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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the year ended December 31, 1996
Commission file number: 1-9953
JONES INTERCABLE, INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-0613514
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(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(g) of the Act:
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Common Stock, $.01 par value
Class A Common Stock, $.01 par value
Indicate by check mark whether the registrant, (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
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Aggregate market value as of February 14, 1997 of the voting stock held by non-
affiliates:
Common Stock $22,337,714 Class A Common Stock $138,753,133
Shares outstanding of each of the registrant's classes of common stock as of
February 14, 1997:
Common Stock: 5,113,021 Class A Common Stock: 26,265,523
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.
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(27916)
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JONES INTERCABLE, INC.
ANNUAL REPORT ON FORM 10-K
For the Year Ended December 31, 1996
TABLE OF CONTENTS
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Page No.
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PART I 1
ITEM 1. BUSINESS 1
The Company 1
The Cable Television Industry 1
Industry Growth 3
System Operations 3
Programming 4
System Revenues 4
The Company's Cable Television Business 5
The Company's Other Businesses and Investments 9
Acquisitions of Cable Television Systems
in 1996 and January 1997 9
Exchanges of Cable Television Systems in 1996 11
Proposed Acquisitions of Cable Television Systems in 1997 11
Proposed Dispositions of Cable Television Systems in 1997 12
Proposed Exchange of Cable Television Systems in 1997 12
The Company's Credit Facilities 13
Sales of Radio and TVRO Businesses in 1996 13
Cable Television Franchises 13
Competition 14
Broadcast Television 14
Traditional Overbuild 14
DBS 15
Telephone 15
Private Cable 15
MMDS 16
Regulation and Legislation 16
Cable Rate Regulation 17
Cable Entry Into Telecommunications 18
Telephone Company Entry Into Cable Television 18
Electric Utility Entry Into Telecommunications/
Cable Television 19
Additional Ownership Restrictions 19
Must Carry/Retransmission Consent 19
Access Channels 20
Access to Programming 20
Other FCC Regulations 20
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<TABLE>
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Page No.
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Copyright 21
State and Local Regulation 21
ITEM 2. PROPERTIES 21
Cable Television Systems Owned by the Company and its
Subsidiaries 22
ITEM 3. LEGAL PROCEEDINGS 25
Alexandria Litigation 25
Tampa Litigation 25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 27
PART II 27
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 27
ITEM 6. SELECTED FINANCIAL DATA 29
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA 38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE 69
PART III 69
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT 69
ITEM 11. EXECUTIVE COMPENSATION 75
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS, DIRECTORS AND MANAGEMENT 77
ITEM 13. CERTAIN TRANSACTIONS 81
PART IV 87
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K 87
</TABLE>
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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 Company expects, believes or anticipates will or may occur in the future,
including such matters as changes in the cable television industry, the
Company's acquisition and clustering strategies, capital expenditures, the
Company's operating strategies, the liquidation of the Company's managed
partnerships, the development of new services and technologies, particularly
those in the telecommunications area, the effects of competition, the
Company's expansion and growth of the Company's operations and other such
matters, 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
ITEM 1. BUSINESS
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The Company
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Jones Intercable, Inc. (the "Company") is a Colorado corporation
organized in 1970. The Company is primarily engaged in the cable television
business. The majority of the Company's cable television systems are owned by
the Company's wholly owned subsidiaries, Jones Cable Holdings, Inc. ("JCH")
and Jones Cable Holdings II, Inc. ("JCH II"). In addition, the Company
operates cable television systems for its managed partnerships. See Item 1,
The Company's Cable Television Business. The Company has a subsidiary engaged
in the cable television system brokerage business and a subsidiary that
manufacturers and markets data encryption products. The Company also has
minority equity interests in a cable communications company operating in the
United Kingdom and in affiliated educational programming companies. See Item
1, The Company's Other Businesses and Investments.
Jones International, Ltd. ("International") beneficially owns
approximately 48% of the Common Stock of the Company and approximately 9% of
the Class A Common Stock of the Company. Glenn R. Jones, the Chairman of the
Board of Directors and Chief Executive Officer of the Company, personally owns
approximately 9% of the Company's Common Stock and approximately 2% of the
Company's Class A Common Stock. Because of his 100% ownership of
International, Mr. Jones is deemed to be the beneficial owner of all shares of
the Company owned by International, and his direct and indirect stock
ownership gives him voting power over approximately 41% of votes to be cast by
all shareholders of the Company on matters not requiring a class vote. Bell
Canada International Inc. ("BCI") owns approximately 38% of the Company's
Class A Common Stock and, through such ownership, BCI has an approximate 32%
economic interest in the Company. Mr. Jones has the right to designate seven
members of the Board of Directors, BCI has the right to designate three
members of the Board of Directors and three members of the Board of Directors
are jointly designated by Mr. Jones and BCI. See Item 10, Directors and
Executive Officers of the Registrant and Item 12, Security Ownership of
Certain Beneficial Owners, Directors and Management. In addition, BCI holds
an option to purchase 2,878,151 shares of Common Stock of the
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Company from International, Glenn R. Jones and certain of their affiliates
which, if and when exercised, would enable BCI to elect a majority of the
members of the Board of Directors of the Company.
At December 31, 1996, the Company had a total of approximately 3,410
employees. The executive offices of the Company are located at 9697 E.
Mineral Avenue, Englewood, Colorado 80112, and its telephone number is (303)
792-3111.
The Cable Television Industry
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The cable television industry developed in the late 1940s and early 1950s
in response to the needs of residents in predominantly rural and mountainous
areas of the country where the quality of television reception was inadequate
because of geographic location, surrounding terrain, man-made structures or
the curvature of the earth. During recent decades, cable television systems
have also been constructed in suburban areas and larger cities where signal
interference problems or limited availability of channels created a desire for
better reception and expanded service. Television reception is substantially
improved by cable television because of its insulation from outside
interference.
The cable television industry, which started as a technical solution to
the problem of delivering television signals to remote areas of rural America,
has now become an entertainment staple in a majority of American homes. It is
a dynamic, evolving and ever more complex industry. Cable penetration, or the
percentage of U.S. television households that subscribe to cable television,
now stands at approximately 67%.
A cable television system is a facility that receives satellite,
broadcast and FM radio signals by means of high antennas, a microwave relay
service or earth stations, amplifies the signals and distributes them by
coaxial and/or fiber-optic cable to the premises of its subscribers, who pay a
fee for the service. A cable television system may also originate its own
programming for distribution through its cable plant.
The physical plant of a cable television system consists of four
principal operating components. The first, known as the "headend" facility,
receives television and radio signals with microwave relay systems, special
antennae and satellite earth stations. The second component, the distribution
network, originating at the headend and extending throughout the system,
consists of coaxial and/or fiber-optic cables placed on poles or buried
underground, and associated electronic equipment. The third component of the
system is a "drop cable" that extends from the distribution network into the
subscriber's home and connects to the subscriber's television set. The fourth
component, a converter, is the home terminal device often necessary to expand
channel capacity and to deliver pay-per-view and other premium services.
The cable television industry is undergoing significant change. The
Company believes that the nature of the cable television business is evolving
from a traditional coaxial network delivering only video entertainment to a
more sophisticated, digital platform environment where cable systems may
deliver traditional programming as well as other services, including data,
telephone and expanded
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educational and entertainment services on an interactive basis. See Item 1,
The Company's Cable Television Business.
Industry Growth. Based upon information obtained by the Company from
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industry sources, the Company believes that the following table demonstrates
the growth of the cable television industry in the United States for the
periods indicated:
<TABLE>
<CAPTION>
Approximate Percentage
Approximate Number of TV Households With
End of Year of Basic Subscribers(1) Basic Cable Service(2)
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<S> <C> <C>
1985 39,872,250 46%
1986 42,237,140 48%
1987 44,970,880 51%
1988 48,636,520 54%
1989 52,564,470 57%
1990 54,871,330 59%
1991 55,786,390 61%
1992 57,211,600 62%
1993 58,834,440 63%
1994 60,495,090 63%
1995 62,956,470 66%
1996 63,692,280(3) 67%(3)
</TABLE>
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(1) The number of basic subscribers is computed by dividing the sum of total
individual-dwelling subscribers and total revenues from bulk-rate
subscribers by the standard basic service rate.
(2) The percentage is computed by dividing the number of basic
subscribers by the number of TV households in the United States.
(3) As of July 1996.
System Operations. The operation of cable television systems is
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generally conducted pursuant to the terms of a franchise or similar license
granted by the local governing body for the area to be served or by a state
agency. Franchises generally are granted on a non-exclusive basis for a
period of 5 to 15 years. Joint use or pole rental agreements are normally
entered into with electric and/or telephone utilities serving a cable
television system's area and annual rentals generally range from $5 to $15 for
each pole used. These rates may increase in the future. See Item 1, Cable
Television Franchises; Item 1, Competition; and Item 1, Regulation and
Legislation.
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Programming. Cable television systems generally offer various types of
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programming, which include basic service, tier service, premium services, pay-
per-view programs and packages including several of these services at combined
rates.
Basic cable television service usually consists of signals of all
national television networks broadcast by their local affiliates, various
independent and educational television stations (both VHF and UHF) and certain
signals received from satellites, and 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
Cable Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act") contains signal carriage requirements. Rules promulgated under
the 1992 Cable Act allow each commercial television broadcast station to elect
every three years whether to require the cable systems in its area to carry
its signal or to require the cable systems to negotiate with the station for
"retransmission consent" to carry the station. If a local commercial
broadcast television station requires a cable system to negotiate with the
station for retransmission consent, and the cable system is unable to obtain
retransmission consent, the cable system is not permitted to continue carriage
of such station. See Item 1, Regulation and Legislation. To date, no
broadcast stations that elected retransmission consent in areas served by one
of the Company's cable television systems have withheld consent to the
retransmission of their signals by a Company-owned cable television system.
In most systems, tier services are also offered on an optional basis to
subscribers. These channels generally include most of the cable networks such
as Entertainment and Sports Programming Network (ESPN), Cable News Network
(CNN), Turner Network Television (TNT), The Family Channel, The Discovery
Channel and others. Systems also offer a package that includes the basic
service channels and the tier services.
Cable television systems offer premium services to their subscribers,
which consist of feature films, sporting events and other special features
that are presented without commercial interruption. The cable television
operator buys premium programming from suppliers such as HBO, Showtime,
Cinemax, Encore and others at a cost based on the number of subscribers served
by the cable operator. The per service cost of premium service programming
usually is significantly more expensive for the system operator than the basic
service or tier service programming, and consequently the system operator
prices premium service separately when sold to subscribers.
Cable television 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 recently released motion pictures
and major sporting events, and to pay for such service on a program-by-program
basis.
System Revenues. Monthly service fees for basic, tier and premium
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services constitute the major source of revenue for cable television systems.
A subscriber to a cable television system generally pays an initial connection
charge and a fixed monthly fee for the cable programming services received.
The amount of the monthly service fee varies from one area to another, and
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historically has been a function, in part, of the number of channels and
services included in the service package and the cost of such services to the
cable television system operator. In most instances, a separate monthly fee
for each premium service and certain other specific programming is charged to
subscribers, with discounts generally available to subscribers receiving
multiple premium services.
Cable television operators have been able to generate additional revenue
through the sale of commercial spots and channel space to advertisers. As
with other forms of advertising, the cable television operator receives a fee
from the advertisers that is based on the programming service on which the
advertisements appear, the volume of advertising and the time of the day at
which it is broadcast. Advertising, as well as fees generated by home
shopping and pay-per-view, represent additional sources of revenue for cable
television systems. These services are not regulated under the 1992 Cable
Act.
The 1992 Cable Act mandated a greater degree of regulation of the cable
television industry, including rate regulation. Under the 1992 Cable Act's
definition of "effective competition," nearly all cable systems in the United
States, including almost all of those owned and managed by the Company, are
subject to rate regulation with respect to basic cable services. In addition,
the FCC is permitted to regulate rates for non-basic service tiers other than
premium services in response to local complaints. Rate regulations adopted by
the FCC provide for a benchmark and price cap system that is used to regulate
basic and non-basic service rates, and cost-of-service showings are available
to cable operators to allow them to justify rates above benchmark levels. The
1996 Telecommunications Act (the "1996 Telecom Act") eliminated rate
regulation for small cable operators. The 1996 Telecom Act sunsets FCC rate
regulation of cable programming service tiers for all cable television systems
regardless of size on March 31, 1999. See Item 1, Regulation and Legislation.
The Company's Cable Television Business
---------------------------------------
The Company operates cable television systems for itself and for its
managed partnerships. At December 31, 1996, the Company managed 47 cable
television systems, 33 of which, operating in 14 states, were owned by
Company-managed partnerships and 14 of which, operating in 8 states, were
owned by the Company. The Company's 23 managed partnerships own cable
television systems located in California, Florida, Illinois, Indiana,
Maryland, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Mexico, Oregon,
Texas and Wisconsin. The Company-owned cable television systems are located
in Arizona, California, Colorado, Florida, Georgia, Maryland, South Carolina
and Virginia.
At December 31, 1996, Company-owned systems served approximately 584,900
basic subscribers who subscribed to a total of approximately 563,200 pay
units. And, at such date, systems held by Company-managed partnerships served
approximately 865,000 basic subscribers who subscribed to a total of
approximately 604,600 pay units. (Each premium service that a basic
subscriber takes equals one pay unit.) According to industry sources, as of
December 31, 1996 the Company ranked among the top 10 multiple system cable
television operators in the United States.
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The Company is implementing a balanced strategy of acquiring cable
television systems from its managed partnerships and from third parties. As
part of this process, certain systems owned by the Company and its managed
partnerships will be sold to third parties and Company-owned systems will be
exchanged for systems owned by other cable system operators. It is the
Company's plan to cluster its cable television properties on the basis of
operating characteristics and/or geographic areas. Clustering systems should
enable the Company to obtain operating efficiencies, and it should position
the Company to capitalize on new revenue and business opportunities as the
telecommunications industry evolves. To date, the Company has created two
clusters of cable television properties. The cable television systems owned
by JCH form a geographic cluster in the suburban Washington, D.C. metropolitan
area. JCH's properties include the cable television systems serving the
communities of Alexandria, Manassas, Dale City and Reston in Virginia and all
or portions of Anne Arundel, Charles and Prince Georges counties in Maryland.
The Company plans to add the cable system serving Annapolis, Maryland to this
cluster during the first half of 1997. The cable television systems owned by
JCH II form a cluster of systems based on similar operating characteristics.
JCH II's properties include the cable television systems serving the
communities of Savannah and Augusta in Georgia and portions of Pima County in
Arizona. The Company plans to add the cable system serving Independence,
Missouri to this cluster during the second half of 1997.
The Company intends to maintain and enhance the value of its current
cable television systems through capital expenditures. Such expenditures will
include, among others, cable television plant extensions and the upgrade and
rebuild of certain systems. The Company also intends to institute new
services as they are developed and become economically viable.
Key elements of the Company's operating strategy include increasing basic
penetration levels and revenue per subscriber through targeted marketing,
superior customer service, maintenance of high technical standards and growth
of advertising sales and pay-per-view revenues. The Company has deployed
fiber optic cable wherever practical in its current rebuild and upgrade
projects, which improves system reliability and picture quality, increases
channel capacity and provides the potential for new business opportunities.
The Company intends to liquidate its managed partnerships as such
partnerships achieve their investment objectives and as opportunities for
sales of partnership cable television systems arise in the marketplace. In
accordance with this strategy, the Company is marketing for sale many of the
cable television systems owned by its managed partnerships. As of the first
quarter of 1997, the Company is in the process of liquidating seven of its 23
managed partnerships by arranging on behalf of the partnerships for the sale
of all of the remaining assets of such partnerships either to the Company or
to unaffiliated entities. Such liquidations are expected to be accomplished
before the end of 1997. In addition, several other of the Company's managed
partnerships recently have sold or are in the process of selling cable systems
to unaffiliated entities as intermediate steps toward their eventual
liquidation.
Acquisitions of cable television systems, the development of new services
and capital expenditures for system extensions and upgrades are subject to the
availability of cash generated from operations, borrowings under the Company's
revolving credit facilities, debt and/or equity financing. In addition, the
Company is exploring other financing options such as private equity capital
and the
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disposition of non-strategic assets, including its investment in Bell
Cablemedia plc. There can be no assurance that the capital resources
necessary to accomplish the Company's acquisition and development plans will
be available on terms and conditions acceptable to the Company, or at all.
See Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Within the past several years, the cable television industry has seen
much change. The Company believes that the nature of the cable television
business is evolving from a traditional coaxial network delivering only video
entertainment to a more sophisticated, digital platform environment where
cable systems may be capable of delivering traditional programming as well as
other services, including data, telephone and expanded educational and
entertainment services on an interactive basis. As this convergence of
various technologies progresses, cable television companies will reevaluate
their system architecture and upgrade their cable plants in order to take
advantage of new opportunities. As described above, in response to these
changes the Company has decided to cluster its systems on the basis of
operating characteristics and/or geographic areas to achieve economies of
scale and reasonable returns on the investments made. The Company is also
being affected by the entry into the marketplace of local telephone companies
that, as a result of the passage of recent legislation, now have the ability
to provide telephone and video services in direct competition with the
Company. See Item 1, Regulation and Legislation. This direct competition
with local telephone companies is an additional consideration in the ongoing
evaluation by the Company of its position in this changing marketplace. See
Item 1, Competition. The Company intends, where possible, to pursue these new
technological opportunities as they evolve. The ability of the Company to do
so, however, will be dependent in large part on the availability of debt and
equity financing.
The Company is involved in analyzing and testing new technologies used in
the telecommunications area, including combined telephone and video services
to multiple dwelling units. The Company is utilizing the experience of BCI to
provide expertise in the telecommunications area. BCI, through its parent
company and its affiliates, is engaged in many areas of the telecommunications
business. BCE Inc., the parent of BCI, through its wholly owned subsidiary,
Bell Canada, is the largest telecommunications company in Canada. Bell
Northern Research, an affiliate of BCI, is Canada's largest research and
development organization and is engaged in developing and analyzing new
technologies used in the telecommunications area. Northern Telecom, a 52%
subsidiary of BCE Inc., is a leading global manufacturer of telecommunications
equipment. As cable television systems in the United States evolve and change
into more sophisticated digital networks providing traditional television
entertainment, but also telephone and data services, and as competition
between cable television operators, telephone companies and others develops,
the relationship between BCI and the Company may provide the Company with
access to expertise and experience that it would not otherwise have available.
With respect to the systems owned by the Company and its subsidiaries,
the Company earns revenues through monthly service rates and related charges
to cable television subscribers. The Company's subscribers have the option to
choose a limited basic service consisting generally of broadcast stations and
a few cable networks ("basic" service) or a package of services consisting of
basic service and tier services ("basic plus" service). The basic plus
service generally consists of
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most of the cable networks, including ESPN, USA Network, CNN, Discovery,
Lifetime and others. See Item 1, The Cable Television Industry, Programming.
Monthly service rates include fees for basic service, basic plus service
and premium services. At December 31, 1996 monthly basic service rates ranged
from $6.43 to $16.43 for residential subscribers, monthly basic plus service
rates ranged from $18.24 to $26.35 for residential subscribers, and monthly
premium services ranged from $1.00 to $11.99 per premium service. In
addition, the Company earns revenues from pay-per-view programs and
advertising fees. Pay-per-view programs, which usually are either unique
sporting events or recently released movies, are available on many of the
Company's cable television systems. Subscribers are permitted to choose
individual movies for a set fee ranging from $1.50 to $6.95 per movie and
individual special events for a set fee ranging from $2.98 to $54.95 per
event. Related charges may include a nonrecurring installation fee that
ranges from $1.99 to $50.95; however, from time to time the Company has
followed the common industry practice of reducing 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,
subscribers are free to discontinue the service at any time without penalty,
and most terminations occur because a subscriber moves to another home or to
another city. For the year ended December 31, 1996 of the total subscriber
fees received by Company-owned systems, basic and basic plus service fees
accounted for approximately 64% of total revenues, premium service fees
accounted for approximately 18% of total revenues, pay-per-view fees were
approximately 3% of total revenues, advertising fees were approximately 5% of
total revenues and the remaining 10% of total revenues came from equipment
rentals, installation fees and program guide charges. The Company is
dependent upon timely receipt of service fees to provide for maintenance and
replacement of plant and equipment, current operating expenses and other
costs.
As the general partner of its managed partnerships, the Company earns
management fees which are generally 5% of the gross revenues of the
partnership, not including revenues from the sale of cable television systems
or franchises. The Company also receives reimbursement from the partnerships
for certain allocated overhead and administrative expenses incurred by the
Company in its management activities. From time to time, and although not
obligated to do so, the Company has made advances to certain of its managed
limited partnerships and has deferred collection of management fees and
expense reimbursements owed by certain of its managed limited partnerships to
allow for expansion of a cable television system or other cash needs of such a
partnership. With respect to the managed partnerships formed by the Company,
the Company as general partner is entitled to partnership distributions from
the sale or refinancing of partnership cable systems equal to from 12.5% to
40% of the net remaining assets of a partnership after the payment of
partnership debts and after limited partners have received an amount equal to
their original investment plus, in many cases, a preferential return on their
investment. Pursuant to the terms of the various limited partnership
agreements, the Company has full operational control of the management and
day-to-day business of the partnerships.
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The Company's business consists of providing cable television services to
a large number of customers, the loss of any one or more of which would have
no material effect on the Company's business. Each of the cable television
systems owned or operated by the Company has 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 systems owned or operated by
the Company is not significant. The Company's policy with regard to these
accounts is basically one of disconnecting service before a past due account
becomes material.
The Company 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. The Company has engaged in research and
development activities relating to the provision of new services. 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 Company.
The Company's Other Businesses and Investments
----------------------------------------------
The Jones Group, Ltd., a wholly owned subsidiary of the Company, is a
cable television brokerage firm that may earn fees from the Company's managed
partnerships when such partnerships sell cable systems. Jones Futurex, Inc.,
also a wholly owned subsidiary of the Company, manufactures and markets data
encryption products and provides contract manufacturing services. The Company
has an interest in the cable/telephony business in the United Kingdom through
its approximate 8.6% equity ownership of Bell Cablemedia plc, one of the
United Kingdom's largest cable communications operators. The Company owns
minority interests in Jones Education Company and its subsidiary, Mind
Extension University, Inc. Jones Education Company offers a variety of
integrated educational programming, products and services. It provides
educational programming through its two television networks, JEC Knowledge TV
and Jones Computer Network. The Company owns a minority interest in Jones
Global Group, Inc., a company that from time to time has invested in
cable/telephony systems outside of the United States. In December 1996, the
Company redeemed a portion of its equity interest for approximately $9,000,000
and thereby reduced its equity ownership in Jones Global Group, Inc. from 38%
to 20%.
Acquisitions of Cable Television Systems in 1996 and January 1997
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Manassas System. In January 1996, JCH, through its wholly owned
---------------
subsidiary, Jones Communications of Virginia, Inc., purchased from
unaffiliated companies the cable television systems serving areas in and
around Manassas, Manassas Park, Haymarket and portions of Prince William
County, all in the State of Virginia (the "Manassas System") for a purchase
price of $71,100,000. Jones Financial Group, Ltd. ("Financial Group"), an
affiliate of the Company, was paid a fee of $896,000 upon closing of this
transaction for acting as the Company's financial advisor in connection with
this transaction.
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Carmel System. In February 1996, JCH purchased from IDS/Jones Growth
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Partners 87-A, Ltd., a Company-managed partnership, the cable television
system serving areas in and around Carmel, Indiana (the "Carmel System") for a
purchase price of $44,235,333. The purchase price represented the average of
three separate independent appraisals of the fair market value of the Carmel
System.
Tampa System. In February 1996, JCH purchased from Cable TV Fund 12-BCD
------------
Venture, a venture comprised of three Company-managed partnerships, the cable
television system serving areas in and around Tampa, Florida (the "Tampa
System") for a purchase price of $110,395,667. The purchase price represented
the average of three separate independent appraisals of the fair market value
of the Tampa System.
Orangeburg System. In February 1996, JCH purchased from Jones Cable
-----------------
Income Fund 1-B, Ltd., a Company-managed partnership, the cable television
system serving areas in and around Orangeburg, South Carolina (the "Orangeburg
System") for a purchase price of $18,347,667, subject to normal closing
adjustments. The purchase price represented the average of three separate
independent appraisals of the fair market value of the Orangeburg System.
Lake Geneva System. In April 1996, JCH purchased from Jones Spacelink
------------------
Income/Growth Fund 1-A, Ltd. a Company-managed partnership, the cable
television system serving the areas in and around Lake Geneva, Wisconsin (the
"Lake Geneva System") for a purchase price of $6,345,667, which was the
average of three separate independent appraisals of the fair market value of
the Lake Geneva System.
Ripon System. In April 1996, the Company also purchased from Jones
------------
Spacelink Income/Growth Fund 1-A, Ltd. the cable television system serving the
areas in and around Ripon, Wisconsin (the "Ripon System") for a purchase price
of $3,712,667, which was the average of three separate independent appraisals
of the fair market value of the Ripon System.
Lodi System. In April 1996, JCH purchased from Jones Spacelink Income
-----------
Partners 87-1, L.P., a Company-managed partnership, the cable television
systems serving the communities of Lodi, Burbank, Lafayette Township, New
London, Bailey Lakes, Savannah, Shreve, Jeromesville, West Lafayette,
Loudonville, Perrysville, Creston, Gloria Glens, Sterling, Seville, Westfield
Center, Chippewa, Lake Area, Rittman, West Salem, Bloomville, Spencer, Polk
and Congress, all in the State of Ohio (the "Lodi System") for a purchase
price of $25,706,000, which was the average of three separate independent
appraisals of the fair market value of the Lodi System.
North Prince Georges County System. In January 1997, Jones Communications
----------------------------------
of Maryland, Inc., a wholly owned subsidiary of JCH, acquired the cable
television system serving the communities of Berwyn Heights, Bladensburg,
Bowie, Brentwood, Cheverly, College Park, Colmar Manor, Cottage City,
Edmonston, Glenarden, Greenbelt, Hyattsville, Landover Hills, Laurel, Mt.
Ranier, New Carrollton, North Brentwood, Riverdale, Takoma Park, University
Park and portions of Prince Georges County, all in the State of Maryland (the
"North Prince Georges County System"). The purchase price for the North
Prince Georges County System was approximately $231,367,000, subject to final
closing adjustments. The Company paid Financial Group a fee of approximately
10
<PAGE>
$2,100,000 for acting as the Company's financial advisor in connection with
this transaction. The North Prince Georges County System is contiguous to the
Company's South Prince Georges County System. The acquisition of the North
Prince Georges County System allows the Company to serve all 160,000
subscribers in Prince Georges County, Maryland and brings the Company's owned
and managed subscriber count in the Washington, D.C. metropolitan area to
approximately 400,000 subscribers.
The purchases of the Manassas System, the Carmel System, the Tampa
System, the Orangeburg System, the Lake Geneva System, the Ripon System, the
Lodi System and the North Prince Georges County System were funded by
borrowings available under JCH's revolving credit facility. The Carmel
System, the Orangeburg System and the Tampa System subsequently were
transferred to the Time Warner Entertainment-Advance/Newhouse Partnership, and
the Lodi System, the Ripon System and the Lake Geneva System subsequently were
transferred to Time Warner Entertainment Company, L.P., as discussed below.
Exchanges of Cable Television Systems in 1996
---------------------------------------------
Exchange with TWEAN. In February 1996, the Company, pursuant to an asset
-------------------
exchange agreement (the "TWEAN Exchange Agreement") with Time Warner
Entertainment-Advance/ Newhouse Partnership ("TWEAN"), an unaffiliated cable
television operator, conveyed to TWEAN the Carmel System, the Orangeburg
System and the Tampa System and cash in the amount of $3,500,000. In return,
the Company received from TWEAN substantially all of the assets of cable
television systems serving Andrews Air Force Base, Capitol Heights,
Cheltenham, District Heights, Fairmont Heights, Forest Heights, Morningside,
Seat Pleasant, Upper Marlboro and portions of Prince Georges County, Maryland
(the "South Prince Georges County System") and portions of Fairfax County,
Virginia (the "Reston System"). This transaction was considered a non-
monetary exchange of similar productive assets for accounting purposes. The
Company paid Financial Group a $1,668,000 fee upon the completion of this
exchange as compensation to it for acting as the Company's financial advisor.
Time Warner Exchange. In April 1996, the Company, pursuant to an asset
--------------------
exchange agreement (the "Time Warner Exchange Agreement") with Time Warner
Entertainment Company, L.P. ("Time Warner"), an unaffiliated cable television
operator, conveyed to Time Warner the cable television systems owned by the
Company serving Hilo, Hawaii (the "Hilo System") and Kenosha, Wisconsin (the
"Kenosha System"), as well as the Lodi System, the Ripon System and the Lake
Geneva System and cash in the amount of $11,735,667. In return, the Company
received from Time Warner the cable television systems serving the communities
in and around Savannah, Georgia (the "Savannah System"). This transaction was
considered a non-monetary exchange of similar productive assets for accounting
purposes. The Company paid Financial Group a $1,286,000 fee upon the
completion of this exchange as compensation to it for acting as the Company's
financial advisor.
Proposed Acquisitions of Cable Television Systems in 1997
---------------------------------------------------------
Independence System. In February 1997, the Board of Directors of the
-------------------
Company approved the acquisition by JCH II from Jones Intercable Investors,
L.P. (the "Partnership"), a Colorado
11
<PAGE>
limited partnership managed by the Company, of the cable television system
serving communities in and around Independence, Missouri (the "Independence
System") for a purchase price of $171,213,667, which represents the average of
three independent appraisals of the fair market value of the Independence
System. The Company anticipates that it will receive a limited partner
distribution totaling approximately $25,700,000 from the sale by the
Partnership of the Independence System because of the Company's equity
interest in the Partnership. The Partnership will pay The Jones Group, Ltd., a
wholly owned subsidiary of the Company, a $4,280,342 fee in connection with
this transaction. The closing of the Company's purchase of the Independence
System is subject to the consents of governmental authorities and other third
parties and is expected to occur in the second half of 1997.
Manitowoc System. In September 1995, the Company entered into an asset
----------------
purchase agreement to purchase from Cable TV Joint Fund 11 (the "Venture"), a
venture comprised of four Company-managed partnerships, the cable television
system serving the City of Manitowoc, Wisconsin (the "Manitowoc System").
Because the City of Manitowoc had not consented to the transfer of the
franchise by the asset purchase agreement's original expiration date of
September 30, 1996, the Company and the Venture amended the asset purchase
agreement to extend the period in which to close the sale of the Manitowoc
System to June 30, 1997. Under the terms of the asset purchase agreement, as
amended, the purchase price for the Manitowoc System will be $16,122,333,
subject to closing adjustments. The closing of the Company's purchase of the
Manitowoc System is subject to the approval of the limited partners of each of
the partnerships that comprise the Venture. The Company anticipates that it
will receive, from the four partnerships that comprise the Venture, general
partner distributions totaling approximately $4,518,000 upon the closing of
the sale of the Manitowoc System. The closing of this transaction is expected
to occur during the second quarter of 1997.
Proposed Dispositions of Cable Television Systems in 1997
---------------------------------------------------------
Walnut Valley and Oxnard Systems. In August 1996, the Company entered
--------------------------------
into an asset purchase agreement with Century Communications Corp., an
unaffiliated party, to sell the Company-owned cable television systems serving
areas in and around Walnut Valley and Oxnard, both in the State of California,
for $104,000,000, subject to closing adjustments. Century Communications
Corp. subsequently assigned its rights and obligations under the asset
purchase agreement to a joint venture affiliated with Century Communications
Corp. The Company will pay Financial Group a $1,567,000 fee upon completion
of this transaction as compensation to it for acting as the Company's
financial advisor in connection with this sale of systems. The closing of
this sale is subject to a number of conditions, including obtaining necessary
governmental and other third party consents, and is expected to occur during
the second quarter of 1997.
Proposed Exchange of Cable Television Systems in 1997
-----------------------------------------------------
In October 1996, the Company entered into an asset exchange agreement
with United CATV, Inc., an unaffiliated party that is an affiliate of Tele-
Communications, Inc. Pursuant to the exchange agreement, the Company will
convey to United CATV, Inc. the Company-owned cable television systems serving
areas in and around Evergreen, Idaho Springs and Jefferson County, all in the
State
12
<PAGE>
of Colorado (the "Colorado Systems"), in exchange for the cable television
system serving areas in and around Annapolis, southern Anne Arundel County and
the Naval Academy, all in the State of Maryland (the "Annapolis System"), and
cash in the amount of $2,500,000, subject to normal closing adjustments. The
Company will pay Financial Group a $675,000 fee upon completion of this
exchange as compensation to it for acting as the Company's financial advisor
in connection with this transaction. The transaction is expected to be
completed in the first half of 1997.
The Company's Credit Facilities
-------------------------------
In September 1996, JCH amended its reducing revolving credit facility to
increase the maximum amount available to $600 million and to reduce by 1/8%
the rates of interest charged on any amounts outstanding. This credit
facility provides liquidity for acquisitions by JCH and capital expenditures
for cable television systems owned by JCH. See Note 7 to the Notes to
Consolidated Financial Statements.
In October 1996, JCH II entered into a $600 million credit facility. The
credit facility consists of a $300 million reducing revolving credit facility
and a $300 million 364-day revolving credit facility. This credit facility
provides liquidity for acquisitions by JCH II and capital expenditures for
cable television systems owned by JCH II. See Note 7 to the Notes to
Consolidated Financial Statements.
Sales of Radio and TVRO Businesses in 1996
------------------------------------------
Jones Galactic Radio, Inc. In June 1996, the Company completed the sale
--------------------------
of Jones Galactic Radio, Inc., which was a wholly owned subsidiary of the
Company, to Jones Global Group, Inc., an affiliate of the Company, for $17.2
million. The Company's Board of Directors requested and received a fairness
opinion related to this sale from an unaffiliated investment banking firm.
The sales price was paid in the form of 984,968 ADSs of Bell Cablemedia plc.
The number of ADSs represents the purchase price of $17.2 million divided by
the 30-day average closing price of an ADS for the 30-day period immediately
preceding the closing date. As a result of this transaction, the Company now
directly owns approximately 7.2 million ADSs of Bell Cablemedia. Jones Global
Group, Inc. subsequently sold Jones Galactic Radio, Inc. to Jones
International Networks, Ltd., an affiliate of International.
Jones Satellite Programming, Inc. In July 1996, the Company sold the
---------------------------------
assets of Jones Satellite Programming, Inc., a wholly owned subsidiary, to an
unaffiliated party for $2,873,871. Jones Satellite Programming, Inc. was
engaged in the TVRO business providing satellite programming to satellite dish
owners.
Cable Television Franchises
---------------------------
The cable television systems owned or managed by the Company are
constructed and operated under fixed-term franchises or other types of
operating authorities (referred to collectively herein as "franchises") that
are generally non-exclusive and are granted by state and/or local governmental
13
<PAGE>
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.
The Company holds approximately 112 franchises. These franchises provide
for the payment of fees to the issuing authorities and range from 3% to 5% of
gross revenues. 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 Company has never had a franchise revoked. The Company's franchises
initially had terms of approximately 10 to 15 years. The duration of the
Company's outstanding franchises presently varies from a period of months to
an indefinite period of time. The Company is currently negotiating the
renewal of sixteen franchises that are either operating under extensions or
will expire prior to December 31, 1997. During the next three to five years,
the renewal process must commence for a significant number of the franchises
for cable television systems owned or managed by the Company and its
affiliates. The Company 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
---------------------
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, 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 Company has experienced overbuilds
in connection with certain systems that it has owned or managed for limited
partnerships, and currently there are overbuilds in both owned and managed
systems. 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
14
<PAGE>
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. The Panama City Beach
System has lost basic subscribers and commercial units to an overbuilder. This
overbuild continues to provide significant competition and has had an adverse
effect on the system's operations. The Company's Anne Arundel System also
faces significant competition from an overbuilder.
DBS. High-powered direct-to-home satellites have made possible the 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 Company 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 availability of equipment at reasonable
prices.
Telephone. Federal cross-ownership restrictions historically limited
---------
entry by local telephone companies into the cable television business. The
1996 Telecom Act eliminated this cross-ownership restriction, making it
possible for companies with considerable resources to overbuild existing cable
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 two Company-managed partnerships. The Company cannot predict
at this time the extent of telephone company competition that will emerge to
Company 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 Company'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
-------------
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,
15
<PAGE>
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 Company
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 Company 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. In late 1995, the
Company launched a competitive telephone service in selected apartments and
condominium units in its Alexandria, Virginia System, and anticipates
providing such service, commencing in the first half of 1997, in Maryland as
well. The Company faces considerable competition in providing telephony
service from incumbent local exchange carriers and a host of alternative
carriers.
MMDS. Cable television systems also compete with wireless program
----
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
Company's system in Pima County, Arizona. 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 Company has not lost a significant number of subscribers, nor a
significant amount of revenue, to MMDS operators competing with the Company'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.
Regulation and Legislation
--------------------------
The operation of cable television systems is extensively regulated by the
FCC, some state governments and most local governments. The new
Telecommunications Act of 1996 ("1996 Telecom Act") alters the regulatory
structure governing the nation's telecommunications providers. It
16
<PAGE>
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 Company's operations. This section briefly summarizes key laws and
regulations affecting the operation of the Company's cable systems and does
not purport to describe all present, proposed, or possible laws and
regulations affecting the Company.
Cable Rate Regulation. The 1992 Cable Act imposed an extensive rate
---------------------
regulation regime on the cable television industry. Under that regime, all
cable systems are subject to rate regulation, unless they face "effective
competition" in their local franchise area. Federal law now defines
"effective competition" on a community-specific basis as requiring either low
penetration (less than 30%) by the incumbent cable operator, appreciable
penetration (more than 15%) by competing multichannel video providers
("MVPs"), or the presence of a competing MVP affiliated with a local telephone
company. The FCC has officially recognized that the Anne Arundel System and
the Panama City Beach System face "effective competition," and a similar
petition is now pending at the FCC concerning the Pima County, AZ system.
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.
17
<PAGE>
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.
Cable Entry Into Telecommunications. The 1996 Telecom Act provides that
-----------------------------------
no state or local laws or regulations may prohibit or have the effect of
prohibiting any entity from providing any interstate or intrastate
telecommunications service. States are authorized, however, to impose
"competitively neutral" requirements regarding universal service, public
safety and welfare, service quality, and consumer protection. State and local
governments also retain their authority to manage the public rights-of-way and
may require reasonable, competitively neutral compensation for management of
the public rights-of-way when cable operators provide telecommunications
service. The favorable pole attachment rates afforded cable operators under
federal law can be gradually increased by utility companies owning the poles
(beginning in 2001) if the operator 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. The Company has already secured authorization to
provide local exchange service in Maryland and portions of Virginia and has
begun offering some telecommunications services to customers in both
jurisdictions.
Telephone Company Entry Into Cable Television. The 1996 Telecom Act
---------------------------------------------
allows telephone companies to compete directly with cable operators by
repealing the historic telephone company/cable cross-ownership ban. Local
exchange carriers ("LECs"), including the 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 Company 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.
18
<PAGE>
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
---------------------------------------------------------------
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
---------------------------------
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.
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 Company could, therefore, adversely
affect any plan to acquire FCC broadcast or common carrier licenses.
Must Carry/Retransmission Consent. The 1992 Cable Act contains 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
19
<PAGE>
has a potentially adverse affect on the Company'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 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
---------------------
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 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 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.
20
<PAGE>
Copyright. Cable television systems are subject to federal copyright
---------
licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
revenues to a federal copyright royalty pool (that varies depending on the
size of the system and the number of distant broadcast television signals
carried), 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 Company'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.
ITEM 2. PROPERTIES
-------------------
The Company leases a portion of its executive offices from Jones
Properties, Inc., a subsidiary of International. The offices consist of a
101,500 square foot office building located at 9697 East Mineral Avenue,
Englewood, Colorado. The lease has a 15-year term expiring in July 2000 with
21
<PAGE>
three 5-year renewal options at market rates existing at the beginning of the
option period. The annual rent is currently $24.00 per square foot, plus
operating expenses and will not, by the terms of the lease, exceed such amount
during the remainder of the term. The Company subleases approximately 46% of
the building to International and certain other affiliates on the same terms
and conditions as the primary lease.
The Company leases from Jones Panorama Properties, Inc., a wholly owned
subsidiary of the Company, an approximate 60,000 square foot office building
(the "Panorama Falls Building") located at 9085 E. Mineral Avenue, Englewood,
Colorado for a lease price of $12.00 per square foot. The Panorama Falls
Building contains additional executive offices of the Company. The Company
has subleased approximately 44% of the Panorama Falls Building to
International and others on the same terms and conditions as the primary
lease.
Cable Television Systems Owned by the Company and its Subsidiaries
------------------------------------------------------------------
The majority of the Company's 14 cable television systems are owned by
JCH and JCH II. As of December 31, 1996, JCH owned and operated the cable
television systems serving areas in and around Alexandria, Virginia; Dale
City, Virginia; Manassas, Virginia; Reston, Virginia; Anne Arundel County,
Maryland; Charles County, Maryland; southern Prince Georges County, Maryland;
and Jefferson County, Colorado. In early 1997, certain of JCH's Maryland and
Virginia systems will be combined: the Anne Arundel County, Maryland system,
the Charles County, Maryland system and the Annapolis System to be acquired by
JCH in the second quarter of 1997 will be operated as one system, to be known
as the Chesapeake Bay Group; the southern Prince Georges County, Maryland
system and the northern Prince Georges County system acquired by JCH in
January 1997 will be operated as one system, to be known as the Prince Georges
County System; and the Manassas, Dale City and Reston, Virginia systems will
be operated as one system, to be known as the Prince William County System.
As of December 31, 1996, JCH II owned and operated the cable television
systems serving areas in and around Augusta, Georgia; Savannah, Georgia; and
Pima County, Arizona. As of December 31, 1996, the Company directly owned and
operated the cable television systems serving areas in and around Oxnard,
California; Walnut Valley, California; and Panama City Beach, Florida.
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
cable television systems owned by the Company and its subsidiaries. The
monthly basic plus service rates set forth herein represent, with respect to
systems with multiple headends, the basic plus 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, cable television systems owned by the Company
and its subsidiaries passed approximately 650,800 homes, representing an
approximate 67% penetration rate. Figures for numbers of subscribers and
homes passed are compiled from the Company's records and may be subject to
adjustments.
22
<PAGE>
<TABLE>
<CAPTION>
Alexandria, Virginia At 12/31
- -------------------- --------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $ 24.98 $ 23.33 $ 21.53
Basic subscribers 40,525 38,916 37,690
Pay units 33,387 32,510 32,578
<CAPTION>
Anne Arundel County, Maryland At 12/31
- ----------------------------- --------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $ 24.15 $ 22.85 $ 22.85
Basic subscribers 50,333 48,712 46,752
Pay units 43,491 43,895 42,009
<CAPTION>
Augusta, Georgia* At 12/31
- ----------------- --------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $ 25.73 $ 23.98 $ 21.39
Basic subscribers 85,816 84,146 81,707
Pay units 70,619 67,428 62,754
* Includes North Augusta subscribers. The Augusta system and the former North
Augusta system were combined in 1995.
<CAPTION>
Charles County, Maryland At 12/31
- ------------------------ --------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $ 26.33 $ 26.33 $ 24.80
Basic subscribers 23,919 23,285 22,360
Pay units 36,848 35,589 33,799
<CAPTION>
Dale City, Virginia At 12/31
- ------------------- ------------------------
1996 1995
---- ----
<S> <C> <C>
Monthly basic plus service rate $ 25.57 $ 24.07
Basic subscribers 49,943 49,297
Pay units 50,252 44,935
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Jefferson County, Colorado* At 12/31
- --------------------------- --------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $ 24.54 $ 23.06 $ 22.06
Basic subscribers 28,155 26,954 26,027
Pay units 27,659 26,666 25,574
</TABLE>
* Includes Clear Creek County subscribers. The former Clear Creek County
system and the Jefferson County system were combined in 1995.
<TABLE>
<CAPTION>
Manassas, Virginia At 12/31/96
- ------------------ -----------
<S> <C>
Monthly basic plus service rate $ 26.35
Basic subscribers 28,346
Pay units 25,264
Oxnard, California At 12/31
- ------------------ --------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $ 21.15 $ 19.15 $ 18.63
Basic subscribers 40,134 39,101 38,500
Pay units 28,701 26,751 26,710
<CAPTION>
Panama City Beach, Florida At 12/31
- -------------------------- --------------------------------------
1996 1995* 1994
---- ----- ----
<S> <C> <C> <C>
Monthly basic plus service rate $ 21.10 $ 21.10 $ 21.10
Basic subscribers* 7,248 7,380 8,088
Pay units** 7,251 6,285 4,758
</TABLE>
* The reduction in the number of basic subscribers following 1994 is due to
an overbuild of the system.
** The number of pay units in the system fluctuated during fiscal years 1994
and 1995 due to pay unit marketing promotions. These marketing promotions
resulted in periodic increases in pay units, followed by decreases in pay
units upon the expiration of the promotional period.
<TABLE>
<CAPTION>
Pima County, Arizona At 12/31
- -------------------- --------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $ 25.80 $ 24.00 $ 22.50
Basic subscribers 59,434 56,512 52,742
Pay units 38,949 35,532 34,306
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
South Prince Georges
- --------------------
County, Maryland At 12/31/96
- ---------------- -----------
<S> <C>
Monthly basic plus service rate $ 25.89
Basic subscribers 73,852
Pay units 134,975
<CAPTION>
Reston, Virginia At 12/31/96
- ---------------- -----------
<S> <C>
Monthly basic plus service rate $ 26.94
Basic subscribers 14,662
Pay units 15,491
<CAPTION>
Savannah, Georgia At 12/31/96
- ----------------- -----------
<S> <C>
Monthly basic plus service rate $ 23.94
Basic subscribers 62,780
Pay units 36,629
<CAPTION>
Walnut Valley, California At 12/31
- ------------------------- ---------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $ 23.21 $ 22.06 $ 22.06
Basic subscribers 19,591 18,944 18,025
Pay units 13,619 13,321 13,000
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
--------------------------
Alexandria Litigation
- ---------------------
Luva D. Vaughan, Allan J. Smith, Jr. and Hildegarde I. Smith,
-------------------------------------------------------------
derivatively for the use and benefit of Jones Intercable Investors, L.P., a
- ---------------------------------------------------------------------------
Colorado limited partnership, v. Jones Intercable, Inc., a Colorado corporation
- -------------------------------------------------------------------------------
(Circuit Court for Jackson County, State of Missouri, Case No. CV94-3652); Luva
- -------------------------------------------------------------------------------
D. Vaughan, Allan J. Smith, Jr., and Hildegarde I. Smith, derivatively, for the
- -------------------------------------------------------------------------------
use and benefit of Jones Intercable Investors, L.P. v. Jones Group, Ltd., a
- ---------------------------------------------------------------------------
Colorado corporation (District Court, City and County of Denver, State of
- --------------------
Colorado, Case No. 94 CV 5486, Courtroom 14).
On February 22, 1994, the Company and The Jones Group, Ltd. were named as
defendants in a lawsuit in Missouri brought by three individuals who are Class A
Unitholders in Jones Intercable Investors, L.P., a publicly traded limited
partnership of which the Company is general partner (the "MLP"). The suit
related to the sale of the Alexandria, Virginia cable television system by the
MLP to the Company. On October 21, 1994, plaintiffs filed a motion to dismiss
The Jones Group, Ltd. in response to The Jones Group, Ltd.'s argument that
Missouri lacked personal jurisdiction over it. Plaintiffs' motion was granted,
and plaintiffs then filed an action in Colorado against The Jones Group, Ltd.
seeking a return of the brokerage commission. All claims in both the Missouri
and Colorado litigation have been settled and actions dismissed with prejudice.
Tampa Litigation
- ----------------
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 Company was named as a defendant in a Complaint
filed by David Hirsch, who purports to be a limited partner in Cable TV Fund 12-
D, Ltd., a limited partnership of which the Company is the general partner. On
January 25, 1996, the Company was served with an Amended Class Action Complaint
and Request for Jury Trial. On February 19, 1996, the Company filed a Motion to
Dismiss the Amended Complaint arguing that the action was improperly brought as
a class action. The Company 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 Company's Motion to Dismiss, and on July 25, 1996, the Court entered a
further Order allowing plaintiff to file another
25
<PAGE>
Amended Complaint. On July 31, 1996, plaintiff Hirsch filed a Second Amended
Complaint.
Plaintiff Hirsch alleges that he is a limited partner in Cable TV Fund 12-
D, Ltd. ("Fund 12-D") and that he now purports to bring this case as a
derivative action on behalf of Cable TV Fund 12-B, Ltd. ("Fund 12-B"), Cable TV
Fund 12-C, Ltd. ("Fund 12-C") and Fund 12-D. The suit relates to the purchase by
the Company from Cable TV Fund 12-BCD Venture (the "Venture") (a general
partnership in which Fund 12-D is a general partner) of the Tampa System and
subsequent trade of the Tampa System, along with other cable systems, to Time
Warner for certain of Time Warner's cable systems. The Company was authorized to
purchase the Tampa System from the Venture pursuant to the terms of the limited
partnership agreements of Fund 12-B, 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 purport to be joint owners of limited
partnership interests 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 the Company breached its fiduciary duty to the plaintiffs
- -------
and the other limited partners of Fund 12-B, Fund 12-C and Fund 12-D and the
Venture in connection with the 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 the Company
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 Company 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
Company's Motion to Dismiss. The Company's Answer to the Complaints in 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.
26
<PAGE>
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
Company in the above-referenced action in Arapahoe County District Court.
Plaintiff Ury alleges that he is a limited partner in Fund 12-D. He purports to
bring this case as a derivative action on behalf of Fund 12-B, Fund 12-C and
Fund 12-D. As in Hirsch and Fussner, discussed above, this case relates to the
------ -------
Company'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 Company breached its
---
fiduciary duties to the limited partnerships and their limited partners in
connection with its purchase of the Tampa System from the Venture. Specifically,
the plaintiff alleges that the Company 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 Company filed a Motion to Dismiss the Complaint
on the ground that it fails to state a claim against the Company upon which
relief can be granted. The thrust of the Company's motion was that the Company
cannot be liable for breach of fiduciary duty because it acted in accordance
with the terms of the limited partnership agreements in its purchase of the
Tampa System. The Company also argued that plaintiff does not have standing to
assert a derivative claim on behalf of Fund 12-B or Fund 12-C, since he is only
a limited partner in Fund 12-D. On July 12, 1996, the Court denied the Company's
Motion to Dismiss. The Company 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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
----------------------------------------------------------
STOCKHOLDER MATTERS
-------------------
The Company's Common Stock and Class A Common Stock are traded in the
over-the-counter market and authorized for quotation on the National Market
System operated by the National Association of Securities Dealers, Inc.
(NASDAQ), under the following symbols:
Common Stock - JOIN
Class A Common Stock - JOINA
27
<PAGE>
The following table shows the high and low prices as quoted on the
NASDAQ/National Market System for each quarterly period of calendar years ended
December 31, 1996 and 1995 for each class of the Company's stock:
<TABLE>
<CAPTION>
Common Stock Class A Common Stock
------------ --------------------
Calendar Year Ended 12/31/96 High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter 17 12 15 11 7/8
Second Quarter 16 14 14 5/8 13 1/8
Third Quarter 15 1/2 12 14 11 3/8
Fourth Quarter 13 7/8 10 1/4 13 7/8 10 1/8
<CAPTION>
Common Stock Class A Common Stock
------------ --------------------
Calendar Year Ended 12/31/96 High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter 17 1/2 11 7/8 17 1/2 12
Second Quarter 16 1/4 13 1/2 16 1/2 12 7/8
Third Quarter 16 1/4 14 5/8 15 1/2 13 3/8
Fourth Quarter 14 1/2 13 3/4 14 13 1/4
</TABLE>
At December 31, 1996, the Common Stock and Class A Common Stock of the
Company were held of record by 745 and 1,442 shareholders, respectively.
The Company has never paid a cash dividend with respect to its shares of
Common Stock or Class A Common Stock, and it has no present intention to pay
cash dividends in the foreseeable future. The current policy of the Company's
Board of Directors is to retain earnings to provide funds for the operation and
expansion of its business. Future dividends, if any, will be determined by the
Board of Directors in light of the circumstances then existing, including the
Company's earnings and financial requirements and general business conditions.
If cash dividends are paid in the future, the holders of the Class A Common
Stock will be paid $.005 per share per quarter in addition to the amount payable
per share of Common Stock. Such additional dividends on the Class A Common Stock
are not cumulative but would be adjusted appropriately if cash dividends are
declared with respect to a period other than a quarterly period. Certain of the
Company's debt arrangements restrict the right of the Company to declare and pay
cash dividends.
28
<PAGE>
Item 6. Selected Financial Data
- --------------------------------
The following table sets forth selected financial data regarding the
Company's financial position and operating results. This data should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing in Item 7.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---------- --------- --------- --------- ---------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
REVENUES:
Cable Television Revenue
Subscriber service fees $ 248,626 $ 135,350 $ 103,335 $ 99,438 $ 82,033
Management fees 19,104 21,462 17,952 17,255 16,820
Distributions and Brokerage Fees 15,483 - - - -
Non-cable Revenue 28,497 32,026 10,602 7,624 6,943
--------- -------- -------- -------- --------
TOTAL REVENUES 311,710 188,838 131,889 124,317 105,796
--------- -------- -------- -------- --------
COSTS AND EXPENSES:
Cable Television Expenses
Operating expenses 131,529 77,638 55,196 54,307 38,579
General and administrative 16,586 8,284 8,120 10,034 9,304
Non-cable operating, general and
administrative 28,410 32,382 11,810 7,989 6,793
--------- -------- -------- -------- --------
OPERATING INCOME
BEFORE DEPRECIATION
AND AMORTIZATION 135,185 70,534 56,763 51,987 51,120
Depreciation and amortization 131,186 55,805 45,585 43,328 39,597
--------- -------- -------- -------- --------
OPERATING INCOME $ 3,999 $ 14,729 $ 11,178 $ 8,659 $ 11,523
========= ======== ======== ======== ========
LOSS BEFORE INCOME
TAXES AND EXTRAORDINARY ITEMS $ (62,660) $ (21,024) $ (8,691) $ (36,066) $ (26,308)
INCOME TAX PROVISION - - - - -
--------- -------- -------- -------- --------
LOSS BEFORE
EXTRAORDINARY ITEMS (62,660) (21,024) (8,691) (36,066) (26,308)
Extraordinary items-
Loss on early
extinguishment of debt - (692) - (12,781) (11,409)
Cumulative effect of change
in accounting method-
Change in method of
accounting for income taxes - - - - 3,862
--------- -------- -------- -------- --------
NET LOSS $ (62,660) $ (21,716) $ (8,691) $ (48,847) $ (33,855)
========= ======== ======== ======== ========
PRIMARY LOSS
PER SHARE:
Loss before
extraordinary items $ (2.00) $ (.67) $ (.45) $ (2.16) $ (2.05)
Extraordinary items - (.02) - (.76) (.88)
Accounting change - - - - .30
--------- -------- -------- -------- --------
$ (2.00) $ (.69) $ (.45) $ (2.92) $ (2.63)
========= ======== ======== ======== ========
WEIGHTED AVERAGE
SHARES OUTSTANDING 31,372 31,270 19,517 16,728 12,849
========= ======== ======== ======== ========
TOTAL ASSETS $ 1,134,129 $ 860,499 $ 608,289 $ 434,298 $ 434,670
========= ======== ======== ======== ========
TOTAL DEBT $ 806,147 $ 492,714 $ 281,578 $ 372,908 $ 382,245
========= ======== ======== ======== ========
SHAREHOLDERS'
INVESTMENT $ 235,307 $ 292,795 $ 271,284 $ 17,503 $ 13,996
========= ======== ======== ======== ========
</TABLE>
29
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
------------------------------------------------------------------------
Results of Operations
---------------------
FINANCIAL CONDITION
The following discussion of the Company's financial condition and
results of operations contains, 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 Company's actual
results may differ significantly from the results predicted in such
forward-looking statements.
The Company is implementing a balanced strategy of acquiring cable
television systems from its managed partnerships and from third parties.
As part of this process, certain systems owned by the Company and its
managed partnerships will be sold to third parties and Company-owned
systems will be exchanged for systems owned by other cable system
operators. It is the Company's plan to cluster its cable television
properties on the basis of operating characteristics and/or geographic
areas. Clustering systems should enable the Company to obtain operating
efficiencies, and it should position the Company to capitalize on new
revenue and business opportunities as the telecommunications industry
evolves.
The Company intends to liquidate its managed partnerships as such
partnerships achieve their investment objectives and as opportunities for
sales of partnership cable television systems arise in the marketplace. In
accordance with this strategy, the Company is marketing for sale many of
the cable television systems owned by its managed partnerships.
The Company also intends to maintain and enhance the value of its
current cable television systems through capital expenditures. Such
expenditures will include, among others, cable television plant extensions
and the upgrade and rebuild of certain systems. The Company also intends
to institute new services as they are developed and become economically
viable.
Acquisitions of cable television systems, the development of new
services and capital expenditures for system extensions and upgrades are
subject to the availability of cash generated from operations, borrowings
under the Company's revolving credit facilities, debt and/or equity
financing. In addition, the Company is exploring other financing options
such as private equity capital and/or the sale of additional non-strategic
assets, including its investment in Bell Cablemedia plc. There can be no
assurance that the capital resources necessary to accomplish the Company's
acquisition and development plans will be available on terms and conditions
acceptable to the Company, or at all.
In implementing the Company's acquisition strategy, the Company
acquired the Manassas System, the South Prince Georges County System and
the Reston System because they are near other systems owned by JCH and
managed by the Company in the Washington DC area. The Savannah System was
acquired because its operating characteristics were similar to other
properties owned by JCH II. The acquisition of such systems has increased
the Company's basic subscriber base by approximately 179,000 basic
subscribers to approximately 585,000 basic subscribers at December 31,
1996. These transactions are described in detail in Note 2 of the Notes to
Consolidated Financial Statements.
The Manassas System was purchased for $71,100,000. Funding was
provided by borrowings available under JCH's revolving credit facility.
The South Prince Georges County System and the Reston System were acquired
in exchange for three systems that the Company purchased from managed
partnerships. The $176,479,000 of capital required by this transaction was
provided by borrowings available under JCH's revolving credit facility.
The Savannah System was acquired in exchange for two Company-owned cable
television systems and three cable television systems purchased from
managed partnerships. The $47,500,000 of capital required by this
transaction to purchase the three systems from managed partnerships was
provided by borrowings available under JCH's revolving credit facility.
30
<PAGE>
In addition to the systems acquired during 1996, the Company entered
into agreements to acquire additional cable television systems. On January
31, 1997, the Company purchased the North Prince Georges County System for
$231,367,000. Funding for this transaction was provided by borrowings
available under JCH's revolving credit facility. On October 25, 1996, the
Company entered into an agreement to exchange its Colorado cable television
systems for the Annapolis System. This transaction is expected to close in
the first half of 1997. On September 5, 1995, the Company entered into an
agreement to purchase the Manitowoc System. As amended on September 30,
1996, this agreement provides for a purchase price of $16,122,333 for the
Manitowoc System. Funding for this purchase is expected to be provided by
the Company's revolving credit facilities. This transaction is expected to
close in the first half of 1997. In February 1997, the Company entered
into an agreement to purchase the Independence System for $171,213,667.
Funding for this purchase, which is expected to close in the second half of
1997, is expected to be provided by borrowings available under JCH II's
revolving credit facility. These transactions are described in detail in
Note 2 of the Notes to Consolidated Financial Statements.
From time to time, the Company makes loans to its managed
partnerships, although it is not required to do so. As of December 31,
1996, the Company had advanced funds to various managed partnerships
totaling approximately $3,996,000, a decrease of approximately $10,315,000
over the amount advanced at December 31, 1995. These advances represent
funds for capital expansion and improvements of properties owned by the
Company's 23 managed partnerships where additional credit sources were not
then available to the partnerships. None of these advances are
individually significant. These advances reduce the Company's available
cash and its liquidity. The Company anticipates the repayment of these
advances over time. The Company does not anticipate significant increases
in the amount advanced to its managed partnerships during 1997. These
advances bear interest at rates equal to the Company's weighted average
cost of borrowing.
The Company purchased property, plant and equipment totaling
approximately $95,900,000 during 1996. Such expenditures included
$7,500,000 expended related to the development of a new customer
care/billing system and $4,600,000 related to the development of telephone
service in the State of Virginia. The remainder of the capital
expenditures, totaling $83,800,000, is principally the result of the
following: (a) the upgrade and rebuild of the cable plant in the
Alexandria, Virginia and Augusta, Georgia systems; and (b) new extension
projects, drop materials, converters and various maintenance projects in
the Pima County, Arizona; Anne Arundel, Maryland; South Prince Georges
County, Maryland; and Augusta, Georgia systems. Estimated capital
expenditures for 1997 are approximately $105,000,000. Of these capital
expenditures, approximately $88,600,000 is for cable extensions, rebuilds
and other enhancements in the cable television systems owned by the
Company, $12,000,000 is for the development of a customer care/billing
system and $4,400,000 is for the development of telephone service in
Maryland and Virginia. Funding for such expenditures is expected to be
provided by cash generated from operations and borrowings available under
the Company's revolving credit facilities, as discussed below.
Sources of Funds
The Company's main sources of capital consist of cash generated from
operations and borrowings available under the Company's two revolving
credit facilities, each of which has maximum available borrowings of $600
million.
31
<PAGE>
The $600 million JCH Revolving Credit Facility is a reducing revolving
credit facility. The entire $600 million commitment is available through
March 31, 1999, at which time the commitment will be reduced quarterly with
a final maturity date of December 31, 2004. The balance outstanding on the
JCH revolving credit facility at December 31, 1996 was $183,000,000.
The $600 million JCH II Revolving Credit Facility consists of a $300
million reducing revolving credit facility and a $300 million 364 day
revolving credit facility. The reducing revolving credit facility allows
for borrowings through the final maturity date of December 31, 2005. The
maximum amount available reduces quarterly beginning March 31, 2000 through
the final maturity date of December 31, 2005. The 364 day revolving credit
facility allows for borrowings through the 364th day subsequent to the
closing date of the loan, at which time any outstanding borrowings convert
to a term loan payable in semi-annual installments commencing June 30, 2001
with a final maturity date of December 31, 2005. The balance outstanding on
the JCH II Revolving Credit Facility at December 31, 1996 was $160,000,000,
this amount was borrowed under the reducing revolving credit facility. See
Note 7 to Notes to Consolidated Financial Statements for detail concerning
these credit facilities.
The Company, in its capacity as the general partner of its managed
partnerships, may from time to time receive distributions upon the sale of
cable television systems owned by such partnerships. During 1996, the
Company received a distribution of $14,000,000 upon the sale of Cable TV
Fund 11-B, Ltd.'s Lancaster, New York cable television system. In
addition, The Jones Group, Ltd. may receive brokerage fees upon the sale of
the managed partnerships' cable television systems to third parties.
During 1996, the Company received a brokerage fee of $2,100,000, less
expenses of $617,000, upon the sale of Cable TV Fund 11-B, Ltd.'s
Lancaster, New York cable television system.
On August 16, 1996, the Company entered into an agreement with an
unaffiliated party to sell the cable television systems serving areas in
and around Walnut Valley and Oxnard, both in the state of California, for
$104,000,000. The closing of this transaction is subject to a number of
conditions including obtaining necessary governmental and other third party
consents. Closing is expected to occur in the second quarter of 1997.
Proceeds from this sale will be used to repay a portion of the amounts
outstanding on the Company's revolving credit facilities.
As part of the Company's strategy to simplify its corporate structure
and concentrate on its core communications business, the Company has sold
two of its subsidiaries engaged in non-cable businesses and redeemed a
portion of its investment in Jones Global Group, Inc. ("Global Group"). On
June 14, 1996, the Company completed the sale of Jones Galactic Radio,
Inc., a wholly owned subsidiary ("Galactic Radio"), to Global Group, an
affiliated company. The sale price was $17.2 million. The sale price was
paid in the form of 984,968 ADSs of Bell Cablemedia plc. On July 31, 1996,
the Company sold the assets of Jones Satellite Programming, Inc. ("JSP"), a
wholly owned subsidiary, to an unaffiliated party for $2,873,871 in cash.
Also, on December 23, 1996, the Company redeemed 225 of its 380 shares of
Global Group in exchange for a $8,950,188 note receivable from Global
Group. Through February 28, 1997, approximately $6,950,000 of this note
had been repaid.
The Company has an effective registration statement relating to the
sale of $600 million of senior debt securities, senior subordinated debt
securities, subordinated debt securities and Class A Common Stock. The
Company may, from time to time, issue securities not to exceed $600 million
pursuant to this registration statement.
The Company has sufficient sources of capital available, consisting of
cash generated from operations and available borrowings from its revolving
credit facilities, to fund its committed acquisition requirements and to
meet its operational needs.
32
<PAGE>
RESULTS OF OPERATIONS
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
---------------------------------------------------------------------
Revenues
The Company derives its revenues from four primary sources:
subscriber service fees from Company-owned cable television systems,
management fees from managed partnerships, fees and distributions paid upon
the sale of certain cable television properties owned by managed
partnerships and revenues from non-cable television subsidiaries. Total
revenues for the year ended December 31, 1996 totaled $311,710,000, an
increase of $122,872,000, or 65%, over the total of $188,838,000 for the
year ended December 31, 1995. This increase reflects the Company's
acquisition of the following cable television systems: the Augusta System
on October 20, 1995; the Dale City System on November 29, 1995; the
Manassas System on January 10, 1996; the South Prince Georges County System
on February 29, 1996; the Reston System on February 29, 1996; and the
Savannah System on April 12, 1996 (the "Acquired Systems"). Disregarding
the effect of the Acquired Systems and the sales of Galactic Radio on June
14, 1996, and the assets of JSP on July 31, 1996, total revenues would have
increased $11,080,000, or 8%.
The Company's subscriber service fees increased $113,276,000, or 84%,
to $248,626,000 in 1996 from $135,350,000 in 1995. The acquisition of the
Acquired Systems accounted for $104,509,000, or 92%, of the increase in
subscriber service fees. Disregarding the effect of the Acquired Systems,
subscriber service fees would have increased $8,767,000, or 8%. This
increase was due primarily to an increase in the number of basic
subscribers and basic service rate adjustments in the cable television
systems owned by the Company.
The Company receives management fees generally equal to 5% of the
gross operating revenues of its managed limited partnerships. Management
fees totaled $19,104,000 in 1996, a decrease of $2,358,000, or 11%, over
the total of $21,462,000 reported in 1995. The sale of certain systems
owned by managed partnerships during 1995 and 1996 caused this decrease.
As the Company liquidates its managed partnerships, management fees will
continue to decrease. On a pro forma basis, management fees would have
increased $985,000, or 6%. This increase was due to the revenue growth
from basic rate adjustments and increases in the subscriber base of the
remaining systems owned by managed partnerships.
In its capacity as the general partner of its managed partnerships,
the Company from time to time may receive revenue in the form of
distributions upon the sale of certain cable television properties owned by
such partnerships. The Company received a distribution of $14,000,000 upon
the sale of Cable TV Fund 11-B, Ltd.'s Lancaster, New York System in April
1996. No such revenue was recognized during 1995. In addition, The Jones
Group, Ltd., a wholly owned subsidiary of the Company, may earn brokerage
fees upon the sale of certain managed cable television systems to third
parties. A brokerage fee of $2,100,000, less expenses of $617,000, was
earned upon the sale of Cable TV Fund 11-B, Ltd.'s Lancaster, New York
System in April 1996. No such fees were recognized during 1995.
The Company operates Jones Futurex, Inc. ("Futurex"), a manufacturer
of various electronic components. In addition, the Company owned and
operated Galactic Radio, until its sale on June 14, 1996 and JSP, a
distributor of satellite programming to satellite dish owners, until the
sale of its assets on July 31, 1996. Non-cable revenues totaled
$28,497,000 in 1996, a decrease of $3,529,000, or 11%, over the $32,025,000
recognized in 1995. This decrease was primarily due to the sales of
Galactic Radio and JSP.
33
<PAGE>
Costs and Expenses
Operating, general and administrative expenses consist primarily of
costs associated with the operation and administration of Company-owned
cable television systems, the administration of managed partnerships and
the operation and administration of the non-cable television entities. The
Company is reimbursed by its managed partnerships for costs associated with
the administration of the partnerships. The principal administrative cost
components are salaries paid to corporate and system personnel, programming
expenses, professional fees, subscriber billing costs, data processing
costs, rent for leased facilities, cable system maintenance expenses and
marketing expenses.
Cable operating expenses increased $53,891,000, or 69%, to
$131,529,000 in 1996 from $77,638,000 in 1995. The acquisition of the
Acquired Systems accounted for $49,396,000, or 92%, of this increase.
Disregarding the effect of the Acquired Systems, cable operating expenses
would have increased $5,095,000, or 8%, for 1996 compared to 1995. This
increase was due primarily to increases in basic and tier programming
costs.
Cable general and administrative expenses increased $8,302,000, or
100%, to $16,586,000 in 1996 from $8,284,000 in 1995. This increase was
due to the effect of the Acquired Systems. As the Company acquires cable
television systems for its own account and sells cable television systems
owned by managed partnerships, and thereby transitions from a management
company to an operating company, the Company's proportionate percentage of
total general and administrative expenses will increase. Disregarding the
effect of the Acquired Systems, cable general and administrative expenses
would have decreased $682,000, or 8%, for 1996. This decrease was due to
effective cost controls relating to general and administrative expenses.
Non-cable operating, general and administrative expenses decreased
$3,972,000, or 12%, to $28,410,000 in 1996 from $32,382,000 in 1995. This
decrease was primarily due to the sales of Galactic Radio and JSP during
1996.
Depreciation and amortization expense increased $75,381,000, or 135%,
to $131,186,000 in 1996 from $55,805,000 in 1996. Depreciation and
amortization relating to the Acquired Systems as well as the accelerated
depreciation of certain cable plant being rebuilt in Company-owned cable
television systems were primarily responsible for this increase.
Operating Income
Operating income decreased $10,730,000, or 73%, to $3,999,000 in 1996
from $14,729,000 in 1995. This decrease was due primarily to the increase
in depreciation and amortization expense.
The cable television industry generally measures the performance of a
cable television company in terms of cash flow or operating income before
depreciation and amortization. The value of a cable television company is
often determined using multiples of cable television system cash flow.
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 increased $64,651,000, or 92%, to $135,185,000 in 1996 from
$70,534,000 in 1995. The Acquired Systems and the distribution and
brokerage fee relating to the sale of Cable TV Fund 11-B, Ltd.'s Lancaster,
New York System were primarily responsible for this increase. Disregarding
the effect of the Acquired Systems and the Company's receipt of the
distribution and brokerage fee, operating income before depreciation and
amortization would have increased $6,507,000, or 12%.
34
<PAGE>
Other Income (Expense)
Interest expense increased $18,230,000, or 37%, to $67,782,000 in 1996
from $49,552,000 in 1995. This increase was due to higher outstanding
balances on the Company's revolving credit facilities because borrowings
were used to purchase the Acquired Systems.
Interest income decreased $10,625,000, or 74%, to $3,758,000 in 1996
from $14,383,000 in 1995. This decrease was due to a reduction in cash and
cash equivalents. Such cash and cash equivalents were used to purchase the
Acquired Systems.
Equity in losses of affiliated entities increased $3,415,000 to
$3,473,000 in 1996 from $58,000 in 1995. This increase was due primarily
to an increase in the recognition of losses of Jones Customer Service
Management, L.L.C., an affiliate that is developing a subscriber billing
and management system.
The Company recognized gains on the sales of assets of $5,262,000
during 1996. Such gains resulted from the sale of JSP's assets and the
Company's sale of certain marketable securities of an unaffiliated company.
No such gain was recognized during 1995.
Net loss increased $40,944,000, or 189%, to $62,660,000 in 1996 from
$21,716,000 in 1995. This increase was due primarily to the increase in
depreciation and amortization expense related to the Acquired Systems.
The Company anticipates the continued recognition of operating income
prior to depreciation and amortization charges, but net losses resulting
from depreciation, amortization and interest expenses are expected to
continue in the future. To the extent the Company recognizes distributions
from its managed partnerships and/or gains on the sale of assets in the
future, such losses may be reduced or eliminated; however, there is no
assurance as to the timing or recognition of these distributions or sales.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
---------------------------------------------------------------------
Revenues
Total revenues for the year ended December 31, 1995 totaled
$188,838,000, an increase of $56,949,000, or 43%, over the total of
$131,889,000 for the year ended December 31, 1994. This increase reflected
the Company's acquisition of the assets of Jones Spacelink, Ltd.
("Spacelink") on December 20, 1994, the purchase of the Augusta System on
October 20, 1995, the purchase of the Dale City System on November 29, 1995
and were offset, in part, by the sale of the Company's Gaston County, North
Carolina cable television system (the "Gaston System") on July 22, 1994
(the "Purchase and Sale Transactions"). Disregarding the effect of the
Purchase and Sale Transactions, total revenues would have increased
$10,898,000, or 9%.
The Company's subscriber service fees increased $32,015,000, or 31%,
to $135,350,000 in 1995 from $103,335,000 in 1994. The effect of the
Purchase and Sale Transactions accounted for $22,865,000, or 71%, of this
increase. Disregarding the effect of the Purchase and Sale Transactions,
subscriber service fees would have increased $8,068,000, or 8%. This
increase was due primarily to an increase in the number of basic
subscribers and basic service rate adjustments in the cable television
systems owned by the Company.
Management fees totaled $21,462,000 for 1995, an increase of
$3,510,000, or 20%, over the total of $17,952,000 reported in 1994. The
growth of management fee revenue was the result of the acquisition of
Spacelink's assets, which included general partner interests in a number of
managed
35
<PAGE>
partnerships, as well as increases in operating revenues of the Company's
managed partnerships. Partnership revenues increased as a result of
increases in basic subscribers, increases in advertising sales revenue and
basic service rate adjustments. Disregarding the effect of the Spacelink
transaction, management fees increased approximately 10%.
No distribution or brokerage fee revenues were recognized during the
years ended December 31, 1995 or 1994. The general partner distribution
received by the Company as a result of the sale of the Augusta System by
Cable TV Fund 12-B, Ltd. in October 1995 was recorded as a reduction in the
cost basis of the assets of the Augusta System due to the Company's
continuing interest in the Augusta System.
Non-cable revenue totaled $32,026,000 in 1995, an increase of
$21,424,000, or 202%, over the $10,602,000 recorded in 1994. The
acquisitions of Futurex and Galactic Radio accounted for 79% of this
increase. The remainder of this increase was due to an increase in the
revenue of JSP.
Costs and Expenses
Cable operating expenses increased $22,442,000, or 41%, to $77,638,000
in 1995 compared to $55,196,000 in 1994. The Purchase and Sale
Transactions accounted for $13,954,000, or 62%, of this increase.
Disregarding the effect of the Purchase and Sale Transactions, cable
operating expense would have increased $6,406,000, or 12%. This increase
was due primarily to increases in premium and satellite programming costs.
Cable general and administrative expense increased $164,000, or 2%, to
$8,284,000 in 1995 from $8,120,000 in 1994. Disregarding the effect of the
Purchase and Sale Transactions, cable general and administrative expenses
decreased $718,000, or 9%. This decrease was due primarily to the fact
that the Company paid no transponder fees to Jones Earth Segment, Inc. in
1995. The remainder of the decrease was due to effective cost controls
related to general and administrative expense.
Non-cable operating, general and administrative expense increased
$20,572,000, or 174%, to $32,382,000 in 1995 from $11,810,000 in 1994. The
acquisitions of Futurex and Galactic Radio accounted for this increase.
Depreciation and amortization expense increased $10,220,000, or 22%,
to $55,805,000 in 1995 from $45,585,000 in 1994. The effect of the
Purchase and Sale Transactions, as well as capital additions in 1995, were
responsible for this increase.
Operating Income
Operating income increased $3,551,000, or 32%, to $14,729,000 in 1995
from $11,178,000 in 1994, due to the factors discussed above.
Operating income before depreciation and amortization increased
$13,771,000, or 24%, to $70,534,000 in 1995 from $56,763,000 in 1994.
Disregarding the effect of the Purchase and Sale Transactions, operating
income before depreciation and amortization would have increased
$5,218,000, or 10%.
Other Income (Expense)
Interest expense increased $12,669,000, or 34%, to $49,552,000 in 1995
from $36,883,000 in 1994. This increase was due primarily to interest on
the $200 million of Senior Notes sold in March
36
<PAGE>
1995 which was offset, in part, by a decrease in interest expense on the
Company's revolving credit facility due to lower outstanding balances.
Interest income increased $8,497,000, or 144%, to $14,383,000 in 1995
from $5,886,000 in 1994. This increase was due to the increase in the
Company's cash on hand during the year, prior to the acquisition of the
Augusta System and the Dale City System, from the Bell Canada International
Inc. investment in December 1994 and the sale of $200 million of Senior
Notes in March 1995.
In 1995, the Company recorded net equity in the losses of affiliates
totaling $58,000 compared to $3,707,000 in 1994. The Company recognized
equity in the losses of its managed partnerships, Mind Extension
University, IDS/Jones Joint Venture Partners and Jones Customer Service
Management, L.L.C. Such losses were offset, in part, by equity in the net
income of Jones Intercable Investors, L.P. and Jones Global Group, Inc.
("JGG"). JGG, an affiliate, recognized gains on the sale of certain of
JGG's Bell Cablemedia ADSs.
The Company recorded a gain of $15,496,000 in July 1994 on the sale of
its Gaston System. No similar gain was recognized during 1995.
The Company recognized a loss of $692,000 in 1995 related to the
redemption of its 7.5% Convertible Subordinated Debentures. No similar
loss was recognized in 1994.
Net loss increased $13,025,000, or 150%, to $21,716,000 in 1995 from
$8,691,000 in 1994. This increase was primarily due to the fact that the
Company recognized no gain on the sale of assets in 1995 compared to the
$15,496,000 gain recognized in 1994 on the sale of the Gaston System.
37
<PAGE>
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants 39
Consolidated Balance Sheets 40
Consolidated Statements of Operations 42
Consolidated Statements of Shareholders' Investment 43
Consolidated Statements of Cash Flows 44
Notes to Consolidated Financial Statements 45
38
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO JONES INTERCABLE, INC.:
We have audited the accompanying consolidated balance sheets of JONES
INTERCABLE, INC. (a Colorado corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of operations,
shareholders' investment and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Jones Intercable, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Denver, Colorado
February 14, 1997 ARTHUR ANDERSEN LLP
39
<PAGE>
CONSOLIDATED
BALANCE SHEETS Jones Intercable, Inc.
As of December 31, 1996 and 1995 and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1996 1995
(Stated in Thousands)
- --------------------------------------------------------------------------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 1,671 $ 2,314
RESTRICTED CASH 1,016 6,357
RECEIVABLES:
Trade receivables, net of allowance for
doubtful accounts of $1,483,000 in 1996
and $1,056,000 in 1995 16,327 19,332
Affiliated entities 3,996 14,311
Other 962 2,442
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 569,148 475,436
Less - Accumulated depreciation (184,738) (171,948)
--------- ---------
384,410 303,488
Franchise costs and other intangible assets,
net of accumulated amortization of
$219,783,000 in 1996 and $171,497,000
in 1995 492,219 309,813
Investments in affiliates and domestic cable
television partnerships 31,483 45,745
Investment in Bell Cablemedia plc 111,767 99,613
--------- ---------
TOTAL INVESTMENT IN CABLE TELEVISION
PROPERTIES 1,019,879 758,659
--------- ---------
DEFERRED TAX ASSET, net of valuation
allowance of $53,006,000 in 1996 and
$70,748,000 in 1995 3,862 3,862
DEPOSITS, PREPAID EXPENSES AND OTHER ASSETS 86,416 53,222
--------- ---------
TOTAL ASSETS $1,134,129 $ 860,499
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
40
<PAGE>
CONSOLIDATED
BALANCE SHEETS Jones Intercable, Inc.
As of December 31, 1996 and 1995 and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' INVESTMENT 1996 1995
(Stated in Thousands)
- --------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES:
Accounts payable and accrued liabilities $ 89,563 $ 69,411
Subscriber prepayments and deposits 3,112 5,579
Subordinated debentures and other debt 463,147 462,714
Credit facilities 343,000 30,000
---------- ----------
TOTAL LIABILITIES 898,822 567,704
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 2, 4 and 11)
SHAREHOLDERS' INVESTMENT:
Class A Common Stock, $.01 par value, 60,000,000
shares authorized; 26,264,523 and 26,212,055
shares issued at December 31, 1996 and 1995,
respectively 263 262
Common Stock, $.01 par value, 5,550,000 shares
authorized; 5,113,021 shares issued at
December 31, 1996 and 1995 51 51
Additional paid-in capital 395,278 394,875
Unrealized holding gain on marketable securities 47,272 42,504
Accumulated deficit (207,557) (144,897)
---------- ----------
TOTAL SHAREHOLDERS' INVESTMENT 235,307 292,795
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 1,134,129 $ 860,499
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
41
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS Jones Intercable, Inc.
For the years ended December 31, 1996, 1995 and 1994 and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
(In Thousands Except Per Share Data)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES FROM OPERATIONS:
Cable Television Revenue
Subscriber service fees $ 248,626 $ 135,350 $ 103,335
Management fees 19,104 21,462 17,952
Distributions and Brokerage Fees 15,483 - -
Non-cable Revenue 28,497 32,026 10,602
---------- ---------- ----------
TOTAL REVENUES 311,710 188,838 131,889
COSTS AND EXPENSES:
Cable Television Expenses
Operating expenses 131,529 77,638 55,196
General and administrative expenses
(including approximately $4,309,000,
$2,717,000 and $2,994,000 of related
party expenses during the years ended
December 31, 1996, 1995 and 1994,
respectively) 16,586 8,284 8,120
Non-cable operating, general and
administrative 28,410 32,382 11,810
Depreciation and amortization 131,186 55,805 45,585
---------- ---------- ----------
OPERATING INCOME 3,999 14,729 11,178
OTHER INCOME (EXPENSE):
Interest expense (67,782) (49,552) (36,883)
Interest income 3,758 14,383 5,886
Equity in losses of affiliated entities (3,473) (58) (3,707)
Gain on sale of assets 5,262 - 15,496
Other, net (4,424) (526) (661)
---------- ---------- ----------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (62,660) (21,024) (8,691)
Income tax provision - - -
---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY ITEM (62,660) (21,024) (8,691)
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt,
net of related income taxes - (692) -
---------- ---------- ----------
NET LOSS $ (62,660) $ (21,716) $ (8,691)
========== ========== ==========
PRIMARY LOSS PER SHARE:
Loss before extraordinary item $ (2.00) $ (.67) $ (.45)
Extraordinary item - (.02) -
---------- ---------- ----------
$ (2.00) $ (.69) $ (.45)
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF CLASS A
COMMON AND COMMON SHARES OUTSTANDING 31,372 31,270 19,517
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
42
<PAGE>
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' INVESTMENT Jones Intercable, Inc.
For the years ended December 31, 1994, 1995 and 1996 and Subsidiaries
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Holding
Class A Common Stock Common Stock Additional Gain on
-------------------- -------------------- Paid-In Marketable Accumulated
Shares Amount Shares Amount Capital Securities Deficit
(Stated in Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1993 12,275 $ 122 4,913 $ 49 $ 119,997 $ (102,665)
Proceeds from stock options
exercised 42 1 200 2 1,460 - -
Sale of Class A Common
Stock 9,914 99 - - 256,194 - -
Class A Stock Option Grants - - - - 261 - -
Purchase of Company Stock
from Jones Spacelink, Ltd. 3,900 39 - - 16,241 - (11,825)
Net loss - - - - - - (8,691)
-------- -------- -------- -------- -------- -------- --------
BALANCES, December 31, 1994 26,131 261 5,113 51 394,153 - (123,181)
Proceeds from stock options
exercised 81 1 - - 461 - -
Class A Stock Option Grants - - - - 261 - -
Unrealized holding gain on - - - - - 42,504
marketable securities
Net loss - - - - - - (21,716)
-------- -------- -------- -------- -------- -------- --------
BALANCES, December 31, 1995 26,212 262 5,113 51 394,875 42,504 (144,897)
Proceeds from stock options
exercised 52 1 - - 142 - -
Class A Common Stock Grants - - - - 261 - -
Unrealized holding gain on
marketable securities - - - - - 4,768 -
Net loss - - - - - - (62,660)
-------- -------- -------- -------- -------- -------- --------
BALANCES, December 31, 1996 26,264 $ 263 5,113 $ 51 $ 395,278 $ 47,272 $ (207,557)
======== ======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
43
<PAGE>
CONSOLIDATED STATEMENTS OF
CASH FLOWS Jones Intercable, Inc.
For the years ended December 31, 1996, 1995 and 1994 and Subsidiaries
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
(Stated in Thousands)
- ------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (62,660) $ (21,716) $ (8,691)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Extraordinary loss on early extinguishment
of debentures, net of related income taxes - 692 -
Class A Common Stock option expense 261 261 261
Gain on sale of assets (5,262) - (15,496)
Depreciation and amortization 131,186 55,805 45,585
Equity in losses of affiliated entities 3,473 58 3,707
Decrease (Increase) in restricted cash 5,341 (8,574) (1,196)
Decrease (Increase) trade receivables 1,418 (7,549) (2,193)
Increase in other receivables, deposits,
prepaid expenses and other assets (18,529) (14,526) (827)
Increase in accounts payable, accrued
liabilities and subscriber prepayments and
deposits 17,672 19,040 7,597
--------- --------- ---------
Net cash provided by operating activities 72,900 23,491 28,747
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of cable television systems (298,929) (253,724) -
Deposit on cable television systems (12,000) - -
Sale of assets 5,262 - 35,587
Purchase of cable property and equipment (83,805) (63,216) (28,801)
Purchase of telephony property and equipment (4,573) - -
Investment in customer care/billing system (7,522) - -
Investment in cable television partnerships and affiliates - (4,200) (34,846)
Acquisition Costs - - (5,438)
Other, net 4,133 (304) 997
--------- --------- ---------
Net cash used in investing activities (397,434) (321,444) (32,501)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 506,000 30,000 84,000
Repayment of debt (193,000) - (251,000)
BCI Investment - - 258,893
Equity acquisition fees - - (2,600)
Proceeds from Senior Note Offering - 200,000 -
Senior Note offering costs - (3,500) -
Proceeds from issuance of Class A Common
Stock and Class A Common Stock options 143 462 1,463
Decrease (increase) in accounts receivable from affiliated entities 10,315 13,712 (9,680)
Redemption of debentures - (19,368) -
Other, net 433 315 670
--------- --------- ---------
Net cash provided by financing activities 323,891 221,621 81,746
--------- --------- ---------
Increase (decrease) In Cash and Cash Equivalents (643) (76,332) 77,992
Cash and Cash Equivalents, beginning of year 2,314 78,646 654
--------- --------- ---------
Cash and Cash Equivalents, end of year $ 1,671 $ 2,314 $ 78,646
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
44
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1996, 1995 and 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Jones Intercable, Inc. was formed in 1970 to own, operate and manage
cable television systems. Jones Intercable, Inc. and its subsidiaries are
referred to herein as the "Company." As of December 31, 1996, through a
total of 47 owned and managed cable television systems, the Company served
approximately 1.45 million subscribers in the United States. The majority
of the Company's 14 cable television systems are owned by two of the
Company's subsidiaries. Jones Cable Holdings, Inc. ("JCH") owns and
operates the cable television systems serving areas in and around
Alexandria, Virginia; Dale City, Virginia; Manassas, Virginia; Reston,
Virginia; Anne Arundel County, Maryland; Charles County, Maryland; Prince
Georges County, Maryland; and Jefferson County, Colorado. Jones Cable
Holdings II, Inc. ("JCH II") owns and operates the cable television systems
serving areas in and around Augusta, Georgia; Savannah, Georgia; and Pima
County, Arizona. The Company directly owns the cable television systems
serving areas in and around Oxnard, California; Walnut Valley, California;
and Panama City Beach, Florida. In addition, the Company manages 33 cable
television systems for its 23 managed partnerships.
On December 19, 1994, the shareholders of the Company approved an
Exchange Agreement and Plan of Reorganization and Liquidation dated May 31,
1994, as amended, between the Company and Jones Spacelink, Ltd.
("Spacelink") providing for the acquisition by the Company of substantially
all of the assets of Spacelink and the assumption by the Company of all of
the liabilities of Spacelink. On December 20, 1994, the Company acquired
all of the assets of Spacelink (except for the 2,859,240 shares of the
Company's Common Stock owned by Spacelink) and assumed all of the
liabilities of Spacelink (other than liabilities with respect to Spacelink
shareholders exercising dissenters' rights) in exchange for 3,900,000
shares of the Company's Class A Common Stock. Glenn R. Jones, Chairman and
Chief Executive Officer of the Company, controls the election of a majority
of the Company's Board of Directors, through his ownership of a majority of
the Company's outstanding Common Stock.
Bell Canada International Inc. ("BCI") has acquired an approximate 32%
economic interest in the Company through the purchase of approximately 38%
of the Class A Common Stock of the Company. BCI is a wholly owned
subsidiary of BCE Inc., Canada's largest telecommunications company. BCI
also has a contractual commitment to invest up to an additional
$141,100,000 to maintain a minimum 30% interest in the event the Company
offers additional Class A Common Stock. BCI has the right to maintain or
increase its ownership by investing amounts beyond the $141,100,000
commitment.
On December 20, 1994, Jones International, Ltd. ("International"),
which is wholly owned by Glenn R. Jones, Chairman and Chief Executive
Officer of the Company, as well as certain subsidiaries of International,
and Mr. Jones individually, granted BCI options to acquire 2,878,151 shares
of the Common Stock of the Company. Except in limited circumstances, the
option will only be exercisable during the eighth year after December 20,
1994. The exercise of such options would result in BCI holding a
sufficient number of shares of the Common Stock of the Company to enable
BCI to elect a majority of the Company's Board of Directors.
45
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1996, 1995 and 1994
Effective Registration Statement
The Company has an effective registration statement relating to the
sale of $600 million of senior debt securities, senior subordinated debt
securities, subordinated debt securities and Class A Common Stock. The
Company, from time to time, may issue securities not to exceed $600 million
pursuant to this registration statement.
Summary of Significant Accounting Policies
Basis of Presentation
The Company changed its fiscal year end from May 31 to December 31,
effective December 31, 1995. Accordingly, the accompanying financial
statements present the Company's financial position as of December 31, 1996
and 1995 and its results of operations, changes in shareholders' investment
and cash flows for each of the three years in the period ended December 31,
1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. The Company's investments in
affiliates and domestic cable television partnerships (Note 4) are carried
at cost plus equity in profits and losses. All significant intercompany
transactions have been eliminated in consolidation.
Statements of Cash Flows
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. Income taxes and
interest paid during the periods presented are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1996 1995 1994
-------------------------------------
<S> <C> <C> <C>
(Stated in Thousands)
Income taxes $ - $ - $ -
======= ======= =======
Interest $67,441 $ 43,079 $ 36,904
======= ======= =======
</TABLE>
Non-cash transactions:
As described in Note 4, on December 23, 1996, the Company redeemed 225
shares of Jones Global Group, Inc. ("Global Group") in exchange for a
$8,950,188 note receivable. As described in Note 2, on June 14, 1996, the
Company sold Jones Galactic Radio, Inc. ("Galactic Radio") to Global Group.
The sales price of $17.2 million was paid in the form of 984,968 American
Depositary Shares ("ADSs")
46
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1996, 1995 and 1994
of Bell Cablemedia plc. ("Bell Cablemedia"). As described in Note 4, on
April 11, 1995, the Company converted its $20,000,000 in advances to Mind
Extension University, Inc. ("ME/U"), an affiliate of the Company and a
subsidiary of Jones Education Company ("JEC"), into Class A Common Shares
of JEC. As described above, on December 20, 1994, the Company acquired
substantially all of the assets of Spacelink and assumed all of the
liabilities of Spacelink in exchange for 3,900,000 shares of the Company's
Class A Common Stock. In July and October, 1994, the Company and certain of
its wholly owned subsidiaries transferred all of their interests in their
cable/telephony properties in the United Kingdom and Spain to Bell
Cablemedia in exchange for 6,225,796 ADSs of Bell Cablemedia. During 1996,
1995 and 1994, the Company recorded $261,000, $261,000 and $261,000,
respectively of Additional Paid-in Capital related to Class A Common Stock
option grants as discussed in Note 9.
Restricted Cash
Restricted cash consists of cash pledged to a commercial bank for
letters of credit.
Property, Plant and Equipment
Depreciation of property, plant and equipment is provided using the
straight-line method over the following estimated service lives:
Distribution systems including capitalized
interest and operating expenses Primarily 15 years
Buildings 10-20 years
Equipment and tools 3-5 years
Premium service equipment 5 years
Earth receive stations 5-15 years
Vehicles 3-4 years
Other property, plant and equipment 3-5 years
Franchise Costs
Costs incurred in obtaining cable television franchises and other
operating authorities are initially deferred and amortized over the lives
of the franchises. Franchise rights acquired through purchase of cable
television systems are stated at estimated fair value at the date of
acquisition and amortized over the remaining terms of the franchises.
Amortization is determined using the straight-line method over lives of one
to 18 years.
Cost in Excess of Interests in Net Assets Purchased
The cost of acquisitions in excess of the fair values of net assets
acquired is being amortized using the straight-line method over a 40-year
life. The Company assesses the realizability of these assets through
periodic independent appraisals. Any impairments are recognized as an
expense on the Company's Consolidated Statements of Operations.
47
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1996, 1995 and 1994
Investment in Certain Marketable Securities
The 7,210,764 ADSs of Bell Cablemedia held by the Company are
considered available for sale per Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS No. 115") because of an effective registration statement
available to the Company. In accordance with SFAS No. 115, the ADSs are
reflected at their quoted fair market value with the unrealized holding
gain reflected as a separate component of shareholders' investment.
Deferred Financing Costs
Costs incurred in connection with the issuance of debentures and the
execution of revolving credit agreements are deferred and amortized using
the effective interest method over the life of such issues and agreements.
Distributions from Managed Partnerships
Distributions earned by the Company as general partner of its managed
partnerships from cable television properties sold by such partnerships to
unaffiliated parties are recorded as revenues when received. Distributions
earned by the Company as general partner of its managed partnerships from
cable television properties sold by such partnerships to the Company are
treated as a reduction of the purchase price of the cable television
systems. Distributions earned by the Company as general partner of its
managed partnerships from cable television properties sold by such
partnerships to entities in which the Company has a continuing equity
interest are deferred and recognized as revenue in future periods.
Earnings Per Share of Class A Common Stock and Common Stock
Net loss per share of Class A Common Stock and Common Stock is based
on the weighted average number of shares outstanding during the periods
presented. Common stock equivalents were not significant to the
computation of primary earnings per share.
Treasury Stock
Shares held in treasury have been retired and classified as authorized
but unissued shares in accordance with the Colorado Business Corporation
Act.
Reclassification
Certain prior year amounts have been reclassified to conform to the
1996 presentation.
2. ACQUISITIONS, EXCHANGES AND SALES
Acquisitions by the Company
---------------------------
On April 11, 1996, the Company purchased from Jones Spacelink
Income/Growth Fund 1-A, Ltd., a Colorado limited partnership managed by the
Company, the cable television system serving the areas in and around Lake
Geneva, Wisconsin (the "Lake Geneva System"). The purchase price was
48
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years ended December 31, 1996, 1995 and 1994
$6,345,667, which was the average of three separate independent appraisals
of the fair market value of the Lake Geneva System. The purchase of the
Lake Geneva System was funded by available borrowings under JCH's revolving
credit facility.
On April 11, 1996, the Company purchased from Jones Spacelink
Income/Growth Fund 1-A, Ltd., a Colorado limited partnership managed by the
Company, the cable television system serving the areas in and around Ripon,
Wisconsin (the "Ripon System"). The purchase price was $3,712,667, which
was the average of three separate independent appraisals of the fair market
value of the Ripon System. The purchase of the Ripon System was funded by
available borrowings under JCH's revolving credit facility.
On April 11, 1996, the Company purchased from Jones Spacelink Income
Partners 87-1, L.P., a Colorado limited partnership managed by the Company,
the cable television systems serving the communities of Lodi, Burbank,
Lafayette Township, New London, Bailey Lakes, Savannah, Shreve,
Jeromesville, West Lafayette, Loudonville, Perrysville, Creston, Gloria
Glens, Sterling, Seville, Westfield Center, Chippewa, Lake Area, Rittman,
West Salem, Bloomville, Spencer, Polk and Congress, all in the State of
Ohio (the "Lodi System"). The purchase price was $25,706,000, which was
the average of three separate independent appraisals of the fair market
value of the Lodi System. The purchase of the Lodi System was funded by
available borrowings under JCH's revolving credit facility.
On February 28, 1996, the Company purchased from IDS/Jones Growth
Partners 87-A, Ltd., a Colorado limited partnership managed by the Company,
the cable television system serving areas in and around Carmel, Indiana
(the "Carmel System"). The purchase price was $44,235,333, which was the
average of three separate independent appraisals of the fair market value
of the Carmel System. The purchase of the Carmel System was funded by
borrowings available under JCH's revolving credit facility.
On February 28, 1996, the Company purchased from Jones Cable Income
Fund 1-B, Ltd., a Colorado limited partnership managed by the Company, the
cable television system serving areas in and around Orangeburg, South
Carolina (the "Orangeburg System"). The purchase price was $18,347,667,
which was the average of three separate independent appraisals of the fair
market value of the Orangeburg System. The purchase of the Orangeburg
System was funded by borrowings available under JCH's revolving credit
facility.
On February 28, 1996, the Company purchased from Cable TV Fund 12-BCD
Venture (the "Venture"), a joint venture of three of the Company's managed
limited partnerships, the cable television system serving areas in and
around Tampa, Florida (the "Tampa System"). The purchase price was
$110,395,667, which was the average of three separate independent
appraisals of the fair market value of the Tampa System. The purchase of
the Tampa System was funded by borrowings available under JCH's revolving
credit facility.
On January 10, 1996, the Company purchased the cable television
systems serving Manassas, Manassas Park, Haymarket and portions of
unincorporated Prince William County, all in the State of Virginia (the
"Manassas System") from an unaffiliated party. The purchase price of the
Manassas System was $71,100,000. The purchase was funded by borrowings
available under JCH's revolving credit facility. The Company paid Jones
Financial Group, Ltd. ("Financial Group"), a subsidiary of International,
a fee of $896,000 upon closing of this transaction for acting as the
Company's financial
49
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years ended December 31, 1996, 1995 and 1994
advisor in connection with this transaction. All fees paid to Financial
Group by the Company are based upon 90% of the estimated commercial rate
charged by unaffiliated financial advisors.
On November 29, 1995, the Company purchased the cable television
system serving Dale City, Lake Ridge, Woodbridge, Fort Bevoir, Triangle,
Dumfries, Quantico, Accoquan and portions of Prince William County, all in
the state of Virginia (the "Dale City System") from an unaffiliated party.
The purchase price was $123,000,000. The purchase was funded by cash on
hand and borrowings available under JCH's credit facility. The Company paid
Financial Group a fee of $1,328,400 for acting as the Company's financial
advisor in connection with this transaction. All fees paid to Financial
Group by the Company are based upon 90% of the estimated commercial rate
charged by unaffiliated brokers.
On October 20, 1995, the Company purchased the cable television system
serving areas in and around Augusta, Georgia (the "Augusta System") from
Cable TV Fund 12-B, Ltd. ("Fund 12-B"), a Colorado limited partnership
managed by the Company. The purchase price was $142,618,000. The purchase
price was determined by averaging three separate independent appraisals of
the fair market value of the Augusta System. The Company, as general
partner of Fund 12-B, received a $13,222,000 distribution from Fund 12-B
upon the closing of this transaction. Such distribution reduced the
Company's cost basis in the assets of the Augusta System. Funding for this
transaction was provided by cash on hand.
Exchanges
---------
On April 12, 1996, the Company, pursuant to an asset exchange
agreement (the "Time Warner Exchange Agreement") with Time Warner
Entertainment Company, L.P. ("Time Warner"), an unaffiliated cable
television operator, conveyed to Time Warner the cable television systems
serving Hilo, Hawaii (the "Hilo System") and Kenosha, Wisconsin (the
"Kenosha System") as well as the Lodi System, the Ripon System, the Lake
Geneva System and cash in the amount of $11,735,667. In return, the
Company received from Time Warner the cable television systems serving the
communities in and around Savannah, Georgia (the "Savannah System"). This
transaction was considered a non-monetary exchange of similar productive
assets for accounting purposes and the Savannah System was recorded at the
historical cost of the assets given up plus the $11,735,667 cash
consideration, which was funded by borrowings available under JCH's
revolving credit facility. The Company paid Financial Group a $1,286,000
fee upon the completion of this transaction compensation to it for acting
as the Company's financial advisor. All fees paid to Financial Group by
the Company are based upon 90% of the estimated commercial rate charged by
unaffiliated financial advisors.
On February 29, 1996, the Company, pursuant to an asset exchange
agreement (the "TWEAN Exchange Agreement") with Time Warner Entertainment-
Advance/Newhouse Partnership ("TWEAN"), an unaffiliated cable television
system operator, conveyed to TWEAN the Carmel System, the Orangeburg System
and the Tampa System and cash in the amount of $3,500,000. In return, the
Company received from TWEAN 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 Georges County, all in Maryland (the "South Prince
Georges County System"), and portions of Fairfax County, Virginia (the
"Reston System"). This transaction was considered a non-monetary exchange
of similar productive assets for accounting purposes and the South Prince
Georges County System and the Reston System were recorded at the historical
cost of the assets given up plus the $3,500,000 cash consideration, which
was funded by borrowings available under JCH's
50
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1996, 1995 and 1994
revolving credit facility. The Company paid Financial Group a $1,668,000
fee upon the completion of this transaction as compensation to it for
acting as the Company's financial advisor. All fees paid to Financial Group
by the Company are based upon 90% of the estimated commercial rate charged
by unaffiliated financial advisors.
Acquisition by the Company subsequent to December 31, 1996
----------------------------------------------------------
On January 31, 1997, the Company, pursuant to an agreement with
Maryland Cable Partners, L.P., an unaffiliated party, purchased the cable
television system serving the communities of Berwyn Heights, Bladensburg,
Bowie, Brentwood, Cheverly, College Park, Colmar Manor, Cottage City,
Edmonston, Glenarden, Greenbelt, Hyattsville, Landover Hills, Laurel, Mt.
Rainer, New Carrollton, North Brentwood, Riverdale, Takoma Park, University
Park and portions of Prince Georges County, all in the State of Maryland
(the "North Prince Georges County System"). The purchase price was
$231,367,000. The purchase of the North Prince Georges County System was
funded by borrowings under JCH's revolving credit facility. The Company
paid Financial Group a fee of $2,115,000 upon closing of this transaction
for acting as the Company's financial advisor in connection with this
transaction. All fees paid to Financial Group by the Company are based
upon 90% of the estimated commercial rate charged by unaffiliated financial
advisors. The North Prince Georges County System is contiguous to the
Company's South Prince Georges County System. The acquisition of the North
Prince Georges County System allows the Company to serve all 160,000
subscribers in Prince Georges County and brings the Company's owned and
managed subscriber count in the Washington, D.C. area to approximately
400,000 subscribers.
Sales
-----
On June 14, 1996, the Company completed the sale of Galactic Radio to
Global Group for $17.2 million. Global Group subsequently sold Galactic
Radio to another affiliate of International. The Company's Board of
Directors requested and received a fairness opinion related to this sale
from an unaffiliated investment banking firm. The sales price was paid in
the form of 984,968 ADSs of Bell Cablemedia. The number of ADSs represents
the purchase price of $17.2 million divided by the 30-day average closing
price of an ADS for the 30-day period immediately preceding the closing
date. As a result of this transaction, the Company now directly owns
7,210,764 ADSs of Bell Cablemedia. Due to the related party nature of this
transaction, no gain is reflected in the accompanying financial statements.
On July 31, 1996, the Company sold the assets of Jones Satellite
Programming, Inc. ("JSP"), a wholly owned subsidiary, to an unaffiliated
party for $2,873,871. The Company recorded a gain of approximately
$2,873,000 upon the closing of this sale. JSP provided satellite
programming to satellite dish owners.
The pro forma effect of the above-described acquisitions and exchanges
of cable television properties and the sales of non-strategic subsidiaries
on the Company's results of operations for the years ended December 31,
1996 and 1995 are presented in the following unaudited tabulation:
51
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years ended December 31, 1996, 1995 and 1994
For the year ended December 31, 1996:
-------------------------------------------------------
<TABLE>
<CAPTION>
Acquisitions/
As Reported Exchanges Sales Pro Forma
------------ -------------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues $ 311,710 $ 63,109 $ (8,962) $ 365,857
========== ========== ========== ==========
Operating Income $ 3,999 $ (1,449) $ 455 $ 3,005
========== ========== ========== ==========
Net Loss $ (62,660) $ (20,075) $ 455 $ (82,280)
========== ========== ========== ==========
Loss Per Share $ (2.00) $ (2.62)
========== ===========
</TABLE>
For the year ended December 31, 1995:
----------------------------------------------
<TABLE>
<CAPTION>
Acquisitions/
As Reported Exchanges Sales Pro Forma
------------ -------------- ---------- ---------
<S> <C> <C> <C> <C>
Revenues $ 188,838 $ 152,884 $ (17,814) $ 323,908
========== ========== ========== ==========
Operating Income $ 14,729 $ (14,458) $ 1,092 $ 1,363
========== ========== ========== ==========
Net Loss $ (21,716) $ (63,178) $ 1,092 $ (83,802)
========== ========== ========== ==========
Loss Per Share $ ( .69) $ (2.68)
========== ===========
</TABLE>
Proposed Acquisitions by the Company
------------------------------------
In September 1995, the Company entered into an asset purchase
agreement to purchase from Cable TV Joint Fund 11 (the "Venture"), a
venture comprised of four managed partnerships, the cable television system
serving the City of Manitowoc, Wisconsin (the "Manitowoc System"). Because
the City of Manitowoc had not consented to the transfer of the franchise by
the asset purchase agreement's original expiration date of September 30,
1996, the Company and the Venture amended the asset purchase agreement to
extend the period in which to close the sale of the Manitowoc System to
June 30, 1997. Under the terms of the asset purchase agreement, as
amended, the purchase price for the Manitowoc System will be $16,122,333,
subject to closing adjustments. The closing of the purchase of the
Manitowoc System is subject to the approval of the limited partners of each
of the managed partnerships that comprise the Venture. The Company
anticipates that it will receive from the four managed partnerships that
comprise the Venture, general partner distributions totaling approximately
$4,518,000 upon the closing of the sale of the Manitowoc System. The
closing is expected to occur during the second quarter of 1997.
52
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years ended December 31, 1996, 1995 and 1994
In February 1997, the Board of Directors of the Company approved the
acquisition, by JCH II from Jones Intercable Investors, L.P. (the
"Partnership"), a Colorado limited partnership managed by the Company, of
the cable television systems serving communities in and around
Independence, Missouri (the "Independence Systems") for a purchase price of
$171,213,667, which represents the average of three independent appraisals
of the fair market value of the Independence System. The Company
anticipates that it will receive a limited partner distribution totaling
approximately $25,700,000 from the sale by the Partnership of the
Independence System because of the Company's equity interest in the
Partnership. The closing of the purchase of the Independence System is
subject to the consents of governmental authority and other third parties
and is expected to occur in the second half of 1997. The Partnership will
pay The Jones Group, Ltd. a $4,280,000 brokerage fee in connection with
this transaction.
Proposed Exchange by the Company
--------------------------------
On October 25, 1996, the Company entered into an asset exchange
agreement with United CATV, Inc., an unaffiliated party that is an
affiliate of Tele-Communications, Inc. Pursuant to the exchange agreement,
the Company will convey to United CATV, Inc. the cable television systems
serving areas in and around Evergreen, Idaho Springs and Jefferson County,
all in the State of Colorado, in exchange for the cable television system
serving areas in and around Annapolis, Southern Anne Arundel County and the
Naval Academy, all in the State of Maryland (the "Annapolis System"), and
cash in the amount of $2,500,000, subject to normal closing adjustments.
The Company will pay Financial Group a $675,000 fee upon completion of this
exchange as compensation to it for acting as the Company's financial
advisor in connection with this transaction. All fees paid to Financial
Group by the Company are based upon 90% of the estimated commercial rate
charged by unaffiliated financial advisors. This transaction is expected
to be completed in the first half of 1997.
Proposed Sale by the Company
----------------------------
On August 16, 1996, the Company entered into an agreement with an
unaffiliated party to sell the cable television systems serving areas in
and around Walnut Valley and Oxnard, both in the State of California, for
$104,000,000. The closing of this transaction is subject to a number of
conditions including obtaining necessary governmental and other third party
consents. This transaction is expected to close in the second quarter of
1997. The Company will pay Financial Group a $1,567,000 fee upon
completion of this sale for acting as the Company's financial advisor in
connection with this transaction. All fees paid to Financial Group by the
Company are based upon 90% of the estimated commercial rate charged by
unaffiliated financial advisors.
Sale by Managed Partnership
---------------------------
On April 1, 1996, Cable TV Fund 11-B, Ltd. ("Fund 11-B"), one of the
Company's managed partnerships, sold the cable television system serving
areas in and around Lancaster, New York to an unaffiliated third party for
$84,000,000. Upon closing, Fund 11-B repaid its indebtedness, a sales tax
liability and a $2,100,000 brokerage fee, less expenses of $617,000, to The
Jones Group, Ltd., a wholly owned subsidiary of the Company. The remaining
proceeds were distributed to Fund 11-B's partners. The Company, as general
partner of Fund 11-B, received a distribution of $14,000,000 related to
this transaction. Funds received in payment of the brokerage fee and the
general partner distribution were used to reduce amounts outstanding on
JCH's revolving credit facility.
53
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years ended December 31, 1996, 1995 and 1994
3. TRANSACTIONS WITH RELATED PARTIES
The Company and the managed partnerships for which the Company is
general partner (see Note 5) have had, and will continue to have, certain
transactions with International and its other subsidiaries. Principal
recurring transactions are as follows:
Costs Shared by the Company and Managed Partnerships
Jones Interactive, Inc. ("Jones Interactive"), a wholly owned
subsidiary of International, provides information management and data
processing services for operating companies affiliated with International.
Charges to the various operating companies are based on usage of computer
time by each entity. Amounts charged to the Company and its managed
partnerships for the years ended December 31, 1996, 1995 and 1994 totaled
$5,784,000, $6,439,000 and $5,361,000, respectively.
The Company is party to a lease with Jones Properties, Inc., a wholly
owned subsidiary of International, under which the Company has leased a
101,500 square foot office building in Englewood, Colorado. The lease
agreement, as amended, has a 15-year term, expiring July 2000, with three
5-year renewal options. The annual rent is not to exceed $24.00 per square
foot plus operating expenses. The Company has subleased approximately 46%
of the building to International and certain affiliates of International on
the same terms and conditions as the above described lease. Rent payments
to Jones Properties, Inc., net of subleasing reimbursements, for the three
years ended December 31, 1996, 1995 and 1994 were $1,467,000, $1,645,000
and $1,762,000, respectively.
Upon the closing of the BCI investment in December 1994, the Company
entered into a Secondment Agreement with BCI. Pursuant to the Secondment
Agreement, BCI provided 12 secondees during 1996. These secondees worked
for the Company and its managed partnerships. The Company reimbursed BCI
for the full employment costs of such individuals. The Company reimbursed
BCI $1,138,000 and $823,000 during the years ended December 31, 1996 and
1995, respectively. No such reimbursements were made during the year ended
December 31, 1994.
The Company paid approximately 40%, 25% and 21% of the above-described
data processing, rental and secondment expenses during the years ended
December 31, 1996, 1995 and 1994, respectively. The remainder of the
expenses were allocated to and paid by the managed partnerships.
Costs Borne and Payments Received by the Company
The Company receives satellite programming from JEC. See Note 4.
Payments made to JEC by the Company for programming provided to the
Company's owned cable television systems for the years ended December 31,
1996, 1995 and 1994 totaled approximately $818,000, $684,000 and $184,000,
respectively.
The Company receives satellite programming from Great American
Country, Inc., an affiliate. Payments made to Great American Country, Inc.
for programming provided to the Company's owned cable television systems
for the year ended December 31, 1996 totaled approximately $281,000. No
payments were made to Great American Country, Inc., for the years ended
December 31, 1995 and 1994.
54
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years ended December 31, 1996, 1995 and 1994
The Company also receives satellite programming from Superaudio, an
affiliate of Galactic Radio. The Company sold Galactic Radio on June 14,
1996. See Note 2. Payments made to Galactic Radio for programming
provided to the Company's owned cable television systems for the period
from June 15, 1996 to December 31, 1996 totaled approximately $119,000.
In 1992, the Company entered into a license agreement with Jones Space
Segment, Inc. ("Space Segment"), an affiliate of International, to use a
non-preemptible transponder on a domestic communications satellite leased
by Space Segment. Under the license agreement, as amended, which expired
December 31, 1994, the Company, Jones Infomercial Networks, Inc. and Jones
Computer Network, Ltd. ("JCN"), both affiliates of International, had a
license to use the transponder for their respective purposes. The Company
recognized $1,172,000 of rental expense related to this lease agreement
during the year ended December 31, 1994. Because the license has expired,
no expense related to this lease agreement was recognized during the years
ended December 31, 1996 and 1995.
The Product Information Network Venture, ("PIN"), is an affiliate of
International that provides a satellite programming service. PIN airs
product infomercials 24 hours a day, seven days a week. A portion of the
revenues generated by PIN are paid to the cable television systems that
carry PIN's programming. Most of the Company's owned cable television
systems carry PIN for all or part of each day. Aggregate payments received
by the Company from PIN relating to the Company's owned cable television
systems totaled approximately $466,000, $300,000 and $103,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
Effective upon the closing of the BCI investment in December 1994, the
Company entered into a Supply and Services Agreement with BCI. Pursuant to
the Supply and Services Agreement, BCI provides the Company with access to
the expert advice of personnel from BCI and its affiliates for the
equivalent of three man-years on an annual basis. The Company pays an
annual fee of $2,000,000 to BCI during the term of the agreement. Payments
to BCI under the Supply and Services Agreement during the years ended
December 31, 1996 and 1995 totaled $2,000,000 and $2,000,000, respectively.
No payments were made during the year ended December 31, 1994.
Financial Group performs services for the Company as its agent in
connection with negotiations regarding various financial arrangements of
the Company. In December 1994, the Company entered into a Financial
Services Agreement for eight years with Financial Group pursuant to which
Financial Group has agreed to render financial advisory and related
services to the Company for a fee equal to 90% of the fees that would be
charged to the Company by unaffiliated third parties for the same or
comparable services. The Company will pay Financial Group an annual
$1,000,000 retainer as an advance against payments due pursuant to this
agreement and will reimburse Financial Group for its reasonable out-of-
pocket expenses. The Company paid fees totaling $3,850,000 in 1996 related
to the acquisition of the Manassas System, the South Prince Georges County
System, the Reston System and the Savannah System. The Company paid fees
totaling $1,328,400 in 1995 related to the purchase of the Dale City
System. In December 1994, the Company paid fees of $2,000,000 to Financial
Group for its services to the Company in connection with the BCI
investments in the Company (see Note 1). In addition, the Company paid an
advisory fee of (Pounds)414,854 (approximately $632,600) to Financial Group
in 1994 for its services to the Company in connection with the Company's
transfer of all of its interests in its cable/telephony properties in the
United Kingdom to Bell Cablemedia.
55
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years ended December 31, 1996, 1995 and 1994
During 1994, the Company carried accounts receivable from
International and its affiliates totaling $2,000,000. This receivable was
repaid in January 1995. Interest on such receivables was charged at the
Company's average cost of borrowing plus 2%.
4. INVESTMENTS IN CABLE TELEVISION PARTNERSHIPS AND JOINT VENTURES
Jones Global Group, Inc.
On December 23, 1996, the Company redeemed 225 of its 380 shares of
Global Group in exchange for a $8,950,188 note receivable from Global
Group. The redemption price is subject to adjustment based on an appraisal
of Global Group to be completed in the first half of 1997. The note bears
interest at 6%. The note will be repaid from any proceeds received by
Global Group for the sale of Bell Cablemedia ADSs held by Global Group and
shall be payable in full no later than June 30, 1998. As a result of this
transaction, the Company will recognize a gain of $2,979,000. Because this
transaction is between affiliated parties, such gain will be deferred until
the note is paid in full. Through February 28, 1997, approximately
$6,950,000 of the note had been repaid. As a result of this transaction,
the Company now only owns a 20% interest in Global Group. The Company
accounts for its investment in Global Group using the equity method.
Bell Cablemedia plc
The Company holds 7,210,764 ADSs of Bell Cablemedia. Bell Cablemedia
owns and operates certain cable television systems in the United Kingdom
and Spain. The Company acquired 6,225,796 ADSs in 1994 by contributing all
of its cable/telephony properties in the United Kingdom and Spain to Bell
Cablemedia. The Company acquired an additional 984,968 ADSs upon the sale
of Galactic Radio to Global Group in June 1996. The 7,210,764 ADSs of Bell
Cablemedia held by the Company are now considered available for sale
because of an effective registration statement available to the Company.
In accordance with SFAS No. 115 the ADSs are reflected at their estimated
fair market value with the unrealized holding gain of $47,272,000 reflected
as a separate component of shareholders' investment.
Mind Extension University, Inc.
During 1992, the Company invested $10,000,000 in ME/U, an affiliated
company and subsidiary of JEC, that provides educational programming
through affiliated and unaffiliated cable television systems, for 25% of
the stock of ME/U, which also received certain advertising avails and
administrative and marketing considerations from the Company. The number
of shares of Class A Common Stock of ME/U issued to the Company was based
on the average of two separate independent appraisals of ME/U. Through its
acquisition of the assets of Spacelink, the Company obtained an additional
13% interest in ME/U in December 1994. Spacelink had acquired such
interest for $3,135,000. In 1996, additional issuances of ME/U's Class A
Common Stock reduced the Company's investment in ME/U to 26 percent. At
December 31, 1996, the Company's net investment in ME/U was $1,818,000.
56
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years ended December 31, 1996, 1995 and 1994
Jones Education Company
In 1993, 1994 and 1995, the Company advanced a total of $20,000,000 to
ME/U. Interest on such advances was charged at the Company's weighted
average cost of borrowing plus two percent. On April 11, 1995, the Company
converted its advances to ME/U into shares of Class A Common Stock of JEC,
the parent company of ME/U, for an approximate 17% equity interest in JEC.
In 1996, subsequent issuances of JEC's Class A Common Stock reduced the
Company's investment in JEC to 16 percent. JEC is an affiliate of
International and, in addition to its 51% ownership of ME/U, JEC owns an
81% interest in JCN. The Company accounts for its investment in JEC using
the equity method. At December 31, 1996, the Company's net investment in
JEC was $17,070,000.
Jones Intercable Investors, L.P.
The Company is the general partner of Jones Intercable Investors,
L.P., a Colorado limited partnership managed by the company, which was
formed on September 18, 1986, and the Company owns a 1% general partner
interest. In a series of transactions, the Company purchased limited
partnership units, giving the Company an approximate 19% limited partner
interest in Jones Intercable Investors, L.P. The Company's net investment
in this partnership totaled approximately $3,253,000 at December 31, 1996.
Based upon the quoted market price of $13.63 per unit at December 31, 1996,
the quoted market value of this investment was approximately $21,708,000.
The Company accounts for this investment using the equity method of
accounting.
Jones Customer Service Management, L.L.C.
The Company and Jones Cyber Solutions, Ltd. ("JCS"), an indirect
subsidiary of International, have formed a venture, known as Jones Customer
Service Management, L.L.C., for the purpose of developing a subscriber
billing and management system. As of December 31, 1996, the Company had
invested $5,200,000 in the venture. JCS is performing the basic system
development work for the venture and is being paid periodically on a time
and materials basis, plus 10% of the amount charged, for its own service.
Upon the completion of the billing and management system software, the
Company and JCS will have license rights to use such system in perpetuity.
The venture will also perform additional services to the Company in the
implementation of the new subscriber billing and management system. The
venture intends to subcontract such maintenance and conversion services to
JCS on the basis of time and materials plus 10% of the amount of the JCS
services. The venture will grant to JCS the exclusive right to distribute
the system to third parties for a period of five years for a commission on
the license fees to be earned by the venture from such licensing. The
Company accounts for this investment using the equity method and as of
December 31, 1996 had recognized losses of $5,200,000.
5. MANAGED PARTNERSHIPS
Organization
The Company is general partner for 23 Colorado limited partnerships
formed to acquire, construct, develop and operate cable television systems.
Partnership capital has been raised principally through a series of public
offerings of limited partnership interests. The Company generally made a
capital contribution of $1,000 to each partnership and is allocated 1% of
all partnership profits and losses.
57
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years ended December 31, 1996, 1995 and 1994
The Company also purchased limited partner interests in certain of the
partnerships and generally participates with respect to such interests on
the same basis as other limited partners.
Management Fees
As general partner, the Company manages the managed partnerships and
receives a fee for its services generally equal to 5% of the gross revenues
of the managed partnerships, excluding revenues from the sale of cable
television systems or franchises.
Distributions
For the managed partnerships formed by the Company, any partnership
distributions made from cash flow, as defined, are generally allocated 99%
to the limited partners and 1% to the general partner. The general partner
is also entitled to partnership distributions other than from cash flow,
such as from the sale or refinancing of cable television systems or upon
dissolution of the partnership, equal to 12 1/2% to 40% of the net
remaining assets of the partnership after payment of the partnership's
debts and after investors have received an amount equal to their original
capital contributions plus, in many cases, a preferential return on their
investments.
For the partnerships formerly managed by Spacelink, any partnership
distributions made from cash flow, as defined, are generally allocated 99%
to the limited partners and 1% to the general partner. The general partner
is also entitled to partnership distributions other than from cash flow,
such as from the sale or refinancing of systems or upon dissolution of the
partnerships, which are a portion of the net remaining assets of such
partnership ranging from 15% to 40% after payment of partnership debts and
after investors have received an amount equal to their capital contribution
plus, in most cases, a preferential return on their investment.
The Company received distributions from managed partnerships totaling
$14,000,000 and $13,222,000 for the years ended December 31, 1996 and 1995,
respectively. No such distributions were received during 1994. The
$13,222,000 distribution received during 1995 from Fund 12-B upon the sale
to the Company of the cable television system serving the area in and
around Augusta, Georgia was recorded as a reduction in the Company's cost
basis in the assets of the Augusta System.
Allocations
The Company's managed limited partnerships reimburse the Company for
certain allocated overhead and administrative expenses. These expenses
generally consist of salaries and related benefits paid to corporate
personnel (including secondees of BCI), rent, data processing services and
other corporate facilities costs. The Company provides engineering,
marketing, administrative, accounting, information management, legal,
investor relations and other services to the partnerships. Allocations of
personnel costs have been based primarily on actual time spent by Company
employees with respect to each partnership managed. Remaining overhead
costs are allocated based on the pro rata relationship of the partnership's
revenues to the total revenues of all systems owned or managed by the
Company. Company-owned systems are also allocated a proportionate share
of these expenses under the allocation formulas described above. Amounts
charged to managed partnerships and other affiliated companies have
58
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1996, 1995 and 1994
directly offset the Company's general and administrative expenses by
approximately $25,322,000, $31,987,000 and $32,645,000 for the years ended
December 31, 1996, 1995 and 1994, respectively.
Advances
The Company has made advances to certain of the managed partnerships
primarily to accommodate expansion and other financing needs of the
partnerships. Such advances bear interest at rates equal to the Company's
weighted average cost of borrowing which, for the year ended December 31,
1996 was 10.47%. Interest charged to the limited partnerships for the
years ended December 31, 1996, 1995 and 1994 was $1,713,000, $2,592,000 and
$4,250,000, respectively.
Certain condensed financial information regarding managed
partnerships, on a combined basis, is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1996 1995 1994
-----------------------------------
(Stated in Thousands)
<S> <C> <C> <C>
Total assets $ 651,053 $ 806,319 $ 923,117
Debt 591,564 676,760 688,393
Amounts due general partner 3,996 14,969 25,735
Partners' Capital (Net of
accumulated deficit) 24,172 99,505 174,001
Revenues 380,865 427,877 397,318
Depreciation and amortization 128,095 151,236 153,520
Operating loss (11,896) (16,438) (34,565)
Net income (loss) 123,263 20,964 (80,988)
</TABLE>
The fair market values of the partnerships' assets, as determined by
independent appraisals, exceed the combined amounts due the Company and
other outstanding indebtedness for each individual partnership.
The amount reported as combined net income (loss) for all managed
limited partnerships for the years ended December 31, 1996 and 1995
included gains on sales and liquidations recognized by certain partnerships
which totaled approximately $ 181,632,000, and $91,693,000, respectively.
No such gains were recognized during the year ended December 31, 1994.
6. NOTES RECEIVABLE FROM AFFILIATES
On December 19, 1994, Spacelink received a promissory note from Jones
Earth Segment, Inc.("Earth Segment"), then an affiliate of Spacelink, in
conjunction with the transfer of Earth Segment to International. The
Company acquired this note as part of the acquisition of Spacelink's
assets. The principal sum is $6,554,500. Interest on the principal is at
the prime rate plus one percent and is paid
59
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1996, 1995 and 1994
quarterly. The note matures on December 19, 1999. The note is secured by
the real and personal property of Earth Segment.
Pursuant to a tax sharing agreement with International, Spacelink was
allocated tax benefits based on its pro rata share of taxable loss
generated as part of the consolidated group. The tax sharing agreement was
terminated effective June 1, 1993. The allocated benefits are to be paid
no later than five years from the date they were created. The benefits
accrue interest at the prime rate in effect at the time they were created.
The Company, through its acquisition of Spacelink's assets, acquired a
receivable from International relating to this tax sharing agreement. The
balance of this receivable at December 31, 1996 was $1,944,000.
7. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1995
---------- ----------
(Stated in Thousands)
<S> <C> <C>
LENDING INSTITUTIONS:
JCH Revolving Credit Facility $ 183,000 $ 30,000
JCH II Revolving Credit Facility 160,000 -
SENIOR NOTES:
Senior Notes due March 15, 2002, interest
payable semi-annually at 9 5/8% 200,000 200,000
SUBORDINATED DEBENTURES:
Debentures due July 15, 2004, interest payable
semi-annually at 11.5%, redeemable at the
Company's option on or after July 15, 1997 at
106.75% of par, declining to par by
July 15, 2000 160,000 160,000
Debentures due March 1, 2008, interest payable
semi-annually at 10.5%, redeemable at the
Company's option on or after March 1, 2000
at 105.25% of par, declining to par by
March 1, 2005 100,000 100,000
OTHER:
Capitalized equipment lease
obligations due in installments through 1998
and other debt 3,147 2,714
---------- ----------
Total debt $ 806,147 $ 492,714
========== ==========
</TABLE>
On October 31, 1995, the Company, through JCH, a wholly owned
subsidiary, entered into a $500 million reducing revolving credit facility
with a group of commercial banks (the "JCH Credit Facility"). On September
17, 1996, JCH amended this revolving credit facility to allow for
borrowings up to $600 million and to reduce by 1/8% the rates of interest
charged on any amounts outstanding. This
60
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1996, 1995 and 1994
credit facility required the transfer of certain of the Company's cable
television properties to JCH. The entire $600 million commitment is
available through March 31, 1999, at which time the commitment will be
reduced quarterly with a final maturity of December 31, 2004. As of
December 31, 1996, $183,000,000 was outstanding under this agreement, which
included a $12 million downpayment on the North Prince Georges County
System, which was purchased on January 31, 1997. Interest on outstanding
obligations ranges from Base Rate (which generally approximates the prime
rate) to Base Rate plus 1/8% or LIBOR plus 1/2% to LIBOR plus 1% based on
certain leverage covenants. In addition, a commitment fee of 3/16% to 3/8%
on the unused commitment is also required. The effective interest rate on
amounts outstanding at December 31, 1996 was 6.07%.
On October 29, 1996, the Company, through JCH II, a wholly owned
subsidiary, entered into an additional $600 million credit facility. The
new credit facility consists of a $300 million reducing revolving credit
facility and a $300 million 364 day revolving credit facility (the "JCH II
Credit Facility"). The reducing revolving credit facility allows for
borrowing through the final maturity date of December 31, 2005. The
maximum amount available reduces quarterly beginning March 31, 2000 through
the final maturity date of December 31, 2005. The 364 day revolving credit
facility allows for borrowings through the 364th day subsequent to the
closing date of the loan, at which time any outstanding borrowings
automatically convert to a term loan payable in semi-annual installments
commencing June 30, 2001 with final maturity date of December 31, 2005. As
of December 31, 1996, $160,000,000 was outstanding under this agreement,
which was borrowed under the reducing revolving credit facility. Interest
on amounts outstanding varies from the Base Rate (which generally
approximates the prime rate) to Base Rate plus 1/4% or LIBOR plus 1/2% to
1 1/4%, depending on certain financial covenants. A commitment fee of
1/8% to 3/8% per year on available, but unborrowed, amounts is also
required. The effective interest rate on amounts outstanding at December
31, 1996 was 6.03%.
On October 6, 1996, the Company entered into a deferred interest rate
swap with two commercial banks. The deferred interest rate swap fixes the
Company's interest at 6.5% on $50,000,000 of notional principal for three
years commencing July 15, 1997.
On March 23, 1995, the Company sold $200 million of 9 5/8% Senior
Notes due March 15, 2002. The Senior Notes bear interest from the date of
issuance at the rate of 9 5/8% per annum, payable semi-annually on March 15
and September 15 of each year. The Senior Notes are not redeemable prior
to maturity and are not subject to any sinking fund. The Company paid fees
of $3,500,000 relating to this transaction. Such fees will be amortized
over the life of the notes.
The 11.5% Senior Subordinated Debentures due 2004 described above
provide for annual sinking fund payments of $50,000,000 commencing July 15,
2002 which are calculated to retire 62 1/2% of the issue prior to maturity
after consideration of the debt redemptions. There are no sinking fund
requirements related to the 10.5% Senior Subordinated Debentures due March
1, 2008.
On October 12, 1995, the Company redeemed the remaining outstanding
7.5% Convertible Subordinated Debentures (the "Convertible Debentures") due
2007, at a price equal to 101.5% of the principal amount, plus accrued
interest. The total principal amount of the Convertible Debentures was
$43,100,000, of which $23,732,000 were held by the Company and $19,368,000
were held by unaffiliated investors. The Convertible Debentures were
redeemed with cash on hand. The Company recognized a loss of $692,000
relating to this redemption.
61
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1996, 1995 and 1994
The Company has never paid a cash dividend with respect to its shares
of Common Stock or Class A Common Stock, and it has no present intention to
pay cash dividends in the foreseeable future. The current policy of the
Company's Board of Directors is to retain earnings to provide funds for the
operation and expansion of its business. Certain of the Company's debt
arrangements restrict the right of the Company to declare and pay cash
dividends without the consent of the holders of the debt.
At December 31, 1996, the carrying amount of the Company's long-term
debt was $806,147,000 and the estimated fair value was $835,847,000. The
fair value of the Company's long-term debt is estimated based on the quoted
market prices for the same issues. There are not significant debt
maturities in the five years ended December 31, 2001.
8. INCOME TAXES
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. Deferred tax expense
or benefit is the result of changes in the liability or asset recorded for
deferred taxes.
During 1996, 1995, and 1994, changes in the Company's temporary
differences and losses from operations, which result primarily from
depreciation and amortization, resulted in deferred tax benefits which were
offset by a valuation allowance of an equal amount. No current or deferred
federal income tax expense or benefit was recorded from continuing
operations during the reporting periods.
Income tax expense attributable to income or loss from continuing
operations differs from the amounts computed by applying the Federal income
tax rate of 35% in 1996, 1995, and 1994 as a result of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1996 1995 1994
-----------------------------------
(Stated in Thousands)
<S> <C> <C> <C>
Computed "expected" tax benefit $ (21,931) $ (7,358) $ (3,042)
State and local taxes, net of
federal income tax benefit (2,036) (619) (194)
Dividends excluded for income
tax purposes (897) (73) (118)
Intangibles not deductible for
tax purposes 752 500 971
Tax credits - - -
Other (449) 261 98
-------- ------- -------
Total income tax benefit from
operations (23,753) (7,289) (2,285)
Tax effect of extraordinary
operations - (265) -
Valuation Allowance 23,753 7,554 2,285
-------- ------- -------
Total income tax benefit $ - $ - $ -
======== ======= =======
</TABLE>
62
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1996, 1995 and 1994
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1996 1995
----------- ---------
(Stated in Thousands)
<S> <C> <C>
Deferred Tax Assets
Net operating loss carryforwards $ 72,948 $ 58,411
Investment tax credit carryforwards 1,076 1,076
Alternative minimum tax credit
carryforwards 1,116 1,116
Investment in affiliates and domestic
television partnerships 15,412 9,661
Future deductible amounts associated
with other assets and liabilities 3,761 2,330
------- --------
Total gross deferred tax assets 94,313 72,594
Valuation allowance on deferred tax assets (53,006) (29,253)
Deferred Tax Liabilities
Property and equipment, due to differences
in depreciation methods for financial
statement and tax purposes (24,504) (24,608)
Investment in Bell Cablemedia plc (12,941) (14,871)
------- --------
Net Deferred Tax Asset $ 3,862 $ 3,862
======= ========
</TABLE>
At December 31, 1996, the Company had net operating loss carryforwards
for income tax purposes aggregating approximately $97,851,000 for
alternative minimum tax ("AMT") and $190,715,000 for regular tax which
expire $43,126,000 in 2005, $26,203,000 in 2007, $40,809,000 in 2008,
$30,216,000 in 2009, $14,732,000 in 2010 and $35,628,000 in 2011. The
Company also had investment tax credit carryforwards of $1,076,000 expiring
in 1998 through 2005.
The Company entered into transactions during 1994 which resulted in a
change in greater than 50% of the ownership interests of the Company
shares. Tax statutes limit the utilization of existing tax NOLs when this
occurs to a specified amount each year plus the amount of existing built-in
gain in corporate assets at the ownership change. Management believes that
the application of the limitation will not likely cause taxable income to
occur in a future period due to unavailability of limited NOLs.
Management believes that sufficient taxable income will be incurred
during the loss carryforward period to utilize approximately $52,137,000 of
the $190,715,000 of regular tax loss carryforwards at December 31, 1996.
Therefore, a valuation allowance has been established for approximately
$138,578,000 of net operating losses and for all investment tax credits and
alternative minimum tax credit carryforwards.
63
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1996, 1995 and 1994
9. STOCK OPTIONS
The Company has two stock option plans, the 1984 nonqualified stock
option plan (the "1984 Plan") and the 1992 stock option plan (the "1992
Plan"). The Company accounts for these plans under APB Opinion No. 25,
under which no compensation cost has been recognized for option grants that
equal market price at time of grant. Had compensation cost for these plans
been determined consistent with Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the
Company's net loss and net loss per share would have been increased to the
following pro forma amounts:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------
1996 1995
-------- ---------
<S> <C> <C> <C>
Net loss: As Reported $ (62,660) $ (21,716)
Pro Forma $ (63,942) $ (22,484)
Loss Per Share: As Reported $ (2.00) $ (.69)
Pro Forma $ (2.04) $ (.72)
</TABLE>
Because the method of accounting required by SFAS 123 has not been
applied to options granted prior to January 1, 1995, the resulting pro
forma compensation cost may not be representative of that to be expected in
future years.
The 1984 Plan was approved by the shareholders of the Company to
provide for the grant of nonqualified stock options to key contributors to
the Company. As of December 31, 1996, options to purchase 708,396 shares
had been granted under the 1984 Plan, of which 436,091 shares were
exercised and options to purchase 216,005 shares had been terminated or
forfeited upon resignation of the holders. No additional options will be
granted pursuant to the 1984 Plan.
The 1992 Plan was approved by the Company's shareholders in August
1992. Under the terms of the 1992 Plan, a maximum of 1,800,000 shares of
Class A Common Stock and 200,000 shares of Common Stock are available for
grant. All employees of the Company, its parent or any participating
subsidiary, including directors of the Company who are also employees, are
eligible to participate in the 1992 Plan. Options generally become
exercisable in equal installments over a four-year period commencing on the
first anniversary of the date of grant. The options expire, to the extent
not exercised, on the tenth anniversary of the date of grant, or upon the
recipient's earlier termination of employment with the Company. Options can
be incentive stock options or non-statutory stock options. The exercise
price may not be less than 100% of the fair market value for incentive
stock options, but may be less than fair market value for non-statutory
options. Stock appreciation rights may be granted in tandem with the grant
of stock options. The Board of Directors may, in its discretion, establish
provisions for the exercise of options different from those described
above. In 1994, 1995 and 1996, the Company recognized approximately
$261,000, $261,000 and $261,000, respectively, of non-cash compensation
expense related to stock options granted on November 9, 1993 under the 1992
Plan. As of December 31, 1996, options to purchase 1,474,547 shares of
Class A Common Stock had been granted, of which options to purchase 37,335
shares had been exercised and 164,350 shares had been terminated or
forfeited upon resignation of the holders. As of December 31, 1995, all
200,000 of the Common Stock options authorized by the 1992 Plan had been
granted and exercised.
64
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1996, 1995 and 1994
Information concerning Class A Common Stock options is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------- ----------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 1,508,362 $11.93 792,401 $10.74 852,628 $10.56
Granted 3,540 13.25 812,479 12.71 - -
Exercised (52,468) 2.85 (80,667) 5.74 (42,000) 5.63
Canceled (130,272) 12.98 (15,851) 13.17 (18,227) 13.81
-------- ------- -------
Outstanding at end of year 1,329,162 $12.19 1,508,362 $11.93 792,401 $10.74
========= ========= =======
Exercisable at end of year 676,414 412,095 266,123
Range of exercise prices $5.625-13.81 $5.625-13.81 $5.625-13.81
</TABLE>
10. CLASS A COMMON STOCK
The Class A Common Stock has certain preferential rights with respect
to cash dividends and upon liquidation of the Company. In the case of cash
dividends, the holders of the Class A Common Stock will be paid one-half
cent per share per quarter in addition to any amount payable per share for
each share of Common Stock. In the event of liquidation, holders of the
Class A Common Stock are entitled to a preference of $1 per share. After
such amount is paid, holders of the Common Stock are entitled to receive $1
per share for each share of Common Stock outstanding. Any remaining amount
would be distributed to the holders of the Class A Common Stock and the
Common Stock on a pro rata basis.
In general, with respect to the election of directors, the holders of
Class A Common Stock, voting as a separate class, are entitled to elect
that number of directors which constitutes 25% of the total membership of
the Board of Directors. Holders of common stock, voting as a separate
class, are entitled to elect the remaining directors. Pursuant to the terms
of the Shareholders Agreement dated as of December 20, 1994 among Glenn R.
Jones, International, BCI and the Company (the "Shareholders Agreement"),
the Company's Board of Directors consists of 13 Directors. The parties to
the Shareholders Agreement have agreed that of the four Class A Directors,
BCI will be entitled, but not required, to designate one Director and the
remaining three directors, which shall be Independent Directors (as such
term is defined in the Shareholders Agreement), will be jointly designated
by Glenn R. Jones and BCI. The parties to the Shareholders Agreement also
have agreed that Mr. Jones will be entitled, but not required, to designate
seven of the nine Common Directors and that BCI will be entitled, but not
required, to designate two of the Common Directors. In all other matters
not requiring a class vote, the holders of the Common Stock and the holders
of Class A Common Stock vote as a single class provided that holders of
Class A Common Stock have one-tenth of a vote for each share held and the
holders of the Common Stock have one vote for each share held.
65
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1996, 1995 and 1994
11. COMMITMENTS AND CONTINGENCIES
The Company rents office facilities and equipment under various long-
term lease arrangements. Minimum commitments under noncancellable operating
leases for the five years ending December 31, 2001 and thereafter are as
follows:
<TABLE>
<CAPTION>
Building Facilities Equipment
Lease Leases Leases Total
-------- ---------- --------- ------
(Stated in Thousands)
<S> <C> <C> <C> <C>
1997 1,315 2,380 380 4,075
1998 1,315 2,224 232 3,771
1999 1,315 1,895 156 3,366
2000 768 1,491 136 2,395
2001 - 1,216 131 1,347
Thereafter - 2,551 11 2,562
----- ------ ------ ------
Total commitments $ 4,713 $ 11,757 $ 1,046 $ 17,516
===== ====== ====== ======
</TABLE>
Rent, net of sublease reimbursements, paid during the years ended
December 31, 1996, 1995 and 1994, totaled $4,195,000, $3,698,000 and
$3,062,000, respectively.
Certain amounts included in lease commitments will be allocated to
managed limited partnerships using the method discussed in Note 5.
Litigation
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. (Araphoe County District Court,
----------------------------------------
Colorado, Case No. 96-CV-1672, Division 3)("Fussner").
-------
On September 20, 1995, the Company was named as a defendant in a
Complaint filed by David Hirsch, who purports to be a limited partner in
Cable TV Fund 12-D, Ltd., a limited partnership of which the Company is the
general partner. On January 25, 1996, the Company was served with an
Amended Class Action Complaint and Request for Jury Trial. On February 19,
1996, the Company filed a Motion to Dismiss the Amended Complaint arguing
that the action was improperly brought as a class action. The Company
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 Company'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 Cable TV Fund 12-D, Ltd. ("Fund 12-D") and that he now
purports to bring this case as a derivative action on behalf of Cable TV
Fund 12-B, Ltd. ("Fund 12-B"), Cable TV Fund 12-C, Ltd. ("Fund 12-C") and
Fund 12-D. The suit relates to the purchase by the Company from Cable TV
Fund 12-BCD Venture (the "Venture") (a general partnership in which Fund
12-D is a general partner) of the Tampa System and subsequent trade of the
Tampa System, along with other cable systems, to Time Warner for certain of
Time Warner's cable systems. The Company was authorized to purchase the
Tampa System from the Venture pursuant to the terms of the limited
partnership agreements of Fund 12-B, 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 purport to be 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 Company breached its fiduciary duty to the
-------
plaintiffs and the other limited partners of Fund 12-B, Fund 12-C and Fund
12-D and the Venture in connection with the Company'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 the Company 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 Company 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 Company's Motion to Dismiss. The Company's Answer to the
Complaints in 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, detrivatively 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 (Araphoe
------------------------------------------------------------------
County District Court, Colorado, Case No. 95-CV-2212, Division 5) ("Ury")
---
On November 17, 1995, plaintiff Martin Ury filed a Complaint against
the Company in the above-referenced action in Arapahoe County District
Court. Plaintiff Ury alleges that he is a limited partner in Fund 12-D. He
purports to bring this case as a derivative action on behalf of Fund 12-B,
Fund 12-C and Fund 12-D. As in Hirsch and Fussner, discussed above, this
------ -------
case relates to the Company'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 Company
------- ---
breached its fiduciary duties to the limited partnerships and their limited
partners in connection with its purchase of the Tampa System from the
Venture. Specifically, the plaintiff alleges that the Company 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 Company filed a Motion to Dismiss the
Complaint on the ground that it fails to state a claim against the Company
upon which relief can be granted. The thrust of the Company's motion was
that the Company cannot be liable for breach of fiduciary duty because it
acted in accordance with the terms of the limited partnership agreements in
its purchase of the Tampa System. The Company also argued that plaintiff
does not have standing to assert a derivative claim on behalf of Fund 12-B
or Fund 12-C, since he is only a limited partner in Fund 12-D. On July 12,
1996, the Court denied the Company's Motion to Dismiss. The Company 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.
66
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1996, 1995 and 1994
In addition to the above matters, the Company is involved in certain
other litigation in its normal course of business. The Company is also
negotiating the renewal of certain franchise agreements with franchising
authorities. Management believes that the ultimate resolution of such
matters will not have a material adverse effect on the Company's financial
position or results of operations.
12. 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 systems $ 443,109 $ 362,271
Buildings 15,833 13,721
Land 3,665 3,665
Equipment and tools 10,378 12,277
Premium service equipment 37,412 33,481
Earth receive stations 3,644 3,450
Vehicles 2,676 3,125
Leasehold improvements and office furniture 19,728 20,049
Other 32,703 23,397
-------- --------
569,148 475,436
Accumulated depreciation (184,738) (171,948)
-------- --------
$ 384,410 $ 303,488
======== ========
</TABLE>
67
<PAGE>
JONES INTERCABLE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 1996, 1995 and 1994
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1996
----------------------------------------------------------
Three Months Ended
----------------------------------------------------------
March 31 June 30 September 30 December 31
---------- --------- -------------- -------------
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
Revenues $ 66,987 $ 93,166 $ 75,143 $ 76,414
Depreciation and
amortization 25,361 28,677 30,654 46,494
Operating income (loss) 373 17,444 735 (14,553)
Net income (loss) (14,789) 891 (17,208) (31,554)
Net income (loss) per share $ (.47) $ .03 $ (.55) $ (1.01)
<CAPTION>
1995
----------------------------------------------------------
Three Months Ended
----------------------------------------------------------
March 31 June 30 September 30 December 31
---------- --------- -------------- -------------
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
Revenues $ 43,891 $ 43,816 $ 44,736 $ 56,395
Depreciation and
amortization 12,014 12,811 12,796 18,184
Operating income 3,859 3,310 4,469 3,091
Net loss (3,855) (6,195) (4,449) (7,217)
Net loss per share $ (.12) $ (.20) $ (.14) $ (.23)
</TABLE>
68
<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 Company's Articles of Incorporation provide that, with respect to the
election of Directors, the holders of Class A Common Stock, voting as a
separate class, are entitled to elect that number of Directors constituting
25% of the total membership of the Board of Directors. If such 25% is not a
whole number, holders of Class A Common Stock are entitled to elect the
nearest higher whole number of Directors constituting 25% of the membership of
the Board of Directors. Holders of Common Stock, voting as a separate class,
are entitled to elect the remaining Directors. Directors of the Company serve
until the next annual meeting of the Company and until their successors shall
be elected and qualified.
Pursuant to the terms of the Shareholders Agreement dated as of December
20, 1994 among Glenn R. Jones, Jones International, Ltd., Bell Canada
International Inc. ("BCI") and the Company (the "Shareholders Agreement"), the
Company's Board of Directors consists of 13 directors. William E. Frenzel,
Donald L. Jacobs, John A. MacDonald and Robert B. Zoellick are serving as the
Class A Directors and Glenn R. Jones, Derek H. Burney, Robert E. Cole, James
J. Krejci, James B. O'Brien, Raphael M. Solot, Howard O. Thrall, Siim A.
Vanaselja and Sanford Zisman are serving as the Common Directors.
The parties to the Shareholders Agreement have agreed that of the four
Class A Directors, BCI will be entitled, but not required, to designate one
Director and the remaining three directors, which shall be Independent
Directors (as such term is defined in the Shareholders Agreement), will be
jointly designated by Glenn R. Jones and BCI. The parties to the Shareholders
Agreement also have agreed that Mr. Jones will be entitled, but not required,
to designate seven of the nine Common Directors and that BCI will be entitled,
but not required, to designate two of the nine Common Directors.
The Company has agreed that in the event that Mr. Jones or BCI chooses to
designate one or more nominees to the Board of Directors pursuant to the terms
of the Shareholders Agreement, the Company will use its reasonable efforts to
include each such nominee in the group of nominees proposed by management of
the Company for election to the Board, recommend to the shareholders of the
Company each such nominee's election to the Board and solicit proxies for each
such nominee from all holders of voting securities entitled to vote thereon.
In addition, each of BCI and Mr. Jones have agreed to vote or cause to be
voted all of the shares of the Company owned or controlled by them at any
meeting of shareholders of the Company, or in any written consent executed in
lieu of such a meeting of shareholders, in favor of their mutual nominees to
the Board of Directors.
69
<PAGE>
Certain information concerning the directors and executive officers of
the Company is set forth below.
<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 Company 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
Company and of certain other affiliates of the Company. 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 Company'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
70
<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 Company 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. He
also is a director of Bell Cablemedia plc, Mercury Communications Limited,
Videotron Holdings plc, Tele-Direct (Publications) Inc., Teleglobe Inc.,
Bimcor Inc., Rio Algom Limited, The Montreal General Hospital Corporation, The
Japan Society, Moore Corporation Limited, Northbridge Programming Inc. and
certain subsidiaries of Bell Canada International.
Mr. James B. O'Brien, the Company's President, joined the Company in
January 1982. Prior to being elected President and a Director of the Company
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 Company'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 Company.
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 a director of the Cable
Television Administration and Marketing Association and as a director 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 Company 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 Company 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 Company 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 Company in September 1991 as Group
Vice President/Technology and Chief Technical Officer. Previous to joining
the Company, 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 Company in January 1996 as Group Vice
President/Telecommunications. Prior to joining the Company, Mr. Newton was
President of his own consulting business, Clear Solutions, and since 1994 Mr.
Newton has served as a Senior Advisor to
71
<PAGE>
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 Company in June 1993 as Group Vice
President/Human Resources. Previous to joining the Company, 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 Company as Group Vice
President/Marketing in December 1994. Previous to joining the Company, Ms.
Winning served since 1994 as the President of PRS Inc., 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 Company in August 1987 as Vice
President/General Counsel and Secretary. From August 1980 until joining the
Company, Ms. Steele was an associate and then a partner at the Denver law firm
of Davis, Graham & Stubbs, which serves as counsel to the Company.
Mr. Larry Kaschinske joined the Company in 1984 as a staff accountant in
the Company'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 Company 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 Company 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
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<PAGE>
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 Company 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
Company. He also served as an officer of subsidiaries of Jones International,
Ltd. until leaving the Company in May 1994. Mr. Krejci has been a Director of
the Company since August 1987.
Mr. John A. MacDonald was appointed a Director of the Company in November
1995. Mr. MacDonald is Chief Technology and Network 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 Company 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 Company in March
1996. Mr. Thrall had previously served as a Director of the Company 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
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<PAGE>
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 a management and international marketing consultant, having active
assignments with 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 Company 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 Company 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 Company 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 Capitol, Said 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, American Institute for Contemporary German Studies and the
Overseas Development Council.
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
--------------------------------
Compensation Summary
--------------------
The following table sets forth certain information relating to the
compensation paid by the Company during the Company's past two fiscal years
ended May 31, 1995 and 1994 and for the twelve months ended December 31, 1996
and 1995 to those persons who were, at December 31, 1996, the Chief Executive
Officer and the other four most highly compensated executive officers of the
Company.
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
---------------------- ------
Name and All Other
Principal Position Year (1) Salary Bonus Options Compensation(2)
------------------ ------- ------ ----- ------- ---------------
<S> <C> <C> <C> <C> <C>
Glenn R. Jones (3) YE 12/31/96 $2,620,102 $ 0 0 $ 157,380
Chairman of the Board YE 12/31/95 2,500,067 0 125,937(8) 150,006
and Chief Executive Officer FYE 5/31/95 1,401,846 900,000 122,269(8) 135,623
FYE 5/31/94 530,420 630,000 418,708(8) 136,226
James B. O'Brien (4) YE 12/31/96 $ 240,961 $163,366 0 $ 25,978
President YE 12/31/95 230,866 139,870 17,000(8) 19,852
FYE 5/31/95 224,961 250,000 14,387(8) 28,498
FYE 5/31/94 196,568 52,500 12,307(8) 19,404
Kevin P. Coyle (5) YE 12/31/96 $ 184,185 $ 72,750 0 $ 15,558
Group Vice President of YE 12/31/95 177,160 74,895 8,085(8) 15,811
Finance FYE 5/31/95 173,616 45,000 7,762(8) 12,814
FYE 5/31/94 168,559 40,000 5,008(8) 6,618
Christopher J. Bowick (6) YE 12/31/96 $ 169,302 $ 96,872 0 $ 15,152
Group Vice President/ YE 12/31/95 162,211 48,725 7,850(8) 10,159
Technology FYE 5/31/95 158,061 54,529 7,378(8) 12,756
FYE 5/31/94 153,458 45,000 5,317 11,907
Ruth E. Warren (7) YE 12/31/96 $ 170,454 $ 77,327 0 $ 12,558
Group Vice President/Operations YE 12/31/95 163,314 49,056 7,860(8) 9,644
FYE 5/31/95 149,854 50,126 7,418(8) 7,888
FYE 5/31/94 139,052 40,500 8,000 3,414
</TABLE>
-----------------
(1) In 1995, the Company changed its fiscal year from a year ending May 31 to
a calendar year ending December 31.
(2) The Company's employees are entitled to participate in a 401(k) profit
sharing plan. Certain senior employees of the Company are also eligible
to participate in a deferred compensation plan. The amounts shown in the
column reflect the Company's contributions pursuant to these plans for
the benefit of the named person's account.
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<PAGE>
(3) Mr. Jones' salary, bonus, options and all other compensation for the
transition period 6/1/95 through 12/31/95 were $1,458,391, $0, 125,937
and $87,504, respectively.
(4) Mr. O'Brien's salary, bonus, options and all other compensation for the
transition period 6/1/95 through 12/31/95 were $137,133, $139,870, 17,000
and $8,228, respectively.
(5) Mr. Coyle's salary, bonus, options and all other compensation for the
transition period 6/1/95 through 12/31/95 were $104,820, $53,007, 8,085
and $6,289, respectively.
(6) Mr. Bowick's salary, bonus, options and all other compensation for the
transition period 6/1/95 through 12/31/95 were $96,352, $48,725, 7,850
and $5,781, respectively.
(7) Ms. Warren's salary, bonus, options and all other compensation for the
transition period 6/1/95 through 12/31/95 were $97,007, $49,056, 7,860
and $5,236, respectively.
(8) Represents the number of shares of the Company's Class A Common Stock
underlying the options granted.
During the year ended December 31, 1996, no stock options were granted
to or exercised by the Executive Officers named in the Summary Compensation
Table.
Compensation of Directors
-------------------------
Directors of the Company who are not full-time employees of the Company
or any of its affiliates receive $5,000 per fiscal quarter for their services
as director, with an additional $1,250 to be paid to each such director for
each regularly scheduled quarterly meeting of the Board of Directors attended
in person. No additional compensation for director service is paid to
directors who are full-time employees of the Company or any of its affiliates.
Employment Agreement
--------------------
On December 20, 1994, the Company entered into an Employment Agreement
with Glenn R. Jones (the "Employment Agreement") pursuant to which the Company
agreed to employ Mr. Jones as Chief Executive Officer of the Company for a
period of up to eight years. Under the terms of the Employment Agreement, Mr.
Jones is to receive a base compensation of $2,500,000 in fiscal year 1995
(which approximates his fiscal year 1994 combined compensation from the
Company and Spacelink), with an annual cost of living index based adjustment.
In addition, Mr. Jones is entitled to participate in the Company's bonus,
stock option and other employee plans at a level generally commensurate with
his previous participation. No other employee of the Company has an
employment agreement with the Company.
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<PAGE>
Compensation Committee Interlocks and Insider Participation
-----------------------------------------------------------
A compensation committee was established in January 1995. Glenn R. Jones,
Derek H. Burney and Donald L. Jacobs are the current members of the
compensation committee. Mr. Jones is an executive officer and director of the
Company, and Messrs. Burney and Jacobs are directors of the Company. Mr.
Jones also serves as a director of Bell Canada International Inc., and Mr.
Burney is an executive officer of Bell Canada International Inc. Glenn R.
Jones, James B. O'Brien and Elizabeth M. Steele, executive officers of the
Company, serve as directors of certain of the Company's affiliates. As
individuals, these executive officers had no transactions with the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
---------------------------------------
BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT
-------------------------------------------
The following table sets forth certain information as of February 14,
1997, regarding ownership of the Company's Common Stock or Class A Common
Stock by persons (including any group) known to the Company to be beneficial
owners of more than 5% of either class of stock, the individual directors of
the Company, each of the executive officers named in the Summary Compensation
Table and the executive officers and directors of the Company as a group.
Under the rules of the Securities and Exchange Commission, a person (or group
of persons) is deemed to be a "beneficial owner" of a security if he or she,
directly or indirectly, has or shares the power to vote or to direct the
voting of such security, or the power to dispose of or to direct the
disposition of such security. Accordingly, more than one person may be deemed
to be a beneficial owner of the same security. A person is also deemed to be
a beneficial owner of any security which that person has the right to acquire
within 60 days.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of of Beneficial
Beneficial Owner (1) Title of Class Ownership (2) Percent of Class
------------------- -------------- ------------- ----------------
<S> <C> <C> <C>
Jones International, Ltd. Common Stock 2,441,751(3)(4) 47.76
9697 East Mineral Avenue
Englewood, CO 80112 Class A 2,447,568(3)(5) 9.32
Common Stock
Glenn R. Jones Common Stock 2,916,151(3)(6) 57.03
9697 East Mineral Avenue
Englewood, CO 80112 Class A 3,121,110(3)(7) 11.69
Common Stock
Christopher J. Bowick Common Stock 2,678 .05
9697 East Mineral Avenue
Englewood, CO 80112 Class A 9,637(8) .04
Common Stock
</TABLE>
77
<PAGE>
<TABLE>
<S> <C> <C> <C>
Derek H. Burney Class A 350 less than .01
1000 rue de la Common Stock
Gauchetiere West
Montreal, Quebec,
Canada H3B 4Y8
Kevin P. Coyle Common Stock 345(9) .01
9697 East Mineral Avenue
Englewood, CO 80112 Class A 9,726(10) .04
Common Stock
William E. Frenzel Class A 400 less than .01
1775 Massachusetts Ave., Common Stock
N.W.
Washington, D.C. 20036
James J. Krejci Class A 5,000 .02
1133 Race Street, 16N Common Stock
Denver, CO 80206
James B. O'Brien Class A 33,896(11) .13
9697 East Mineral Avenue Common Stock
Englewood, CO 80112
Raphael M. Solot Common Stock 300 less than .01
55 Madison Street
Denver, CO 80206
Ruth E. Warren Common Stock 208 less than .01
9697 East Mineral Avenue
Englewood, CO 80112 Class A 16,737(12) .06
Common Stock
Sanford Zisman Common Stock 500(13) less than .01
3773 Cherry Creek N.S.
Denver CO 80209
Robert B. Zoellick Class A 300 less than .01
3900 Wisconsin Avenue, N.W. Common Stock
Washington, D.C. 20016
All executive officers and Common Stock 2,920,362 57.11
directors as a group
(21 persons) Class A 3,218,648(14) 12.02
Common Stock
Christine Jones Marocco Common Stock 2,749,679(15) 53.78
25 East End Avenue, #14F
New York NY 10288 Class A 90,757(16) .35
Common Stock
</TABLE>
78
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Mutuelles AXA group Class A 1,356,200(17)(22) 5.16
Vie Mutuelle Common Stock
101-100 Terrasse Boieldieu
92042 Paris La Defense France
AXA
23, Avenue Matignon
75008 Paris France
The Equitable Companies
Incorporated
787 Seventh Avenue
New York, New York
10019
Bell Canada International Common Stock 2,878,151(18)(22) 56.29
BVI VI Limited
Arawak Chamber
Road Town
Tortola, BVI
Bell Canada International Class A 10,022,500(19)(22) 38.16
BVI III Limited Common Stock
Arawak Chamber
Road Town
Tortola, BVI
The Capital Group Companies, Class A 1,555,000(20)(22) 5.9
Inc. Common Stock
333 South Hope Street
Los Angeles, CA 90071
Neuberger & Berman Class A 1,862,652(21)(22) 7.09
605 Third Avenue Common Stock
New York, NY 10158
</TABLE>
(1) Directors and executive officers named in the Summary Compensation Table
who are not listed in the table do not beneficially own any of the
Company's shares. Shares shown as subject to options means that such
options are exercisable within 60 days.
(2) Unless otherwise noted, all persons indicated in the table have full
voting and investment power with respect to the share ownership
described.
(3) Glenn R. Jones, Chairman of the Board of Directors and Chief Executive
Officer of the Company, owns all of the outstanding shares of Jones
International, Ltd. ("International") and is deemed to be the beneficial
owner of all shares of the Company owned by International. By virtue of
this ownership, Mr. Jones controls approximately 41% of the total votes
to be cast by all shareholders of the Company's shares on matters not
requiring a class vote, because, with regard to such matters, a share of
Common Stock has one vote and a share of Class A Common Stock has 1/10th
of a vote. The holders of Class A Common Stock, as a class, are able to
elect the greater of 25% or the next highest whole number of the
Company's Board of Directors. Thus, holders of the Class A Common Stock,
as a class, are presently entitled to elect four Directors.
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<PAGE>
(4) Includes 38,000 shares held by International; 2,239,416 shares held by
the Jones International Grantor Business Trust; 100,400 shares held by
Jones Entertainment Group, Ltd.; 35,707 shares held by Jones Space
Segment, Inc.; 27,585 shares held by Jones Global Group, Inc.; and 643
shares held by Jones Interdigital, Inc. International may be deemed to
be the beneficial owner of all shares of Common Stock owned by Jones
Entertainment Group, Ltd., Jones Space Segment, Inc., Jones Global Group,
Inc. and Jones Interdigital, Inc.
(5) Includes 2,223,414 shares held by International; 136,946 shares held by
Jones Entertainment Group, Ltd., 48,705 shares held by Jones Space
Segment, Inc., 37,626 shares held by Jones Global Group, Inc.; and 877
shares held by Jones Interdigital, Inc. International may be deemed to
be the beneficial owner of all shares of Class A Common Stock owned by
Jones Entertainment Group, Ltd., Jones Space Segment, Inc., Jones Global
Group, Inc. and Jones Interdigital, Inc.
(6) Includes 474,400 shares held by the Glenn Jones Grantor Business Trust;
38,000 shares held by International; 2,239,416 shares held by the Jones
International Grantor Business Trust; 100,400 shares held by Jones
Entertainment Group, Ltd.; 35,707 shares held by Jones Space Segment,
Inc.; 27,585 shares held by Jones Global Group, Inc.; and 643 shares held
by Jones Interdigital, Inc.
(7) Includes 236,893 shares owned by Mr. Jones; 436,649 shares deemed to be
held by Mr. Jones pursuant to exercisable stock options; 2,223,414 shares
held by International; 136,946 shares held by Jones Entertainment Group,
Ltd.; 48,705 shares held by Jones Space Segment, Inc.; 37,626 shares held
by Jones Global Group, Inc.; and 877 shares held by Jones Interdigital,
Inc.
(8) Represents shares deemed to be held by Mr. Bowick pursuant to exercisable
stock options.
(9) Includes 320 shares held by Mr. Coyle's wife.
(10) Includes 9,657 shares deemed to be held by Mr. Coyle pursuant to
exercisable stock options.
(11) Includes 23,896 shares deemed to be held by Mr. O'Brien pursuant to
exercisable stock options.
(12) Includes 11,673 shares deemed to be held by Ms. Warren pursuant to
exercisable stock options.
(13) Represents shares held by the Sanford Zisman PC Profit Sharing Plan.
(14) Includes 512,516 shares deemed to be held by various executive officers
and directors pursuant to exercisable stock options.
(15) Includes 8,799 shares held by Mrs. Marocco; 357 shares held by the
Joseph Michael Marocco Irrevocable Trust; 26,707 held by the Christine
Jones Marocco Irrevocable Trust; 2,239,416 shares held by the Jones
International Grantor Business Trust in which Mrs. Marocco has shared
voting power; and 474,400 shares held by the Glenn Jones Grantor Business
Trust in which Mrs. Marocco has shared voting power.
(16) Includes 44,972 shares held by Mrs. Marocco; 970 shares held by the
Joseph Michael Marocco Irrevocable Trust; 34,815 shares held by the
Christine Jones Marocco Irrevocable Trust; and 10,000 shares held by Mrs.
Marocco's husband. Mrs. Marocco disclaims beneficial ownership of the
shares held by her husband. Mrs. Marocco's husband is a principal in a
firm that may from time to time invest in the Company's securities. Mrs.
Marocco disclaims beneficial ownership of any securities of the Company
that said firm purchases or in which Mr. Marocco may therefor have an
interest.
(17) The Mutuelles AXA group includes AXA Assurances I.A.R.D. Mutuelle, AXA
Assurances Vie Mutuelle, Alpha Assurances I.A.R.D. Mutuelle, Alpha
Assurances Vie Mutuelle and Uni Europe Assurance Mutuelle. The Mutuelles
AXA group, AXA and The Equitable Companies Incorporated have sole voting
power over 1,341,700 shares and sole dispositive power over 1,356,200
shares.
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<PAGE>
(18) Bell Canada International Inc. ("BCI"), the sole shareholder of Bell
Canada International BVI III Limited, may be deemed to have beneficial
ownership of the 2,878,151 shares of Common Stock covered by Option
Agreements dated December 20, 1994 among Morgan Guaranty Trust Company of
New York, acting as agent for BCI, and the Glenn Jones Grantor Business
Trust, the Jones International Grantor Business Trust, Jones
Entertainment Group, Ltd., Jones Space Segment, Inc., Jones Global Group,
Inc. and Jones Interdigital, Inc.
(19) Bell Canada International BVI III Limited is a wholly owned subsidiary of
Bell Canada International Inc., 1000 de la Gauchetiere Street West, Suite
1100, Montreal, Quebec, Canada H3B 4Y8.
(20) The Capital Group Companies, Inc. has sole voting power over 540,000
shares, shared voting power over no shares and sole dispositive power
over 1,555,000 shares.
(21) Neuberger & Berman has sole voting power over 477,700 shares, shared
voting power over 1,019,000 shares and shared dispositive power over
1,862,652 shares.
(22) This information is based upon filings made by the shareholders with the
Securities and Exchange Commission, copies of which were provided to the
Company.
ITEM 13. CERTAIN TRANSACTIONS
Set forth below is a description of the Company's transactions with Jones
International, Ltd. ("International"), certain of its subsidiaries and certain
other affiliates of the Company during the year ended December 31, 1996.
While the Company believes that these transactions generally are as favorable
as could have been obtained from unaffiliated third parties, in most instances
no third party bids or appraisals were obtained and certain of the
transactions are by their nature unique to the companies involved.
Accordingly, no assurance is given to such effect. In some instances the
amounts of transactions have been rounded to the nearest thousand. Certain of
the transactions described below are expected to continue during the current
fiscal year.
Jones International, Ltd.
Jones International, Ltd. and certain of its subsidiaries provide various
services to the Company and its managed limited partnerships, including
information and data processing services, office space and programming
services, as described below. The costs of these services are charged to the
Company, and the Company reimburses International accordingly. In some cases,
a portion of certain of these expenses are reallocated to the Company's
managed partnerships pursuant to the terms of the limited partnership
agreements of such limited partnerships.
Jones Galactic Radio, Inc.
Jones Galactic Radio, Inc. is a company now owned by Jones International
Networks, Ltd., an affiliate of International. The Company sold Jones
Galactic Radio, Inc. on June 14, 1996. See Item 1, Sales of Radio and TVRO
Businesses in 1996. The Company receives satellite programming from
Superaudio, a joint venture between Jones Galactic Radio, Inc. and an
unaffiliated entity. Payments made by the Company to Jones Galactic Radio,
Inc. for programming provided to the Company's
81
<PAGE>
owned cable television systems for the period from June 15, 1996 to December
31, 1996 totaled $119,000.
Jones Education Company
Jones Education Company ("JEC"), a company owned 63% by International, 9%
by Mr. Jones, 12% by BCI and 16% by the Company, 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 by the Company. Payments by the Company to JEC Knowledge TV and Jones
Computer Network with respect to programming provided to cable television
systems owned by the Company for the year ended December 31, 1996 totaled
approximately $818,000.
Jones Financial Group, Ltd.
Jones Financial Group, Ltd. ("Financial Group") performs services for the
Company as its agent in connection with negotiations regarding various
financial arrangements of the Company. Financial Group is owned 81% by
International and 19% by Glenn R. Jones. In December 1994, the Company
entered into a Financial Services Agreement with Financial Group pursuant to
which Financial Group has agreed to render financial advisory and related
services to the Company for a fee equal to 90% of the fees that would be
charged to the Company by unaffiliated third parties for the same or
comparable purposes. The Company will pay Financial Group an annual
$1,000,000 retainer as an advance against payments due pursuant to this
agreement and will reimburse Financial Group for its reasonable out-of-pocket
expenses. The term of the Financial Services Agreement is for eight years
from December 1994. Financial Group and BCI have entered into a separate
agreement pursuant to which BCI is entitled to receive one-half of the net
fees earned (gross fees less reasonable and customary operating expenses) by
Financial Group under the Financial Services Agreement. During the year ended
December 31, 1996, the Company paid Financial Group fees of: $896,000 upon
the acquisition of the Manassas System, $1,668,000 upon the exchange of the
Carmel System, the Orangeburg System and the Tampa System for the South Prince
Georges County System and the Reston System; and $1,286,000 upon the exchange
of the Hilo System, the Kenosha System, the Lodi System, the Ripon System and
the Lake Geneva System for the Savannah System.
Jones Global Group, Inc.
On June 14, 1996, the Company completed the sale of Jones Galactic Radio,
Inc., which was a wholly owned subsidiary of the Company, to Jones Global
Group, Inc., a company then owned 38% by the Company and 62% by International,
for $17.2 million. The Company's Board of Directors requested and received a
fairness opinion related to this sale from an unaffiliated investment banking
firm. The sales price was paid in the form of 984,968 ADSs of Bell Cablemedia
plc. The number of ADSs represents the purchase price of $17.2 million
divided by the 30-day average closing price of an ADS for the 30-day period
immediately preceding the closing date. As a result of this transaction, the
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<PAGE>
Company now directly owns approximately 7.2 million ADSs of Bell Cablemedia.
See The Company's Equity Investments in Affiliates for a description of the
Company's current investment in Jones Global Group, Inc. Jones Global Group,
Inc. subsequently sold Jones Galactic Radio, Inc. to Jones International
Networks, Ltd., another affiliate of International.
Jones Interactive, Inc.
Jones Interactive, Inc. ("Interactive"), a wholly owned subsidiary of
International, provides information management and data processing services
for operating companies affiliated with International. Charges to the various
operating companies are based on usage of computer time by each entity. The
amount charged to the Company and its managed partnerships by Interactive for
the year ended December 31, 1996 totaled $5,784,000. Approximately 40% of
this amount was paid by the Company, and the remainder was allocated to and
paid by the Company's managed partnerships.
Jones Properties, Inc.
Jones Properties, Inc. is a wholly owned subsidiary of International.
The Company is a party to a lease with Jones Properties, Inc. under which the
Company has leased a 101,500 square foot office building in Englewood,
Colorado. The lease agreement, as amended, has a 15-year term expiring July
2000, with three 5-year renewal options. The annual rent is not to exceed
$24.00 per square foot, plus operating expenses. The Company has subleased
approximately 46% of the building to International and certain other
affiliates on the same terms and conditions of the above-mentioned lease.
Rent payments to Jones Properties, Inc. by the Company, net of subleasing
reimbursements, for the year ended December 31, 1996 were approximately
$1,467,000. Approximately 40% of this amount was paid by the Company, and the
remainder was allocated to and paid by the Company's managed partnerships.
Mind Extension Institute, Inc.
Mind Extension Institute, Inc. ("MEI"), a subsidiary of Jones Education
Company, provides cable-related instructional videos and other training
materials to multiple system operators, including the Company and its
affiliates. During the year ended December 31, 1996, the Company and its
affiliates paid MEI approximately $75,580 for these materials.
Product Information Network
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." PIN has an
affiliation agreement with the Company that expires on February 1, 2005. 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 Company's owned cable television systems carry PIN for all or part of each
day. Aggregate payments received by the Company from the PIN Venture
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relating to the Company's owned cable television systems totaled approximately
$466,000 for the year ended December 31, 1996.
Great American Country
The Great American Country network provides country music video
programming to certain of the Company's owned systems. This network is owned
and operated by Great American Country, Inc., a subsidiary of Jones
International Networks, Ltd., an affiliate of International. During the year
ended December 31, 1996, the Company paid Great American Country, Inc.
$281,400 for programming provided by Great American Country to Company-owned
cable television systems.
Certain Transactions Related to Acquisition of Company Stock by BCI
-------------------------------------------------------------------
In addition to the foregoing described transactions, the Company has
engaged in certain transactions in connection with the acquisition by BCI of
shares of the Company's Class A Common Stock. The transactions described
below are expected to remain in force during the Company's current calendar
year.
On December 20, 1994, contemporaneous with the closing of the acquisition
by BCI of shares of the Company's Class A Common Stock,
1. International and Glenn R. Jones and certain affiliates of
International (collectively, the "Grantors") entered into option agreements
providing for the grant of options to Morgan Guaranty Trust Company of New
York, acting as agent for BCI, to purchase all of the shares of the Company's
Common Stock then held, directly or indirectly, by International, Mr. Jones
and the affiliates of International. BCI purchased such options at a price of
$19.00 for each share of the Company's Common Stock owned by Grantors on the
date of the execution of the option agreements. This option payment resulted
in the Grantors receiving approximately $54,684,869 from BCI. This amount
will not be offset against the exercise price for the shares of Common Stock
under the option agreements should BCI elect to exercise these options in the
future.
2. The Company entered into an Employment Agreement with Glenn R. Jones
(the "Employment Agreement") pursuant to which the Company agreed to employ
Mr. Jones as Chief Executive Officer of the Company for a period of up to
eight years. Under the terms of the Employment Agreement, Mr. Jones is to
receive a base compensation of $2,500,000 in fiscal year 1995 (which
approximates his fiscal year 1994 combined compensation from the Company and
Spacelink), with an annual cost of living index based adjustment. In
addition, Mr. Jones is entitled to participate in the Company's bonus, stock
option and other employee plans at a level generally commensurate with his
previous participation. No other employee of the Company has an employment
agreement with the Company.
3. BCI, International, Glenn R. Jones and the Company entered into
certain arrangements concerning the operation and governance of the Company
and other related matters pursuant to a Shareholders Agreement ("Shareholders
Agreement"). Certain provisions of the Shareholders Agreement grant to Mr.
Jones, International and their affiliates the right to use a number of
channels on
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cable television systems now or hereafter owned or controlled by the Company
for distribution of their programming networks for a period of 15 years after
December 1994; BCI was also granted a similar right for a fewer number of
channels. International was granted certain non-exclusive rights to provide
the Company with goods and services on competitive terms which will, at the
Company's discretion, be pursuant to competitive bidding or other processes.
BCI was granted identical rights pursuant to a Supply and Services Agreement
among the Company and BCI.
4. The Company entered into a Supply and Services Agreement with BCI.
Pursuant to the Supply and Services Agreement, BCI will provide the Company
with access to the expert advice of personnel from BCI and its affiliates for
the equivalent of three man-years on an annual basis. The Company will pay an
annual fee of $2,000,000 to BCI during the term of the agreement. Payments
made by the Company under the Supply and Services Agreement during the year
ended December 31, 1996 totaled $2,000,000.
5. The Company entered into a Secondment Agreement with BCI. Pursuant
to the Secondment Agreement, BCI provided twelve secondees during 1996. These
secondees worked for the Company and its managed partnerships. The Company
reimbursed BCI for the full employment costs of such individuals. The Company
reimbursed BCI $1,138,000 during the year ended December 31, 1996.
Approximately 40% of this amount was paid by the Company, and the remainder
was allocated to and paid by the Company's managed partnerships.
The Company's Equity Investments in Affiliates
----------------------------------------------
The Company has equity investments in the following affiliated entities:
1. Until December 1996, the Company owned a 38% interest in Jones
Global Group, Inc. ("Global Group"), a Colorado corporation, and International
owned the remaining 62% interest. In December 1996, Global Group redeemed 225
shares of its stock held by the Company at a price of $39,778.61 per share,
for an approximate redemption price of $8,950,188. The redemption price is
subject to the results of an appraisal, which is expected to be completed in
the first half of 1997. The redemption price was paid in the form of a
promissory note bearing interest at 6% per annum and is payable from time to
time out of any proceeds from the sale by Global Group of its ADSs in Bell
Cablemedia, and in any event no later than 18 months after issuance. As a
result of this redemption, the Company now owns a 20% interest in Global
Group, and International owns an 80% interest in Global Group. Through
February 28, 1997, Global Group had paid $6,950,000 of the note.
2. The Company holds 7,210,764 ADSs of Bell Cablemedia plc. Bell
Cablemedia plc owns and operates certain cable/telephony systems in the United
Kingdom and Spain. The Company acquired 6,225,796 ADSs in 1994 by
contributing all of its cable/telephony properties in the United Kingdom and
Spain to Bell Cablemedia. The Company acquired an additional 984,968 ADSs
upon the sale of Jones Galactic Radio, Inc. to Jones Global Group, Inc. in
June 1996. The 7,210,764 ADSs of Bell Cablemedia plc held by the Company
represent an 8.6% interest in Bell Cablemedia as of February 28, 1997, and the
Company's ADSs are now considered available for sale because of an effective
registration statement available to the Company.
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3. The Company is the general partner of Jones Intercable Investors,
L.P., a Colorado limited partnership, which was formed on September 18, 1986,
and the Company owns a 1% general partner interest. In a series of
transactions, the Company purchased limited partnership units, giving the
Company an approximate 19% limited partner interest in Jones Intercable
Investors, L.P. The Company's net investment in this partnership totaled
approximately $3,253,000 at December 31, 1996. Based upon the quoted market
price of $13.63 per unit at December 31, 1996, the quoted market value of this
investment was approximately $21,708,000.
4. During 1992, the Company invested $10,000,000 in Mind Extension
University, Inc. ("ME/U"), an affiliated company and subsidiary of JEC, that
provides educational programming through affiliated and unaffiliated cable
television systems, for 25% of the stock of ME/U, which also received certain
advertising avails and administrative and marketing considerations from the
Company. The number of shares of Class A Common Stock of ME/U issued to the
Company was based on the average of two separate independent appraisals of
ME/U. Through its acquisition of the assets of Jones Spacelink, Ltd., the
Company obtained an additional 13% interest in ME/U in December 1994. In
1996, additional issuances of ME/U's Class A Common Stock reduced the
Company's investment in ME/U to 26%.
5. The Company and Jones Cyber Solutions, Ltd. ("JCS"), an indirect
subsidiary of International, have formed a venture, known as Jones Customer
Service Management, L.L.C., for the purpose of developing a subscriber billing
and management system. As of December 31, 1996, the Company had invested
$5,200,000 in the venture. JCS is performing the basic system development
work for the venture and is being paid periodically on a time and materials
basis, plus 10% of the amount charged, for its own service. Upon the
completion of the billing and management system software, the Company and JCS
will have license rights to use such system in perpetuity. The venture will
also perform additional services for the Company in the implementation of the
new subscriber billing and management system. The venture intends to
subcontract such maintenance and conversion services to JCS on the basis of
time and materials plus 10% of the amount of the JCS services. The venture
will grant to JCS the exclusive right to distribute the system to third
parties for a period of five years for a commission on the license fees to be
earned by the venture from such licensing.
6. In 1993, 1994 and 1995, the Company advanced a total of $20,000,000
to ME/U. Interest on such advances was charged at the Company's weighted
average cost of borrowing plus 2%. On April 11, 1995, the Company converted
its advances to ME/U into shares of Class A Common Stock of JEC, the parent
company of ME/U, for an approximately 17% equity interest in JEC. In 1996,
subsequent issuances of JEC's Class A Common Stock reduced the Company's
investment in JEC to 16%. JEC is an affiliate of International.
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PART IV
Item 14. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a)(1) Financial Statements and Report of
Independent Public Accountants.
(a)(2) Schedules.
(a)(3) Exhibits.
The following exhibits, which are numbered in accordance with Item
601 of Regulation S-K, are filed herewith or, as noted, incorporated
by reference
2.1 Exchange Agreement and Plan of Reorganization and Liquidation, dated
as of May 31, 1994 by and between the Company and Jones Spacelink,
Ltd. (1)
2.2 Stock Purchase Agreement dated as of May 31, 1994, between Bell
Canada International Inc. and the Company. (1)
2.3 Transaction Agreement dated as of May 31, 1994, among Glenn R.
Jones, Jones International, Ltd., Bell Canada International Inc. and
Jones Spacelink, Ltd. (1)
2.4 Purchase and Sale Agreement dated February 22, 1995 between Cable TV
Fund 12-B, Ltd. and the Company. (2)
2.5 Amendment No. 1 dated July 24, 1995 to Purchase and Sale Agreement
dated February 22, 1995 between Cable TV Fund 12-B, Ltd. and the
Company. (3)
2.6 Asset Purchase Agreement dated May 31, 1995 between Benchmark
Manassas Cable Fund Limited Partnership and the Company. (4)
2.7 Asset Purchase Agreement dated May 31, 1995 between Cablevision of
Manassas Park, Inc. and the Company. (4)
2.8 Asset Purchase Agreement dated as of June 30, 1995 between Columbia
Associates, L.P. and the Company. (3)
2.9 Purchase and Sale Agreement dated as of August 11, 1995 between
IDS/Jones Growth Partners 87-A, Ltd. and the Company. (3)
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2.10 Purchase and Sale Agreement dated as of August 11, 1995 between
Jones Cable Income Fund 1-B, Ltd. and the Company. (3)
2.11 Purchase and Sale Agreement dated as of August 11, 1995 between
Cable TV Fund 12-BCD Venture and the Company. (3)
2.12 Asset Exchange Agreement dated as of August 11, 1995 between Time
Warner Entertainment-Advance/Newhouse Partnership and the Company.
(3)
2.13 Asset Purchase Agreement dated September 5, 1995 between Cable TV
Joint Fund 11 and the Company relating to the Manitowoc System. (5)
2.14 Asset Purchase Agreement dated September 5, 1995, between Jones
Spacelink Income Partners 87-1, L.P. and the Company relating to the
Lodi System. (5)
2.15 Asset Purchase Agreement dated September 5, 1995, between Jones
Spacelink Income/Growth Fund 1-A, Ltd. and the Company relating to
the Ripon System. (5)
2.16 Asset Purchase Agreement dated September 5, 1995, between Jones
Spacelink Income/Growth Fund 1-A, Ltd. and the Company relating to
the Lake Geneva System. (5)
2.17 Asset Exchange Agreement dated September 1, 1995, between the
Company and Time Warner Entertainment Company, L.P. (5)
2.18 Assignment and Assumption Agreement dated as of September 15, 1995
between the Company and Jones Cable Holdings, Inc. (6)
2.19 Purchase and Sale Agreement dated as of October 15, 1995 between the
Company and Jones Cable Holdings, Inc. (6)
2.20 Asset Purchase Agreement (Walnut) dated August 16, 1996 between
Jones Intercable, Inc. and Century Communications Corp. (7)
2.21 Asset Purchase Agreement (Oxnard) dated August 16, 1996 between
Jones Intercable, Inc. and Century Communications Corp. (7)
2.22 Asset Exchange Agreement dated October 25, 1996 between Jones
Communications of Colorado, Inc. and United CATV, Inc. (8)
2.23 Asset Purchase Agreement dated July 30, 1996 between Maryland Cable
Partners, L.P. and Jones Communications of Maryland, Inc. (9).
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2.24 First Amendment to Purchase Agreement dated January 30, 1997
between Maryland Cable Partners, L.P. and Jones Communications of
Maryland, Inc. (9)
3.1 Articles of Incorporation and amendments thereto of the Company.
(10)
3.2 Amendment to Articles of Incorporation of Company filed July 24,
1995. (3)
3.3 Amendment to Articles of Incorporation of Company filed September
18, 1996.
3.4 Bylaws of the Company. (3)
4.1 Indenture, dated as of May 15, 1987, between the Company and United
Bank of Denver National Association. (11)
4.2 Indenture, dated as of July 15, 1992, between the Company and First
Trust National Association. (12)
4.3 First Supplemental Indenture, dated as of July 15, 1992, between
the Company and First Trust National Association. (12)
4.4 Second Supplemental Indenture, dated as of March 1, 1993, between
the Company and First Trust National Association. (13)
4.5 Form of Shareholders Agreement among Glenn R. Jones, Jones
International, Ltd., Bell Canada International Inc. and the
Company. (1)
4.6 Indenture dated March 23, 1995 with respect to the Senior Notes,
between the Company and U.S. Trust Company of California, N.A. (14)
4.7 First Supplemental Indenture dated as of March 23, 1995 with
respect to $200,000,000 aggregate principal amount of the Company's
9 5/8% Senior Notes due 2002, between the Company and the Trustee.
(14)
10.1.1 Form of Financial Services Agreement between Jones Financial Group,
Ltd. and the Company. (1)
10.1.2 Form of Employment Agreement between Glenn R. Jones and the
Company. (1)
10.1.3 Form of Supply and Services Agreement between Bell Canada
International Inc. and the Company. (1)
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10.1.4 Form of Secondment Agreement between Bell Canada International Inc.
and the Company. (1)
10.1.5 Form of Option Agreement for Glenn R. Jones and Jones
International, Ltd. between Bell Canada International Inc. and
Newco. (1)
10.1.6 Affiliate Agreement dated August 1, 1994 between the Company and
Jones Computer Network, Ltd. (3)
10.1.7 Affiliate Agreement dated August 1, 1994 between the Company and
Jones Infomercial Networks, Inc. (3)
10.1.8 Services Agreement between the Company and Jones Interactive, Inc.
(3)
10.1.9 Indemnification Agreement dated March 14, 1994, among the Company,
Howard O. Thrall and George J. Feltovich. (15)
10.2.1 Non-Qualified Stock Option Plan of the Company. (16)
10.2.2 Form of Non-Qualified Stock Option Agreement. (16)
10.2.3 1992 Stock Option Plan. (17)
10.2.4 Form of Basic Incentive Stock Option Agreement. (17)
10.2.5 Form of Basic Non-Qualified Stock Option Agreement. (17)
10.3.1 Office Lease, dated June 8, 1984, between the Company and Jones
Properties, Inc., regarding office space at 9697 East Mineral
Avenue, Englewood, Colorado. (18)
10.3.2 Office Building Lease dated December 9, 1994 between Jones Panorama
Properties, Inc. and the Company regarding Lot 4, Panorama Office
Park. (3)
10.4.1 Partnership Agreement for Cable TV Fund 11. (19)
10.4.2 Partnership Agreement for Cable TV Fund 12. (18)
10.4.3 Partnership Agreement for Cable TV Fund 14. (20)
10.4.4 Partnership Agreement for Jones Cable Income Fund 1. (21)
10.4.5 First Restated Agreement of Limited Partnership for Jones
Intercable Investors, L.P. (22)
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10.4.6 Partnership Agreement for IDS/Jones Growth Partners. (23)
10.4.7 Partnership Agreement for Cable TV Fund 15. (24)
10.4.8 Partnership Agreement for IDS/Jones Growth Partners II, L.P. (25)
10.4.9 Partnership Agreement of Jones United Kingdom Fund, Ltd. (26)
10.5.1 Credit Agreement dated October 31, 1995 among Jones Cable Holdings,
Inc. and NationsBank of Texas, N.A. and The Bank of Nova Scotia, as
lenders and as managing agents and various other lenders. (6)
10.5.2 First Amendment dated as of September 17, 1996 to Credit Agreement
dated October 31, 1995 among Jones Cable Holdings, Inc. and
Nationsbank of Texas, N.A., individually and as agent for various
other lenders.
10.5.3 Credit Agreement dated as of October 29, 1996 among Jones Cable
Holdings II, Inc. and The Bank of Nova Scotia, Nationsbank of
Texas, N.A. and Societe Generale, as managing agents for various
lenders.
21 List of Subsidiaries of the Company.
23 Consent of Arthur Andersen & LLP, independent public accountants,
to the incorporation by reference of its report into the Company's
Form S-8 and Form S-3 Registration Statements.
27 Financial Data Schedule
- -----------
(1) Incorporated by reference from the Company's Current Report on Form
8-K, filed on June 6, 1994.
(2) Incorporated by reference from the Company's Current Report on Form
8-K dated March 10, 1995.
(3) Incorporated by reference from the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1995.
(4) Incorporated by reference from the Company's Current Report on Form
8-K dated June 7, 1995.
(5) Incorporated by reference from the Company's Current Report on form
8-K dated September 8, 1995.
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(6) Incorporated by reference from the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
(7) Incorporated by reference from the Company's Current Report on Form
8-K dated August 28, 1996.
(8) Incorporated by reference from the Company's Current Report on Form
8-K dated November 5, 1996.
(9) Incorporated by reference from the Company's Current Report on Form
8-K dated February 7, 1997.
(10) Incorporated by reference from the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1988.
(11) Incorporated by reference from the Company's Registration Statement
No. 33-13545 on Form S-2, filed on April 17, 1987, and Amendment
No. 1 thereto, filed on May 8, 1987.
(12) Incorporated by reference from the Company's Registration Statement
No. 33-47030 on Form S-3, filed on April 8, 1992, and Amendment
Nos. 1 and 2 thereof, filed on April 24, 1992 and June 4, 1992,
respectively, and Post-Effective Amendment No. 1 thereof, filed on
July 15, 1992.
(13) Incorporated by reference from the Company's Current Report on Form
8-K, filed on March 1, 1993.
(14) Incorporated by reference from the Company's Current Report on form
8-K dated March 23, 1995.
(15) Incorporated by reference from the Company's Form S-4 Registration
Statement filed on July 11, 1994.
(16) Incorporated by reference from the Company's Registration Statement
No. 2-91911 on Form S-2, filed on June 27, 1984, and Amendment No.
1 thereto, filed on July 17, 1984.
(17) Incorporated by reference from the Company's Registration No. 33-
54596 on Form S-8, filed on November 16, 1992.
(18) Incorporated by reference from the Company's Registration Statement
No. 2-94127.
(19) Incorporated by reference from the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1983.
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(20) Incorporated by reference from the Company's Registration Statement
No. 33-6976, filed on July 3, 1986, and Amendment No. 1 thereto,
filed on November 17, 1986.
(21) Incorporated by reference from the Company's Registration Statement
No. 33-00968 on Form S-1, filed on October 18, 1985.
(22) Incorporated by reference from the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1992.
(23) Incorporated by reference from the Company's Registration Statement
No. 33-12473.
(24) Incorporated by reference from the Company's Registration Statement
No. 33-24358.
(25) Incorporated by reference from the Company's Registration Statement
on Form 8-A No. 0-18133, dated November 16, 1989.
(26) Incorporated by reference from Form 8-A of Jones United Kingdom
Fund, Ltd. (Commission File No. 0-19889).
(b) Reports on Form 8-K
Current Report on Form 8-K dated November 5, 1996 describing the
execution of an asset exchange agreement providing for the exchange
of the Company's Jefferson County and Clear Creek County Systems
for United CATV, Inc.'s Annapolis, Maryland cable television
systems.
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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.
JONES INTERCABLE, INC.
By: /s/ Glenn R. Jones
------------------
Glenn R. Jones
Chairman of the Board and
Dated: March 4, 1997 Chief 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 4, 1997 (Principal Executive Officer)
By: /s/ Kevin P. Coyle
------------------
Kevin P. Coyle
Group Vice President/Finance
Dated: March 4, 1997 (Principal Financial Officer)
By: /s/ Larry W. Kaschinske
-----------------------
Larry W. Kaschinske
Controller
Dated: March 4, 1997 (Principal Accounting Officer)
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By: /s/ James B. O'Brien
--------------------
James B. O'Brien
Dated: March 4, 1997 President and Director
By: /s/ Derek H. Burney
-------------------
Derek H. Burney
Dated: March 4, 1997 Director
By: /s/ Robert E. Cole
------------------
Robert E. Cole
Dated: March 4, 1997 Director
By: /s/ William E. Frenzel
----------------------
William E. Frenzel
Dated: March 4, 1997 Director
By: /s/ Donald L. Jacobs
--------------------
Donald L. Jacobs
Dated: March 4, 1997 Director
By: /s/ James J. Krejci
-------------------
James J. Krejci
Dated: March 4, 1997 Director
By: /s/ John A. MacDonald
---------------------
John A. MacDonald
Dated: March 4, 1997 Director
By: /s/ Raphael M. Solot
--------------------
Raphael M. Solot
Dated: March 4, 1997 Director
By: /s/ Howard O. Thrall
--------------------
Howard O. Thrall
Dated: March 4, 1997 Director
95
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By: /s/ Siim A. Vanaselja
---------------------
Siim A. Vanaselja
Dated: March 4, 1997 Director
By: /s/ Sanford Zisman
---------------------
Sanford Zisman
Dated: March 4, 1997 Director
By:
---------------------
Robert B. Zoellick
Dated: March __, 1997 Director
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EXHIBIT 3.3
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned Corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the Corporation is JONES INTERCABLE, INC.
SECOND: The following amendments were adopted by the shareholders of the
Corporation on September 17, 1996, and the number of votes cast
for the amendments by each voting group entitled to vote
separately on the amendments was sufficient for approval by that
voting group:
Provision NINTH of the Articles of Incorporation of the
Corporation shall be amended by striking out and eliminating the existing
text thereof in its entirety and substituting the following in its place:
"NINTH: The Corporation shall indemnify, to the fullest extent
permitted by applicable law in effect from time to time, any person, and
the estate and personal representative of any such person, against all
liability and expense (including attorneys' fees) incurred by reason of the
fact that such person is or was a director or officer of the Corporation
or, while serving as a director or officer of the Corporation, such person
is or was serving at the Corporation's request as a director, officer,
partner, trustee, employee, fiduciary or agent of, or in any similar
managerial or fiduciary position of, another domestic or foreign
corporation or other individual or entity or of an employee benefit plan.
The Corporation shall also indemnify any person who is serving or who has
served the Corporation as a director, officer, employee, fiduciary or
agent, and such person's estate and personal representative, to the extent
and in the manner provided in any by-law, resolution of the shareholders or
directors, contract or otherwise, so long as such provision is legally
permissible."
; and
<PAGE>
An ELEVENTH provision shall be added to the Articles of Incorporation
of the Corporation as follows:
"ELEVENTH: No director of the Corporation shall have any personal
liability for monetary damages to the corporation or its shareholders for
breach of his or her fiduciary duty as a director, except that this
provision shall not eliminate or limit the personal liability of a director
to the Corporation or its shareholders for monetary damages for: (i) any
breach of the director's duty of loyalty to the Corporation or its
shareholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) acts specified
in Section 7-108-403 of the Colorado Business Corporation Act; or (iv) any
transaction from which the director directly or indirectly derives an
improper personal benefit. Nothing contained herein will be construed to
eliminate or diminish the defenses ordinarily available to a director or to
deprive any director of any right he or she may have for contribution from
any other director or other person. If the Colorado Business Corporation
Act hereafter is amended to eliminate or limit further the liability of a
director, then, in addition to the elimination and limitation of liability
provided by the preceding sentences, the liability of each director shall
be eliminated or limited to the fullest extent permitted by the Colorado
Business Corporation Act as so amended. Any repeal or modification of this
Article shall not adversely affect any right or protection of a director of
the Corporation under this Article as in effect immediately prior to such
repeal or modification with respect to any liability that would have
accrued, but for this Article, prior to such repeal or modification."
THIRD: The manner, if not set forth in such amendment, in which any
exchange, reclassification, or cancellation of issued shares
provided for in the amendment shall be effected, is as follows:
No change.
JONES INTERCABLE, INC.,
a Colorado corporation
By: /s/ Elizabeth M. Steele
-----------------------
Elizabeth M. Steele
Vice President
2
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EXHIBIT 10.5.2
FIRST AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated
---------
as of the 17th day of September, 1996, among Jones Cable Holdings, Inc. (the
"Borrower"), the Restricted Subsidiaries of the Borrower from time to time
- ---------
parties to the Credit Agreement, Nationsbank of Texas, N.A., individually as a
Lender and as the Administrative Agent and the other Lenders party hereto.
WITNESSETH:
----------
A. On October 31, 1995, the Borrower, the Restricted Subsidiaries of
the Borrower at such time, NationsBank, individually as a Lender and as the
Administrative Agent, and the other Lenders party thereto (the "Original
--------
Lenders"), entered into that certain Credit Agreement (the "Credit Agreement")
- ------- ----------------
providing for a $500,000,000 credit facility.
B. The Borrower has requested an increase in the amount of the Total
Commitment from $500,000,000 to $600,000,000 and has requested certain other
modifications to the Credit Agreement.
C. The Lenders party to this Amendment (the "New Lenders") have
-----------
agreed to increase the Total Commitment by $100,000,000 for a Total Commitment
of $600,000,000 under the Credit Agreement and to make certain other amendments
to the Credit Agreement, subject to the Borrower's and the Restricted
Subsidiaries' compliance with the representations, warranties, covenants and
other terms and conditions set forth herein.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree hereby as
follows:
1. Certain Definitions and Terms. All capitalized terms used herein and
-----------------------------
not otherwise defined herein shall have the meanings set forth in the Credit
Agreement.
2. Amendment of Certain Definitions.
--------------------------------
(a) The definition of "Applicable Margin" set forth in Section 1 of
---------
the Credit Agreement is hereby deleted in its entirety and is replaced
with the following in lieu thereof:
"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
<PAGE>
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 5.00 to 1 0.000% 1.000%
- ------------------------------------------------------------------------------
Greater than or equal to 4.50 to 1
but less than or equal to 5.00 to 1 0.000% 0.750%
- ------------------------------------------------------------------------------
Less than 4.50 to 1 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, then 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 5.00 to 1.00."
-2-
<PAGE>
(b) The definition of "Total Commitment" set forth in Section 1 of the
---------
Credit Agreement is hereby deleted in its entirety and is replaced with the
following in lieu thereof:
"'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 $600,000,000."
3. Upfront Fee for Increased Commitment. The Borrower agrees hereby to
------------------------------------
pay to the Administrative Agent on the date of this Amendment, for the account
of each Lender, a non-refundable upfront fee, for the $100,000,000 increase in
the Total Commitment, equal to .20% of such $100,000,000 (the "Upfront Fee").
-----------
Upon the Administrative Agent's receipt of the Upfront Fee, the Administrative
Agent shall pay to each New Lender its prorata share of the Upfront Fee based on
such New Lender's prorata share of the $100,000,000 increase in the Total
Commitment. The Borrower further acknowledges and agrees that the Upfront Fee
(i) shall be fully earned and non-refundable when paid and (ii) is separate
from, and in addition to, the fees payable as set forth in Section 4.3 of the
-----------
Credit Agreement.
4. Restricted Subsidiaries. The Borrower hereby designates Jones
-----------------------
Communications of Arizona, Inc., Jones Communications of Georgia, Inc., Jones
Telecommunications of Maryland, Inc. and Jones Telecommunications of Virginia,
Inc., as Restricted Subsidiaries under the Credit Agreement.
5. Schedule 1.1 to the Credit Agreement is hereby deleted in its entirety
------------
and is replaced with the new Schedule 1.1 attached hereto and made a part
------------
hereof.
6. Schedule 5.14 to the Credit Agreement is hereby deleted in its
-------------
entirety and is replaced with the new Schedule 5.14 attached hereto and made a
-------------
part hereof.
7. Schedule 5.25 to the Credit Agreement is hereby deleted in its
-------------
entirety and is replaced with the new Schedule 5.25 attached hereto and made a
-------------
part hereof.
8. Schedule 6.1(f) to the Credit Agreement is hereby deleted in its
---------------
entirety and is replaced with the new Schedule 6.1(f) attached hereto and made a
---------------
part hereof.
9. Conditions Precedent. This Amendment shall not be effective until the
--------------------
following matters have been satisfied to the reasonable satisfaction of
Administrative Agent:
(a) This Amendment shall have been duly executed and delivered to
the Administrative Agent by the Borrower, the Restricted Subsidiaries of
the Borrower and the New Lenders.
-3-
<PAGE>
(b) The Original Lenders shall have assigned their respective
interests in the Credit Agreement and the other Loan Documents to the New
Lenders pursu ant to Section 12.6(c) of the Credit Agreement and in the
---------------
form of the Assignment and Acceptance attached to the Credit Agreement as
Exhibit A thereto.
---------
(c) The Borrower shall (i) execute and deliver to each New Lender a
promissory note in the form of Exhibit H to the Credit Agreement, with
---------
appropriate insertions therein, dated the date hereof payable to the order
of each New Lender in the aggregate principal amount of the Commitment of
such Lender as reflected in the new Schedule 1.1 attached hereto; and (ii)
------------
deliver to the Administrative Agent all of the certificates representing
all of the shares of Capital Stock of Jones Communications of Arizona, Inc.
and Jones Communications of Georgia, Inc., together with undated stock
powers for each such certificate executed in blank by a duly authorized
officer of the Borrower.
(d) Jones Telecommunications of Maryland, Inc., Jones
Telecommunications of Virginia, Inc., Jones Communications of Arizona, Inc.
and Jones Communications of Georgia, Inc. shall have each executed and
delivered to the Administrative Agent, a Pledge Agreement, in the form of
Exhibit F to the Credit Agreement and shall have delivered stock
---------
certificates representing all of the capital stock owned by such Restricted
Subsidiary to the Administrative Agent, together with stock powers executed
in blank in respect of such capital stock.
(e) Legal counsel for the Borrower shall have delivered a legal
opinion to Administrative Agent and the New Lenders (i) to the effect that
this Amendment and the Pledge Agreements of Jones Telecommunications of
Maryland, Inc., Jones Telecommunications of Virginia, Inc., Jones
Communications of Arizona, Inc. and Jones Communications of Georgia, Inc.
are legal and binding agreements enforceable against the parties party
thereto in accordance with their terms; and (ii) opining to such other
matters as Administrative Agent may reasonably request.
(f) The Borrower shall have paid to the Administrative Agent, for
pro-rata distribution to the New Lenders, the Upfront Fee.
(g) The Borrower, Jones Telecommunications of Maryland, Inc., Jones
Telecommunications of Virginia, Inc., Jones Communications of Arizona, Inc.
and Jones Communications of Georgia, Inc. shall have each delivered to the
Administrative Agent, resolutions from their respective Boards of Directors
evidencing the authority of the Borrower, Jones Telecommunications of
Maryland, Inc., Jones Telecommunications of Virginia, Inc., Jones
Communications of Arizona, Inc. and Jones Communications of Georgia, Inc.
to execute their respective documents as set forth herein, and to perform
their respective obligations thereunder.
-4-
<PAGE>
(h) Jones Telecommunications of Maryland, Inc., Jones
Telecommunications of Virginia, Inc., Jones Communications of Arizona, Inc.
and Jones Communications of Georgia, Inc. shall have each delivered to the
Administrative Agent (i) a copy of their respective Articles of
Incorporation and all amendments thereto, accompanied by an original
certificate issued by the Secretary of State of the State of incorporation
of each such entity, dated within thirty days of the date of this
Amendment, certifying that such copy is true, correct and complete; (ii)
copies of its Bylaws and all amendments thereto; (iii) original
certificates of existence and good standing issued by the appropriate
officials of the State of incorporation and/or qualification of each such
entity, dated within thirty days of the date of this Amendment; and (iv) an
original executed Closing Certificate, dated as of the date of this
Amendment, in the form of Exhibit J to the Credit Agreement.
---------
10. Representations and Warranties. The Borrower and each of its
------------------------------
Restricted Subsidiaries represent and warrant to the Administrative Agent and
the Lenders that (a) this Amendment and the Loan Documents executed in
connection herewith have each been duly authorized, executed and delivered by
the Borrower and each Restricted Subsidiary party hereto and thereto and
constitute legal, valid, and binding obligations of the Borrower and each
Restricted Subsidiary party hereto and thereto, enforceable against the Borrower
and/or Restricted Subsidiary in accordance with their respective terms, except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally or general principles of equity, (b) both before and
after giving effect to the transactions, consents and modifications contemplated
herein, there exists no Default or Event of Default under the Credit Agreement,
(c) the representations and warranties of the Borrower and each of its
Restricted Subsidiaries set forth in the Credit Agreement and the other Loan
Documents to which each such entity is a party are true and correct as of the
date of this Amendment as though made on and as of such date, except to the
extent that such representations and warranties relate to the ownership of
assets of the Borrower or a Restricted Subsidiary which have been transferred in
accordance with Section 8.5 of the Credit Agreement, (d) the Borrower and each
-----------
of its Restricted Subsidiaries has complied with all agreements and conditions
to be complied with by each of them on or before the date of this Amendment
under the Credit Agreement, the other Loan Documents and this Amendment, and (e)
the Credit Agreement, as amended hereby, the other Loan Documents, as amended,
remain in full force and effect, and are sufficient to grant a perfected
security interest and lien in all Collateral described therein, securing payment
and performance of the Obligations of the Borrower and its Restricted
Subsidiaries under the Loan Documents, as amended hereby.
11. Further Assurances. The Borrower, each of its Restricted Subsidiaries
------------------
shall execute and deliver such further consents, acknowledgments, agreements,
documents, instruments, and certificates, in form and substance satisfactory to
Lenders, as Lenders may deem necessary or appropriate in connection with this
Amendment.
-5-
<PAGE>
12. Counterparts. This Amendment may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument. In making proof hereof, it shall not be necessary to produce or
account for any counterpart other than one signed by the party against which
enforcement is sought.
13. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND THE RIGHTS,
-------------
OBLIGATIONS AND LIABILITIES OF THE PARTIES HERETO SHALL BE DETERMINED IN
ACCORDANCE WITH, THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS)
AND JUDICIAL DECISIONS OF THE STATE OF NEW YORK AND APPLICABLE FEDERAL LAW.
14. ENTIRE AGREEMENT. THIS AMENDMENT, THE CREDIT AGREEMENT AND THE OTHER
----------------
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENT
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXCEPT AS HEREIN EXPRESSLY MODIFIED, THE CREDIT AGREEMENT, THE LOAN DOCUMENTS
AND ALL OTHER DOCUMENTS AND AGREEMENTS EXECUTED IN CONNECTION THEREWITH SHALL
CONTINUE IN FULL FORCE AND EFFECT.
[Remainder of Page Intentionally Left Blank. Signature Pages Follow.]
-6-
<PAGE>
IN WITNESS WHEREOF, this Amendment is executed as of the date first
set forth above.
JONES CABLE HOLDINGS, INC.
By: /s/ J. Roy Pottle
------------------------------------
Name: J. ROY POTTLE
----------------------------------
Title: VICE PRESIDENT/TREASURER
---------------------------------
By their execution hereinbelow, each of the Restricted Subsidiaries
agrees to be bound by each agreement, covenant, representation, warranty and
term and condition contained in this Amendment, the Credit Agreement and the
other Loan Documents which, by their terms, apply to the Restricted
Subsidiaries.
JONES COMMUNICATIONS OF VIRGINIA. INC.
By: /s/ J. Roy Pottle
------------------------------------
Name: J. ROY POTTLE
----------------------------------
Title: VICE PRESIDENT/TREASURER
---------------------------------
JONES COMMUNICATIONS OF
COLORADO, INC.
By: /s/ J. Roy Pottle
------------------------------------
Name: J. ROY POTTLE
----------------------------------
Title: VICE PRESIDENT/TREASURER
---------------------------------
-7-
<PAGE>
JONES COMMUNICATIONS
OF MARYLAND, INC.
By: /s/ J. Roy Pottle
------------------------------------
Name: J. ROY POTTLE
----------------------------------
Title: VICE PRESIDENT/TREASURER
---------------------------------
JONES TELECOMMUNICATIONS OF
MARYLAND, INC.
By: /s/ J. Roy Pottle
------------------------------------
Name: J. ROY POTTLE
----------------------------------
Title: VICE PRESIDENT/TREASURER
---------------------------------
JONES TELECOMMUNICATIONS OF
VIRGINIA, INC.
By: /s/ J. Roy Pottle
------------------------------------
Name: J. ROY POTTLE
----------------------------------
Title: VICE PRESIDENT/TREASURER
---------------------------------
JONES COMMUNICATIONS OF ARIZONA,
INC.
By: /s/ J. Roy Pottle
------------------------------------
Name: J. ROY POTTLE
----------------------------------
Title: VICE PRESIDENT/TREASURER
---------------------------------
-8-
<PAGE>
JONES COMMUNICATIONS OF GEORGIA,
INC.
By: /s/ J. Roy Pottle
------------------------------------
Name: J. ROY POTTLE
----------------------------------
Title: VICE PRESIDENT/TREASURER
---------------------------------
The Administrative Agent, the Documentation
-------------------------------------------
Agent and the Syndication Agent:
-------------------------------
NATIONSBANK OF TEXAS, N.A.,
as the Administrative Agent and
Documentation Agent
By: [SIGNATURE APPEARS HERE]
------------------------------------
Name: [NAME APPEARS HERE]
----------------------------------
Title: Vice President
---------------------------------
THE BANK OF NOVA SCOTIA,
as the Syndication Agent
By: /s/ Margot C. Bright
------------------------------------
Name: Margot C. Bright
----------------------------------
Title: Authorized Signatory
---------------------------------
-9-
<PAGE>
The Managing Agents and the Lenders:
-----------------------------------
NATIONSBANK OF TEXAS, N.A., as
Managing Agent and as a Lender
By: [SIGNATURE APPEARS HERE]
------------------------------------
Name: [NAME APPEARS HERE]
----------------------------------
Title: Vice President
---------------------------------
THE BANK OF NOVA SCOTIA, as Managing
Agent and as a Lender
By: /s/ Margot C. Bright
------------------------------------
Name: Margot C. Bright
----------------------------------
Title: Authorized Signatory
---------------------------------
The Co-Agents and the Lenders:
-----------------------------
CORESTATES BANK, N.A.,
as a Co-Agent and as a Lender
By: /s/ Lynae S. Young
------------------------------------
Name: Lynae S. Young
----------------------------------
Title: AVP
---------------------------------
PNC BANK, NATIONAL ASSOCIATION,
as a Co-Agent and as a Lender
By: /s/ Thomas P. Carden
------------------------------------
Name: Thomas P. Carden
----------------------------------
Title: Vice President
---------------------------------
-10-
<PAGE>
ROYAL BANK OF CANADA,
as a Co-Agent and as a Lender
By: [SIGNATURE APPEARS HERE]
------------------------------------
Name: [NAME APPEARS HERE]
----------------------------------
Title: [TITLE APPEARS HERE]
---------------------------------
CREDIT LYONNAIS CREDIT LYONNAIS CAYMAN
NEW YORK BRANCH, ISLAND BRANCH,
as a Co-Agent and as a Lender as a Co-Agent and as a Lender
By: /s/ James E. Morris By: /s/ James E. Morris
------------------------ ---------------------------------
Name: JAMES E. MORRIS Name: JAMES E. MORRIS
---------------------- -------------------------------
Title: VICE PRESIDENT Title: AUTHORIZED SIGNATURE
--------------------- ------------------------------
SOCIETE GENERALE,
as a Co-Agent and as a Lender
By: /s/ Mark Vigil
---------------------------------
Name: Mark Vigil
-------------------------------
Title: VICE PRESIDENT
------------------------------
CHEMICAL BANK (n/k/a THE CHASE
MANHATTAN BANK,
as a Lender
By: /s/ Ann B. Kerns
---------------------------------
Name: Ann B. Kerns
-------------------------------
Title: VICE PRESIDENT
------------------------------
-11-
<PAGE>
MELLON BANK, N.A.,
as a Lender
By: /s/ Stephen R. Viche
---------------------------------
Name: Stephen R. Viche
-------------------------------
Title: VICE PRESIDENT
------------------------------
TORONTO DOMINION (TEXAS), INC., THE TORONTO-DOMINION BANK,
as a Lender as a Lender
By: /s/ Frederic B. Hawley By: /s/ Frederic B. Hawley
--------------------------------- ---------------------------------
Name: Frederic Hawley Name: Frederic B. Hawley
------------------------------- -------------------------------
Title: VICE PRESIDENT Title: [TITLE APPEARS HERE]
------------------------------ ------------------------------
SHAWMUT BANK
n/k/a FLEET BANK, N.A.
as a Lender
By: /s/ Roselyn Reid
---------------------------------
Name: Roselyn Reid
-------------------------------
Title: Vice President
------------------------------
-12-
<PAGE>
BANQUE PARIBAS,
as a Lender
By: /s/ Sonia Isaacs
--------------------------------------
Name: Sonia Isaacs
------------------------------------
Title: Vice President
-----------------------------------
By: /s/ Harry Collyns
--------------------------------------
Name: Harry Collyns
------------------------------------
Title: Vice President
-----------------------------------
NATIONAL WESTMINSTER BANK
n/k/a FLEET BANK, N.A.,
as a Lender
By: /s/ Roselyn Reid
--------------------------------------
Name: Roselyn Reid
------------------------------------
Title: Vice President
-----------------------------------
COLORADO NATIONAL BANK,
as a Lender
By: /s/ Leslie M. Kelly
--------------------------------------
Name: Leslie M. Kelly
------------------------------------
Title: Vice President
-----------------------------------
THE FIRST NATIONAL BANK OF
MARYLAND,
as a Lender
By: /s/ W. Blake Hampson
--------------------------------------
Name: W. BLAKE HAMPSON
------------------------------------
Title: VICE PRESIDENT
-----------------------------------
-13-
<PAGE>
DRESDNER BANK AG,
New York and Grand Cayman Branches
as a Lender
By: /s/ Jane A. Majeski
-----------------------------------
Name: JANE A. MAJESKI
---------------------------------
Title: VICE PRESIDENT
--------------------------------
By: /s/ Brian Haughney
-----------------------------------
Name: Brian Haughney
---------------------------------
Title: Assistant Treasurer
--------------------------------
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY,
as a Lender
By: /s/ Takahide Akiyama
-----------------------------------
Name: Takahide Akiyama
---------------------------------
Title: Joint General Manager
--------------------------------
ABN AMRO BANK N.V.,
as a Lender
By: /s/ Mary L. Honda By: /s/ James J. Johnston
--------------------------------- -----------------------------------
Name: MARY L. HONDA Name: JAMES J. JOHNSTON
------------------------------- ---------------------------------
Title: VICE PRESIDENT Title: VICE PRESIDENT
------------------------------ --------------------------------
-14-
<PAGE>
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., Los Angeles Agency
as a Lender
By: /s/ T. Morgan Edwards II
--------------------------------------
Name: T. Morgan Edwards II
------------------------------------
Title: Deputy General Manager
-----------------------------------
BANQUE NATIONALE DE PARIS,
as a Lender
By: /s/ C. Bettles
--------------------------------------
Name: C. BETTLES
------------------------------------
Title: Sr. V.P. & Manager
-----------------------------------
By: /s/ Janice Ho
--------------------------------------
Name: JANICE HO
------------------------------------
Title: Vice President
-----------------------------------
THE FUJI BANK, LIMITED
as a Lender
By: [SIGNATURE APPEARS HERE]
--------------------------------------
Name: [NAME APPEARS HERE]
------------------------------------
Title: JOINT GENERAL MANAGER
-----------------------------------
THE SUMITOMO BANK, LTD. -
CHICAGO BRANCH
as a Lender
By: /s/ Hiroyuki Iwami
--------------------------------------
Name: HIROYUKI IWAMI
------------------------------------
Title: JOINT GENERAL MANAGER
-----------------------------------
-15-
<PAGE>
CRESTAR BANK, N.A.,
as a Lender
By: [SIGNATURE APPEARS HERE]
--------------------------------------
Name: [NAME APPEARS HERE]
------------------------------------
Title: Vice President
-----------------------------------
-16-
<PAGE>
[NEW]
Schedule 1.1
Commitments and Addresses of Lenders
------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Specified
NAME AND ADDRESS OF LENDER Commitment Percentage
- --------------------------------------------------------------------------------
<S> <C> <C>
NationsBank of Texas, N.A. $37,600,000 6.266666667%
901 Main Street, 64th Floor
Dallas, Texas 75202
Attn: David G. James
Fax: (214) 508-9390
- --------------------------------------------------------------------------------
The Bank of Nova Scotia $37,600,000 6.266666667%
One Liberty Plaza
New York, New York 10006
Attn: Margot Bright
Fax: (212) 225-5091
- --------------------------------------------------------------------------------
Fleet Bank, N.A. $37,600,000 6.266666667%
175 Water Street, 28th Floor
New York, New York 10038
Attn: Roselyn Reid
Fax: (212) 602-2663
- --------------------------------------------------------------------------------
CoreStates Bank, N.A. $32,400,000 5.400000000%
1339 Chestnut Street
FC 1-8-11-28
Philadelphia, PA 19107
Attn: Phil Harrison
Fax: (215) 786-7721
- --------------------------------------------------------------------------------
Credit Lyonnais New York Branch $32,400,000 5.400000000%
1301 Avenue of the Americas, 18th Floor
New York, New York 10019
Attn: Jim Morris
Fax: (212) 261-3318
- --------------------------------------------------------------------------------
</TABLE>
-1-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Specified
NAME AND ADDRESS OF LENDER Commitment Percentage
- --------------------------------------------------------------------------------
<S> <C> <C>
PNC Bank, National Association $32,400,000 5.400000000%
100 South Broad Street, 9th Floor
Philadelphia, PA 19110
Attn: Tom Carden
Fax: (215) 585-6680
- --------------------------------------------------------------------------------
Royal Bank of Canada $32,400,000 5.400000000%
Financial Square, 23rd Floor
New York, New York 10005
Attn: Eduardo Salazar
Fax: (212) 428-6460
- --------------------------------------------------------------------------------
Societe Generale $32,400,000 5.400000000%
1221 Avenue of the Americas
New York, New York 10020
Attn: Mark Vigil
Fax: (212) 278-6240
- --------------------------------------------------------------------------------
Banque Paribas $28,800,000 4.800000000%
2029 Century Park East
Suite 3900
Los Angeles, CA 90067
Attn: John Acker
Fax: (310) 556-8759
- --------------------------------------------------------------------------------
The Chase Manhattan Bank $28,800,000 4.800000000%
One Chase Manhattan Plaza, 4th Floor
New York, New York 10081
Attn: Ann B. Kerns
Fax: (212) 552-0259
- --------------------------------------------------------------------------------
Mellon Bank, N.A. $28,800,000 4.800000000%
1 Mellon Bank Center
AIM 151-4440
Pittsburgh, PA 15258
Attn: Stephen Viehe
Fax: (412) 234-6375
- --------------------------------------------------------------------------------
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Specified
NAME AND ADDRESS OF LENDER Commitment Percentage
- --------------------------------------------------------------------------------
<S> <C> <C>
Toronto Dominion (Texas), Inc. $28,800,000 4.800000000%
31 West 52nd Street
New York, New York 10019
Attn: Robert Stevens
Fax: (212) 262-1928
and notices to:
Toronto Dominion (Texas), Inc.
909 Fannin Street, 17th Floor
Houston, Texas 77010
Attn: Lisa Allison
Fax: (713) 951-9921
- --------------------------------------------------------------------------------
The Long-Term Credit Bank of Japan, Ltd., $24,000,000 4.000000000%
Los Angeles Agency
350 South Grand Avenue
Suite 3000
Los Angeles, CA 90071
Attn: Tomioka Takaomi
Fax: (213) 622-6908
- --------------------------------------------------------------------------------
ABN AMRO Bank N.V. $24,000,000 4.000000000%
135 South LaSalle
Suite 425
Chicago, IL 60674-9135
Attn: Joanna Riopelli
Fax: (312) 606-8425
- --------------------------------------------------------------------------------
Dresdner Bank AG $24,000,000 4.000000000%
New York and Grand Cayman Branches
75 Wall Street
New York, New York 10005
Attn: Jane Majeski
Fax: (212) 429-2129
- --------------------------------------------------------------------------------
The Fuiji Bank, Limited $24,000,000 4.000000000%
333 South Grand Avenue
Los Angeles, CA 90071
Attn: Elizabeth Wiialen
Fax: (213) 253-4198
- --------------------------------------------------------------------------------
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Specified
NAME AND ADDRESS OF LENDER Commitment Percentage
- --------------------------------------------------------------------------------
<S> <C> <C>
The Industrial Bank of Japan, Limited $24,000,000 4.000000000%
Los Angeles Agency
350 South Grand Avenue
Suite 1500
Los Angeles, California 90071
Attn: J. Blake Seaton
Fax: (213) 488-9840
- --------------------------------------------------------------------------------
The Sumitomo Bank, Ltd. - Chicago Branch $24,000,000 4.000000000%
233 South Wacker Drive
Suite 4800
Chicago, Illinois 60606-6448
Attn: Patrick Kennedy
Fax: (312) 876-6436
- --------------------------------------------------------------------------------
Banque Nationale de Paris $18,000,000 3.000000000%
725 South Figueroa Street
Los Angeles, CA 90017
Attn: Janice Ho
Fax: (213) 488-9602
- --------------------------------------------------------------------------------
The First National Bank of Maryland $18,000,000 3.000000000%
25 South Charles Street, 18th Floor
Baltimore, Maryland 21201
Attn: Mark L. Cook
Fax:(410) 244-4746
- --------------------------------------------------------------------------------
Crestar Bank, N.A. $18,000,000 3.000000000%
919 East Main Street
Richmond, VA 23219
Attn: Tom Palmer
Fax: (804) 782-5413
- --------------------------------------------------------------------------------
Colorado National Bank $12,000,000 2.000000000%
918 17th Street, 2nd Floor
Denver, CO 80202
Attn: Leslie Kelly
Fax: (303) 585-4242
- --------------------------------------------------------------------------------
</TABLE>
-4-
<PAGE>
[NEW]
SCHEDULE 5.14 TO CREDIT AGREEMENT
SUBSIDIARIES AND DESIGNATION
----------------------------
Restricted Subsidiaries:
Jones Communications of Colorado, Inc.
Jones Communications of Maryland, Inc.
Jones Communications of Virginia, Inc.
Jones Telecommunications of Maryland, Inc.
Jones Telecommunications of Virginia, Inc.
Jones Communications of Arizona, Inc.
Jones Communications of Georgia, Inc.
Unrestricted Subsidiaries:
None.
<PAGE>
[NEW]
SCHEDULE 5.25 TO CREDIT AGREEMENT
CHIEF PLACES OF BUSINESS/CHIEF EXECUTIVE OFFICE
-----------------------------------------------
Jones Cable Holdings, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
Jones Communications of Arizona, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
Pima County, Arizona System*
8251 North Cortaro Road
Tucson, Arizona 85743-9599
Jones Communications of Colorado, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
Clear Creek County, Colorado System
2401 Colorado Blvd., Suite E
P.O. Box 387
Idaho Springs, Colorado 80452
Evergreen, Colorado System
7580 South Pierce Street, Suite 7
Littleton, Colorado 80123
Jefferson County, Colorado System
(includes Arapahoe County, Colorado)
7580 South Pierce Street, Suite 7
Littleton, Colorado 80123
Jones Communications of Georgia, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
- --------------------
* This system is currently owned by the Borrower. The Borrower expects to
transfer this system to Jones Communications of Arizona, Inc. during the
fourth quarter of 1996.
<PAGE>
North Augusta, South Carolina System**
401 West Martintown Road
North Augusta, South Carolina 29841
Augusta, Georgia System**
1424 Monte Sano Avenue
P.O. Box 3576 and 3579
Augusta, Georgia 30914-3576
Savannah, Georgia System**
5515 Abercorn Street
Savannah, Georgia 31405
Jones Communications of Maryland, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
Charles County, Maryland System
336 Post Office Road
Waldorf, Maryland 20602
Anne Arundel County, Maryland System
1655 Crofton Lane, Suite 300
Crofton, Maryland 21114
Prince George's County, Maryland System
9315 Largo Drive West
Largo, Maryland 20774
Jones Communications of Virginia, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
Alexandria, Virginia System
617-A South Pickett Street
Alexandria, Virginia 22304
Dale City, Virginia System
4391 Dale Boulevard
Woodbridge, Virginia 22193
____________________
** These systems are currently owned by the Borrower. The Borrower expects to
transfer these systems to Jones Communications of Georgia, Inc. during the
fourth quarter of 1996.
<PAGE>
[NEW]
SCHEDULE 5.25 TO CREDIT AGREEMENT
CHIEF PLACES OF BUSINESS/CHIEF EXECUTIVE OFFICE
-----------------------------------------------
Jones Cable Holdings, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
Jones Communications of Arizona, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
Pima County, Arizona System*
8251 North Cortaro Road
Tucson, Arizona 85743-9599
Jones Communications of Colorado, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
Clear Creek County, Colorado System
2401 Colorado Blvd., Suite E
P.O. Box 387
Idaho Springs, Colorado 80452
Evergreen, Colorado System
7580 South Pierce Street, Suite 7
Littleton, Colorado 80123
Jefferson County, Colorado System
(includes Arapahoe County, Colorado)
7580 South Pierce Street, Suite 7
Littleton, Colorado 80123
Jones Communications of Georgia, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
- --------------------
* This system is currently owned by the Borrower. The Borrower expects to
transfer this system to Jones Communications of Arizona, Inc. during the
fourth quarter of 1996.
<PAGE>
Manassas, Virginia System
9540 Center Street
Manassas, Virginia 22110
Reston, Virginia System
12345-G Sunrise Valley Drive
Reston, Virginia 22091
Jones Telecommunications of Maryland, Inc.
4601 Forbes Boulevard, Suite 300
Lanham, Maryland 20706
Jones Telecommunications of Virginia, Inc.
4601 Forbes Boulevard, Suite 300
Lanham, Maryland 20706
<PAGE>
[NEW]
SCHEDULE 6.1(f) TO CREDIT AGREEMENT
STOCK OWNERSHIP OF THE BORROWER AND ITS
RESTRICTED SUBSIDIARIES
-----------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Number of Ownership of
Entity Class of Stock Outstanding Shares Shares
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Jones Cable Holdings, Inc. Common Stock 1000 100% owned by
Jones
Intercable, Inc.
- ------------------------------------------------------------------------------------
Jones Communications of Common Stock 1000 100% owned by
Maryland, Inc. Jones Cable
Holdings, Inc.
- ------------------------------------------------------------------------------------
Jones Communications of Common Stock 1000 100% owned by
Virginia, Inc. Jones Cable
Holdings, Inc.
- ------------------------------------------------------------------------------------
Jones Communications of Common Stock 1000 100% owned by
Colorado, Inc. Jones Cable
Holdings, Inc.
- ------------------------------------------------------------------------------------
Jones Telecommunications Common Stock 1000 100% owned by
of Maryland, Inc. Jones Cable
Holdings, Inc.
- ------------------------------------------------------------------------------------
Jones Telecommunications Common Stock 5000 100% owned by
of Virginia, Inc. Jones Cable
Holdings, Inc.
- ------------------------------------------------------------------------------------
Jones Communications of Common Stock 1000 100% owned by
Arizona, Inc. Jones Cable
Holdings, Inc.
- ------------------------------------------------------------------------------------
Jones Communications of Common Stock 1000 100% owned by
Georgia, Inc. Jones Cable
Holdings, Inc.
- ------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.5.3
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
-----------------
<TABLE>
<CAPTION>
Page
----
<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>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<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>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<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>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<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>
-iv-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES
- ---------
<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>
-v-
<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
58
<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
---------
61
<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
65
<PAGE>
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
66
<PAGE>
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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<PAGE>
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
69
<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
72
<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,
74
<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.
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<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 21
----------
JONES INTERCABLE, INC.
List of Subsidiaries
Cable Alp, Inc.
Evergreen Intercable, Inc.
International Aviation, Ltd.
Jones Cable Corporation
Jones Cable Holdings, Inc.
Jones Cable Holdings II, Inc.
Jones Communications, Inc.
Jones Communications of Arizona, Inc.
Jones Communications of Colorado, Inc.
Jones Communications of Georgia/South Carolina, Inc.
Jones Communications of Maryland, Inc.
Jones Communications of Virginia, Inc.
Jones Electronic Manufacturing Services, Inc.
Jones Futurex, Inc.
The Jones Group, Ltd.
Jones Intercable Funds, Inc.
Jones Intercable of Ft. Myers, Inc.
Jones Intercable of Leeds, Inc.
Jones Intercable of San Diego, Inc.
Jones Intercable of South Hertfordshire, Inc.
Jones of Wisconsin, Inc.
Jones Panorama Properties, Inc.
Jones Programming Services, Inc.
Jones Satellite Programming, Inc.
Jones Spacelink Acquisition Corporation
Jones Spacelink Cable Corporation
Jones Spacelink Management, Inc.
Jones Spacelink Spanish Investments, Inc.
Jones Telecommunications of Maryland, Inc.
Jones Telecommunications of Virginia, Inc.
Jones Tri-City Intercable, Inc.
Jones U.K. Holdings, Inc.
Saturn Cable T.V., Inc.
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation by reference of our report included in this Form 10-K into
the Company's previously filed Registration Statements on Form S-3, File
Nos. 33-62537 and 33-62539 and on Form S-8, File Nos. 33-3087, 33-25577,
33-54596 and 33-52813.
ARTHUR ANDERSEN LLP
Denver, Colorado
February 14, 1997
<TABLE> <S> <C>
<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,687
<SECURITIES> 111,767
<RECEIVABLES> 16,327
<ALLOWANCES> 1,483
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 569,148
<DEPRECIATION> (184,738)
<TOTAL-ASSETS> 1,134,129
<CURRENT-LIABILITIES> 0
<BONDS> 806,147
0
0
<COMMON> 314
<OTHER-SE> 234,993
<TOTAL-LIABILITY-AND-EQUITY> 1,134,129
<SALES> 0
<TOTAL-REVENUES> 311,710
<CGS> 0
<TOTAL-COSTS> 307,711
<OTHER-EXPENSES> 1,123
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,782
<INCOME-PRETAX> (62,660)
<INCOME-TAX> 0
<INCOME-CONTINUING> (62,660)
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<EXTRAORDINARY> 0
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<NET-INCOME> (62,660)
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