Minnesota,
where he was a member of the House Ways and Means Committee and its Trade
Subcommittee, the Congressional Representative to the General Agreement on
Tariffs and Trade (GATT), the Ranking Minority Member on the House Budget
Committee and a member of the National Economic Commission. Mr. Frenzel also
served in the Minnesota Legislature for eight years. He is a Distinguished
Fellow of the Tax Foundation, Vice Chairman of the Eurasia Foundation, a Board
Member of the U.S.-Japan Foundation, the Close-Up Foundation, Sit Mutual Funds
and Chairman of the Japan-America Society of Washington.
Mr. Donald L. Jacobs was appointed a Director of the General Partner
in April 1995. Mr. Jacobs is a retired executive officer of TRW. Prior to his
retirement, he was Vice President and Deputy Manager of the Space and Defense
Sector; prior to that appointment, he was the Vice President and General Manager
of the Defense Systems Group and prior to his appointment as Group General
Manager, he was President of ESL, Inc., a wholly owned subsidiary of TRW.
During his career, Mr. Jacobs served on several corporate, professional and
civic boards.
Mr. James J. Krejci was President of the International Division of
International Gaming Technology, International headquartered in Reno, Nevada,
until March 1995. Prior to joining IGT in May 1994, Mr. Krejci was Group Vice
President of Jones International, Ltd. and was Group Vice President of the
General Partner. He also served as an officer of subsidiaries of Jones
International, Ltd. until leaving the General Partner in May 1994. Mr. Krejci
has been a director of the General Partner since August 1987.
43
<PAGE>
Mr. John A. MacDonald was appointed a Director of the General Partner
in November 1995. Mr. MacDonald is Executive Vice President of Business
Development and Chief Technology Officer of Bell Canada International Inc.
Prior to joining Bell Canada in November 1994, Mr. MacDonald was President and
Chief Executive Officer of The New Brunswick Telephone Company, Limited, a post
he had held since March of that year. Prior to March 1994, Mr. MacDonald was
with NBTel for 17 years serving in various capacities, including Market Planning
Manager, Corporate Planning Manager, Manager of Systems Planning and Development
and General Manager, Chief Engineer and General Manager of Engineering and
Information Systems and Vice President of Planning. Mr. MacDonald was the
former Chairman of the New Brunswick section of the Institute of Electrical and
Electronic Engineers and also served on the Federal Government's Information
Highway Advisory Council. Mr. MacDonald is Chairman of MediaLinx Interactive
Inc. and Stentor Canadian Network Management and is presently a Governor of the
Montreal Exchange. He also serves on the Board of Directors of Tele-Direct
(Publications) Inc., Bell-Northern Research, Ltd., SRCI, Bell Sygma, Canarie
Inc., and is a member of the University of New Brunswick Venture Campaign
Cabinet.
Mr. Raphael M. Solot was appointed a Director of the General Partner
in March 1996. Mr. Solot is an attorney and has practiced law for 31 years with
an emphasis on franchise, corporate and partnership law and complex litigation.
Mr. Howard O. Thrall was appointed a Director of the General Partner
in March 1996. Mr. Thrall had previously served as a Director of the General
Partner from December 1988 to December 1994. Mr. Thrall is Senior Vice
President-Corporate Development for First National Net, Inc., a leading service
provider for the mortgage banking industry, and he heads First National Net's
Washington, D.C. regional office. From September 1993 through July 1996, Mr.
Thrall served as Vice President of Sales, Asian Region, for World Airways, Inc.
headquartered at the Washington Dulles International Airport. From 1984 until
August 1993, Mr. Thrall was with the McDonnell Douglas Corporation, where he
concluded as a Regional Vice President, Commercial Marketing with the Douglas
Aircraft Company subsidiary. Mr. Thrall is also an active management and
international marketing consultant, having completed assignments with McDonnell
Douglas Aerospace, JAL Trading, Inc., Technology Solutions Company, Cheong Kang
Associated (Korea), Aero Investment Alliance, Inc. and Western Real Estate
Partners, among others.
Mr. Siim A. Vanaselja was appointed a Director of the General Partner
in August 1996. Mr. Vanaselja joined BCE Inc., Canada's largest
telecommunications company, in February 1994 as Assistant Vice-President,
International Taxation. In June 1994, he was appointed Assistant Vice-President
and Director of Taxation, and in February 1995, Mr. Vanaselja was appointed
Vice-President, Taxation. On August 1, 1996, Mr. Vanaselja was appointed the
Chief Financial Officer of Bell Canada International Inc., a subsidiary of BCE
Inc. Prior to joining BCE Inc. and since August 1989, Mr. Vanaselja was a
partner in the Toronto office of KPMG Peat Marwick Thorne. Mr. Vanaselja has
been a member of the Institute of Chartered Accountants of Ontario since 1982
and is a member of the Canadian Tax Foundation, the Tax Executives Institute and
the International Fiscal Association.
Mr. Sanford Zisman was appointed a director of the General Partner in
June 1996. Mr. Zisman is a member of the law firm, Zisman & Ingraham, P.C. of
Denver, Colorado and has practiced law for 31 years, with an emphasis on tax,
business and estate planning and probate administration. Mr. Zisman currently
serves as a member of the Board of Directors of Saint Joseph Hospital, the
largest hospital in Colorado, and he has served as Chairman of the Board,
Chairman of the Finance Committee and Chairman of the Strategic Planning
Committee of the hospital. Since 1992, he has also served on the Board of
Directors of Maxim Series Fund, Inc., a subsidiary of Great-West Life Assurance
Company.
Mr. Robert B. Zoellick was appointed a Director of the General Partner
in April 1995. Mr. Zoellick is Executive Vice President for Housing and Law of
Fannie Mae, a federally chartered and stockholder-owned corporation that is the
largest housing finance investor in the United States. From August 1992 to
January 1993, Mr. Zoellick served as Deputy Chief of Staff of the White House
and Assistant to the President. From May 1991 to August 1992, Mr. Zoellick
served concurrently as the Under Secretary of State for Economic and
Agricultural Affairs and as Counselor of the Department of State, a post he
assumed in March 1989. From 1985 to 1988, Mr. Zoellick served at the Department
of Treasury in a number of capacities, including Counselor to the Secretary.
Mr. Zoellick received the Alexander Hamilton and Distinguished Service Awards,
highest honors of the Departments of Treasury and State, respectively. The
German Government awarded him the Knight Commanders Cross for his work on
Germany unification. Mr. Zoellick currently serves on the boards of Alliance
Capital, Said
44
<PAGE>
Holdings, the Council on Foreign Relations, the Congressional Institute, the
German Marshall Fund of the U.S., the European Institute, the National Bureau of
Asian Research, the American Council on Germany, the American Institute for
Contemporary German Studies and the Overseas Development Council.
ITEM 11. EXECUTIVE COMPENSATION
--------------------------------
The Partnership has no employees; however, various personnel are
required to operate the Systems. Such personnel are employed by the General
Partner and, pursuant to the terms of the limited partnership agreement of the
Partnership, the cost of such employment is charged by the General Partner to
the Partnership as a direct reimbursement item. See Item 13.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
----------------------------------------------------------------------
As of March 4, 1997, no person or entity owned more than 5 percent of
the limited partnership interests of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
The General Partner and its affiliates engage in certain transactions
with the Venture. The General Partner believes that the terms of such
transactions are generally as favorable as could be obtained by the Venture from
unaffiliated parties. This determination has been made by the General Partner
in good faith, but none of the terms were or will be negotiated at arm's-length
and there can be no assurance that the terms of such transactions have been or
will be as favorable as those that could have been obtained by the Venture from
unaffiliated parties.
TRANSACTIONS WITH THE GENERAL PARTNER
The General Partner charges a management fee, and the General Partner
is reimbursed for certain allocated overhead and administrative expenses. These
expenses represent the salaries and benefits paid to corporate personnel, rent,
data processing services and other corporate facilities costs. Such personnel
provide engineering, marketing, administrative, accounting, legal and investor
relations services to the Venture. Allocations of personnel costs are based
primarily on actual time spent by employees of the General Partner with respect
to each partnership managed. Remaining expenses are allocated based on the pro
rata relationship of the Venture's revenues to the total revenues of all systems
owned or managed by the General Partner and certain of its subsidiaries.
Systems owned by the General Partner and all other systems owned by partnerships
for which Jones Intercable, Inc. is the general partner are also allocated a
proportionate share of these expenses.
The General Partner also advances funds and charges interest on the
balance payable. The interest rate charged approximates the General Partner's
weighted average cost of borrowing.
TRANSACTIONS WITH AFFILIATES
Jones Education Company ("JEC") is owned 63% by Jones International,
Ltd. ("International"), an affiliate of the General Partner, 9% by Glenn R.
Jones, 12% by Bell Canada International Inc. ("BCI") and 16% by the General
Partner. JEC operates two television networks, JEC Knowledge TV and Jones
Computer Network. JEC Knowledge TV provides programming related to computers
and technology; business, careers and finance; health and wellness; and global
culture and languages. Jones Computer Network provides programming focused
primarily on computers and technology. JEC sells its programming to certain
cable television systems owned or managed by the General Partner.
45
<PAGE>
The Great American Country network provides country music video
programming to certain cable television systems owned or managed by the General
Partner. This network is owned and operated by Great American Country, Inc., a
subsidiary of Jones International Networks, Ltd., an affiliate of International.
Jones Galactic Radio, Inc. is a company now owned by Jones
International Networks, Ltd., an affiliate of International. Superaudio, a
joint venture between Jones Galactic Radio, Inc. and an unaffiliated entity,
provides satellite programming to certain cable television systems owned or
managed by the General Partner.
The Product Information Network Venture (the "PIN Venture") is a
venture among a subsidiary of Jones International Networks, Ltd., an affiliate
of International, and two unaffiliated cable system operators. The PIN Venture
operates the Product Information Network ("PIN"), which is a 24-hour network
that airs long-form advertising generally known as "infomercials." The PIN
Venture generally makes incentive payments of approximately 60% of its net
advertising revenue to the cable systems that carry its programming. Most of
the General Partner's owned and managed systems carry PIN for all or part of
each day. Revenues received by the Venture from the PIN Venture relating to the
Venture's owned cable television systems totaled approximately $191,011 for the
year ended December 31, 1996.
The charges to the Venture for related party transactions are as
follows for the periods indicated:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
Cable TV Fund 12-BCD 1996 1995 1994
- -------------------- ---- ---- ----
<S> <C> <C> <C>
Management fees $4,118,188 $5,069,985 $4,461,154
Allocation of expenses 5,491,265 7,183,663 6,951,110
Interest expense 0 220,743 33,627
Amount of advances outstanding 0 4,198,739 616,810
Highest amount of advances outstanding 0 4,574,572 929,508
Programming fees:
Jones Education Company 374,709 428,937 196,004
Great American Country 141,753 0 0
Superaudio 116,710 135,861 135,346
</TABLE>
46
<PAGE>
PART IV.
--------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
-------------------------------------------------------------------------
(a)1. See index to financial statements for list of financial
statements and exhibits thereto filed as a part of this
report.
3. The following exhibits are filed herewith.
4.1 Limited Partnership Agreement for Cable TV Fund 12-B. (1)
4.2 Joint Venture Agreement of Cable TV Fund 12-BCD Venture dated
as of March 17, 1986, among Cable TV Fund 12-B, Ltd., Cable
TV Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd. (2)
10.1.1 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for Edwards Air
Force Base, California (Fund 12-BCD). (3)
10.1.2 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of
Lancaster, California (Fund 12-BCD). (4)
10.1.3 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for
Unincorporated portions of Los Angeles County, California
(Fund 12-BCD). (4)
10.1.4 Copy of Los Angeles County Code regarding cable tv system
franchises (Fund 12-BCD). (5)
10.1.5 Copy of Ordinance 90-0118F dated 10/29/90 granting a cable
television franchise to Fund 12-BCD (Fund 12-BCD). (5)
10.1.6 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the Green
Valley/Elizabeth Lake/Leona Valley unincorporated areas of
Los Angeles County, California (Fund 12-BCD). (2)
10.1.7 Ordinance 88-0166F dated 10/4/88 amending the franchise
described in 10.1.5 (Fund 12-BCD). (5)
10.1.8 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of
Palmdale, California (Fund 12-BCD). (5)
10.1.9 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of
Albuquerque, New Mexico (Fund 12-BCD). (4)
10.1.10 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the County
of Bernalillo, New Mexico (Fund 12-BCD). (4)
10.1.11 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the Town of
Bernalillo, New Mexico (Fund 12-BCD). (4)
47
<PAGE>
10.1.12 Resolution No. 12-14-87 dated 12/14/87 authorizing the
assignment of the franchise to Fund 12-BCD. (5)
10.1.13 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the Village
of Bosque Farms, New Mexico (Fund 12-BCD). (4)
10.1.14 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the Village
of Corrales, New Mexico (Fund 12-BCD). (4)
10.1.15 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the
Kirtland Air Force Base, New Mexico (Fund 12-BCD). (5)
10.1.16 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the Village
of Los Ranchos, New Mexico (Fund 12-BCD). (4)
10.1.17 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the County
of Sandoval, New Mexico (Fund 12-BCD). (4)
10.1.18 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the County
of Valencia, New Mexico (Fund 12-BCD). (4)
10.1.19 Resolution No. 88-23 dated 2/14/88 authorizing assignment of
the franchise to Fund 12-BCD. (5)
10.2.1 Note Purchase Agreement dated as of March 31, 1992 between
Cable TV Fund 12-BCD Venture and the Noteholders (11)
10.2.2 Amendment No. 1 dated as of March 31, 1994 to the Note
Purchase Agreement dated as of March 31, 1992 between Cable
TV Fund 12-BCD Venture and the Noteholders (11)
10.2.3 Amendment No. 2 dated as of September 30, 1994 to the Note
Purchase Agreement dated as of March 31, 1992 between Cable
TV Fund 12-BCD Venture and the Noteholders (11)
10.2.4 Amendment No. 3 dated as of February 12, 1996 to the Note
Purchase Agreement dated as of March 31, 1992 between Cable
TV Fund 12-BCD Venture and the Noteholders (11)
10.2.5 Second Amended and Restated Credit Agreement by and among
Cable TV Fund 12-BCD Venture, various banks, Corestates Bank,
N.A. and Societe Generale, as Managing Agents and Corestates
Bank, N.A., as Administrative Agent dated February 12, 1996.
(11)
10.3.1 Purchase and Sale Agreement dated as of March 29, 1988 by and
between Cable TV Fund 12-BCD Venture as Buyer and Video
Company as Seller. (6)
48
<PAGE>
10.3.2 Purchase and Sale Agreement dated 9/20/91 and amendments
thereto between Cable TV Fund 12-BCD Venture as Seller and
Falcon Classic Cable Income Properties, L.P. (Fund 12-BCD).
(7)
10.3.3 Purchase and Sale Agreement dated 2/22/95 between Cable TV
Fund 12-B, Ltd. and Jones Intercable, Inc. (8)
10.3.4 Assignment and Assumption Agreement dated as of October 20,
1995 between Jones Intercable, Inc. and Jones Cable Holdings,
Inc. (9)
10.3.5 Purchase and Sale Agreement dated as of August 11, 1995
between Cable TV Fund 12-BCD Venture and Jones Intercable,
Inc. (10)
27 Financial Data Schedule
__________
(1) Incorporated by reference from Registrant's Report on Form
10-K for the fiscal year ended December 31, 1985 (Commission
File Nos. 0-13193, 0-13807, 0-13964 and 0-14206).
(2) Incorporated by reference from Registrant's Report on Form
10-K for the fiscal year ended December 31, 1987 (Commission
File Nos. 0-13193, 0-13807, 0-13964 and 0-14206).
(3) Incorporated by reference from Registrant's Report on Form
10-K for the fiscal year ended December 31, 1994 (Commission
File No. 0-13193).
(4) Incorporated by reference from Registrant's Report on Form
10-K for the fiscal year ended December 31, 1986 (Commission
File Nos. 0-13193, 0-13807, 0-13964 and 0-14206).
(5) Incorporated by reference from Registrant's Report on Form
10-K for the fiscal year ended December 31, 1992 (Commission
File Nos. 0-13193, 0-13807, 0-13964 and 0-14206).
(6) Incorporated by reference from Registrant's Report on Form
10-K for the fiscal year ended December 31, 1988 (Commission
File Nos. 0-13193, 0-13807, 0-13964 and 0-14206).
(7) Incorporated by reference from the Forms 8-K of Fund 12-B,
Fund 12-C and Fund 12-D dated 4/6/92 (Commission File Nos. 0-
13193, 0-13964 and 0-14206, respectively).
(8) Incorporated by reference from the Form 8-K of Cable TV Fund
12-B, Ltd. dated 3/10/95 (Commission File No. 0-13193).
(9) Incorporated by reference from the Form 8-K of Cable TV Fund
12-B, Ltd. dated 11/1/95 (Commission File No. 0-13193).
(10) Incorporated by reference from the Annual Report on Form 10-K
for fiscal year ended May 31, 1995 of Jones Intercable, Inc.
(Commission File No. 1-9953)
49
<PAGE>
(11) Incorporated by reference from the Annual Report on Form 10-K
for fiscal year ended December 31, 1995 of Cable TV Fund 12-
B, Ltd. (Commission File No. 0-13807)
(b) Reports on Form 8-K.
None.
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CABLE TV FUND 12-B, LTD.
a Colorado limited partnership
By: Jones Intercable, Inc.
By: /s/ Glenn R. Jones
_________________________________
Glenn R. Jones
Chairman of the Board and Chief
Dated: March 24, 1997 Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Glenn R. Jones
_________________________________
Glenn R. Jones
Chairman of the Board and Chief
Executive Officer
Dated: March 24, 1997 (Principal Executive Officer)
By: /s/ Kevin P. Coyle
_________________________________
Kevin P. Coyle
Group Vice President/Finance
Dated: March 24, 1997 (Principal Financial Officer)
By: /s/ Larry Kaschinske
_________________________________
Larry Kaschinske
Vice President/Controller
Dated: March 24, 1997 (Principal Accounting Officer)
By: /s/ James B. O'Brien
_________________________________
James B. O'Brien
Dated: March 24, 1997 President and Director
By: /s/ Derek H. Burney
_________________________________
Derek H. Burney
Dated: March 24, 1997 Director
By: /s/ Robert E. Cole
_________________________________
Robert E. Cole
Dated: March 24, 1997 Director
51
<PAGE>
By: /s/ William E. Frenzel
_________________________________
William E. Frenzel
Dated: March 24, 1997 Director
By: /s/ Donald L. Jacobs
_________________________________
Donald L. Jacobs
Dated: March 24, 1997 Director
By: /s/ James J. Krejci
_________________________________
James J. Krejci
Dated: March 24, 1997 Director
By: _________________________________
John A. MacDonald
Dated: March 24, 1997 Director
By: /s/ Raphael M. Solot
_________________________________
Raphael M. Solot
Dated: March 24, 1997 Director
By: _________________________________
Howard O. Thrall
Dated: March 24, 1997 Director
By: /s/ Siim A. Vanaselja
_________________________________
Siim A. Vanaselja
Dated: March 24, 1997 Director
By: /s/ Sanford Zisman
_________________________________
Sanford Zisman
Dated: March 24, 1997 Director
By: /s/ Robert B. Zoellick
_________________________________
Robert B. Zoellick
Dated: March 24, 1997 Director
52
<PAGE>
Exhibit 99(d)(3)
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1997.
--------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________.
Commission File Number: 0-13807
CABLE TV FUND 12-B, LTD.
- --------------------------------------------------------------------------------
Exact name of registrant as specified in charter
Colorado #84-0969999
- --------------------------------------------------------------------------------
State of organization I.R.S. employer I.D.#
9697 East Mineral Avenue, P.O. Box 3309, Englewood, Colorado 80155-3309
------------------------------------------------------------------------
Address of principal executive office
(303) 792-3111
----------------------------------
Registrant's telephone number
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
<PAGE>
CABLE TV FUND 12-B, LTD.
------------------------
(A Limited Partnership)
UNAUDITED BALANCE SHEETS
------------------------
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
------ -------------- ----------------
<S> <C> <C>
CASH $ 55,348 $ 55,348
------------ ------------
Total assets $ 55,348 $ 55,348
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
-------------------------------------------
LIABILITIES:
Loss in excess of investment in cable
television joint venture $ 2,239,845 $ 2,151,657
------------ ------------
Total liabilities 2,239,845 2,151,657
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partner-
Contributed capital 1,000 1,000
Distributions (14,782,875) (14,782,875)
Accumulated earnings 14,591,665 14,592,547
------------ ------------
(190,210) (189,328)
------------ ------------
Limited Partners-
Net contributed capital (111,035 units
outstanding at March 31, 1997 and
December 31, 1996) 47,645,060 47,645,060
Distributions (99,879,837) (99,879,837)
Accumulated earnings 50,240,490 50,327,796
------------ ------------
(1,994,287) (1,906,981)
------------ ------------
Total liabilities and
partners' capital (deficit) $ 55,348 $ 55,348
============ ============
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited balance sheets.
2
<PAGE>
CABLE TV FUND 12-B, LTD.
------------------------
(A Limited Partnership)
UNAUDITED STATEMENTS OF OPERATIONS
----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
1997 1996
----------- -------------
<S> <C> <C>
EQUITY IN NET INCOME (LOSS) OF CABLE
TELEVISION JOINT VENTURE $(88,188) $6,323,677
-------- ----------
NET INCOME (LOSS) $(88,188) $6,323,677
======== ==========
ALLOCATION OF NET INCOME (LOSS):
General Partner $ (882) $ (2,986)
======== ==========
Limited Partners $(87,306) $6,326,663
======== ==========
NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT $(.79) $ 56.98
======== ==========
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 111,035 111,035
======== ==========
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited statements.
3
<PAGE>
CABLE TV FUND 12-B. LTD.
------------------------
(A Limited Partnership)
UNAUDITED STATEMENTS OF CASH FLOWS
----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------------------------
1997 1996
-------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(88,188) $ 6,323,677
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Decrease in closing adjustment receivable - 1,064,238
Equity in net (income) loss of cable television
joint venture 88,188 (6,323,677)
-------- -----------
Net cash provided by operating activities - 1,064,238
-------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distribution from cable television venture - 5,049,000
-------- -----------
Net cash provided by investing activities - 5,049,000
-------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to Limited Partners - (4,700,462)
Distribution to General Partner - (1,562,250)
-------- -----------
Net cash used in financing activities - (6,262,712)
-------- -----------
Decrease in cash - (149,474)
Cash, beginning of period 55,348 204,822
-------- -----------
Cash, end of period $ 55,348 $ 55,348
======== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ - $ -
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited statements.
4
<PAGE>
CABLE TV FUND 12-B, LTD.
------------------------
(A Limited Partnership)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
---------------------------------------
(1) This Form 10-Q is being filed in conformity with the SEC requirements for
unaudited financial statements and does not contain all of the necessary
footnote disclosures required for a fair presentation of the Balance Sheets and
Statements of Operations and Cash Flows in conformity with generally accepted
accounting principles. However, in the opinion of management, this data includes
all adjustments, consisting only of normal recurring accruals, necessary to
present fairly the financial position of Cable TV Fund 12-B, Ltd.
("Partnership") at March 31, 1997 and December 31, 1996 and its Statements of
Operations and Cash Flows for the three month periods ended March 31, 1997 and
1996. Results of operations for these periods are not necessarily indicative of
results to be expected for the full year.
As a result of the sale of the cable television system serving areas in
and around Augusta, Georgia (the "Augusta System"), the Partnership owns no
properties directly. The Partnership continues to own a 9 percent interest in
Cable TV Fund 12-BCD Venture (the "Venture"). The Venture owns and operates the
cable television systems serving certain areas in and around Albuquerque, New
Mexico (the "Albuquerque System") and Palmdale, California (the "Palmdale
System"). The Venture sold the cable television system serving the areas in and
around Tampa, Florida (the "Tampa System") on February 28, 1996.
(2) Jones Intercable, Inc., a publicly held Colorado corporation (the "General
Partner"), manages the Venture and receives a fee for its services equal to 5
percent of the gross revenues of the Venture, excluding revenues from the sale
of cable television systems or franchises. Management fees paid by the Venture
to the General Partner during the three month periods ended March 31, 1997 and
1996 attributable to the Partnership's 9 percent interest in the Venture were
$90,475 and $108,073, respectively.
The Venture reimburses the General Partner for certain allocated overhead
and administrative expenses. These expenses represent the salaries and related
benefits paid for corporate personnel, rent, data processing services, and other
corporate facilities costs. Such personnel provide engineering, marketing,
administrative, accounting, legal and investor relations services to the
Venture. Such services, and their related costs, are necessary to the operation
of the Venture and would have been incurred by the Venture if it was a stand
alone entity. Allocations of personnel costs are primarily based on actual time
spent by employees of the General Partner with respect to each partnership
managed. Remaining overhead costs are allocated based on the pro rata
relationship of the Venture's revenues to the total revenues of all systems
owned or managed by the General Partner and certain of its subsidiaries.
Systems owned by the General Partner and all other systems owned by partnerships
for which Jones Intercable, Inc. is the general partner are also allocated a
proportionate share of these expenses. The General Partner believes that the
methodology used in allocating overhead and administrative expenses is
reasonable. Amounts charged the Venture by the General Partner for allocated
overhead and administrative expenses during the three month periods ended March
31, 1997 and 1996 attributable to the Partnership's 9 percent interest in the
Venture were $122,140 and $146,979, respectively. See Note 4 for disclosure of
the total management fees and allocated overhead and administrative expenses
paid by the Venture.
5
<PAGE>
(3) Summarized financial information regarding the Venture is presented below.
UNAUDITED BALANCE SHEETS
------------------------
<TABLE>
<CAPTION>
ASSETS March 31, 1997 December 31, 1996
------ --------------- ------------------
<S> <C> <C>
Cash and accounts receivable $ 4,861,303 $ 4,191,019
Investment in cable television properties 114,111,729 113,671,437
Other assets 4,571,563 3,036,880
------------- -------------
Total assets $ 123,544,595 $ 120,899,336
============= =============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Debt $ 140,721,622 $ 138,345,878
Payables and accrued liabilities 6,175,104 4,944,940
Partners' contributed capital 135,490,944 135,490,944
Accumulated deficit (103,843,075) (102,882,426)
Distributions (55,000,000) (55,000,000)
------------- -------------
Total liabilities and partners' capital $ 123,544,595 $ 120,899,336
============= =============
</TABLE>
UNAUDITED STATEMENTS OF OPERATIONS
----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenues $19,711,225 $ 23,545,320
Operating expenses (10,953,865) (14,741,425)
Management fees and allocated overhead from General Partner (2,316,066) (2,778,348)
Depreciation and amortization (4,798,547) (6,117,468)
Operating income (loss) 1,642,747 (91,921)
Interest expense, net (2,691,262) (3,161,193)
Gain on sale of cable television system - 72,137,615
Other, net 87,866 862
------------ ------------
Consolidated income (loss) $ (960,649) $ 68,885,363
============ ============
</TABLE>
Management fees and reimbursements for overhead and administrative
expenses paid to Jones Intercable, Inc. by the Venture totaled $985,561 and
$1,330,505, respectively, for the three month period ended March 31, 1997, and
$1,177,266 and $1,601,082, respectively, for the three month period ended March
31, 1996.
6
<PAGE>
CABLE TV FUND 12-B, LTD.
------------------------
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
It is the General Partner's publicly announced policy that it intends to
liquidate its managed limited partnerships, including the Partnership, as
opportunities for sales of partnership cable television systems arise in the
marketplace over the next several years. In accordance with the General
Partner's policy, the Partnership sold the Augusta System in October 1995 and
the Venture sold the Tampa System in February 1996. No specific dates or terms
have yet been set for the sale of the remainder of the Venture's systems.
The Partnership owns a 9 percent interest in the Venture. The
Partnership's investment in the Venture is accounted for under the equity
method. The Partnership's share of losses generated by the Venture have
exceeded the Partnership's initial investment in the Venture; therefore, the
investment is classified as a liability. This liability increased by $88,188,
which represents the Partnership's share of losses generated by the Venture for
the three months ended March 31, 1997.
For the three months ended March 31, 1997, the Venture generated net cash
from operating activities totaling $2,619,786, which was available to fund
capital expenditures and non-operating costs. Capital expenditures for the
Venture totaled approximately $5,010,000 during the first quarter of 1997.
Service drops to homes accounted for approximately 42 percent of the capital
expenditures. New plant construction accounted for approximately 29 percent of
the capital expenditures. Converters accounted for approximately 19 percent of
the capital expenditures. The remaining expenditures related to various system
enhancements. These capital expenditures were funded primarily from cash on
hand, cash generated from operations and borrowings from the Venture's credit
facility. Expected capital expenditures for the remainder of 1997 are
approximately $15,300,000. Service drops to homes are anticipated to account
for approximately 52 percent. Approximately 14 percent of budgeted capital
expenditures is for new plant construction. Plant rebuild is anticipated to
account for approximately 14 percent. The remainder of the expenditures are for
various system enhancements in all of the Venture's systems. These capital
expenditures are necessary to maintain the value of the Venture's systems.
Funding for these expenditures is expected to be provided by cash on hand, cash
generated from operations and borrowings from the Venture's credit facility.
The Venture's debt arrangements at March 31, 1997 consisted of
$51,436,531 of Senior Notes placed with a group of institutional lenders and a
$120,000,000 credit facility with a group of commercial bank lenders. The
Senior Notes and the credit facility are equal in standing with the other, and
both are equally secured by the assets of the Venture.
The Senior Notes have a fixed interest rate of 8.64 percent and a final
maturity date of March 31, 2000. The Senior Notes require payments of interest
and accelerating principal through maturity, payable semi-annually in March and
September. A principal payment of $3,956,656 was made in March 1997. A
principal payment of approximately $3,956,656 is due in September 1997 and is
expected to be funded from cash on hand, cash generated from operations and
borrowings from the Venture's credit facility.
The balance outstanding on the Venture's $120,000,000 credit facility at
March 31, 1997 was $88,530,620, leaving $31,469,380 available for future needs.
At the Venture's option, the credit facility is payable in full on December 31,
1999 or converts to a term loan that matures on December 31, 2004 payable in
consecutive quarterly amounts. Interest on the amended credit facility is at
the Venture's option of the London Interbank Offered Rate plus 1.125 percent,
the Prime Rate plus .125 percent or the Certificate of Deposit Rate plus 1.25
percent. The effective interest rates on amounts outstanding on the Venture's
credit facility as of March 31, 1997 and 1996 were 7.66 percent and 8.35
percent, respectively.
The Venture has sufficient sources of capital available through its
ability to generate cash from operations and borrowings under its credit
facility to meet its presently anticipated operating needs.
7
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Revenues in the Venture's systems decreased $3,834,095, or approximately
16 percent, to $19,711,225 for the three months ended March 31, 1997 from
$23,545,320 for the similar period in 1996. This decrease was a result of the
sale of the Tampa System. Disregarding the effect of the Tampa System sale,
revenues would have increased $1,051,296, or approximately 6 percent, to
$19,711,225 for the three months ended March 31, 1997 from $18,659,929 for the
similar period in 1996. The increase in revenue was due primarily to basic
service rate increases and an increase in advertising activity. Basic service
rate increases accounted for approximately 59 percent of the increase in
revenues for the three months ended March 31, 1997. Advertising activity
accounted for approximately 18 percent of the increase in revenues for the three
months ended March 31, 1997. No other individual factor significantly affected
the increase in revenues.
Operating expenses consist primarily of costs associated with the
operation and administration of the Venture's cable television systems. The
principal cost components are salaries paid to system personnel, programming
expenses, professional fees, subscriber billing costs, rent for leased
facilities, cable system maintenance expenses and marketing expenses.
Operating expenses in the Venture's systems decreased $3,785,992, or
approximately 26 percent, to $10,953,865 for the three months ended March 31,
1997 from $14,739,857 for the similar period in 1996. This decrease was a
result of the sale of the Tampa System. Disregarding the effect of the Tampa
System sale, operating expenses would have increased $60,612, or approximately 1
percent, to $10,953,865 for the three months ended March 31, 1997 from
$10,893,253 for the similar period in 1996. Operating expenses represented 56
percent and 58 percent, respectively, of revenues for the three months ended
March 31, 1997 and 1996. The increase in operating expenses was primarily due
to increases in programming costs. No other individual factor contributed
significantly to the increase in operating expenses.
The cable television industry generally measures the financial
performance of a cable television system in terms of operating cash flow
(revenues less operating expenses). This measure is not intended to be a
substitute or improvement upon the items disclosed on the financial statements,
rather it is included because it is an industry standard. Operating cash flow
decreased $48,103, or approximately 1 percent, to $8,757,360 for the three
months ended March 31, 1997 from $8,805,463 for the similar period in 1996.
Disregarding the effect of the Tampa System sale, operating cash flow would have
increased $990,684, or approximately 13 percent, to $8,757,360 for the three
months ended March 31, 1997 from $7,766,676 for the similar 1996 period. This
increase was due to the increase in revenues exceeding the increases in
operating expenses.
Management fees and allocated overhead from the General Partner decreased
$462,282, or approximately 17 percent, to $2,316,066 for the three months ended
March 31, 1997 from $2,778,348 for the similar period in 1996. This decrease
was a result of the sale of the Tampa System. Disregarding the effect of the
Tampa System sale, management fees and allocated overhead from the General
Partner would have increased $114,194, or approximately 5 percent, to $2,316,066
for the three months ended March 31, 1997 from $2,201,872 for the similar period
in 1996. This increase was primarily due to the increase in revenues, upon
which such management fees are based. This increase was partially offset by a
decrease in allocated overhead from the General Partner.
Depreciation and amortization expense decreased $1,320,489, or
approximately 22 percent, to $4,798,547 for the three months ended March 31,
1997 from $6,119,036 for the similar period in 1996. This decrease was a result
of the sale of the Tampa System. Disregarding the effect of the Tampa System
sale, depreciation and amortization expense would have decreased $241,046, or
approximately 5 percent, to $4,798,547 for the three months ended March 31, 1997
from $5,039,593 for the similar period in 1996. This decrease was due to the
maturation of the Venture's asset base.
The Venture recognized operating income of $1,642,747 for the three
months ended March 31, 1997 compared to an operating loss of $91,921 for the
similar period in 1996. Disregarding the effect of the Tampa System sale, the
Venture's operating income would have increased $1,117,536, to $1,642,747 for
the three month period ended March 31, 1997 from $525,211 for the similar period
in 1996. This increase was due to the increase in revenues and the decrease in
depreciation and amortization expenses exceeding the increases in operating
expenses and management fees and allocated overhead expenses from the General
Partner.
Interest expense decreased $469,931, or approximately 15 percent, to
$2,691,262 for the three months ended March 31, 1997 from $3,161,193 for the
similar period in 1996. This decrease in interest expense was primarily due to
the lower outstanding balances and lower effective interest rates on the
Venture's interest bearing obligations.
8
<PAGE>
The Venture recognized a gain of $72,137,615 related to the sale of the
Tampa System in February 1996. No similar gain was recognized in 1997.
The Venture reported a net loss of $960,649 for the three months ended
March 31, 1997 compared to net income of $68,885,363 for the similar period in
1996. This change was due to the gain on the sale of the Tampa System in
February 1996.
9
<PAGE>
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27) Financial Data Schedule
b) Reports on Form 8-K
None.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CABLE TV FUND 12-B, LTD.
BY: JONES INTERCABLE, INC.
General Partner
By: /S/ Kevin P. Coyle
-----------------------------
Kevin P. Coyle
Group Vice President/Finance
(Principal Financial Officer)
Dated: May 13, 1997
11
<PAGE>
Exhibit 99(d)(4)
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1997.
-------------------
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to .
------------ ------------
Commission File Number: 0-13807
CABLE TV FUND 12-B, LTD.
- --------------------------------------------------------------------------------
Exact name of registrant as specified in charter
Colorado #84-0969999
- --------------------------------------------------------------------------------
State of organization I.R.S. employer I.D.#
9697 East Mineral Avenue, P.O. Box 3309, Englewood, Colorado 80155-3309
------------------------------------------------------------------------
Address of principal executive office
(303) 792-3111
-----------------------------
Registrant's telephone number
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- ---------
<PAGE>
CABLE TV FUND 12-B, LTD.
------------------------
(A Limited Partnership)
UNAUDITED BALANCE SHEETS
------------------------
June 30, December 31,
ASSETS 1997 1996
------ ------------ ------------
CASH $ 55,348 $ 55,348
------------ ------------
Total assets $ 55,348 $ 55,348
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
-------------------------------------------
LIABILITIES:
Loss in excess of investment in cable
television joint venture $ 2,297,917 $ 2,151,657
------------ ------------
Total liabilities 2,297,917 2,151,657
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partner-
Contributed capital 1,000 1,000
Distributions (14,782,875) (14,782,875)
Accumulated earnings 14,591,084 14,592,547
------------ ------------
(190,791) (189,328)
------------ ------------
Limited Partners-
Net contributed capital (111,035 units
outstanding at June 30, 1997 and
December 31, 1996) 47,645,060 47,645,060
Distributions (99,879,837) (99,879,837)
Accumulated earnings 50,182,999 50,327,796
------------ ------------
(2,051,778) (1,906,981)
------------ ------------
Total liabilities and
partners' capital (deficit) $ 55,348 $ 55,348
============ ============
The accompanying notes to unaudited financial statements
are an integral part of these unaudited balance sheets.
2
<PAGE>
CABLE TV FUND 12-B, LTD.
------------------------
(A Limited Partnership)
UNAUDITED STATEMENTS OF OPERATIONS
----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- ------------------------
<S> <C> <C> <C> <C>
1997 1996 1997 1996
-------- --------- --------- ----------
EQUITY IN NET INCOME (LOSS) OF CABLE
TELEVISION JOINT VENTURE $(58,072) $(229,122) $(146,260) $5,890,592
-------- --------- --------- ----------
NET INCOME (LOSS) $(58,072) $(229,122) $(146,260) $5,890,592
======== ========= ========= ==========
ALLOCATION OF NET INCOME (LOSS):
General Partner $ (581) $ 63,932 $ (1,463) $ 58,906
======== ========= ========= ==========
Limited Partners $(57,491) $(293,054) $(144,797) $5,831,686
======== ========= ========= ==========
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $ (.51) $ (2.64) $ (1.30) $ 52.52
======== ========= ========= ==========
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 111,035 111,035 111,035 111,035
======== ========= ========= ==========
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these statements.
3
<PAGE>
CABLE TV FUND 12-B, LTD.
------------------------
(A Limited Partnership)
UNAUDITED STATEMENTS OF CASH FLOWS
----------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
--------------------------
<S> <C> <C>
1997 1996
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(146,260) $ 6,323,677
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Decrease in closing adjustment receivable - 1,064,238
Equity in net (income) loss of cable television
joint venture 146,260 (6,323,677)
---------- -----------
Net cash provided by operating activities - 1,064,238
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distribution from cable television venture - 5,049,000
---------- -----------
Net cash provided by investing activities - 5,049,000
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to Limited Partners - (4,700,462)
Distribution to General Partner - (1,562,250)
---------- -----------
Net cash used in financing activities - (6,262,712)
---------- -----------
Decrease in cash - (149,474)
Cash, beginning of period 55,348 204,822
---------- -----------
Cash, end of period $ 55,348 $ 55,348
========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ - $ -
========== ===========
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited statements.
4
<PAGE>
CABLE TV FUND 12-B, LTD.
------------------------
(A Limited Partnership)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
---------------------------------------
(1) This Form 10-Q is being filed in conformity with the SEC requirements for
unaudited financial statements and does not contain all of the necessary
footnote disclosures required for a fair presentation of the Balance Sheets and
Statements of Operations and Cash Flows in conformity with generally accepted
accounting principles. However, in the opinion of management, this data includes
all adjustments, consisting only of normal recurring accruals, necessary to
present fairly the financial position of Cable TV Fund 12-B, Ltd. (the
"Partnership") at June 30, 1997 and December 31, 1996, its results of operations
for the three and six months ended June 30, 1997 and 1996 and its cash flows for
the six month periods ended June 30, 1997 and 1996. Results of operations for
these periods are not necessarily indicative of results to be expected for the
full year.
The Partnership owns no properties directly. The Partnership owns a 9
percent interest in Cable TV Fund 12-BCD Venture (the "Venture"). The Venture
owns and operates the cable television systems serving certain areas in and
around Albuquerque, New Mexico (the "Albuquerque System") and Palmdale,
California (the "Palmdale System"). The Venture sold the cable television
system serving the areas in and around Tampa, Florida (the "Tampa System") on
February 28, 1996.
(2) On July 28, 1997, the Venture entered into a purchase and sale agreement to
sell the Albuquerque System to the General Partner for a sales price of
$222,963,267, which price represents the average of three separate independent
appraisals of the fair market value of the Albuquerque System. The closing of
this sale is subject to a number of conditions, including the approval of the
holders of a majority of the limited partnership interests in each of the three
partnerships that comprise the Venture and necessary governmental and other
third party consents. Closing is expected to occur during the first quarter of
1998. Upon the consummation of the sale of the Albuquerque System, the Venture
must repay its outstanding Senior Notes balance of $51,436,531 plus a make whole
premium and, subject to an amendment to the Venture's credit facility, it will
repay approximately $40,000,000 of the then outstanding balance of its credit
facility. The Venture then anticipates, again subject to an amendment to the
Venture's credit facility, making a distribution of approximately $125,000,000
to the Venture's partners. The Partnership's portion of this distribution would
be approximately $11,474,475, of which approximately $8,605,856 would be
distributed to the limited partners and approximately $2,868,619 would be
distributed to the General Partner. This distribution of the Albuquerque
System's sale proceeds will give the Partnership's limited partners an
approximate return of $155 for each $1,000 invested in the Partnership. Taking
into account the 1995 distribution made on the sale of the Augusta System, the
1996 distribution made on the sale of the Tampa System and the anticipated
distribution to be made on the sale of the Albuquerque System in 1998, the
limited partners will have received a total of $1,954 for each $1,000 invested
in the Partnership.
(3) Jones Intercable, Inc., a publicly held Colorado corporation (the "General
Partner"), manages the Venture and receives a fee for its services equal to 5
percent of the gross revenues of the Venture, excluding revenues from the sale
of cable television systems or franchises. Management fees paid by the Venture
to the General Partner during the three and six month periods ended June 30,
1997 attributable to the Partnership's 9 percent interest in the Venture were
$97,027 and $187,501, respectively, compared to $89,200 and $197,273,
respectively, for the comparable periods in 1996.
The Venture reimburses the General Partner for certain allocated overhead
and administrative expenses. These expenses represent the salaries and related
benefits paid for corporate personnel, rent, data processing services, and other
corporate facilities costs. Such personnel provide engineering, marketing,
administrative, accounting, legal and investor relations services to the
Venture. Such services, and their related costs, are necessary to the operation
of the Venture and would have been incurred by the Venture if it was a stand
alone entity. Allocations of personnel costs are primarily based on actual time
spent by employees of the General Partner with respect to each partnership
managed. Remaining overhead costs are allocated based on the pro rata
relationship of the Venture's revenues to the total revenues of all systems
owned or managed by the General Partner and certain of its subsidiaries.
Systems owned by the General Partner and all other systems owned by partnerships
for which Jones Intercable, Inc. is the general partner are also allocated a
proportionate share of these expenses. The General Partner believes that the
methodology used in allocating overhead and administrative expenses is
reasonable. Amounts charged the Venture by the General Partner for allocated
overhead and administrative expenses during the three and six month periods
ended June 30, 1997 attributable to the Partnership's 9 percent interest in the
Venture were $96,664 and $218,804, respectively, compared to $122,102 and
$269,081, respectively, for the comparable periods in 1996.
5
<PAGE>
See Note 4 for disclosure of the total management fees and allocated
overhead and administrative expenses paid by the Venture.
(4) Summarized financial information regarding the Venture is presented below.
UNAUDITED BALANCE SHEETS
------------------------
<TABLE>
<CAPTION>
ASSETS June 30, 1997 December 31, 1996
------ -------------- ------------------
<S> <C> <C>
Cash and accounts receivable $ 6,273,875 $ 4,191,019
Investment in cable television properties 113,043,796 113,671,437
Other assets 4,833,665 3,036,880
------------- -------------
Total assets $ 124,151,336 $ 120,899,336
============= =============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Debt $ 142,024,854 $ 138,345,878
Payables and accrued liabilities 6,111,212 4,944,940
Partners' contributed capital 135,490,944 135,490,944
Accumulated deficit (104,475,674) (102,882,426)
Distributions (55,000,000) (55,000,000)
------------- -------------
Total liabilities and partners' capital $ 124,151,336 $ 120,899,336
============= =============
</TABLE>
6
<PAGE>
UNAUDITED STATEMENTS OF OPERATIONS
----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
1997 1996 1997 1996
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 21,138,684 $ 19,433,518 $ 40,849,909 $ 42,978,838
Operating expenses (11,733,343) (11,682,207) (22,687,208) (26,423,632)
Management fees and
allocated overhead
from General Partner (2,109,915) (2,301,759) (4,425,981) (5,080,107)
Depreciation and
amortization (4,866,372) (5,141,927) (9,664,919) (11,260,963)
------------ ------------ ------------ ------------
Operating income 2,429,054 307,625 4,071,801 214,136
Interest expense, net (2,729,243) (2,713,581) (5,420,505) (5,874,774)
Gain on sale of cable
television system - - - 71,914,391
Other, net (332,410) (94,909) (244,544) 130,745
------------ ------------ ------------ ------------
Net income (loss) $ (632,599) $ (2,500,865) $ (1,593,248) $ 66,170,362
============ ============ ============ ============
</TABLE>
Management fees paid to Jones Intercable, Inc. by the Venture totaled
$1,056,934 and $2,042,495, respectively, for the three and six month periods
ended June 30, 1997, and $971,676 and $2,148,942, respectively, for the
comparable periods in 1996. Reimbursements for overhead and administrative
expenses paid to Jones Intercable, Inc. by the Venture totaled $1,052,981 and
$2,383,486, respectively, for the three and six month periods ended June 30,
1997, and $1,330,083 and $2,931,165, respectively, for the comparable periods in
1996.
7
<PAGE>
CABLE TV FUND 12-B, LTD.
------------------------
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
It is the General Partner's publicly announced policy that it intends to
liquidate its managed partnerships, including the Partnership, as opportunities
for sales of partnership cable television systems arise in the marketplace over
the next several years. In accordance with the General Partner's policy, the
Venture has entered into a purchase and sale agreement to sell the Albuquerque
System. No specific dates or terms have yet been set for the sale of the
Palmdale System.
On July 28, 1997, the Venture entered into a purchase and sale agreement to
sell the Albuquerque System to the General Partner for a sales price of
$222,963,267, which price represents the average of three separate independent
appraisals of the fair market value of the Albuquerque System. The closing of
this sale is subject to a number of conditions, including the approval of the
holders of a majority of the limited partnership interests in each of the three
partnerships that comprise the Venture and necessary governmental and other
third party consents. Closing is expected to occur during the first quarter of
1998. Upon the consummation of the sale of the Albuquerque System, the Venture
must repay its outstanding Senior Notes balance of $51,436,531 plus a make whole
premium and, subject to an amendment to the Venture's credit facility, it will
repay approximately $40,000,000 of the then outstanding balance of its credit
facility. The Venture then anticipates, again subject to an amendment to the
Venture's credit facility, making a distribution of approximately $125,000,000
to the Venture's partners. The Partnership's portion of this distribution would
be approximately $11,474,475, of which approximately $8,605,856 would be
distributed to the limited partners and approximately $2,868,619 would be
distributed to the General Partner. This distribution of the Albuquerque
System's sale proceeds will give the Partnership's limited partners an
approximate return of $155 for each $1,000 invested in the Partnership. Taking
into account the 1995 distribution made on the sale of the Augusta System, the
1996 distribution made on the sale of the Tampa System and the anticipated
distribution to be made on the sale of the Albuquerque System in 1998, the
limited partners will have received a total of $1,954 for each $1,000 invested
in the Partnership.
The Partnership owns a 9 percent interest in the Venture. The
Partnership's investment in the Venture is accounted for under the equity
method. The Partnership's share of losses generated by the Venture have
exceeded the Partnership's initial investment in the Venture; therefore, the
investment is classified as a liability. The Partnership expects to recover
such losses upon the sale of the Albuquerque System and the Palmdale System.
This liability increased by $146,260, which represents the Partnership's share
of losses generated by the Venture for the six months ended June 30, 1997.
For the six months ended June 30, 1997, the Venture generated net cash from
operating activities totaling $6,209,233, which was available to fund capital
expenditures and non-operating costs. Capital expenditures for the Venture
totaled approximately $8,633,000 during the first six months of 1997. Service
drops to homes accounted for approximately 40 percent of the capital
expenditures. New plant construction accounted for approximately 31 percent of
the capital expenditures. The purchase of converters accounted for
approximately 11 percent of the capital expenditures. The remaining
expenditures related to various system enhancements. These capital expenditures
were funded primarily from cash on hand, cash generated from operations and
borrowings from the Venture's credit facility. Expected capital expenditures
for the remainder of 1997 are approximately $11,656,000. Service drops to homes
are anticipated to account for approximately 56 percent. Plant rebuild is
anticipated to account for approximately 15 percent. Approximately 7 percent of
budgeted capital expenditures is for new plant construction. The remainder of
the expenditures is for various system enhancements in all of the Venture's
systems. Funding for these expenditures is expected to be provided by cash on
hand, cash generated from operations and borrowings from the Venture's credit
facility. As a result of the pending sale of the Albuquerque System, remaining
budgeted capital expenditures for the Albuquerque System for 1997 will be only
for various enhancements necessary to maintain the value of the Albuquerque
System until it is sold.
The Venture's debt arrangements at June 30, 1997 consisted of $51,436,531
of Senior Notes placed with a group of institutional lenders and a $120,000,000
credit facility with a group of commercial bank lenders. The Senior Notes and
the credit facility are equal in standing with the other, and both are equally
secured by the assets of the Venture.
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The Senior Notes have a fixed interest rate of 8.64 percent and a final
maturity date of March 31, 2000. The Senior Notes require payments of interest
and accelerating principal through maturity, payable semi-annually in March and
September. A principal payment of $3,956,656 was made in March 1997. A
principal payment of approximately $3,956,656 is due in September 1997 and is
expected to be funded from cash on hand, cash generated from operations and
borrowings from the Venture's credit facility. Upon the sale of the Albuquerque
System, the Senior Notes will be repaid in full together with a make whole
premium.
The balance outstanding on the Venture's $120,000,000 credit facility at
June 30, 1997 was $89,630,620, leaving $30,369,380 available for future needs.
Upon the sale of the Albuquerque System and subject to an amendment to the
Venture's credit facility, the Venture anticipates repaying approximately
$40,000,000 of the then outstanding balance of the credit facility and that
there will be a reduction in the maximum amount available for borrowing. At the
Venture's option, the credit facility will be payable in full on December 31,
1999 or will convert to a term loan that matures on December 31, 2004 payable in
consecutive quarterly amounts. Interest on the credit facility is at the
Venture's option of the London Interbank Offered Rate plus 1.125 percent, the
Prime Rate plus .125 percent or the Certificate of Deposit Rate plus 1.25
percent. The effective interest rates on amounts outstanding on the Venture's
credit facility as of June 30, 1997 and 1996 were 7.61 percent and 7.62 percent,
respectively.
The Venture has sufficient sources of capital available through its ability
to generate cash from operations and borrowings under its credit facility to
meet its presently anticipated needs.
RESULTS OF OPERATIONS
- ---------------------
As a result of the sale of the Tampa System in February 1996, the following
discussion of the Venture's results of operations, through operating income,
pertains only to the results of operations of the Albuquerque System and the
Palmdale System for all periods discussed.
Revenues in the Albuquerque System and the Palmdale System increased
$1,705,166, or approximately 9 percent, to $21,138,684 for the three months
ended June 30, 1997 from $19,433,518 for the comparable period in 1996.
Revenues increased $2,756,262, or approximately 7 percent, to $40,849,909 for
the six months ended June 30, 1997 from $38,093,647 for the comparable period in
1996. These increases in revenues were due primarily to basic service rate
increases, an increase in basic subscribers and an increase in pay per view
revenues. Basic service rate increases accounted for approximately 46 percent
and 51 percent of the increase in revenues for the three and six months ended
June 30, 1997. The increase in the number of basic subscribers accounted for
approximately 12 percent and 20 percent of the increases in revenues for the
three and six months ended June 30, 1997. The increase in pay per view revenues
accounted for approximately 26 percent and 18 percent of the increase in
revenues for the three and six months ended June 30, 1997. No other individual
factor significantly affected the increase in revenues.
Operating expenses consist primarily of costs associated with the operation
and administration of the Venture's cable television systems. The principal
cost components are salaries paid to system personnel, programming expenses,
professional fees, subscriber billing costs, rent for leased facilities, cable
system maintenance expenses and marketing expenses.
Operating expenses in the Albuquerque System and the Palmdale System
increased $51,136, or less than 1 percent, to $11,733,343 for the three months
ended June 30, 1997 from $11,682,207 for the comparable period in 1996.
Operating expenses increased $632,040, or approximately 3 percent, to
$22,687,208 for the six months ended June 30, 1997 from $22,055,168 for the
comparable period in 1996. Operating expenses represented 56 percent of
revenues for the three and six months ended June 30, 1997 and 59 percent and 58
percent, respectively, of revenues for the three and six months ended June 30,
1996. The increases in operating expenses were primarily due to increases in
programming costs. No other individual factor contributed significantly to the
increase in operating expenses.
The cable television industry generally measures the financial performance
of a cable television system in terms of operating cash flow (revenues less
operating expenses). This measure is not intended to be a substitute or
improvement upon the items disclosed on the financial statements, rather it is
included because it is an industry standard. Operating cash flow increased
$1,654,030, or approximately 21 percent, to $9,405,341 for the three months
ended June 30, 1997 from $7,751,311 for the comparable period in 1996.
Operating cash flow increased $2,124,222, or approximately 13 percent,
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to $18,162,701 for the six months ended June 30, 1997 from $16,038,479 for the
comparable period in 1996. These increases were due to the increases in revenues
exceeding the increases in operating expenses.
Management fees and allocated overhead from the General Partner decreased
$191,844, or approximately 8 percent, to $2,109,915 for the three months ended
June 30, 1997 from $2,301,759 for the comparable period in 1996. Management
fees and allocated overhead from the General Partner decreased $77,269, or
approximately 2 percent, to $4,425,981 for the six months ended June 30, 1997
from $4,503,250 for the comparable period in 1996. These decreases were
primarily due to decreases in allocated overhead from the General Partner, which
was partially offset by an increase in management fees.
Depreciation and amortization expense decreased $275,555, or approximately
5 percent, to $4,866,372 for the three months ended June 30, 1997 from
$5,141,927 for the comparable period in 1996. Depreciation and amortization
expense decreased $604,306, or approximately 6 percent, to $9,664,919 for the
six months ended June 30, 1997 from $10,269,225 for the comparable period in
1996. These decreases were due to the maturation of the Venture's asset base.
The Venture recognized operating income of $2,429,054 for the three months
ended June 30, 1997 compared to $307,625 for the comparable period in 1996. The
Venture recognized operating income of $4,071,801 for the six months ended June
30, 1997 compared to $1,266,004 for the comparable period in 1996. These
increases were due to the increases in revenues and the decreases in
depreciation and amortization expense and management fees and allocated overhead
from the General Partner exceeding the increases in operating expenses.
Interest expense increased $15,662, or less than 1 percent, to $2,729,243
for the three months ended June 30, 1997 from $2,713,581 for the comparable
period in 1996. Interest expense decreased $454,269, or approximately 8
percent, to $5,420,505 for the six months ended June 30, 1997 from $5,874,774
for the comparable period in 1996. This decrease was primarily due to lower
outstanding balances on the Venture's interest bearing obligations.
The Venture recognized a gain of $71,914,391 related to the sale of the
Tampa System in February 1996. No similar gain was recognized in the first six
months of 1997.
The Venture reported a net loss of $477,878 for the three months ended June
30, 1997 compared to $1,889,153 for the comparable period in 1996. This change
was a result of the factors discussed above. The Venture reported a net loss of
$1,203,571 for the six months ended June 30, 1997 compared to net income of
$50,146,850 for the comparable period in 1996. This change was due to the
Venture reporting a gain on the sale of the Tampa System during the six months
ended June 30, 1996, while no similar gain was recognized for the comparable
1997 period.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27) Financial Data Schedule
b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CABLE TV FUND 12-B, LTD.
BY: JONES INTERCABLE, INC.
General Partner
By: /S/ Kevin P. Coyle
-----------------------------------
Kevin P. Coyle
Group Vice President/Finance
(Principal Financial Officer)
Dated: August 13, 1997
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