<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
RULE 13e-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the
Securities Exchange Act of 1934
and Rule 13e-3 thereunder)
Cable TV Fund 12-D, Ltd.
------------------------
(Name of the Issuer)
Jones Intercable, Inc. (File No. 0-8947)
and
Cable TV Fund 12-D, Ltd. (File No. 0-14206)
-------------------------------------------
(Name of Person(s) Filing Statement)
Limited Partnership Interests
-----------------------------
(Title of Class of Securities)
Elizabeth M. Steele, Esq.
Vice President and General Counsel
Jones Intercable, Inc.
9697 E. Mineral Avenue
Englewood, Colorado 80112
(303) 784-8400
--------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf
of Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
a. X The filing of solicitation materials or an information statement
_____ subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under
the Securities Exchange Act of 1934.
b. _____ The filing of a registration statement under the Securities Act of
1933.
c. _____ A tender offer.
d. _____ None of the above.
<PAGE>
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: X
_____
Calculation of Filing Fee
TRANSACTION VALUATION* AMOUNT OF FILING FEE
- --------------------- --------------------
$105,035,952 $21,007
X Check box if any part of the fee is offset as provided by Rule 0-
_____ 11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: $21,007
Form or Registration No.: Schedule 14A
Filing Party: Cable TV Fund 12-D, Ltd.
Commission File No. 0-14206
Date Filed: Concurrently with this Rule 13e-3
Transaction Statement on Schedule 13E-3
*Pursuant to Rule 0-11(c)(2), the transaction valuation is based upon Cable TV
Fund 12-D, Ltd.'s 76 percent interest in the $138,205,200 sales price that is
to be paid to Cable TV Fund 12-BCD Venture by Jones Intercable, Inc. in
connection with the transaction that is the subject of the proxy solicitation.
<PAGE>
INTRODUCTION
------------
This Rule 13e-3 Transaction Statement is being filed jointly by Cable TV
Fund 12-D, Ltd., a Colorado limited partnership, and by Jones Intercable, Inc.,
a Colorado corporation that is the general partner of Cable TV Fund 12-D, Ltd.,
in connection with the sale of assets of Cable TV Fund 12-BCD Venture to Jones
Intercable, Inc. upon the terms and subject to the conditions of a Purchase and
Sale Agreement by and between Cable TV Fund 12-BCD Venture and Jones Intercable,
Inc. The sale may be a transaction subject to Rule 13e-3 because it will result
in the sale of certain assets of Cable TV Fund 12-BCD Venture to Jones
Intercable, Inc.
The transaction also involves a vote of the limited partners of Cable TV
Fund 12-D, Ltd., which is subject to Regulation 14A of the Securities Exchange
Act of 1934, and the information contained in the preliminary proxy statement
filed pursuant thereto is incorporated by reference in answer to the items of
this Rule 13e-3 Transaction Statement. Attached as an exhibit to this Rule 13e-3
Transaction Statement are the preliminary proxy solicitation materials that have
been filed simultaneously herewith. The cross-reference sheet that follows shows
the location in the preliminary proxy statement of the information incorporated
by reference in response to the items of this Rule 13e-3 Transaction Statement,
as permitted by General Instruction F to Schedule 13E-3.
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<PAGE>
CROSS-REFERENCE SHEET
---------------------
(Pursuant to General Instruction F to Schedule 13E-3)
<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------ ---------------
<S> <C>
1. Issuer and Class of
Security Subject to
the Transaction.
(a)................... Vote of the Limited Partners of Cable TV Fund
12-D, Ltd.; Certain Information About the
Partnership and the General Partner.
(b)-(c)............... Vote of the Limited Partners of Cable TV Fund
12-D, Ltd.
(d)................... Special Factors, Prior Acquisitions and Sales.
(e)................... [Not applicable.]
(f)................... [Not applicable.]
2. Identity and Background.
(a)-(d), (g).......... Vote of the Limited Partners of Cable TV Fund
12-D, Ltd.; Certain Information About the
Partnership and the General Partner; Schedule 1.
(e)-(f)............... [The answers to these items are in the negative;
pursuant to the Instruction following Item 2(f),
negative answers to Items 2(e) and 2(f) have not
been furnished to limited partners in the proxy
statement.]
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------ ---------------
<S> <C>
3. Past Contracts,
Transactions or
Negotiations.
(a)(1)................ Certain Related Party Transactions.
(a)(2)................ [None.]
(b)................... [None.]
4. Terms of the
Transaction.
(a)................... Proposed Sale of Assets.
(b)................... [Not applicable.]
5. Plans or Proposals of
the Issuer or
Affiliate.
(a)................... Vote of the Limited Partners of Cable TV Fund 12-D,
Ltd.; Certain Information About the Partnership and
the General Partner.
(b)-(e)............... [Not applicable.]
(f)-(g)............... Vote of the Limited Partners of Cable TV Fund 12-D,
Ltd.; Certain Information About the Partnership and
the General Partner.
6. Source and Amounts of
Funds or Other
Consideration.
(a)................... Proposed Sale of Assets, The Purchase and Sale
Agreement; Proposed Sale of Assets, Purchase Price.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------- ---------------
<S> <C>
(b)................... Special Factors, The Appraisals; Special Factors,
Costs of the Transaction.
(c)................... Proposed Sale of Assets, The Purchase and Sale
Agreement.
(d)................... [Not applicable.]
7. Purpose(s),
Alternatives,
Reasons and Effects.
(a)................... Special Factors, The Partnership's Investment
Objectives; Special Factors, The General Partner's
Objectives; Special Factors, Reasons for the
Timing of the Sale.
(b)................... Special Factors, Reasons for the Timing of the
Sale; Special Factors, Recommendation of the
General Partner and Fairness of the Proposed Sale
of Assets.
(c)................... Special Factors, The Partnership's Investment
Objectives; Special Factors, Reasons for the
Timing of the Sale; Special Factors,
Recommendation of the General Partner and Fairness
of the Proposed Sale of Assets.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------- ---------------
<S> <C>
(d)................... Special Factors, Certain Effects of the Sale;
Special Factors, Recommendation of the General
Partner and Fairness of the Proposed Sale of
Assets; Federal and State Income Tax Consequences.
8. Fairness of the
Transaction.
(a)-(b)............... Vote of the Limited Partners of Cable TV Fund 12-D,
Ltd.; Special Factors, Recommendation of the
General Partner and Fairness of the Proposed Sale
of Assets; Special Factors, The Appraisals.
(c)................... Vote of the Limited Partners of Cable TV Fund
12-D, Ltd.; Special Factors, Relevant Provisions
of the Partnership Agreement; Proposed Sale of
Assets, Conditions to Closing.
(d)-(e)............... Special Factors, Recommendation of the General
Partner and Fairness of the Proposed Sale of
Assets.
(f)................... [Not applicable.]
9. Reports, Opinions,
Appraisals and Certain
Negotiations.
(a)................... Vote of the Limited Partners of Cable TV Fund
12-D, Ltd.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------- ---------------
<S> <C>
(b)................... Special Factors, Recommendation of the General
Partner and Fairness of the Proposed Sale of
Assets; Special Factors, The Appraisals.
(c)................... Special Factors, The Appraisals; Available
Information.
10. Interest in Securities
of the Issuer
(a)................... Vote of the Limited Partners of Cable TV Fund
12-D, Ltd.; Schedule 1.
(b)................... [None.]
11. Contracts, [None.]
Arrangements or
Understandings with
Respect to the
Issuer's Securities.
12. Present Intention and
Recommendation of
Certain Persons with
Regard to the
Transaction.
(a)................... Vote of the Limited Partners of Cable TV Fund
12-D, Ltd.
(b)................... Vote of the Limited Partners of Cable TV Fund
12-D, Ltd.; Special Factors, Recommendation of the
General Partner and Fairness of the Proposed Sale
of Assets.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
-------------------- ---------------
<S> <C>
13. Other Provisions of
the Transaction.
(a)................... Special Factors, Certain Effects of the Sale.
(b)................... [Not applicable.]
(c)................... [Not applicable.]
14. Financial Information.
(a)(1)................ [Pursuant to General Instruction D to Schedule 13E-
3, the audited financial statements of Cable TV
Fund 12-D, Ltd. for the fiscal years ended December
31, 1997 and 1996 are incorporated by reference
from Cable TV Fund 12-D, Ltd.'s Annual Report on
Form 10-K/A No. 1 for the fiscal year ended
December 31, 1997, which is filed as an exhibit
to this Schedule 13E-3.]
(a)(2)................ [Pursuant to General Instruction D to Schedule 13E-
3, the unaudited financial statements of Cable TV
Fund 12-D, Ltd. for its first 1998 fiscal quarter
are incorporated by reference from Cable TV Fund
12-D, Ltd.'s Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1998, which is filed
as an exhibit to this Schedule 13E-3.]
(a)(3)................ [Not applicable.]
(a)(4)................ Special Factors, Recommendation of the General
Partner and Fairness of the Proposed Sale of
Assets.
(b)................... Unaudited Pro Forma Financial Information of Cable
TV Fund 12-D, Ltd.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------- ---------------
<S> <C>
15. Persons and Assets
Employed,
Retained or Utilized.
(a)................... Vote of the Limited Partners of Cable TV Fund
12-D, Ltd.
(b)................... [None.]
16. Additional Special Factors, Relevant Provisions of the
Information. Partnership Agreement.
- -------------------------------------------------------------------------------
17. Materials
Filed as Exhibits:
(a)................... Jones Cable Holdings II, Inc.'s Credit Facility
(b)(1)................ Appraisal of the Palmdale System by Strategis
Financial Consulting, Inc.
(b)(2)................ Appraisal of the Palmdale System by Waller Capital
Corporation.
(b)(3)................ Appraisal of the Palmdale System by Bond &
Pecaro, Inc.
(c)................... [Not applicable.]
(d)(1)................ Preliminary Proxy Statement to be furnished to the
limited partners of Cable TV Fund 12-D, Ltd.
(d)(2)................ Cable TV Fund 12-D, Ltd.'s Annual Report on Form
10-K/A No. 1 for the fiscal year ended December 31,
1997.
(d)(3)................ Cable TV Fund 12-D, Ltd.'s Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31,
1998.
(e)................... [Not applicable.]
(f)................... [Not applicable.]
___________
* previously filed
</TABLE>
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<PAGE>
SIGNATURES
----------
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
JONES INTERCABLE, INC.,
a Colorado corporation
Dated: June 4, 1998 By: /s/ Elizabeth M. Steele
-----------------------
Elizabeth M. Steele
Vice President
CABLE TV FUND 12-D, LTD.,
a Colorado limited partnership
By: Jones Intercable, Inc.,
a Colorado corporation,
as general partner
Dated: June 4, 1998 By: /s/ Elizabeth M. Steele
-----------------------
Elizabeth M. Steele
Vice President
-11-
<PAGE>
EXHIBIT 99.(a)
CREDIT AGREEMENT
[Tranche A]
among
JONES CABLE HOLDINGS II, INC.,
as the Borrower
THE SEVERAL LENDERS
FROM TIME TO TIME PARTIES HERETO
THE BANK OF NOVA SCOTIA,
NATIONSBANK OF TEXAS, N.A. and
SOCIETE GENERALE,
as the Managing Agents
THE BANK OF NOVA SCOTIA,
as the Administrative Agent
NATIONSBANK OF TEXAS, N.A.,
as the Documentation Agent
and
SOCIETE GENERALE,
as the Syndication Agent
Dated as of October 29, 1996
<PAGE>
TABLE OF CONTENTS
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<TABLE>
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Page
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<S> <C>
SECTION 1. DEFINITIONS..................................................................1
1.1 Defined Terms..............................................................1
1.2 Other Definitional Provisions.............................................20
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS.............................................21
2.1 Commitments...............................................................21
2.2 Notes.....................................................................21
2.3 Procedure for Borrowing...................................................21
2.4 Repayment of Loans........................................................22
SECTION 3. LETTERS OF CREDIT...........................................................23
3.1 L/C Commitment............................................................23
3.2 Procedure for Issuance of Letters of Credit...............................23
3.3 Fees, Commissions and Other Charges.......................................23
3.4 L/C Participations........................................................24
3.5 Reimbursement Obligation of the Borrower..................................25
3.6 Obligations Absolute......................................................26
3.7 Letter of Credit Payments.................................................26
3.8 Application...............................................................26
SECTION 4. GENERAL PROVISIONS APPLICABLE TO
LOANS AND LETTERS OF CREDIT.....................................................27
4.1 Interest Rates and Payment Dates..........................................27
4.2 Optional and Mandatory Commitment Reductions and Prepayments..............27
4.3 Commitment Fees, etc......................................................29
4.4 Computation of Interest and Fees..........................................30
4.5 Conversion and Continuation Options.......................................30
4.6 Minimum Amounts of Tranches...............................................31
4.7 Inability to Determine Interest Rate......................................31
4.8 Pro Rata Treatment and Payments...........................................31
4.9 Requirements of Law.......................................................32
4.10 Taxes.....................................................................33
4.11 Indemnity.................................................................35
4.12 Change of Lending Office..................................................36
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C>
SECTION 5. REPRESENTATIONS AND WARRANTIES..............................................36
5.1 Financial Condition........................................................36
5.2 No Change..................................................................37
5.3 Existence; Compliance with Law.............................................37
5.4 Power; Authorization; Enforceable Obligations..............................37
5.5 No Legal Bar...............................................................38
5.6 No Material Litigation.....................................................38
5.7 No Default.................................................................39
5.8 Ownership of Property; Intellectual Property...............................39
5.9 No Burdensome Restrictions.................................................39
5.10 Taxes......................................................................39
5.11 Federal Regulations........................................................39
5.12 ERISA......................................................................40
5.13 Investment Company Act; Other Regulations..................................40
5.14 Subsidiaries...............................................................40
5.15 Insurance..................................................................40
5.16 Certain Cable Television Matters...........................................41
5.17 Environmental Matters......................................................41
5.18 Accuracy of Information....................................................43
5.19 Security Documents.........................................................43
5.20 Solvency...................................................................43
5.21 Indebtedness...............................................................43
5.22 Labor Matters..............................................................43
5.23 Prior Names................................................................44
5.24 Franchises.................................................................44
5.25 Chief Executive Office; Chief Place of Business............................45
5.26 Full Disclosure............................................................45
5.27 Intercompany Subordinated Debt.............................................45
SECTION 6. CONDITIONS PRECEDENT........................................................45
6.1 Conditions to Initial Extensions of Credit.................................45
6.2 Conditions to Each Extension of Credit.....................................47
SECTION 7. AFFIRMATIVE COVENANTS.......................................................48
7.1 Financial Statements.......................................................48
7.2 Certificates; Other Information............................................49
7.3 Payment of Obligations.....................................................50
7.4 Conduct of Business and Maintenance of Existence, etc......................50
7.5 Maintenance of Property; Insurance.........................................50
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C>
7.6 Inspection of Property; Books and Records; Discussions.....................50
7.7 Notices....................................................................51
7.8 Environmental Laws.........................................................51
7.9 Collateral.................................................................52
7.11 New Subsidiaries...........................................................53
SECTION 8. NEGATIVE COVENANTS..........................................................53
8.1 Financial Condition Covenants..............................................54
8.2 Limitation on Indebtedness.................................................54
8.3 Limitation on Liens........................................................55
8.4 Limitation on Fundamental Changes..........................................56
8.5 Limitation on Sale of Assets...............................................56
8.6 Restricted/Unrestricted Designation of Subsidiaries........................57
8.7 Limitation on Restricted Payments; Other Payment Limitations...............58
8.8 Limitation on Acquisitions.................................................58
8.9 Investments, Loans, Etc....................................................59
8.10 Limitation on Transactions with Affiliates.................................60
8.11 Certain Intercompany Matters...............................................60
8.12 Limitation on Restrictions on Subsidiary Distributions.....................60
8.13 Limitation on Lines of Business............................................60
8.14 No Negative Pledge.........................................................60
8.15 Tax Sharing Agreement......................................................61
8.16 Limitation on the Borrower's Ownership of Assets...........................61
8.17 Limitation on Issuance of Capital Stock....................................61
SECTION 9. EVENTS OF DEFAULT...........................................................61
SECTION 10. THE ADMINISTRATIVE AGENT....................................................64
10.1 Appointment................................................................64
10.2 Delegation of Duties.......................................................65
10.3 Exculpatory Provisions.....................................................65
10.4 Reliance by the Administrative Agent.......................................65
10.5 Notice of Default..........................................................66
10.6 Non-Reliance on the Administrative Agent and the Other Lenders.............66
10.7 Indemnification............................................................66
10.8 The Administrative Agent in Its Individual Capacity........................67
10.9 Successor Administrative Agent.............................................67
10.10 Managing Agents and Co-Agents..............................................68
SECTION 11. NEW RESTRICTED SUBSIDIARIES.................................................69
</TABLE>
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<PAGE>
<TABLE>
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Page
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<S> <C>
SECTION 12. MISCELLANEOUS..............................................................69
12.1 Amendments and Waivers...................................................69
12.2 Notices..................................................................70
12.3 No Waiver; Cumulative Remedies...........................................70
12.4 Survival of Representations and Warranties...............................71
12.5 Payment of Expenses and Taxes............................................71
12.6 Successors and Assigns; Participations and Assignments...................71
12.7 Adjustments; Set-off.....................................................75
12.8 Counterparts; When Effective.............................................75
12.9 Severability.............................................................75
12.10 Integration..............................................................76
12.11 GOVERNING LAW............................................................76
12.12 SUBMISSION TO JURISDICTION; WAIVERS......................................76
12.13 Acknowledgements.........................................................77
12.14 WAIVERS OF JURY TRIAL....................................................77
12.15 Confidentiality..........................................................77
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SCHEDULES
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<S> <C>
Schedule 1.1 Commitments and Addresses of the Lenders
Schedule 5.1 Financial Disclosure
Schedule 5.4 Required Consents and Authorizations
Schedule 5.6 Litigation Disclosure
Schedule 5.14 Subsidiaries and Designation
Schedule 5.24 Franchise Agreements
Schedule 5.25 Chief Executive Office/Chief Places of Business
Schedule 6.1(f) Stock Ownership of the Borrower and the Restricted Subsidiaries
Schedule 8.10 Existing Affiliated Transactions
<CAPTION>
EXHIBITS
- --------
<S> <C>
A Form of Assignment and Acceptance
B Form of Compliance Certificate
C Form of Intercompany Subordinated Debt Agreement
D-1 Jones Cable Holdings II, Inc. Negative Pledge Agreement
D-2 Restricted Subsidiary Negative Pledge Agreement
E Form of Intercompany Subordinated Note
F Form of Pledge Agreement(s)
G Form of Note
H-1 Form of Notice of Borrowing
H-2 Form of Notice of Conversion/Continuation
I Form of Closing Certificate
J Form of Legal Opinion of the General Counsel or the acting General Counsel of the Borrower
K Form of FCC Opinion
L Form of Alternative Note
</TABLE>
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<PAGE>
THIS CREDIT AGREEMENT [TRANCHE A] is entered into as of October
29, 1996, among JONES CABLE HOLDINGS II, INC., a Colorado corporation (the
"Borrower"), the several lenders from time to time parties to this Agreement
--------
(the "Lenders"), THE BANK OF NOVA SCOTIA, NATIONSBANK OF TEXAS, N.A. and SOCIETE
-------
GENERALE, as the Managing Agents (in such capacity, the "Managing Agents"), THE
---------------
BANK OF NOVA SCOTIA, as the Administrative Agent for the Lenders hereunder,
NATIONSBANK OF TEXAS, N.A., as the Documentation Agent (in such capacity, the
"Documentation Agent") and SOCIETE GENERALE, as the Syndication Agent (in such
-------------------
capacity, the "Syndication Agent").
-----------------
WITNESSETH:
----------
WHEREAS, (i) the Borrower has purchased or will purchase from
Jones Cable Holdings, Inc., a Colorado corporation ("JCH") 100% of the Capital
---
Stock of Jones Communications of Georgia/South Carolina, Inc. ("JCG") and Jones
---
Communications of Arizona, Inc. ("JCA") and (ii) prior to or contemporaneously
---
with the purchase of such Capital Stock by the Borrower, JCH will sell to JCG
the Cable Systems serving North Augusta, South Carolina, Augusta, Georgia and
Savannah, Georgia and sell to JCA the Cable System serving Pima County, Arizona
(the transactions described in subsections (i) and (ii) above being collectively
referred to herein as the "Stock Purchase"); and
--------------
WHEREAS, the Borrower has requested the Lenders to furnish the
extensions of credit provided for herein, which shall be used by the Borrower
(a) to finance a portion of the cost to purchase the Capital Stock of JCG and
JCA and to finance other permitted acquisitions, (b) for capital expenditures to
expand and upgrade the Cable Systems, (c) to make dividends or distributions
permitted under this Agreement and (d) for general corporate purposes;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
-------------
shall have the following meanings:
"ABR": for any day, a rate per annum (rounded upwards, if necessary,
---
to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect
on such day and (b) the Federal Funds Effective Rate in effect on such day
plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate of
----------
interest per annum publicly announced from time to time by the
Administrative Agent as its prime rate in effect at its principal office in
New York City (the Prime Rate not being intended to be the lowest rate of
interest charged by the Administrative Agent in connection with extensions
of credit to debtors); and "Federal Funds
-------------
1
<PAGE>
Effective Rate" shall mean, for any day, the weighted average of the rates
--------------
on overnight federal funds transactions with members of the Federal Reserve
System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of
the quotations for the day of such transactions received by the
Administrative Agent from three federal funds brokers of recognized standing
selected by it. Any change in the ABR due to a change in the Prime Rate or
the Federal Funds Effective Rate shall be effective as of the opening of
business on the effective day of such change in the Prime Rate or the
Federal Funds Effective Rate, respectively.
"ABR Loans": Loans the rate of interest applicable to which is based
---------
upon the ABR.
"Acquired Assets": as defined in Section 7.9(c).
--------------- --------------
"Acquired Systems": the Cable Systems serving North Augusta, South
----------------
Carolina, Augusta, Georgia, Savannah, Georgia and Pima County Arizona,
transferred by JCH to certain of the Restricted Subsidiaries of the Borrower
on or before the Initial Funding Date.
"Administrative Agent": Scotiabank, together with its affiliates, as
--------------------
the agent for the Lenders under this Agreement and the other Loan Documents.
"Affiliate": as to any Person, any other Person which, directly or
---------
indirectly, is in control of, is controlled by, or is under common control
with, such Person. A Person shall be deemed to control another Person if
such Person (acting alone or with a group of Persons acting in concert)
possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such other Person, whether
through ownership of voting securities, by contract or otherwise.
"Aggregate Outstanding Extensions of Credit": as to any Lender at any
------------------------------------------
time, an amount equal to the sum of (a) the aggregate principal amount of
all Loans made by such Lender then outstanding and (b) such Lender's
Specified Percentage of the L/C Obligations then outstanding.
"Agreement": this Credit Agreement [Tranche A], as amended,
---------
supplemented or otherwise modified from time to time.
"Alternative Note": as defined in Section 12.6(d).
---------------- ---------------
"Alternative Noteholder": as defined in Section 12.6(e).
---------------------- ---------------
"Annualized Operating Cash Flow": for the most recently ended fiscal
------------------------------
quarter, an amount equal to Operating Cash Flow for such period multiplied
----------
by four.
--
2
<PAGE>
"Applicable Margin": at the time of any determination thereof, for
-----------------
purposes of all Loans, the margin of interest over the ABR or the Eurodollar
Rate, as the case may be, which is applicable at the time of any
determination of interest rates under this Agreement, which Applicable
Margin shall be subject to adjustment (upwards or downwards, as appropriate)
based on the Leverage Ratio, as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
Applicable Margin Applicable Margin for
Leverage Ratio for ABR Loans Eurodollar Rate Loans
----------------------------------------------------------------------------------
<S> <C> <C>
Greater than or equal to 5.50 to 0.250% 1.250%
1.00
----------------------------------------------------------------------------------
Less than 5.50 to 1.00 but greater
than or equal to 5.00 to 1.00 0.000% 1.000%
----------------------------------------------------------------------------------
Less than 5.00 to 1.00 but greater
than or equal to 4.50 to 1.00 0.000% 0.750%
----------------------------------------------------------------------------------
Less than 4.50 to 1.00 0.000% 0.500%
----------------------------------------------------------------------------------
</TABLE>
For the purposes of this definition, the Applicable Margin shall be
determined as at the end of each of the first three quarterly periods of
each fiscal year of the Borrower and as at the end of each fiscal year of
the Borrower, based on the relevant financial statements delivered pursuant
to Section 7.1(a) or (b) and the Compliance Certificate delivered pursuant
-------------- ---
to Section 7.2(b); changes in the Applicable Margin shall become effective
--------------
on the date which is the earlier of (i) two Business Days after the date the
Administrative Agent receives such financial statements and the
corresponding Compliance Certificate and (ii) the 60th day after the end of
each of the first three quarterly periods of each fiscal year or the 120th
day after the end of each fiscal year, as the case may be, and shall remain
in effect until the next change to be effected pursuant to this definition;
provided, that (a) until the first such financial statements and Compliance
--------
Certificate are delivered after the date hereof, the Applicable Margin shall
be determined by reference to the Leverage Ratio set forth in the Closing
Certificate delivered to the Administrative Agent pursuant to Section 6.1(b)
--------------
and (b) if any financial statements or the Compliance Certificate referred
to above are not delivered within the time periods specified above, then,
for the period from and including the date on which such financial
statements and Compliance Certificate are required to be delivered to but
not including the date on which such financial statements and Compliance
Certificate are delivered, the Applicable Margin as at the end of the fiscal
period that would have been covered thereby shall be deemed to be the
Applicable Margin which would be applicable when the Leverage Ratio is
greater than or equal to 5.50 to 1.00.
"Application": an application, in form and substance consistent with
-----------
this Agreement and mutually satisfactory to the Borrower and the Issuing
Lender, requesting the Issuing Lender to open a Letter of Credit.
3
<PAGE>
"Assignee": as defined in Section 12.6(c).
-------- ---------------
"Assignment and Acceptance": an Assignment and Acceptance
-------------------------
substantially in the form of Exhibit A.
---------
"Authorizations": all filings, recordings and registrations with, and
--------------
all validations or exemptions, approvals, orders, authorizations, consents,
Licenses, certificates and permits from, the FCC, applicable public utilities
and other Governmental Authorities, including, without limitation, Franchises,
FCC Licenses and Pole Agreements.
"Available Commitment": at any time, as to any Lender, an amount equal
--------------------
to (a) the amount of such Lender's Commitment at such time, minus (b) such
-----
Lender's Aggregate Outstanding Extensions of Credit at such time.
"BCI": Bell Canada International Inc.
---
"Board": the Board of Governors of the Federal Reserve System or any
-----
successor.
"Borrower": as defined in the preamble hereto.
--------
"Borrowing Date": any Business Day specified in a notice pursuant to
--------------
Section 2.3 as a date on which the Borrower requests the Lenders to make Loans
- -----------
hereunder.
"Business": as defined in Section 5.17(c).
-------- ---------------
"Business Day": a day other than a Saturday, Sunday or other day on
------------
which commercial banks in New York, New York are authorized or required by law
to close and, with respect to Eurodollar Loans, a day on which dealings in
Dollar deposits are carried out in the London interbank market.
"Cable Systems": all cable television facilities and distribution
-------------
systems that are owned, operated and maintained by the Borrower or a Restricted
Subsidiary pursuant to the terms of the related licenses, franchises and permits
issued under federal, state or municipal laws from time to time in effect, which
authorize a person to receive or distribute, or both, by cable, optical,
antennae, microwave, satellite or otherwise, audio, video, digital, other
broadcast signals or information or telecommunications and visual signals within
a defined geographical area for the purpose of providing entertainment or other
services, together with all the property, tangible and intangible, owned or used
in connection with the services provided pursuant to said licenses, franchises
and permits, and each other cable television facility from time to time operated
by the Borrower and the Restricted Subsidiaries. A Cable System means one of
such Cable Systems.
4
<PAGE>
"Capital Lease Obligations": as to any Person, the obligations of such
-------------------------
Person to pay rent or other amounts under any lease of (or other arrangement
conveying the right to use) real or personal property, or a combination thereof,
which obligations are required to be classified and accounted for as capital
leases on a balance sheet of such Person under GAAP and, for the purposes of
this Agreement, the amount of such obligations at any time shall be the
capitalized amount thereof at such time determined in accordance with GAAP.
"Capital Stock": any and all shares, interests, participations or
-------------
other equivalents (however designated) of capital stock of a corporation, any
and all classes of partnership interests (including, without limitation,
general, limited and preference units) in a partnership, any and all equivalent
ownership interests in a Person (other than a corporation or partnership), and
any and all warrants or options to purchase any of the foregoing.
"Cash Equivalents": (a) securities with maturities of one year or
----------------
less from the date of acquisition issued or fully guaranteed or insured by the
United States Government or any agency thereof, (b) certificates of deposit and
eurodollar time deposits with maturities of one year or less from the date of
acquisition and overnight bank deposits of any Lender or of any commercial bank
having capital and surplus in excess of $500,000,000, (c) repurchase obligations
of any Lender or of any commercial bank satisfying the requirements of clause
(b) of this definition, having a term of not more than 30 days, with respect to
securities issued or fully guaranteed or insured by the United States
Government, (d) commercial paper of a domestic issuer rated at least A-1 by
Standard and Poor's Ratings Group ("S&P") or P-1 by Moody's Investors Service,
---
Inc. ("Moody's"), (e) securities with maturities of one year or less from the
-------
date of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States, or by any political subdivision or taxing
authority of any such state, commonwealth or territory, the securities of which
state, commonwealth, territory, political subdivision, taxing authority (as the
case may be) are rated at least A by S&P or A-2 by Moody's, or (f) shares of
money market mutual or similar funds which invest exclusively in assets
satisfying the requirements of clauses (a) through (e) of this definition.
"Change of Control": shall be deemed to have occurred at such time as
-----------------
any of the following occur:
(a) if Glenn R. Jones and/or BCI shall no longer have the power to
elect a majority of the board of directors of JIC or to direct or cause the
direction of the management and policies of JIC through the ownership of voting
securities; or
(b) (i) if Glenn R. Jones and/or BCI shall no longer have the
power, directly or indirectly, to elect a majority of the board of the Borrower
or to direct or cause the direction of the management and policies of the
Borrower and/or any Restricted Subsidiary or (ii) JIC shall create, incur,
assume or suffer to exist any Lien on any Capital Stock of the Borrower.
5
<PAGE>
"Closing Certificate": as defined in Section 6.1(b).
------------------- --------------
"Co-Agents": CoreStates Bank, N.A., Credit Lyonnais New York Branch,
---------
PNC Bank, National Association, Mellon Bank, N.A., Royal Bank of Canada, The
Chase Manhattan Bank, Toronto Dominion (Texas), Inc., Banque Paribas and Bank of
America.
"Code": the Internal Revenue Code of 1986, as amended from time to
----
time.
"Collateral": all Acquired Assets, if any, and all Capital Stock of
----------
all the Restricted Subsidiaries, now owned or hereinafter acquired.
"Commitment": as to any Lender, its obligation, if any, to make Loans
----------
to, and/or issue or participate in Letters of Credit issued on behalf of, the
Borrower in an aggregate amount not to exceed at any one time outstanding the
amount set forth opposite such Lender's name in Schedule 1.1 under the heading
------------
"Commitment" or, in the case of any Lender that is an Assignee, the amount of
the assigning Lender's Commitment assigned to such Assignee pursuant to Section
-------
12.6(c) and set forth in the applicable Assignment and Acceptance (in each case,
- -------
as the same may be increased, reduced or otherwise adjusted from time to time as
provided herein).
"Commonly Controlled Entity": an entity, whether or not incorporated,
--------------------------
which is under common control with the Borrower within the meaning of Section
4001 of ERISA or is part of a group which includes the Borrower and which is
treated as a single employer under Section 414(b) or (c) of the Code.
"Compliance Certificate": a certificate of a Responsible Officer of
----------------------
the Borrower, substantially in the form of Exhibit B.
---------
"Contractual Obligation": as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Default": any of the events specified in Section 9, whether or not
------- ---------
any requirement for the giving of notice, the lapse of time, or both, has been
satisfied.
"Disposition": as defined in Section 8.5.
----------- -----------
"Documentation Agent": as defined in the preamble hereto.
-------------------
"Dollars" and "$": dollars in lawful currency of the United States of
------- -
America.
"Effective Date": as defined in Section 12.8.
-------------- ------------
6
<PAGE>
"Environmental Laws": any and all Federal, state, local or municipal
------------------
laws, rules, orders, regulations, statutes, ordinances, codes, decrees,
requirements of any Governmental Authority or other Requirements of Law
(including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the environment,
as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
---------------------------------
Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as
a decimal fraction) of reserve requirements in effect on such day (including,
without limitation, basic, supplemental, marginal and emergency reserves under
any regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
------------------------
Regulation D of such Board) maintained by a member bank of the Federal Reserve
System.
"Eurodollar Base Rate": with respect to each day during each
--------------------
Interest Period at which Scotiabank is offered Dollar deposits at or about 11:00
A.M., New York City time, two Business Days prior to the beginning of such
Interest Period in the interbank eurodollar market where the eurodollar and
foreign currency and exchange operations in respect of its Eurodollar Loans are
then being conducted for delivery on the first day of such Interest Period for
the number of days comprised therein and in an amount comparable to the amount
of its Eurodollar Loan to be outstanding during such Interest Period.
"Eurodollar Loans": Loans, the rate of interest applicable to which
----------------
is based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest Period
---------------
pertaining to a Eurodollar Loan, a rate per annum determined for such day in
accordance with the following formula (rounded upward to the nearest 1/100th of
1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in Section 9,
---------------- ---------
provided that any requirement for the giving of notice, the lapse of time, or
- --------
both, or any other condition, has been satisfied.
"Facility": the Commitments and the extensions of credit made
--------
thereunder.
7
<PAGE>
"FCC": the Federal Communications Commission and any successor
---
thereto.
"FCC License": any community antenna relay service, broadcast
-----------
auxiliary license, earth station registration, business radio, microwave or
special safety radio service license issued by the FCC pursuant to the
Communications Act of 1934, as amended.
"Franchise": any franchise, permit, wire agreement or easement,
---------
License or other Authorization granted by any Governmental Authority, including
all laws, regulations and ordinances relating thereto, for the construction,
operation and maintenance of a Cable System or satellite master antenna
television system and the reception and transmission of signals by microwave,
and shall include, without limitation, all FCC Licenses and all certificates of
compliance and cable television registration statements which are required to be
issued by or filed with the FCC.
"Franchise Agreement": any ordinance, agreement, contract or other
-------------------
document stating the terms and conditions of any Franchise, including, without
limitation, all exhibits and schedules thereto, all amendments thereof and
consents, waivers and extensions issued thereunder, any documents incorporated
therein by reference and the application from which such Franchise was granted.
"GAAP": generally accepted accounting principles in the United States
----
of America in effect from time to time.
"Governmental Authority": any nation or government, any state or other
----------------------
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
-------------------- -------------------
any obligation of (a) the guaranteeing person or (b) another Person (including,
without limitation, any bank under any letter of credit) to induce the creation
of which the guaranteeing person has issued a reimbursement, counterindemnity or
similar obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "primary obligations")
-------------------
of any other third Person (the "primary obligor") in any manner, whether
---------------
directly or indirectly, including, without limitation, any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such primary
obligation or any property constituting direct or indirect security therefor,
(ii) to advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, however, that the term
-------- -------
Guarantee Obligation shall not include endorsements of
8
<PAGE>
instruments for deposit or collection in the ordinary course of business. The
amount of any Guarantee Obligation of any guaranteeing person shall be deemed to
be the lower of (a) an amount equal to the stated or determinable principal
amount of the primary obligation in respect of which such Guarantee Obligation
is made and (b) the maximum principal amount for which such guaranteeing person
may be liable pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum principal amount for
which such guaranteeing person may be liable are not stated or determinable, in
which case the amount of such Guarantee Obligation shall be the principal amount
of such guaranteeing person's reasonably anticipated liability in respect
thereof as determined by the Borrower in good faith. For the purposes of
Section 8.2, Guarantee Obligations by the Borrower or any of the Restricted
- -----------
Subsidiaries in respect of Indebtedness of the Borrower or any of the Restricted
Subsidiaries shall be calculated without duplication of any other Indebtedness.
It is understood that obligations pursuant to indemnities which (a) are granted
in the ordinary course of business, are related to officer or director liability
for officers and directors of the Borrower or the Restricted Subsidiaries, or
made in connection with asset Dispositions and (b) do not cover Indebtedness of
the types described in clauses (a) through (d) of the definition thereof shall
not constitute "Guarantee Obligations" for the purposes of this Agreement.
"Indebtedness": of any Person at any date, (a) all indebtedness of
------------
such Person for borrowed money or which is evidenced by a note, bond, debenture
or similar instrument, (b) all indebtedness of such Person for the deferred
purchase price of property or services (other than current trade liabilities
incurred in the ordinary course of business and payable in accordance with
customary practices), (c) all Capital Lease Obligations of such Person, (d) all
obligations of such Person in respect of the principal amount of acceptances or
letters of credit issued or created for the account of such Person, (e) all
Guarantee Obligations of such Person and (f) all liabilities of the type
described in clauses (a) through (e) above secured by any Lien on any property
owned by such Person even though such Person has not assumed or otherwise become
liable for the payment thereof; provided that the amount of any nonrecourse
--------
Indebtedness of such Person shall be not more than an amount equal to the fair
market value of the property subject to such Lien, as determined by the Borrower
in good faith. The Indebtedness of any Person shall include the Indebtedness of
any partnership in which such Person is a general partner, other than to the
extent that the instrument or agreement evidencing such Indebtedness expressly
limits the liability of such Person in respect thereof.
"Information": written information, including, without limitation,
-----------
certificates, reports, statements (other than financial statements, budgets,
projections and similar financial data) and documents.
"Initial Funding Date": the date when the initial extensions of
--------------------
credit have been made hereunder and all of the conditions precedent set forth in
Section 6 have been satisfied in full or waived.
- ---------
9
<PAGE>
"Insolvency": with respect to any Multiemployer Plan, the condition
----------
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
---------
"Intercompany Subordinated Debt": any Indebtedness of the Borrower
------------------------------
related to or resulting from any loan or advance from, or any non-equity
investment in the Borrower by, or any management or similar fees payable by the
Borrower to, or any other obligation of the Borrower to pay to, BCI or an
Affiliate of the Borrower (excluding a Restricted Subsidiary), and all such
present and future Indebtedness of the Borrower owing to, or non-equity
investment in the Borrower by, or management or similar fees payable by the
Borrower to, or any other obligation of the Borrower to pay to, BCI or an
Affiliate of the Borrower (excluding a Restricted Subsidiary) now or hereafter
existing (whether created directly or acquired by assignment or otherwise),
fixed, contingent, liquidated, unliquidated, joint, several, or joint and
several, whether evidenced in writing or not, and interest, premiums and fees,
if any, thereon and other amounts payable in respect thereof, and all rights and
remedies of such obligees with respect thereto. Notwithstanding the foregoing,
Intercompany Subordinated Debt shall not include (a) payments under the
agreements described in Schedule 8.10, or (b) payments relating to any purchase,
-------------
sale, lease or exchange of property or the rendering of any service, with any
Affiliate of the Borrower (other than a Restricted Subsidiary) which is (i)
entered into in the ordinary course of the Borrower's business, (ii) the terms
of which are fair and reasonable and in the best interests of the Borrower and
(iii) which is approved by the Board of Directors of the Borrower.
"Intercompany Subordinated Debt Agreement": the agreement executed and
----------------------------------------
delivered pursuant to Section 6.1(a) by and among JIC, the Borrower and any
--------------
other Affiliate of the Borrower who becomes a party thereto pursuant to the
terms thereof, substantially in the form of Exhibit C.
---------
"Intercompany Subordinated Note": a note substantially in the form of
------------------------------
Exhibit E, evidencing Intercompany Subordinated Debt.
- ---------
"Interest Expense": for any fiscal quarter or fiscal year of the
----------------
Borrower, as applicable, the aggregate of all letter of credit fees, commitment
fees and interest accrued or paid by the Borrower or any of the Restricted
Subsidiaries, during such period in respect of Total Debt, all as determined on
a consolidated basis in accordance with GAAP.
"Interest Payment Date": (a) as to any ABR Loan, (i) the last
---------------------
Business Day of each March, June, September and December prior to the
Termination Date and (ii) the Termination Date, (b) as to any Eurodollar Loan
having an Interest Period of three months or less, the last day of such Interest
Period and (c) as to any Eurodollar Loan having an Interest Period longer than
three months, each day which is three months or a whole multiple thereof, after
the first day of such Interest Period and the last day of such Interest Period.
10
<PAGE>
"Interest Period": with respect to any Eurodollar Loan:
---------------
(a) initially, the period commencing on the borrowing or
conversion date, as the case may be, with respect to such Eurodollar
Loan and ending one, two, three or six months thereafter (or, to the
extent available from all Lenders, nine or twelve months thereafter),
as selected by the Borrower in its Notice of Borrowing or Notice of
Conversion/Continuation, as the case may be, given with respect
thereto; and
(b) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such Eurodollar Loan and ending
one, two, three or six months thereafter (or, to the extent available
from all Lenders, nine or twelve months thereafter), as selected by the
Borrower by irrevocable notice to the Administrative Agent not less
than three Business Days prior to the last day of the then current
Interest Period with respect thereto;
provided that, all of the foregoing provisions relating to Interest Periods are
- --------
subject to the following:
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension would be to
carry such Interest Period into another calendar month in which event
such Interest Period shall end on the immediately preceding Business
Day;
(ii) any Interest Period that would otherwise extend beyond the
Termination Date shall end on the Termination Date; and
(iii) any Interest Period that begins on the last Business Day of
a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of a calendar month.
"Interest Rate Hedge Agreement": any interest rate protection
-----------------------------
agreement, interest rate futures contract, interest rate option, interest rate
cap or other interest rate hedge arrangement, to or under which the Borrower or
any Restricted Subsidiary is a party or a beneficiary.
"Investments": as defined in Section 8.9.
----------- -----------
"Issuing Lender": Scotiabank, provided that, in the event that
-------------- --------
Scotiabank shall be replaced as the Administrative Agent pursuant to
Section 10.9, (i) no Letter of Credit shall be issued by Scotiabank on or
- ------------
after the date of such replacement and (ii) the replacement Administrative Agent
shall be an Issuing Lender from and after the date of such replacement.
11
<PAGE>
"JCA": as defined in the recitals.
---
"JCG": as defined in the recitals.
---
"JCH": as defined in the recitals.
---
"JIC": Jones Intercable, Inc., a Colorado corporation.
---
"JIC Negative Pledge": the Negative Pledge Agreement to be executed and
-------------------
delivered by JIC, substantially in the form of Exhibit D-1, as the same may be
-----------
amended, supplemented or otherwise modified from time to time, whereby JIC
agrees not to create, incur, assume or suffer to exist any Lien upon the Capital
Stock of the Borrower nor upon any Intercompany Subordinated Debt from the
Borrower in favor of JIC.
"L/C Fee Payment Date": the last Business Day of each March, June,
--------------------
September and December.
"L/C Obligations": at any time, an amount equal to the sum of (a) the
---------------
aggregate then undrawn and unexpired amount of the then outstanding Letters of
Credit and (b) the aggregate amount of all unpaid Reimbursement Obligations.
"Lenders": as defined in the preamble hereto.
-------
"Letters of Credit": as defined in Section 3.1(a).
----------------- --------------
"Leverage Ratio": as of the last day of the most recently ended fiscal
--------------
quarter, the ratio of (i) Total Debt as of such day to (ii) Annualized Operating
Cash Flow based on such fiscal quarter.
"License": as to any Person, any license, permit, certificate of need,
-------
authorization, certification, accreditation, franchise, approval, or grant of
rights by any Governmental Authority or other Person necessary or appropriate
for such Person to own, maintain, or operate its business or property, including
FCC Licenses.
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), charge or other security
interest or any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement and any capital lease having
substantially the same economic effect as any of the foregoing).
"Loan": any loan made by any Lender pursuant to this Agreement.
----
12
<PAGE>
"Loan Documents": this Agreement, the Applications, all Intercompany
--------------
Subordinated Notes, the Intercompany Subordinated Debt Agreement, the Notes, the
JIC Negative Pledge, all Restricted Subsidiary Negative Pledges, any Interest
Rate Hedge Agreements with any of the Lenders and the Security Documents.
"Loan Parties": the collective reference to the Borrower and the
------------
Restricted Subsidiaries.
"Majority Lenders": at any time when no Loans or L/C Obligations are
----------------
outstanding, the Lenders having Commitments greater than 50% of the Total
Commitment, and at any time when Loans or L/C Obligations are outstanding, the
Lenders with outstanding Loans and participations in L/C Obligations having an
unpaid principal balance and face amount, respectively, greater than 50% of all
Loans and L/C Obligations outstanding, excluding from such calculation the
Lenders which have failed or refused to fund a Loan or their respective portion
of an unpaid Reimbursement Obligation.
"Managing Agents": as defined in the preamble hereto.
---------------
"Managing Agents Fee Letter": the letter agreement, dated September
--------------------------
25, 1996, among the Borrower, NationsBank, Scotiabank, and Societe.
"Material Adverse Effect": a material adverse effect on (a) the
-----------------------
business, assets, operations or condition (financial or otherwise) of the
Borrower or any of the Restricted Subsidiaries, (b) the ability of any Loan
Party to perform its obligations under the Loan Documents or (c) the rights or
remedies of the Administrative Agent or the Lenders under this Agreement or any
of the other Loan Documents.
"Materials of Environmental Concern": any gasoline or petroleum
----------------------------------
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as such
in or under any Environmental Law, including, without limitation, asbestos,
polychlorinated biphenyls and urea-formaldehyde insulation.
"Maximum Permitted Indebtedness": shall mean, at the date of
------------------------------
determination, an amount equal to the product of (i) Annualized Operating Cash
Flow based on the preceding fiscal quarter and (ii) the Leverage Ratio permitted
pursuant to Section 8.1(a) on the date of determination.
--------------
"Multiemployer Plan": a Plan which is a multiemployer plan as defined
------------------
in Section 4001(a)(3) of ERISA.
"NationsBank": NationsBank of Texas, N.A.
-----------
13
<PAGE>
"Net Unrestricted Designated Subsidiaries Three Month Cash Flow":
--------------------------------------------------------------
shall mean, for any period, the excess, if any, of (i) the Three Month Cash
Flow attributable to all Restricted Subsidiaries which have been designated
during such period as Unrestricted Subsidiaries pursuant to Section 8.6,
-----------
including, if applicable, the Three Month Cash Flow attributable to any
Restricted Subsidiary which is then being designated as an Unrestricted
Subsidiary pursuant to Section 8.6 (calculated at the time of each such
-----------
designation), over (ii) the Three Month Cash Flow attributed to all
Unrestricted Subsidiaries which have been designated during such period as
Restricted Subsidiaries pursuant to Section 8.6, including, if applicable,
-----------
the Three Month Cash Flow attributable to any Unrestricted Subsidiary which
is then being designated as a Restricted Subsidiary pursuant to Section 8.6
-----------
(calculated at the time of each such designation).
"Non-Excluded Taxes": as defined in Section 4.10(a).
------------------ ---------------
"Non-U.S. Lender": as defined in Section 4.10(b).
--------------- ---------------
"Notes": as defined in Section 2.2.
----- -----------
"Notice of Borrowing": as defined in Section 2.3.
------------------- -----------
"Notice of Conversion/Continuation": as defined in Section 4.5.
--------------------------------- -----------
"Obligations": the unpaid principal of and interest on (including,
-----------
without limitation, interest accruing after the maturity of the Loans and
Reimbursement Obligations and interest accruing after the filing of any
petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to any Loan Party, whether or
not a claim for post-filing or post-petition interest is allowed in such
proceeding) the Loans and Reimbursement Obligations and all other
obligations and liabilities of any Loan Party to the Administrative Agent
or to any Lender (or, in the case of any Interest Rate Protection
Agreement, any affiliate of any Lender), whether direct or indirect,
absolute or contingent, due or to become due, or now existing or hereafter
incurred, which may arise under, out of, or in connection with, this
Agreement, any other Loan Document, the Letters of Credit, any Interest
Rate Protection Agreement entered into with any Lender (or any affiliate of
any Lender) or any other document made, delivered or given in connection
herewith or therewith, whether on account of principal, interest,
reimbursement obligations, fees, indemnities, costs, expenses (including,
without limitation, all reasonable fees, charges and disbursements of
counsel to the Administrative Agent or to any Lender that are required to
be paid by any Loan Party pursuant hereto) or otherwise.
"Operating Cash Flow": for any period the total revenues
-------------------
(excluding the gain on the sale of any assets to the extent included
therein) of the Borrower and the Restricted Subsidiaries, less the sum of
(a) operating expenses of the Borrower and the Restricted Subsidiaries for
such period, and (b) general and administrative expenses of the Borrower
14
<PAGE>
and the Restricted Subsidiaries for such period, in each case determined
and consolidated in accordance with GAAP and calculated after giving effect
to acquisitions, exchanges and dispositions of assets of the Borrower and
any of the Restricted Subsidiaries (and designations of the Restricted
Subsidiaries and the Unrestricted Subsidiaries) during such period as if
such transactions had occurred on the first day of such period; provided,
--------
that for purposes of determining Operating Cash Flow for any such period
during which (a) the Borrower or any of the Restricted Subsidiaries
acquired or disposed of any assets, or (b) any Restricted Subsidiaries were
designated Unrestricted Subsidiaries or Unrestricted Subsidiaries were
designated Restricted Subsidiaries, then such Operating Cash Flow shall be
increased (in the case of asset acquisitions or the designation of a
Unrestricted Subsidiary as a Restricted Subsidiary) or reduced (in the case
of asset dispositions or the designation of a Restricted Subsidiary as an
Unrestricted Subsidiary), by the Operating Cash Flow that would have been
contributed by such assets or Restricted Subsidiary or Unrestricted
Subsidiary, as the case may be during such period, determined on a pro
forma basis in a manner reasonably satisfactory to the Managing Agents, as
though the Borrower or the relevant Restricted Subsidiary acquired or
disposed of such assets or the designations of the Restricted Subsidiaries
or the Unrestricted Subsidiaries took place, on the first day of such
period.
"Participant": as defined in Section 12.6(b).
----------- ---------------
"PBGC": the Pension Benefit Guaranty Corporation established
----
pursuant to Subtitle A of Title IV of ERISA.
"Permitted Line of Business": as defined in Section 8.13.
-------------------------- ------------
"Person": an individual, partnership, corporation, limited
------
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority or other
entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which is
----
covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) a "contributing sponsor" as
defined in Section 4001(a)(13) of ERISA or a member of such contributing
sponsor's "control group" as defined in Section 4001(a)(14) of ERISA.
"Pledge Agreements": the Pledge Agreements to be executed and
-----------------
delivered by the Borrower and each of the Restricted Subsidiaries,
substantially in the form of Exhibit F hereto, as the same may be amended,
---------
supplemented or otherwise modified from time to time.
"Pledged Subsidiary": any Restricted Subsidiary of the Borrower.
------------------
15
<PAGE>
"Pole Agreement": any pole attachment agreement or underground
--------------
conduit use agreement entered into in connection with the operation of any
Cable System.
"Prime Rate": as defined in the definition of "ABR".
----------
"Pro Forma Debt Service": on any date of determination, without
----------------------
duplication, for the succeeding twelve-month period from the end of the
most recently ended fiscal quarter, the sum of (a) all Interest Expense
scheduled to be paid on Total Debt during such twelve-month period
(including without limitation any amounts scheduled to be paid pursuant to
any Interest Rate Hedge Agreement), plus (b) all rentals (other than
insurance premiums and property taxes) scheduled to be paid under Capital
Lease Obligations during such twelve-month period, plus (c) required
principal payments on Total Debt and/or payments associated with reductions
in the Total Commitment for such twelve-month period; provided that, for
--------
purposes of this definition, the rates of interest payable during any
period on Total Debt (x) bearing interest at a variable rate or at
different fixed rates or (y) on which interest does not become payable
until a specified date after the end of such quarter shall, in each case,
be the interest rates per annum payable on such Total Debt as of the date
for which such calculation is made.
"Properties": as defined in Section 5.17(e).
---------- ---------------
"Quarterly Percentage Reduction": as defined in Section 4.2(c).
------------------------------ --------------
"Register": as defined in Section 12.6(g).
-------- ---------------
"Reimbursement Obligations": the obligations of the Borrower to
-------------------------
reimburse the Issuing Lender pursuant to Section 3.5 for amounts drawn
-----------
under Letters of Credit.
"Reorganization": with respect to any Multiemployer Plan, the
--------------
condition that such plan is in reorganization within the meaning of Section
4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(b)
----------------
of ERISA, other than those events as to which the thirty day notice period
is waived under Sections .13, .14, .16, .18, .19 or .20 of PBGC Reg. (S)
2615.
"Requirement of Law": as to any Person, the Certificate of
------------------
Incorporation and By-Laws or other organizational or governing documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority (including any
Authorization), in each case applicable to or binding upon such Person or
any of its property or to which such Person or any of its property is
subject.
"Responsible Officer": the chief executive officer, the president,
-------------------
the chief financial officer or the treasurer of the relevant Loan Party.
16
<PAGE>
"Restricted Payments": as defined in Section 8.7.
------------------- -----------
"Restricted Subsidiary": (a) each of the Subsidiaries designated
---------------------
as such on Schedule 5.14 attached hereto, (b) any Subsidiary created or
-------------
acquired after the Effective Date pursuant to Section 8.9(e), unless and
-------------
until designated as an Unrestricted Subsidiary pursuant to Section 8.6 and
-----------
(c) as of the date of such designation, any Unrestricted Subsidiary
designated as a Restricted Subsidiary pursuant to Section 8.6.
-----------
"Restricted Subsidiary Negative Pledge": the Negative Pledge
-------------------------------------
Agreement to be executed and delivered by each Restricted Subsidiary in the
form of Exhibit D-2, as the same may be amended, supplemented or otherwise
-----------
modified from time to time, whereby the Restricted Subsidiaries agree not
to create, incur, assume or suffer to exist any Lien upon any of their
assets except as permitted under Section 8.3 of the Tranche B Agreement and
-----------
this Agreement.
"Scotiabank": The Bank of Nova Scotia.
----------
"Scotiabank Fee Letter": the letter agreement, dated September 25,
---------------------
1996, between the Borrower and Scotiabank.
"Security Documents": the collective reference to the Pledge
------------------
Agreements and any other security documents hereafter delivered to the
Administrative Agent granting a Lien on any asset or assets of any Person
to secure the obligations and liabilities of the Borrower hereunder and
under any of the other Loan Documents or to secure any guarantee of any
such obligations and liabilities.
"Single Employer Plan": any Plan which is covered by Title IV of
--------------------
ERISA, but which is not a Multiemployer Plan.
"Societe": Societe Generale.
-------
"Solvent": when used with respect to any Person, means that, as of
-------
any date of determination, (a) the amount of the "fair value" or "present
fair saleable value" of the assets of such Person will, as of such date,
exceed the amount of all "liabilities of such Person, contingent or
otherwise", as of such date, as such quoted terms are determined in
accordance with applicable federal and state laws governing determinations
of the insolvency of debtors, (b) the fair value or present fair saleable
value of the assets of such Person will, as of such date, be greater than
the amount that will be required to pay the liability of such Person on its
debts as such debts become absolute and matured, (c) such Person will not
have, as of such date, an unreasonably small amount of capital with which
to conduct its business, and (d) such Person will be able to pay its debts
as they mature. For purposes of this definition, (i) "debt" means liability
on a "claim", (ii) "claim" means any (x) right to payment, whether or not
such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent,
17
<PAGE>
matured, unmatured, disputed, undisputed, legal, equitable, secured or
unsecured or (y) right to an equitable remedy for breach of performance if
such breach gives rise to a right to payment, whether or not such right to
an equitable remedy is reduced to judgment, fixed, contingent, matured or
unmatured, disputed, undisputed, secured or unsecured and (iii)
unliquidated, contingent, disputed and unmatured claims shall be valued at
the amount that can be reasonably expected to be actual and matured.
"Specified Percentage": at any time, as to any Lender, the
--------------------
percentage of the Total Commitment then constituted by such Lender's
Commitment.
"Stock Purchase": as defined in the recitals hereto.
--------------
"Subsidiary": as to any Person, a corporation, partnership or
----------
other entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests
having such power only by reason of the happening of a contingency) to
elect a majority of the board of directors (or Persons holding equivalent
positions) of such corporation, partnership or other entity are at the time
owned, or the management and policies of which are otherwise ultimately
controlled, directly or indirectly through one or more intermediaries, or
both, by such Person. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of the Borrower.
"Syndication Agent": as defined in the preamble hereto.
-----------------
"Tax Sharing Agreement": that certain Jones Intercable, Inc. and
---------------------
its Qualifying Subsidiaries Income Tax Sharing Agreement, dated as of
October 31, 1995, among JIC and certain of its Subsidiaries, as amended
solely to include the Borrower and the Restricted Subsidiaries as parties
thereto.
"Termination Date": the earlier of (i) December 31, 2005, (ii) the
----------------
date the Lenders' Commitments to lend under this Agreement are otherwise
cancelled or terminated and (iii) the date any Note shall become due and
payable, whether at stated maturity, by acceleration or otherwise.
"Three Month Cash Flow": for a Person or group of Persons or the
---------------------
assets of any Person as the context requires that portion of Operating Cash
Flow derived from or produced by such Person, Persons or assets for the
three-month period ending on the last day of the month immediately
preceding the date of designation, transfer, sale or exchange of such
Person, Persons or assets or, in the case of the Borrower and the
Restricted Subsidiaries, immediately prior to the date of determination
thereof.
"Total Available Commitment": the sum of the Available Commitments
--------------------------
of all the Lenders.
18
<PAGE>
"Total Commitment": the sum of the Commitments (in each case, as
----------------
the same may be increased, reduced or otherwise adjusted from time to time
as provided herein) not to exceed $300,000,000.
"Total Debt": for the Borrower and the Restricted Subsidiaries as
----------
of any date, without duplication, the sum of (a) Indebtedness outstanding
on such date excluding any Intercompany Subordinated Debt, provided that
--------
the Intercompany Subordinated Debt is unsecured and subordinated pursuant
to the terms of the Intercompany Subordinated Debt Agreement, (b) Capital
Lease Obligations outstanding on such date and (c) Guarantee Obligations,
determined on a consolidated basis in accordance with GAAP.
"Total Extensions of Credit": at any time, the sum of the
--------------------------
Aggregate Outstanding Extensions of Credit of all of the Lenders at such
time.
"Tranche": the collective reference to Eurodollar Loans, the then
-------
current Interest Periods of which begin on the same date and end on the
same later date (whether or not such Loans shall originally have been made
on the same day).
"Tranche B Agreement": the Credit Agreement [Tranche B] among the
-------------------
Borrower, the several Lenders from time to time parties thereto, the
Managing Agents, the Syndication Agent, the Documentation Agent and the
Administrative Agent, of even date herewith, as amended, supplemented or
otherwise modified from time to time.
"Transferee": as defined in Section 12.6(i).
---------- ---------------
"Type": as to any Loan, its nature as an ABR Loan or a Eurodollar
----
Loan.
"Uniform Customs": the Uniform Customs and Practice for
---------------
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be amended from time to time.
"Unrestricted Subsidiary": (a) any Subsidiary created or acquired
-----------------------
after the Effective Date, pursuant to Section 8.9(f) and/or any Subsidiary
-------------
that is designated as an Unrestricted Subsidiary in accordance with the
terms of Section 8.6 and (b) any Subsidiary of any such Unrestricted
-----------
Subsidiary, provided, that (i) at no time shall any creditor of any such
--------
Subsidiary have any claim (whether pursuant to a Guarantee Obligation or
otherwise) against the Borrower or any of its other Subsidiaries (other
than another Unrestricted Subsidiary) in respect of any Indebtedness or
other obligation of any such Subsidiary; (ii) neither the Borrower nor any
of its Subsidiaries (other than another Unrestricted Subsidiary) shall
become a general partner of any such Subsidiary; (iii) no default with
respect to any Indebtedness of any such Subsidiary (including any right
which the holders thereof may have to take enforcement action against any
such Subsidiary) shall permit (upon notice, lapse of time or both) any
holder of any Indebtedness of the Borrower or its other Subsidiaries (other
19
<PAGE>
than another Unrestricted Subsidiary) to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable
prior to its final scheduled maturity; (iv) no such Subsidiary shall own
any Capital Stock of, or own or hold any Lien on any property of, the
Borrower or any other Subsidiary of the Borrower (other than another
Unrestricted Subsidiary); (v) no Investments may be made in any such
Subsidiary by the Borrower or any of its Subsidiaries (other than another
Unrestricted Subsidiary except pursuant to Section 8.9(f)); and (vi) at the
-------------
time of such designation, no Default or Event of Default shall have
occurred and be continuing or would result therefrom. It is understood that
the Unrestricted Subsidiaries shall be disregarded for the purposes of any
calculation pursuant to this Agreement relating to financial matters with
respect to the Borrower.
"Unrestricted Subsidiary Designation": as defined in Section 8.6.
----------------------------------- -----------
"Wholly Owned Subsidiary": as to any Person, any other Person at
-----------------------
least 100% of the Capital Stock of which (other than directors' qualifying
shares required by law) is owned by such Person directly or indirectly
through one or more other Wholly Owned Subsidiaries.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
-----------------------------
therein, all terms defined in this Agreement shall have the defined meanings
when used in any other Loan Document or any certificate or other document made
or delivered pursuant hereto or thereto.
(b) Unless otherwise specified herein, all accounting terms used
herein (and in any other Loan Document and any certificate or other document
made or delivered pursuant hereto or thereto) shall be interpreted, all
accounting determinations shall be made, and all financial statements required
to be delivered hereunder shall be prepared, in accordance with GAAP as in
effect from time to time; provided, however, that if the Borrower notifies the
-------- -------
Administrative Agent that the Borrower wishes to amend any covenant in Section 8
---------
to eliminate the effect of any change in GAAP on the operation of such covenant
(or if the Administrative Agent notifies the Borrower that the Majority Lenders
wish to amend Section 8 for such purpose), then compliance with such covenant
---------
shall be determined on the basis of GAAP in effect immediately before the
relevant change in GAAP became effective, until either such notice is withdrawn
or such covenant is amended in a manner satisfactory to the Borrower and the
Majority Lenders.
(c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.
(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
20
<PAGE>
(e) References in this Agreement or any other Loan Document to
knowledge by the Borrower or any Restricted Subsidiary of events or
circumstances shall be deemed to refer to events or circumstances of which any
Responsible Officer has actual knowledge or reasonably should have knowledge.
(f) References in this Agreement or any other Loan Document to
financial statements shall be deemed to include all related schedules and notes
thereto.
SECTION 2. AMOUNT AND TERMS OF COMMITMENTS
2.1 Commitments. (a) Subject to and in reliance upon the terms,
-----------
conditions, representations and warranties contained in the Loan Documents, each
Lender severally agrees to make revolving credit Loans to the Borrower from time
to time until the Termination Date, provided that in no event shall the
Aggregate Outstanding Extensions of Credit of any Lender at any time exceed such
Lender's Commitment. Until the Termination Date, the Borrower may use the
Available Commitments by borrowing, prepaying the Loans in whole or in part, and
reborrowing, all in accordance with the terms and conditions hereof.
(b) The Loans may from time to time be (i) Eurodollar Loans,
(ii) ABR Loans or (iii) a combination thereof, as determined by the Borrower
and notified to the Administrative Agent in accordance with Sections 2.3 and
------------
4.5, provided that no Loan shall be made as a Eurodollar Loan after the day
- --- --------
that is one month prior to the Termination Date.
2.2 Notes. In order to evidence the Loans, the Borrower will
-----
execute and deliver to each Lender a promissory note substantially in the form
of Exhibit G, with appropriate insertions as to payee, date and principal amount
---------
(each, as amended, supplemented, replaced or otherwise modified from time to
time, a "Note"), payable to the order of each Lender and in a principal amount
----
equal to each such Lender's Commitment. Each Note shall (x) be dated the
Effective Date or the date of any reissuance of such Note, (y) be stated to
mature on the Termination Date and (z) provide for the payment of interest in
accordance with Section 4.1.
-----------
2.3 Procedure for Borrowing. Subject to the terms and conditions
-----------------------
contained in the Loan Documents, the Borrower may borrow under the Available
Commitments, prior to the Termination Date, on any Business Day by delivery to
the Administrative Agent of an irrevocable notice substantially in the form of
Exhibit H-1 (a "Notice of Borrowing"). A Notice of Borrowing must be received
- ----------- -------------------
by the Administrative Agent prior to 12:00 Noon, New York City time, (a) three
Business Days prior to the requested Borrowing Date, if all or any part of the
requested Loans are to be initially Eurodollar Loans, or (b) on the requested
Borrowing Date. A Notice of Borrowing shall specify (i) the amount to be
borrowed, (ii) the requested Borrowing Date, (iii) whether the borrowing is to
be of Eurodollar Loans, ABR Loans or a combination thereof and (iv) if the
borrowing is to be entirely or partly of Eurodollar Loans, the respective
amounts of each Tranche and the respective lengths of the initial Interest
Periods therefor. Each borrowing under the Total Available Commitment shall be
in an amount equal to (x) in the case of ABR Loans, $5,000,000 or
21
<PAGE>
a whole multiple of $1,000,000 in excess thereof (or, if the then Total
Available Commitment is less than $5,000,000, such lesser amount) and (y) in the
case of Eurodollar Loans, $5,000,000 or a whole multiple of $1,000,000 in excess
thereof. Upon receipt of any such Notice of Borrowing from the Borrower, the
Administrative Agent shall promptly notify each Lender thereof. Each such
Lender will make the amount of its pro rata share of each borrowing available to
the Administrative Agent for the account of the Borrower at the office of the
Administrative Agent specified in Section 12.2 prior to 2:00 P.M., New York City
------------
time, on the Borrowing Date requested by the Borrower in funds immediately
available to the Administrative Agent. Such borrowing will then be made
available to the Borrower by the Administrative Agent crediting the account of
the Borrower as so directed by the Borrower in a Notice of Borrowing with the
aggregate of the amounts made available to the Administrative Agent by the
Lenders and in like funds as received by the Administrative Agent.
2.4 Repayment of Loans. (a) The Borrower hereby unconditionally
------------------
promises to pay to the Administrative Agent for the account of each Lender, (i)
the then unpaid principal amount of each Loan of such Lender, on the Termination
Date (or such earlier date on which the Loans become due and payable pursuant to
Section 9) and (ii) the amounts specified in Section 4.2, on the dates specified
- --------- -----------
in Section 4.2. The Borrower hereby further agrees to pay interest on the
-----------
unpaid principal amount of the Loans from time to time outstanding from the date
hereof until payment in full thereof at the rates per annum, and on the dates,
set forth in Section 4.1.
-----------
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing indebtedness of the Borrower to such
Lender resulting from each Loan of such Lender from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time under this Agreement.
(c) The Administrative Agent shall maintain the Register pursuant
to Section 12.6(g), and a subaccount therein for each Lender, in which shall be
--------------
recorded (i) the amount of each Loan made hereunder, the Type thereof and each
Interest Period, if any, applicable thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Borrower to each
Lender hereunder and (iii) both the amount of any sum received by the
Administrative Agent hereunder from the Borrower and each Lender's share
thereof.
(d) The entries made in the Register and the accounts of each
Lender maintained pursuant to Section 12.6(g) shall, to the extent permitted by
--------------
applicable law, be prima facie evidence of the existence and amounts of the
----- -----
obligations of the Borrower therein recorded; provided, however, that the
-------- -------
failure of any Lender or the Administrative Agent to maintain the Register or
any such account, or any error therein, shall not in any manner affect the
obligation of the Borrower to repay (with applicable interest) the Loans made to
the Borrower by such Lender in accordance with the terms of this Agreement.
22
<PAGE>
SECTION 3. LETTERS OF CREDIT
3.1 L/C Commitment. (a) Subject to the terms and conditions
--------------
hereof, Issuing Lender, in reliance on the agreements of the other Lenders set
forth in Section 3.4(a), agrees to issue letters of credit ("Letters of Credit")
------------- -----------------
for the account of the Borrower on any Business Day in such form as may be
approved from time to time by such Issuing Lender; provided that Issuing Lender
--------
shall not issue any Letter of Credit if, after giving effect to such issuance,
either (i) the L/C Obligations would exceed $30,000,000 or (ii) the Total
Extensions of Credit would exceed the Total Commitment. Each Letter of Credit
shall (i) be denominated in Dollars and shall be either (x) a standby letter of
credit issued for the account of the Borrower, which finances the working
capital and business needs of the Borrower and/or the Subsidiaries of the
Borrower, including, without limitation, good faith deposits in connection with
permitted acquisitions by the Borrower and/or the Subsidiaries of the Borrower,
or (y) a commercial letter of credit issued for the account of the Borrower in
respect of the purchase of goods or services by the Borrower and/or any of the
Subsidiaries of the Borrower and (ii) expire no later than the earlier of (x)
the Termination Date and (y) the date which is 12 months after its date of
issuance.
(b) Each Letter of Credit shall be subject to the Uniform Customs
and, to the extent not inconsistent therewith, the laws of the State of New
York.
(c) The Issuing Lender shall not at any time be obligated to
issue any Letter of Credit hereunder if such issuance would conflict with, or
cause the Issuing Lender or any other Lender to exceed any limits imposed by,
any applicable Requirement of Law.
3.2 Procedure for Issuance of Letters of Credit. The Borrower may
-------------------------------------------
from time to time request that the Issuing Lender issue a Letter of Credit by
delivering to the Issuing Lender, at its address for notices specified herein,
an Application therefor, completed to the reasonable satisfaction of the Issuing
Lender, and such other certificates, documents and other papers and information
as the Issuing Lender may reasonably request. Upon receipt of any Application,
the Issuing Lender will process such Application and the certificates, documents
and other papers and information delivered to it in connection therewith in
accordance with its customary procedures and shall promptly issue the Letter of
Credit requested thereby (but in no event shall the Issuing Lender be required
to issue any Letter of Credit earlier than three Business Days after its receipt
of the Application therefor and all such other certificates, documents and other
papers and information relating thereto) by issuing the original of such Letter
of Credit to the beneficiary thereof or as otherwise may be agreed by the
Issuing Lender and the Borrower. The Issuing Lender shall furnish a copy of such
Letter of Credit to the Borrower promptly following the issuance thereof.
3.3 Fees, Commissions and Other Charges. (a) The Borrower shall
-----------------------------------
pay to the Administrative Agent, for the account of each Lender, a letter of
credit fee with respect to each Letter of Credit, computed for the period from
and including the date of issuance of such Letter of Credit to the date such
Letter of Credit is no longer outstanding, computed at a percentage rate per
annum equal to the Applicable Margin from time to time applicable to Loans
bearing interest at the
23
<PAGE>
Eurodollar Rate, calculated on the basis of a 360-day year, of the aggregate
average daily amount available to be drawn under such Letter of Credit for the
period as to which payment of such fee is made, payable on each L/C Fee Payment
Date to occur while such Letter of Credit remains outstanding and on the date
such Letter of Credit expires, is cancelled or is drawn upon. Such fee shall be
nonrefundable.
(b) In addition to the foregoing fees, the Borrower shall pay to the
Issuing Lender the fees set forth in the Scotiabank Fee Letter.
(c) The Administrative Agent shall, promptly following its receipt
thereof, distribute to each Lender all fees received by the Administrative Agent
for each such Lender's account pursuant to this Section.
3.4 L/C Participations. (a) The Issuing Lender irrevocably agrees
------------------
to grant and hereby grants to each Lender, and, to induce the Issuing Lender to
issue Letters of Credit hereunder, each Lender irrevocably agrees to accept and
purchase and hereby accepts and purchases from the Issuing Lender, on the terms
and conditions hereinafter stated, for such Lender's own account and risk an
undivided interest equal to such Lender's Specified Percentage in the Issuing
Lender's obligations and rights under each Letter of Credit issued by the
Issuing Lender and the amount of each draft paid by the Issuing Lender
thereunder. Each Lender unconditionally and irrevocably agrees with the Issuing
Lender that, if a draft is paid under any Letter of Credit issued by the Issuing
Lender for which the Issuing Lender is not reimbursed in full by the Borrower in
accordance with Section 3.5(a), such Lender shall pay to the Issuing Lender upon
--------------
demand at the Issuing Lender's address for notices specified herein an amount
equal to such Lender's Specified Percentage of the amount of such draft, or any
part thereof, which is not so reimbursed.
(b) If any amount required to be paid by any Lender to the Issuing
Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion of any
--------------
payment made by the Issuing Lender under any Letter of Credit is paid to the
Issuing Lender within three Business Days after the date such payment is due,
such Lender shall pay to the Issuing Lender on demand an amount equal to the
product of (i) such amount, times (ii) the daily average Federal Funds Effective
-----
Rate during the period from and including the date such payment is required to
the date on which such payment is immediately available to the Issuing Lender,
times (iii) a fraction the numerator of which is the number of days that elapse
- -----
during such period and the denominator of which is 360. If any such amount
required to be paid by any Lender pursuant to Section 3.4(a) is not in fact made
--------------
available to the Issuing Lender by such Lender within three Business Days after
the date such payment is due, the Issuing Lender shall be entitled to recover
from such Lender, on demand, such amount with interest thereon calculated from
such due date at a rate per annum equal to the ABR plus the Applicable Margin.
----
A certificate of the Issuing Lender submitted to any Lender with respect to any
amounts owing under this Section shall be conclusive in the absence of manifest
error.
24
<PAGE>
(c) Whenever, at any time after the Issuing Lender has made payment
under any Letter of Credit and has received from any Lender its pro rata share
--- ----
of such payment in accordance with Section 3.4(a), the Issuing Lender receives
--------------
any payment related to such Letter of Credit (whether directly from the Borrower
or otherwise, including proceeds of Collateral applied thereto by the Issuing
Lender), or any payment of interest on account thereof, the Issuing Lender will,
if such payment is received prior to 1:00 p.m., New York City time, on a
Business Day, distribute to such Lender its pro rata share thereof on the same
--- ----
Business Day or if received later than 1:00 p.m. on the next succeeding Business
Day; provided, however, that in the event that any such payment received by the
-------- -------
Issuing Lender shall be required to be returned by the Issuing Lender, such
Lender shall return to the Issuing Lender the portion thereof previously
distributed by the Issuing Lender to it.
(d) Notwithstanding anything to the contrary in this Agreement, each
Lender's obligation to make the Loans referred to in Section 3.5(b) and to
--------------
purchase and fund participating interests pursuant to Section 3.4(a) shall be
--------------
absolute and unconditional and shall not be affected by any circumstance,
including, without limitation, (i) any setoff, counterclaim, recoupment, defense
or other right which such Lender or the Borrower may have against the Issuing
Lender, the Borrower or any other Person for any reason whatsoever; (ii) the
occurrence or continuance of a Default or an Event of Default or the failure to
satisfy any of the other conditions specified in Section 6; (iii) any adverse
---------
change in the condition (financial or otherwise) of any Loan Party; (iv) any
breach of this Agreement or any other Loan Document by any Loan Party or any
Lender; or (v) any other circumstance, happening or event whatsoever, whether or
not similar to any of the foregoing.
3.5 Reimbursement Obligation of the Borrower. (a) The Borrower
----------------------------------------
agrees to reimburse the Issuing Lender (it being understood that such
reimbursement shall be effected by means of a borrowing of Loans unless the
Managing Agents shall determine in their sole discretion that such Loans may not
be made for such purpose as a result of a Default or Event of Default pursuant
to Section 9(f)), upon receipt of notice from the Issuing Lender of the date and
------------
amount of a draft presented under any Letter of Credit and paid by the Issuing
Lender, for the amount of (i) such draft so paid and (ii) any taxes, fees,
charges or other costs or expenses incurred by the Issuing Lender in connection
with such payment. Each such payment shall be made to the Issuing Lender, at
its address for notices specified herein in Dollars and in immediately available
funds, on the date on which the Borrower receives such notice, if received prior
to 1:00 P.M., New York City time, on a Business Day and otherwise on the next
succeeding Business Day.
(b) Interest shall be payable on any and all amounts remaining
unpaid by the Borrower under this Section 3.5, (i) from the date the draft
-----------
presented under the affected Letter of Credit is paid to the date on which the
Borrower is required to pay such amounts pursuant to paragraph (a) above at a
rate per annum equal to the ABR plus the Applicable Margin and (ii) thereafter
----
until payment in full at the rate which would be payable on any Loans which were
then overdue. Except as otherwise specified in Section 3.5(a), each drawing
--------------
under any Letter of Credit shall constitute a request by the Borrower to the
Administrative Agent for a borrowing of Loans that are ABR Loans pursuant to
Section 2.3 in the amount of such drawing. The Borrowing Date with
- -----------
25
<PAGE>
respect to such borrowing shall be the date of payment of such drawing and the
proceeds of such Loans shall be applied by the Administrative Agent to reimburse
the Issuing Lender for the amounts paid under such Letter of Credit.
3.6 Obligations Absolute. Subject to the penultimate sentence of
--------------------
this Section 3.6, the Borrower's obligations under this Section 3 shall be
----------- ---------
absolute and unconditional under any and all circumstances and irrespective of
any set-off, counterclaim or defense to payment which the Borrower may have or
have had against the Issuing Lender, any Lender or any beneficiary of a Letter
of Credit. The Borrower also agrees with the Issuing Lender that the Issuing
Lender and the Lenders shall not be responsible for, and the Borrower's
Reimbursement Obligations under Section 3.5(a) shall not be affected by, among
--------------
other things, (i) the validity or genuineness of documents or of any
endorsements thereon, even though such documents shall in fact prove to be
invalid, fraudulent or forged, or (ii) any dispute between or among the Borrower
and any beneficiary of any Letter of Credit or any other party to which such
Letter of Credit may be transferred or (iii) any claims whatsoever of the
Borrower against any beneficiary of such Letter of Credit or any such
transferee. The Issuing Lender and the Lenders shall not be liable for any
error, omission, interruption or delay in transmission, dispatch or delivery of
any message or advice, however transmitted, in connection with any Letter of
Credit, except for errors or omissions caused by such Person's gross negligence
or willful misconduct. The Borrower agrees that any action taken or omitted by
the Issuing Lender under or in connection with any Letter of Credit or the
related drafts or documents, if done in the absence of gross negligence or
willful misconduct and in accordance with the standards of care specified in the
Uniform Commercial Code of the State of New York, shall be binding on the
Borrower and shall not result in any liability of either the Issuing Lender or
any Lender to the Borrower.
3.7 Letter of Credit Payments. If any draft shall be presented for
-------------------------
payment under any Letter of Credit, the Issuing Lender shall promptly notify the
Borrower and the Lenders of the date and amount thereof. Subject to Section 3.6,
-----------
the responsibility of the Issuing Lender to the Borrower in connection with any
draft presented for payment under any Letter of Credit shall, in addition to any
payment obligation expressly provided for in such Letter of Credit, be limited
to determining that the documents (including each draft) delivered under such
Letter of Credit in connection with such presentment appear on their face to be
in conformity with such Letter of Credit.
3.8 Application. To the extent that any provision of any Application
-----------
related to any Letter of Credit is inconsistent with the provisions of this
Agreement, the provisions of this Agreement shall apply.
26
<PAGE>
SECTION 4. GENERAL PROVISIONS APPLICABLE TO
LOANS AND LETTERS OF CREDIT
4.1 Interest Rates and Payment Dates. (a) Each Eurodollar Loan
--------------------------------
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin in effect for such day.
- ----
(b) Each ABR Loan shall bear interest for each day that it is
outstanding at a rate per annum equal to the ABR for such day plus the
----
Applicable Margin in effect for such day.
(c) (i) After the occurrence and during the continuance of an Event
of Default, all Loans and Reimbursement Obligations shall bear interest at a
rate per annum which is equal to (x) in the case of the Loans, the rate that
would otherwise be applicable thereto pursuant to the foregoing provisions of
this Section 4.1 plus 2% or (y) in the case of Reimbursement Obligations, at a
----------- ----
rate per annum equal to the ABR plus the Applicable Margin plus 2% and (ii) if
---- ----
all or a portion of any interest payable on any Loan or Reimbursement Obligation
or any commitment fee or other amount payable hereunder shall not be paid when
due (whether at the stated maturity, by acceleration or otherwise), such overdue
amount shall bear interest at a rate per annum equal to ABR plus the Applicable
----
Margin plus 2%, in each case, with respect to clauses (i) and (ii) above, from
----
the date of such non-payment until such amount is paid in full (as well after as
before judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to paragraph (c) of this Section
--------
shall be payable from time to time on demand.
4.2 Optional and Mandatory Commitment Reductions and Prepayments.
------------------------------------------------------------
(a) The Borrower may at any time and from time to time prepay the Loans, in
whole or in part, without premium or penalty (it being understood that amounts
payable pursuant to Section 4.11 do not constitute premium or penalty), upon at
------------
least three Business Days' irrevocable notice to the Administrative Agent (in
the case of Eurodollar Loans) or at least one Business Day's irrevocable notice
to the Administrative Agent (in the case of ABR Loans), specifying the date and
amount of prepayment and whether the prepayment is of Eurodollar Loans, ABR
Loans or a combination thereof, and, in each case if a combination thereof, the
principal amount allocable to each. Upon the receipt of any such notice the
Administrative Agent shall promptly notify each Lender thereof. If any such
notice is given, the amount specified in such notice shall be due and payable on
the date specified therein, together with interest accrued to the date of such
prepayment and (if a Eurodollar Loan is prepaid other than at the end of the
Interest Period applicable thereto) any amounts payable pursuant to
Section 4.11. Partial prepayments of Loans shall be in an aggregate principal
- ------------
amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof.
(b) The Borrower shall have the right, upon not less than three
Business Days' notice to the Administrative Agent (which will promptly notify
the Lenders thereof), to terminate the Total Commitment or, from time to time,
to reduce the amount of the Total Commitment;
27
<PAGE>
provided that no such termination or reduction of the Total Commitment shall be
- --------
permitted if, after giving effect thereto and to any prepayments of the Loans
made on the effective date thereof, the sum of the Aggregate Outstanding
Extensions of Credit of all the Lenders then in effect would exceed the
aggregate Total Commitment as so reduced. Any such reduction shall be in a
minimum amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof
and shall reduce permanently the Total Commitment then in effect.
(c) On the last Business Day of each March, June, September and
December, commencing March 31, 2000, through the Termination Date, the Total
Commitment shall automatically and permanently be reduced by the percentage (the
"Quarterly Percentage Reduction") of the original Total Commitment, as set forth
------------------------------
below. Notwithstanding anything contained in this Agreement to the contrary, on
the Termination Date the Total Commitment shall automatically reduce to zero.
<TABLE>
<CAPTION>
Quarterly Percentage Total Percentage Reduction
Calendar Year Reduction for the Calendar Year
------------- --------- ---------------------
<S> <C> <C>
2000 1.875% 7.50%
2001 3.750% 15.00%
2002 4.375% 17.50%
2003 5.000% 20.00%
2004 5.000% 20.00%
2005 5.000% 20.00%
</TABLE>
(d) If at any time the sum of the Aggregate Outstanding Extensions
of Credit of all the Lenders exceeds the Total Available Commitment then in
effect, the Borrower shall, without notice or demand, immediately repay the
Loans in an aggregate principal amount equal to such excess, together with
interest accrued to the date of such payment or repayment and any amounts
payable under Section 4.11. To the extent that, after giving effect to any
------------
prepayment of the Loans required by the preceding sentence, the sum of the
Aggregate Outstanding Extensions of Credit of all the Lenders still exceeds the
Total Available Commitment then in effect, the Borrower shall, without notice or
demand, immediately cash collateralize the then outstanding L/C Obligations in
an amount equal to such excess upon terms reasonably satisfactory to the
Administrative Agent.
(e) In the case of any reduction of the Total Commitment the
Borrower shall, if applicable, comply with the requirements of Section 4.2(d).
--------------
Each repayment of the Loans under this Section 4.2 shall be accompanied by
-----------
accrued interest to the date of such repayment on the amount repaid. Any amounts
deposited in any cash collateral account established pursuant to this Section
-------
28
<PAGE>
4.2 shall be invested in Cash Equivalents having a one-day maturity or such
- ---
other Cash Equivalents as shall be acceptable to the Administrative Agent and
the Borrower.
4.3 Commitment Fees, etc. (a) The Borrower agrees to pay to the
--------------------
Administrative Agent for the account of each Lender, a commitment fee, on the
average daily amount of the Total Available Commitment computed at a rate per
annum based on the Leverage Ratio in effect for the fiscal quarter preceding the
payment date, determined as follows:
<TABLE>
<CAPTION>
Leverage Ratio Commitment Fee
-------------- --------------
<S> <C>
(greater than) 5.00:1.00 0.375%
(less than or equal to) 5.00:1.00 0.250%
</TABLE>
For purposes of calculating the commitment fee due hereunder, the Leverage Ratio
shall be determined as at the end of each of the first three quarterly periods
of each fiscal year of the Borrower and as at the end of each fiscal year of the
Borrower, based on the relevant financial statements delivered pursuant to
Section 7.1(a) or (b) and the Compliance Certificate delivered pursuant to
- -------------- ---
Section 7.2(b); changes in the Leverage Ratio shall become effective on the date
- --------------
which is the earlier of (i) two Business Days after the date the Administrative
Agent receives such financial statements and the corresponding Compliance
Certificate and (ii) the 60th day after the end of each of the first three
quarterly periods of each fiscal year or the 120th day after the end of each
fiscal year, as the case may be, and shall remain in effect until the next
change to be effected pursuant to this Section 4.3; provided, that (a) until the
----------- --------
first such financial statements and Compliance Certificate are delivered after
the date hereof, the Applicable Margin shall be determined by reference to the
Leverage Ratio set forth in the Closing Certificate delivered to the
Administrative Agent pursuant to Section 6.1(b), and (b) if any financial
--------------
statements or the Compliance Certificate referred to above are not delivered
within the time periods specified above, then, for the period from and including
the date on which such financial statements and Compliance Certificate are
required to be delivered until the date on which such financial statements and
Compliance Certificate are delivered, then the Leverage Ratio as at the end of
the fiscal period that would have been covered thereby shall be deemed to be
greater than 5.00 to 1.00.
Such commitment fee shall be (i) payable quarterly in arrears on the last
Business Day of each March, June, September and December and on the date on
which all of the Commitments shall have terminated and (ii) fully earned and
non-refundable upon payment thereof.
(b) The Borrower shall pay (without duplication of any other fee
payable under this Section 4.3) to the Managing Agents, for their respective
-----------
accounts, the fees in the amounts and on the dates agreed to in the Managing
Agents Fee Letter.
29
<PAGE>
(c) The Borrower shall pay (without duplication of any other fee
payable under this Section 4.3) to the Administrative Agent, the fees in the
-----------
amounts and on the dates agreed to in the Scotiabank Fee Letter.
4.4 Computation of Interest and Fees. (a) Interest based on the
--------------------------------
Eurodollar Rate and fees shall be calculated on the basis of a 360-day year for
the actual days elapsed; and interest based on the ABR shall be calculated on
the basis of a 365- (or 366-, as the case may be) day year for the actual days
elapsed. The Administrative Agent shall as soon as practicable notify the
Borrower and the Lenders of each determination of a Eurodollar Rate. Any change
in the interest rate on a Loan resulting from a change in the ABR or the
Eurocurrency Reserve Requirements shall become effective as of the opening of
business on the day on which such change becomes effective. The Administrative
Agent shall as soon as practicable notify the Borrower and the Lenders of the
effective date and the amount of each such change in interest rate.
(b) Each determination of an interest rate by the Administrative
Agent pursuant to any provision of this Agreement shall be conclusive and
binding on the Borrower and the Lenders in the absence of manifest error. The
Administrative Agent shall, at the request of the Borrower, deliver to the
Borrower a statement showing in reasonable detail the calculations used by the
Administrative Agent in determining any interest rate pursuant to
Section 4.1(a).
- --------------
4.5 Conversion and Continuation Options. (a) The Borrower may
-----------------------------------
elect from time to time to convert Eurodollar Loans to ABR Loans by giving the
Administrative Agent an irrevocable notice substantially in the form of
Exhibit H-2 (a "Notice of Conversion/Continuation"), at least one Business Day
- ----------- ---------------------------------
prior to such election, provided that any such conversion of Eurodollar Loans
--------
may only be made on the last day of an Interest Period with respect thereto. The
Borrower may elect from time to time to convert ABR Loans to Eurodollar Loans or
to continue Eurodollar Loans as Eurodollar Loans by giving the Administrative
Agent a Notice of Conversion/Continuation at least three Business Days' prior to
such election. Any such Notice of Conversion/Continuation to Eurodollar Loans
shall specify the length of the initial Interest Period or Interest Periods
therefor. Upon receipt of any such Notice of Conversion/Continuation the
Administrative Agent shall promptly notify each Lender thereof. All or any part
of outstanding Eurodollar Loans and ABR Loans may be converted as provided
herein, provided that (i) no Loan may be converted into a Eurodollar Loan when
--------
any Event of Default has occurred and is continuing and (ii) no Loan may be
converted into a Eurodollar Loan if the Interest Period selected therefor would
expire after the Termination Date.
(b) Any Eurodollar Loans may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower giving irrevocable notice to the Administrative Agent, of the length of
the next Interest Period to be applicable to such Loans, determined in
accordance with the applicable provisions of the term "Interest Period" set
forth in Section 1.1, provided that no Eurodollar Loan may be continued as such
----------- --------
(i) when any Event of Default has occurred and is continuing or (ii) after the
date that is one month prior to the Termination Date, and provided, further,
-------- -------
that if the Borrower shall fail to give any required notice as described
30
<PAGE>
above in this paragraph or if such continuation is not permitted pursuant to the
preceding proviso such Loans shall be automatically converted to ABR Loans on
the last day of such then expiring Interest Period. Upon receipt of any such
notice of continuation pursuant to this Section 4.5(b), the Administrative Agent
--------------
shall promptly notify each Lender thereof.
4.6 Minimum Amounts of Tranches. All borrowings, conversions,
---------------------------
continuations and payments of Loans hereunder and all selections of Interest
Periods hereunder shall be in such amounts and be made pursuant to such
elections so that, after giving effect thereto, the aggregate principal amount
of the Eurodollar Loans comprising each Tranche shall be equal to $5,000,000 or
a whole multiple of $1,000,000 in excess thereof. In no event shall there be
more than six Tranches outstanding at any time.
4.7 Inability to Determine Interest Rate. If prior to the first
------------------------------------
day of any Interest Period:
(a) the Administrative Agent shall have determined (which
determination shall be conclusive and binding upon the Borrower) that, by
reason of circumstances affecting the relevant market, adequate and
reasonable means do not exist for ascertaining the Eurodollar Rate for such
Interest Period; or
(b) the Administrative Agent shall have received notice from the
Majority Lenders that the Eurodollar Rate determined or to be determined
for such Interest Period will not adequately and fairly reflect the cost to
such Lenders (as conclusively certified by such Lenders) of making or
maintaining their affected Loans during such Interest Period,
the Administrative Agent shall give facsimile notice thereof to the Borrower and
the Lenders as soon as practicable thereafter. If such notice is given (x) any
Eurodollar Loans requested to be made on the first day of such Interest Period
shall be made as ABR Loans, (y) any Loans that were to have been converted on
the first day of such Interest Period to Eurodollar Loans shall be continued as
ABR Loans and (z) any outstanding Eurodollar Loans shall be converted, on the
first day of such Interest Period, to ABR Loans. Until such notice has been
withdrawn by the Administrative Agent or the Majority Lenders, as the case may
be, no further Eurodollar Loans shall be made or continued as such, nor shall
the Borrower have the right to convert Loans to Eurodollar Loans.
4.8 Pro Rata Treatment and Payments. (a) Each borrowing of Loans
-------------------------------
hereunder shall be made, each payment by the Borrower on account of any
commitment fee hereunder shall be allocated by the Administrative Agent, and any
reduction of the Total Commitment shall be allocated by the Administrative
Agent, pro rata according to the respective Specified Percentages of the
--- ----
Lenders. Each payment (including each prepayment) by the Borrower on account of
principal of and interest on, or commitment fees related to, the Loans or
Reimbursement Obligations shall be allocated by the Administrative Agent to the
Lenders pro rata according to the respective Specified Percentages of such Loans
--- ----
and Reimbursement Obligations then held by the Lenders. All payments (including
prepayments) to be made by the Borrower hereunder and under any Notes, whether
on
31
<PAGE>
account of principal, interest, fees, Reimbursement Obligations or otherwise,
shall be made without set-off or counterclaim and shall be made prior to 2:00
P.M., New York City time, on the due date thereof to the Administrative Agent,
for the account of the Lenders, at the Administrative Agent's office specified
in Section 12.2, in Dollars and in immediately available funds. Payments
------------
received by the Administrative Agent after such time shall be deemed to have
been received on the next Business Day. If any payment hereunder becomes due
and payable on a day other than a Business Day, the maturity of such payment
shall be extended to the next succeeding Business Day, (and, with respect to
payments of principal, interest thereon shall be payable at the then applicable
rate during such extension) unless, with respect to payments of Eurodollar Loans
only, the result of such extension would be to extend such payment into another
calendar month, in which event such payment shall be made on the immediately
preceding Business Day.
(b) Unless the Administrative Agent shall have been notified in
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its share of such borrowing available to the
Administrative Agent, the Administrative Agent may assume that such Lender is
making such amount available to the Administrative Agent, and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower a
corresponding amount. If such amount is not made available to the
Administrative Agent by the required time on the Borrowing Date therefor, such
Lender shall pay to the Administrative Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal Funds Effective
Rate for the period until such Lender makes such amount immediately available to
the Administrative Agent. A certificate of the Administrative Agent submitted
to any Lender with respect to any amounts owing under this Section 4.8 shall be
-----------
conclusive in the absence of manifest error. If such Lender's share of such
borrowing is not made available to the Administrative Agent by such Lender
within three Business Days of such Borrowing Date, the Administrative Agent
shall notify the Borrower of the failure of such Lender to make such amount
available to the Administrative Agent and the Administrative Agent shall also be
entitled to recover, on demand from the Borrower, such amount with interest
thereon at a rate per annum equal to the ABR plus the Applicable Margin in
----
effect on the Borrowing Date.
4.9 Requirements of Law. (a) If the adoption of or any change in
-------------------
any Requirement of Law or in the interpretation or application thereof or
compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever
with respect to this Agreement, any Note or any Eurodollar Loan made by it,
or change the basis of taxation of payments to such Lender in respect
thereof (except for Non-Excluded Taxes covered by Section 4.10, net income
------------
taxes and franchise taxes (imposed in lieu of net income taxes));
32
<PAGE>
(ii) shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar requirement against assets held
by, deposits or other liabilities in or for the account of, advances, loans
or other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, the Borrower shall
promptly pay such Lender such additional amount or amounts as will compensate
such Lender for such increased cost or reduced amount receivable.
(b) If any Lender shall have determined in good faith that the
adoption of or any change in any Requirement of Law regarding capital adequacy
or in the interpretation or application thereof or compliance by such Lender or
any corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder to a level below that which such Lender
or such corporation could have achieved but for such adoption, change or
compliance (taking into consideration such Lender's or such corporation's
policies with respect to capital adequacy) by an amount reasonably deemed by
such Lender to be material, then from time to time, the Borrower shall promptly
pay to such Lender such additional amount or amounts as will compensate such
Lender for such reduction.
(c) If any Lender becomes entitled to claim any additional amounts
pursuant to this Section 4.9, it shall promptly deliver a certificate to the
-----------
Borrower (with a copy to the Administrative Agent), setting forth in reasonable
detail an explanation of the basis for requesting such compensation. Such
certificate as to any additional amounts payable pursuant to this Section 4.9
-----------
submitted by such Lender to the Borrower (with a copy to the Administrative
Agent) shall be conclusive in the absence of manifest error. The Borrower shall
pay each Lender the amount shown as due on any such certificate delivered by it
within 15 days after the Borrower's receipt thereof. The agreements in this
Section 4.9 shall survive the termination of this Agreement and the payment of
- -----------
the Loans and all other amounts payable hereunder.
4.10 Taxes. (a) All payments made by the Borrower under this
-----
Agreement and any Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding (i) net income taxes; (ii) franchise and doing
business taxes imposed on the Administrative Agent or any Lender as a result of
a present or former connection between the Administrative Agent or such Lender
and the jurisdiction of the Governmental
33
<PAGE>
Authority imposing such tax or any political subdivision or taxing authority
thereof or therein (other than any such connection arising solely from the
Administrative Agent or such Lender having executed, delivered or performed its
obligations or received a payment under, or enforced, this Agreement or any
Note); (iii) any Taxes, levies, imposts, deductions, charges or withholdings
that are in effect and that would apply to a payment to such Lender as of the
Effective Date; and (iv) if any Person acquires any interest in this Agreement
or any Note pursuant to the provisions hereof, including without limitation a
participation (whether or not by operation of law), or a foreign Lender changes
the office in which the Loan is made, accounted for or booked (any such Person
or such foreign Lender in that event being referred to as a "Tax Transferee"),
--------------
any Taxes, levies, imposts, deductions, charges or withholdings to the extent
that they are in effect and would apply to a payment to such Tax Transferee as
of the date of the acquisition of such interest or change in office, as the case
may be. If any such non-excluded taxes, levies, imposts, duties, charges, fees
deductions or withholdings ("Non-Excluded Taxes") are required to be withheld
------------------
from any amounts payable to the Administrative Agent or any Lender hereunder or
under any Note, the amounts so payable to the Administrative Agent or such
Lender shall be increased to the extent necessary to yield to the Administrative
Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any
such other amounts payable hereunder at the rates or in the amounts specified in
this Agreement, provided, however, that the Borrower shall not be required to
-------- -------
increase any such amounts payable to any Non-U.S. Lender if such Lender fails to
comply with the requirements of paragraph (b) of this Section. Whenever any
Non-Excluded Taxes are payable by the Borrower, as promptly as possible
thereafter the Borrower shall send to the Administrative Agent for its own
account or for the account of such Lender, as the case may be, a certified copy
of an original official receipt received by the Borrower showing payment
thereof. If, when the Borrower is required by this Section 4.10(a) to pay any
---------------
Non-Excluded Taxes, the Borrower fails to pay such Non-Excluded Taxes when due
to the appropriate taxing authority or fails to remit to the Administrative
Agent the required receipts or other required documentary evidence, the Borrower
shall indemnify the Administrative Agent and the Lenders for any incremental
taxes, interest or penalties that may become payable by the Administrative Agent
or any Lender as a result of any such failure.
(b) Each Lender (or Transferee) that is not a citizen or resident of
the United States of America, a corporation, partnership or other entity created
or organized in or under the laws of the United States of America, or any estate
or trust that is subject to federal income taxation regardless of the source of
its income (a "Non-U.S. Lender") shall deliver to the Borrower and the
---------------
Administrative Agent (or, in the case of a Participant, to the Lender from which
the related participation shall have been purchased) two copies of either U.S.
Internal Revenue Service Form 1001 or Form 4224, or, in the case of a Non-U.S.
Lender claiming exemption from U.S. federal withholding tax under Section 871(h)
or 881(c) of the Code with respect to payments of "portfolio interest", a Form
W-8, or any subsequent versions thereof or successors thereto (and, if such Non-
U.S. Lender delivers a Form W-8, an annual certificate representing that such
Non-U.S. Lender (i) is not a "bank" for purposes of Section 881(c) of the Code
(and is not subject to regulatory or other legal requirements as a bank in any
jurisdiction, and has not been treated as a bank in any filing with or
submission made to any Governmental Authority or rating agency), (ii) is not a
10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code)
of the Borrower and (iii) is
34
<PAGE>
not a controlled foreign corporation related to the Borrower (within the meaning
of Section 864(d)(4) of the Code)), properly completed and duly executed by such
Non-U.S. Lender claiming complete exemption from, U.S. federal withholding tax
on all payments by the Borrower under this Agreement and the other Loan
Documents, along with such other additional forms as the Borrower, the
Administrative Agent (or, in the case of a Participant, the Lender from which
the related participation shall have been purchased) may reasonably request to
establish the availability of such exemption. Such forms shall be delivered by
each Non-U.S. Lender on or before the date it becomes a party to this Agreement
(or, in the case of any Participant, on or before the date such Participant
purchases the related participation). In addition, each Non-U.S. Lender shall
deliver such forms promptly upon the obsolescence or invalidity of any form
previously delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall
promptly notify the Borrower at any time it determines that it is no longer in a
position to provide any previously delivered certificate to the Borrower (or any
other form of certification adopted by the U.S. taxing authorities for such
purpose). Notwithstanding any other provision of Section 4.10, a Non-U.S.
------------
Lender shall not be required to deliver any form pursuant to this Section
-------
4.10(b) that such Non-U.S. Lender is not legally able to deliver, it being
- -------
understood and agreed that, in the event that a Non-U.S. Lender fails to deliver
any forms otherwise required to be delivered pursuant to this Section 4.10(b),
---------------
or notifies the Borrower that any previously delivered certificate is no longer
in force, the Borrower shall withhold such amounts as the Borrower shall
reasonably determine are required by law and shall not be required to make any
additional payment with respect thereto to the Non-U.S. Lender, unless such
failure to deliver or notify is a result of change in law subsequent to the date
hereof.
(c) If a Lender (or Transferee) or the Administrative Agent shall
become aware that it is entitled to receive a refund in respect of Non-Excluded
Taxes paid by the Borrower, or as to which it has been indemnified by the
Borrower, which refund in the good faith judgment of such Lender (or Transferee)
is allocable to such payment made pursuant to this Section 4.10, it shall
------------
promptly notify the Borrower of the availability of such refund and shall,
within 30 days after receipt of a request by the Borrower, apply for such
refund. If any Lender (or Transferee) or the Administrative Agent receives a
refund in respect of any Non-Excluded Taxes paid by the Borrower, or as to which
it has been indemnified by the Borrower, which refund in the good faith judgment
of such Lender (or Transferee) is allocable to such payment made pursuant to
this Section 4.10, it shall promptly notify the Borrower of such refund and
------------
shall, within 15 days after receipt, repay such refund to the Borrower. The
agreements in this Section 4.10 shall survive the termination of this Agreement
------------
and the payment of the Loans and all other amounts payable hereunder.
4.11 Indemnity. The Borrower agrees to indemnify each Lender and to
---------
hold each Lender harmless from any loss or expense which such Lender may sustain
or incur as a consequence of (a) default by the Borrower in making a borrowing
of, conversion into or continuation of Eurodollar Loans after the Borrower has
given a notice requesting the same in accordance with the provisions of this
Agreement, (b) default by the Borrower in making any prepayment of Eurodollar
Loans after the Borrower has given a notice thereof in accordance with the
provisions of this Agreement or (c) the making of a prepayment of Eurodollar
Loans on a day which is not the last day of an Interest Period with respect
thereto. Such indemnification may include an amount equal to the
35
<PAGE>
excess, if any, of (i) the amount of interest which would have accrued on the
amount so prepaid, or not so borrowed, converted or continued, for the period
from the date of such prepayment or of such failure to borrow, convert or
continue to, but not including, the last day of such Interest Period (or, in the
case of a failure to borrow, convert or continue, the Interest Period that would
have commenced on the date of such failure) in each case at the applicable rate
of interest for such Loans provided for herein over (ii) the amount of interest
(as reasonably determined by such Lender) which would have accrued to such Bank
on such amount by placing such amount on deposit for a comparable period with
leading banks in the interbank eurodollar market. This covenant shall survive
the termination of this Agreement and the payment of the Loans and all other
amounts payable hereunder.
4.12 Change of Lending Office. Each Lender agrees that if it makes
------------------------
any demand for payment under Section 4.9 or 4.10(a), it will use reasonable
----------- -------
efforts (consistent with its internal policy and legal and regulatory
restrictions and so long as such efforts would not be disadvantageous to it, as
determined in its sole discretion) to designate a different lending office if
the making of such a designation would reduce or obviate the need for the
Borrower to make payments under Section 4.9 or 4.10(a) or would eliminate or
----------- -------
reduce the effect of any adoption or change described in Section 4.9.
-----------
SECTION 5. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make the Loans and to issue Letters of Credit, the Borrower
hereby represents and warrants to the Administrative Agent and each Lender that:
5.1 Financial Condition. (a) The consolidated balance sheet of JIC
-------------------
and its consolidated Subsidiaries at June 30, 1996 and the related consolidated
statements of income and of cash flows for the fiscal year ended on such date,
reported on by Arthur Andersen L.L.P., copies of which have heretofore been
furnished to each Lender, present fairly in all material respects the
consolidated financial condition of JIC and its consolidated Subsidiaries as at
such date, and the consolidated results of their operations and their
consolidated cash flows for the fiscal year then ended. All such financial
statements, including the related schedules and notes thereto, have been
prepared in accordance with GAAP applied consistently throughout the periods
involved (except as approved by such accountants and as disclosed therein).
Neither JIC, the Borrower nor any of their consolidated Subsidiaries had, as of
June 30, 1996, any material Guarantee Obligation, contingent liability or
liability for taxes, or any long-term lease or unusual forward or long-term
commitment, including, without limitation, any interest rate or foreign currency
swap or exchange transaction, which is not reflected in the foregoing statements
or in the schedules or notes thereto. Except as set forth on Schedule 5.1,
------------
during the period from June 30, 1996 to and including the date hereof there has
been no sale, transfer or other disposition by JIC or any of its consolidated
Subsidiaries of any material part of its business, assets or property and no
purchase or other acquisition of any business, assets or property (including any
Capital Stock of any other Person) material in relation to the
36
<PAGE>
consolidated financial condition of JIC and its consolidated Subsidiaries at
June 30, 1996, other than the Stock Purchase.
(b) The financial statements of the Borrower and the Restricted
Subsidiaries and other information most recently delivered under Sections 7.1(a)
---------------
and (b) were prepared in accordance with GAAP and present fairly the
---
consolidated financial condition, results of operations, and cash flows of the
Borrower and the Restricted Subsidiaries as of, and for the portion of the
fiscal year ending on the date or dates thereof (subject in the case of interim
statements only to normal year-end audit adjustments). There were no material
liabilities, direct or indirect, fixed or contingent, of the Borrower or the
Restricted Subsidiaries as of the date or dates of such financial statements
which are not reflected therein or in the notes thereto. Except for
transactions directly related to, or specifically contemplated by, the Loan
Documents, there have been no changes in the consolidated financial condition of
the Borrower or the Restricted Subsidiaries from that shown in such financial
statements after such date which could reasonably be expected to have a Material
Adverse Effect, nor has the Borrower or any Restricted Subsidiary incurred any
liability (including, without limitation, any liability under any Environmental
Law), direct or indirect, fixed or contingent, after such date which could
reasonably be expected to have a Material Adverse Effect.
5.2 No Change. From June 30, 1996, through and including the
---------
Effective Date there has been no development or event which has had or could
reasonably be expected to have a material adverse effect on the financial
condition and business operations of the Acquired Systems. Since the Effective
Date there has been no development or event which has had or could reasonably be
expected to have a Material Adverse Effect.
5.3 Existence; Compliance with Law. The Borrower and each of its
------------------------------
Subsidiaries (a) is duly organized, validly existing and, where applicable, in
good standing under the laws of the jurisdiction of its organization, (b) has
the corporate or partnership power and authority, and the legal right, to own
and operate its property, to lease the property it operates as lessee and to
conduct the business in which it is currently engaged, (c) is duly qualified
and, where applicable, in good standing under the laws of each jurisdiction
where its ownership, lease or operation of property or the conduct of its
business requires such qualification, except where the failure to be so
qualified could not reasonably be expected to have a Material Adverse Effect,
and (d) is in compliance with all Requirements of Law except to the extent that
the failure to comply therewith could not reasonably be expected to have a
Material Adverse Effect.
5.4 Power; Authorization; Enforceable Obligations. Each Loan Party
---------------------------------------------
has the power and authority, and the legal right, to make, deliver and perform
each of the Loan Documents to which it is a party and, in the case of the
Borrower, to borrow hereunder, and has taken all necessary corporate or
partnership action to authorize the execution, delivery and performance of each
of the Loan Documents to which it is a party and, in the case of the Borrower,
to authorize the borrowings on the terms and conditions of this Agreement.
Except as set forth on Schedule 5.4, no consent or authorization of, filing
------------
with, notice to or other act by or in respect of, any Governmental Authority or
any other Person (including any partner or shareholder of any Loan Party or any
37
<PAGE>
Affiliate of any Loan Party) is required to be obtained or made by any Loan
Party or any other Person, in connection with the Stock Purchase other than
those that have been obtained or made and are in full force and effect;
provided, that with respect to third party approvals necessary for the Stock
- --------
Purchase, Schedule 5.4 lists only the material third party approvals required.
------------
No consent or authorization of, filing with, notice to or other act by or in
respect of, any Governmental Authority or any other Person (including any
partner or shareholder of JIC, any Loan Party or any Affiliate of JIC or any
Loan Party) is required to be obtained or made by JIC or any Loan Party or any
Subsidiary of any Loan Party in connection with the borrowings hereunder or with
the execution, delivery, performance, validity or enforceability of the Loan
Documents other than those that have been obtained or made and are in full force
and effect. Each Loan Document to which JIC and each Loan Party is a party has
been duly executed and delivered on behalf of JIC and each such Loan Party.
Each Loan Document constitutes a legal, valid and binding obligation of JIC, to
the extent JIC is a party thereto, and each Loan Party party thereto enforceable
against JIC and each such Loan Party in accordance with its terms, subject to
the effects of bankruptcy, insolvency, fraudulent transfer or conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally, general equitable principles (whether considered in
a proceeding in equity or at law) and an implied covenant of good faith and fair
dealing.
5.5 No Legal Bar. The Stock Purchase, the execution, delivery and
------------
performance of the Loan Documents, the borrowings hereunder and the use of the
proceeds thereof will not (a) violate, result in a default under or conflict
with any Requirement of Law or any material Contractual Obligation, in any
material respect, of JIC, JCH, the Borrower or of any of the Restricted
Subsidiaries or (b) violate any provision of the charter or bylaws of JIC, JCH,
the Borrower or the Restricted Subsidiaries and will not result in a default
under, or result in or require the creation or imposition of any Lien on any of
their respective properties or revenues pursuant to any such Requirement of Law
or Contractual Obligation (other than pursuant to the Security Documents).
5.6 No Material Litigation. Except as set forth on Schedule 5.6, no
---------------------- ------------
litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of the Borrower,
threatened by or against the Borrower or any of the Restricted Subsidiaries or
against any of its or their respective properties or revenues (a) with respect
to any of the Loan Documents, the Stock Purchase or any of the transactions
contemplated hereby or thereby, or (b) which could reasonably be expected to
have a Material Adverse Effect. No attachment, prejudgment or judgment Lien
encumbers the Acquired Systems or any asset of the Borrower or any of the
Restricted Subsidiaries other than in respect of (i) claims as to which payment
in full above any applicable customary deductible is covered by insurance or a
bond or (ii) other claims aggregating not more than $10,000,000. No litigation,
investigation or proceeding of or before any arbitrator or Governmental
Authority is pending or, to the knowledge of the Borrower, threatened by or
against (i) JCH with respect to the Stock Purchase or (ii) JIC, with respect to
the JIC Negative Pledge.
38
<PAGE>
5.7 No Default. Neither JIC, the Borrower nor any of its Restricted
----------
Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect which could reasonably be expected to have a Material
Adverse Effect. No Default or Event of Default has occurred and is continuing.
5.8 Ownership of Property; Intellectual Property. (a) Each of the
--------------------------------------------
Borrower and the Restricted Subsidiaries has good record and indefeasible title
in fee simple to, or a valid leasehold interest in, all its real property, if
any, and good title to, or a valid leasehold interest in, all its other material
property, if any, and none of such property is subject to any Lien except as
permitted by Section 8.3. Upon the consummation of the Stock Purchase, the
-----------
Borrower or the Restricted Subsidiaries, as applicable, will have good record
and indefeasible title in fee simple to, or a valid leasehold interest in all of
the real property, if any, and all other material property and Franchises
associated with the Acquired Systems.
(b) The Borrower and the Restricted Subsidiaries have the right to
use all trademarks, tradenames, copyrights, technology, know-how or processes
("Intellectual Property") that are necessary for the conduct of the business of
- -----------------------
the Borrower or any of the Restricted Subsidiaries.
5.9 No Burdensome Restrictions. No Requirement of Law or
--------------------------
Contractual Obligation of JIC, its Subsidiaries, the Borrower or any of its
Restricted Subsidiaries could reasonably be expected to have a Material Adverse
Effect.
5.10 Taxes. (a) (i) Each of the Borrower and its Subsidiaries has
-----
filed or caused to be filed all tax returns which, to the knowledge of the
Borrower, are required to be filed and has paid all taxes shown to be due and
payable by it on said returns and all other material taxes, fees or other
charges (collectively, the "Specified Taxes") imposed on it or any of its
---------------
property by any Governmental Authority due and payable by it and (ii) to the
knowledge of the Borrower, no material claim is being asserted with respect to
any Specified Tax, other than, in each case with respect to this clause (a),
Specified Taxes the amount or validity of which are currently being contested in
good faith by appropriate proceedings diligently pursued and with respect to
which reserves in conformity with GAAP have been provided on the books of the
Borrower or the relevant Subsidiary, as the case may be, and (b) no tax Lien has
been filed with respect to any Specified Tax.
5.11 Federal Regulations. No part of the proceeds of any Loans will
-------------------
be used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation G or Regulation U of the
Board as now and from time to time hereafter in effect. If requested by any
Lender or the Administrative Agent, the Borrower will furnish to the
Administrative Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form G-3 or FR Form U-1 referred to in
said Regulation G or Regulation U, as the case may be.
39
<PAGE>
5.12 ERISA. Except as, in the aggregate, could not reasonably be
-----
expected to result in a Material Adverse Effect: (a) neither a Reportable Event
nor an "accumulated funding deficiency" (within the meaning of Section 412 of
the Code or Section 302 of ERISA) has occurred during the five-year period prior
to the date on which this representation is made or deemed made with respect to
any Plan, and each Plan has complied in all material respects with the
applicable provisions of ERISA and the Code; (b) no termination of a Single
Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has
arisen, during such five-year period; (c) the present value of all accrued
benefits under each Single Employer Plan (based on those assumptions used to
fund such Plans) did not, as of the last annual valuation date prior to the date
on which this representation is made or deemed made, exceed the value of the
assets of such Plan allocable to such accrued benefits; (d) neither the Borrower
nor any Commonly Controlled Entity has had a complete or partial withdrawal from
any Multiemployer Plan, and neither the Borrower nor any Commonly Controlled
Entity would become subject to any liability under ERISA if the Borrower or any
such Commonly Controlled Entity were to withdraw completely from all
Multiemployer Plans as of the valuation date most closely preceding the date on
which this representation is made or deemed made; and (e) no such Multiemployer
Plan is in Reorganization or Insolvent.
5.13 Investment Company Act; Other Regulations. No Loan Party is an
-----------------------------------------
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. No Loan
Party is subject to regulation under any Federal or State statute or regulation
(other than Regulation X of the Board) which limits its ability to incur
Indebtedness under this Agreement or the other Loan Documents.
5.14 Subsidiaries. Except for changes permitted by this Agreement
------------
pursuant to Sections 8.6, 8.8 or 8.9, Schedule 5.14 sets forth a true and
------------ --- --- -------------
complete list of each of the Borrower's Subsidiaries and accurately designates
as of the date hereof whether each such Subsidiary is a Restricted Subsidiary or
an Unrestricted Subsidiary. The Borrower has or will have delivered to the
Administrative Agent, an updated Schedule 5.14 within 30 days after any changes
-------------
thereto. The outstanding shares of Capital Stock of each Restricted Subsidiary
have been duly authorized and validly issued and are fully paid and non-
assessable, and all of the outstanding shares of each class of the Capital Stock
of each Restricted Subsidiary are owned, directly or indirectly, beneficially
and of record, by the Borrower, free and clear of all Liens.
5.15 Insurance. Each Loan Party maintains with financially sound,
---------
responsible, and reputable insurance companies or associations (or, as to
workers' compensation or similar insurance, with an insurance fund or by self-
insurance authorized by the jurisdictions in which it operates) insurance
covering its properties and businesses against such casualties and contingencies
and of such types and in such amounts (and with co-insurance and deductibles) as
is customary in the case of same or similar businesses.
40
<PAGE>
5.16 Certain Cable Television Matters. Except as could not
--------------------------------
reasonably be expected to result in a Material Adverse Effect:
(a) the Borrower and the Restricted Subsidiaries possess all
Authorizations necessary to own, operate and construct the Cable Systems or
otherwise for the operations of their businesses and are not in violation
thereof. All such Authorizations are in full force and effect and no event
has occurred that permits, or after notice or lapse of time could permit,
the revocation, termination or material and adverse modification of any such
Authorization;
(b) neither the Borrower nor any of the Restricted Subsidiaries is
in violation of any duty or obligation required by the Communications Act of
1934, as amended, or any FCC rule or regulation applicable to the operation
of any portion of any of the Cable Systems;
(c) there is not pending or, to the best knowledge of the Borrower,
threatened, any action by the FCC to revoke, cancel, suspend or refuse to
renew any FCC License held by the Borrower or any of the Restricted
Subsidiaries. There is not pending or, to the best knowledge of the
Borrower, threatened, any action by the FCC to modify adversely, revoke,
cancel, suspend or refuse to renew any other Authorization; and
(d) there is not issued or outstanding or, to the best knowledge of
the Borrower, threatened, any notice of any hearing, violation or complaint
against the Borrower or any of the Restricted Subsidiaries with respect to
the operation of any portion of the Cable Systems and the Borrower has no
knowledge that any Person intends to contest renewal of any Authorization.
5.17 Environmental Matters. Except as could not reasonably be
---------------------
expected to result in a Material Adverse Effect:
(a) the facilities and properties owned by the Borrower or any of
its Subsidiaries (the "Owned Properties") do not contain, and, to the
----------------
knowledge of the Borrower to the extent not owned, leased or operated during
the past five years, have not contained during the past five years, any
Materials of Environmental Concern in amounts or concentrations which
constitute or constituted a violation of, or could reasonably be expected to
give rise to liability under, any Environmental Law;
(b) the facilities and properties leased or operated by the Borrower
or any of its Subsidiaries, but not owned by them (the "Leased and Operated
-------------------
Properties"), to the knowledge of the Borrower, do not contain and have not
----------
contained during the past five years, any Materials of Environmental Concern
in amounts or concentrations which constitute or constituted a violation of,
or could reasonably be expected to give rise to liability under, any
Environmental Law;
41
<PAGE>
(c) the Owned Properties and all operations at the Owned Properties
are in compliance, and, to the knowledge of the Borrower to the extent not
owned, leased or operated during the past five years, have in the last five
years been in compliance, with all applicable Environmental Laws, and there
is no contamination at, under or about the Owned Properties or violation of
any Environmental Law with respect to the Owned Properties or the business
operated by the Borrower or any of its Subsidiaries (the "Business") which
--------
could interfere with the continued operation of the Owned Properties or
impair the fair saleable value thereof;
(d) to the knowledge of the Borrower, the Leased and Operated
Properties and all operations at the Leased and Operated Properties are in
compliance, and, in the last five years been in compliance, with all
applicable Environmental Laws, and to the knowledge of the Borrower there
is no contamination at, under or about the Leased and Operated Properties
or violation of any Environmental Law with respect to the Leased and
Operated Properties or the Business operated by the Borrower or any of its
Subsidiaries which could interfere with the continued operation of the
Leased and Operated Properties or impair the fair saleable value thereof;
(e) neither the Borrower nor any of its Subsidiaries has received
any notice of violation, alleged violation, non-compliance, liability or
potential liability regarding environmental matters or compliance with
Environmental Laws with regard to any of the Owned Properties or the Leased
and Operated Properties (together, the "Properties") or the Business, nor
----------
does the Borrower have any knowledge that any such notice will be received
or is being threatened;
(f) the Borrower has not transported or disposed of Materials of
Environmental Concern nor, to the Borrower's knowledge, have Materials of
Environmental Concern been transported or disposed of from the Properties
in violation of, or in a manner or to a location which could reasonably be
expected to give rise to liability to the Borrower or any Restricted
Subsidiary under, any Environmental Law, nor has the Borrower generated any
Materials of Environmental Concern nor, to the Borrower's knowledge, have
Materials of Environmental Concerns been generated, treated, stored or
disposed of at, on or under any of the Properties in violation of, or in a
manner that could reasonably be expected to give rise to liability to the
Borrower or any Restricted Subsidiary under, any applicable Environmental
Law;
(g) no judicial proceeding or governmental or administrative action
is pending or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower or any Subsidiary is or will be
named as a party with respect to the Properties or the Business, nor are
there any consent decrees or other decrees, consent orders, administrative
orders or other orders, or other administrative or judicial requirements
outstanding under any applicable Environmental Law with respect to the
Properties or the Business; and
42
<PAGE>
(h) the Borrower has not released, nor, to the Borrower's knowledge,
has there been any release or threat of release of Materials of
Environmental Concern at or from the Properties, or arising from or related
to the operations of the Borrower or any Subsidiary in connection with the
Properties or otherwise in connection with the Business, in violation of or
in amounts or in a manner that could reasonably be expected to give rise to
liability under Environmental Laws.
5.18 Accuracy of Information. (a) All Information made available to
-----------------------
the Administrative Agent or any Lender by the Borrower pursuant to this
Agreement or any other Loan Document did not, as of the date such Information
was made available, contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained
therein not materially misleading in light of the circumstances under which such
statements were made.
(b) All pro forma financial information and projections made
--- -----
available to the Administrative Agent or any Lender by the Borrower pursuant to
this Agreement or any other Loan Document have been prepared and furnished to
the Administrative Agent or such Lender in good faith and were based on
estimates and assumptions that were believed by the management of the Borrower
to be reasonable in light of the then current and foreseeable business
conditions of the Borrower and the Subsidiaries. The Administrative Agent and
the Lenders recognize that such pro forma financial information and projections
--- -----
and the estimates and assumptions on which they are based may or may not prove
to be correct.
5.19 Security Documents. The Security Documents are effective to
------------------
create in favor of the Administrative Agent, for the benefit of the Lenders, a
legal, valid and enforceable security interest in the Collateral described
therein and proceeds thereof and, after satisfaction of the conditions specified
in Section 6.1(j), the Security Documents shall constitute a fully perfected
--------------
first priority Lien on, and security interest in, all right, title and interest
of, the Borrower and the Restricted Subsidiaries in such Collateral and the
proceeds thereof (subject to Section 9-306 of the Uniform Commercial Code), as
security for the Obligations (and the Obligations under and as defined in the
Tranche B Agreement), in each case prior and superior in right to any other
Person.
5.20 Solvency. As of the date on which this representation and
--------
warranty is made or deemed made, each Loan Party is Solvent, both before and
after giving effect to the transactions contemplated hereby consummated on such
date and to the incurrence of all Indebtedness and other obligations incurred on
such date in connection herewith and therewith.
5.21 Indebtedness. No Loan Party is an obligor on any Indebtedness
------------
except as permitted under Section 8.2.
-----------
5.22 Labor Matters. There are no actual or overtly threatened
-------------
strikes, labor disputes, slow downs, walkouts, or other concerted interruptions
of operations by the employees of any Loan Party which could reasonably be
expected to have a Material Adverse Effect. Hours
43
<PAGE>
worked by and payment made to employees of the Loan Parties have not been in
violation of the Fair Labor Standards Act or any other applicable law dealing
with such matters, other than any such violations, individually or collectively,
which could reasonably be expected to have a Material Adverse Effect. All
payments due from any Loan Party on account of employee health and welfare
insurance have been paid or accrued as a liability on its books, other than any
such nonpayments which could not, individually or collectively, reasonably be
expected to have a Material Adverse Effect.
5.23 Prior Names. Neither the Borrower nor any Restricted Subsidiary
-----------
has used or transacted business under any other corporate or trade name in the
five-year period preceding the Effective Date.
5.24 Franchises. Schedule 5.24, as supplemented to reflect any
---------- -------------
renewals and extensions of Franchise Agreements and to reflect any acquisition,
lists all Franchise Agreements of the Borrower and the Restricted Subsidiaries
relating to the Cable Systems owned by the Borrower and the Restricted
Subsidiaries as of the Initial Funding Date and, with respect to the Cable
Systems acquired after such date, as of the date of acquisition, at any time
thereafter, including but not limited to the Acquired Systems. As of the
Initial Funding Date, JCH and all of the Loan Parties shall have taken all
action required by applicable Governmental Authorities to lawfully transfer or
grant all of the Franchise Agreements relating to the Acquired Systems to the
Loan Parties and, with respect to the Cable Systems acquired after the Initial
Funding Date, all of the Loan Parties have taken all action required by
applicable Governmental Authorities to lawfully transfer or grant such after
acquired Franchise Agreement to the Loan Parties. To the knowledge of the
Borrower, as of the Initial Funding Date and at all times thereafter, all
Franchise Agreements of the Loan Parties were lawfully transferred or granted to
the Borrower or a Restricted Subsidiary pursuant to the rules and regulations of
applicable Governmental Authorities. The Franchise Agreements authorize the
Borrower or a Restricted Subsidiary as indicated on Schedule 5.24 (as
-------------
supplemented to reflect any renewals and extensions of Franchise Agreements and
to reflect any acquisition) to operate one or more Cable Systems until the
respective expiration dates listed on Schedule 5.24 or, will authorize the
-------------
Borrower or a Restricted Subsidiary as indicated on Schedule 5.24 (as
-------------
supplemented to reflect any renewals and extensions of Franchise Agreements and
to reflect any acquisition), and no other further approval, filing or other
action of any Governmental Authority is or will be necessary or advisable as of
the Initial Funding Date or, with respect to the Cable Systems acquired after
such date, as of the date of acquisition, in order to permit the Borrower's or
such Restricted Subsidiaries' operation of the Cable Systems in accordance with
the terms thereof. Schedule 5.24 (as supplemented from time to time) correctly
-------------
identifies the franchisee and accurately describes the franchise area, the
exclusive or nonexclusive nature of each such Franchise Agreement and all
limitations contained in the Franchise Agreement or related statutes on the
assignment, sale or encumbering of the Franchise Agreement or the related Cable
System's assets. The Borrower or the Restricted Subsidiary that is the
franchisee is in compliance in all material respects with all material terms and
conditions of all Franchise Agreements relating to the Cable Systems owned by
it, and on and after the date of acquisition of any Cable System will be in
compliance in all material respects with all material terms and conditions of
all Franchise Agreements relating to such Cable
44
<PAGE>
Systems so acquired and no event has occurred or exists which permits, or, after
the giving of notice, or the lapse of time or both would permit, the revocation
or termination of any Franchise Agreement.
5.25 Chief Executive Office; Chief Place of Business. Schedule 5.25
----------------------------------------------- -------------
(as supplemented from time to time) accurately sets forth the location of the
chief executive office and chief place of business (as such terms are used in
the Uniform Commercial Code of each state whose law would purport to govern the
attachment and perfection of the security interests granted by the Security
Documents) of the Borrower and each Restricted Subsidiary.
5.26 Full Disclosure. There is no material fact or condition
---------------
relating to the Loan Documents or the financial condition, business, or property
of any Loan Party which could reasonably be expected to have a Material Adverse
Effect and which has not been disclosed, in writing, to the Managing Agents and
the Lenders.
5.27 Intercompany Subordinated Debt. There is no Intercompany
------------------------------
Subordinated Debt other than the Indebtedness described in Exhibit A (as
---------
supplemented from time to time) to the Intercompany Subordinated Debt Agreement.
SECTION 6. CONDITIONS PRECEDENT
6.1 Conditions to Initial Extensions of Credit. The agreement of
------------------------------------------
each Lender to make the initial extension of credit requested to be made by it
is subject to the satisfaction, immediately prior to or concurrently with the
making of such extension of credit of the following conditions precedent:
(a) Loan Documents. The Administrative Agent shall have received
--------------
(i) this Agreement and the Tranche B Agreement, each duly executed and
delivered by the Borrower; (ii) the Notes, duly executed and delivered by
the Borrower to each of the Lenders; (iii) the Pledge Agreements, duly
executed and delivered by the Borrower and each of the Restricted
Subsidiaries; (iv) the JIC Negative Pledge duly executed and delivered by
JIC; (v) the Restricted Subsidiary Negative Pledges, duly executed and
delivered by each of the Restricted Subsidiaries; and (vi) a copy of the
Intercompany Subordinated Debt Agreement duly executed and delivered by the
Borrower and JIC.
(b) Closing Certificate. The Administrative Agent shall have
-------------------
received a certificate (the "Closing Certificate") of each Loan Party and
-------------------
JIC, dated the date of the initial extension of credit, substantially in
the form of Exhibit I, with appropriate insertions and attachments, in
---------
each case reasonably satisfactory in form and substance to the
Administrative Agent, executed by a Responsible Officer and the Secretary
or any Assistant Secretary of the appropriate Loan Party and JIC.
45
<PAGE>
(c) Fees. The Administrative Agent and the Managing Agents shall
----
have received all fees and expenses required to be paid on or before the
date hereof referred to in Section 4.3(b) and the Lenders shall have
--------------
received all fees required to be paid on or before the date hereof
pursuant to the various invitation letters from the Borrower to
prospective lenders forwarded with the Confidential Information
Memorandum, dated September 19, 1996.
(d) Legal Opinions. The Administrative Agent shall have
--------------
received, with a counterpart for each Lender, the following executed
legal opinions:
(i) the executed legal opinion of the General
Counsel or the acting General Counsel of the Borrower,
substantially in the form of Exhibit J; and
---------
(ii) the executed legal opinion of Cole, Raywid &
Braverman, L.L.P., substantially in the form of Exhibit K.
---------
(e) Financial Statements. The Lenders shall have received
--------------------
audited consolidated financial statements of JIC for the 1995 fiscal
year, which financial statements shall have been prepared in accordance
with GAAP and shall be accompanied by an unqualified report thereon
prepared by Arthur Andersen L.L.P.
(f) Satisfactory Organizational and Capital Structure. The stock
-------------------------------------------------
ownership of the Borrower and each of the Restricted Subsidiaries shall
be consistent with the structure described in Schedule 6.1(f). All
---------------
necessary intercreditor arrangements shall be satisfactory to the
Lenders.
(g) Governmental and Third Party Approvals. All governmental
--------------------------------------
approvals and material third party approvals necessary in connection with
the Stock Purchase shall have been obtained and be in full force and
effect. All governmental approvals and material third party approvals
necessary in connection with the financing contemplated hereby shall have
been obtained and be in full force and effect.
(h) No Material Adverse Information. The Lenders shall not have
-------------------------------
become aware of any previously undisclosed materially adverse information
with respect to (i) the ability of the Loan Parties to perform their
respective obligations under the Loan Documents in any material respect
or (ii) the rights and remedies of the Lenders.
(i) No Material Default Under Other Agreements. There shall
------------------------------------------
exist no material event of default (or condition which would constitute
such an event of default with the giving of notice or the passage of
time) under any agreements relating to Capital Stock, or any material
financing agreements, lease agreements or other material Contractual
Obligations, of JIC, the Borrower or any of the Restricted Subsidiaries.
46
<PAGE>
(j) Pledged Stock; Stock Powers. The Administrative Agent shall
---------------------------
have received the certificates representing the shares of Capital Stock
pledged pursuant to each Pledge Agreement of the Borrower and each of the
Restricted Subsidiaries, respectively, together with an undated stock
power for each such certificate, if any, executed in blank by a duly
authorized officer of the Borrower and each of the Restricted
Subsidiaries, respectively.
(k) Material Adverse Change. There shall exist no material
-----------------------
adverse change in the financial condition or business operations of the
Acquired Systems since June 30, 1996.
(l) Additional Documentation. All other documentation,
------------------------
including, without limitation, any tax sharing agreement, employment
agreement, management compensation arrangement or other financing
arrangement of the Borrower or any of the Restricted Subsidiaries shall
be reasonably satisfactory in form and substance to the Lenders.
(m) Lien Termination. All Liens covering the Acquired Systems
----------------
shall have been terminated.
(n) The Stock Purchase. The Stock Purchase shall have been
------------------
consummated.
(o) Insurance. The Administrative Agent shall have received
---------
certificates of insurance naming the Administrative Agent as loss payee
for the benefit of the Lenders and as additional insured for the benefit
of the Lenders, as required by Section 7.5(b).
--------------
(p) Tax Sharing Agreement. The Administrative Agent or the
---------------------
Documentation Agent shall have received a copy of the Tax Sharing
Agreement.
(q) Acquired Systems. The Acquired Systems shall have been sold
----------------
and transferred to JCG and JCA and all governmental approvals and
material third party approvals necessary in connection with such sale and
transfer shall have been obtained and in full force and effect such that
JCG shall own good title to the Cable Systems serving North Augusta,
South Carolina, Savannah, Georgia and Augusta, Georgia and JCA will own
good title to the Cable System serving Pima County, Arizona.
(r) Pro Forma Covenant Compliance. The Managing Agents shall
-----------------------------
have received reasonably satisfactory calculations evidencing the
Borrower's pro forma compliance with Sections 8.1(a) and (c), after
--------------- ---
giving effect to the requested borrowing.
6.2 Conditions to Each Extension of Credit. The obligation or
--------------------------------------
agreement of each Lender to make any Loan or to issue any Letter of Credit
requested to be made or issued by it on any date (including, without limitation,
its initial extension of credit) is subject to the satisfaction, immediately
prior to or concurrently with the making of such Loans or the issuing of such
Letters of Credit, of the following conditions precedent:
47
<PAGE>
(a) Initial Conditions Satisfied. Each of the conditions
----------------------------
precedent set forth in Section 6.1 shall have been satisfied and shall
-----------
continue to be satisfied on the date of such Loans.
(b) No Material Litigation. Except as disclosed on Schedule 5.6,
---------------------- ------------
no litigation, inquiry, injunction or restraining order shall be pending,
entered or threatened in writing which could reasonably be expected to
have a Material Adverse Effect.
(c) No Material Adverse Effect. There shall not have occurred
--------------------------
any change, development or event which could reasonably be expected to
have a Material Adverse Effect.
(d) Representations and Warranties. Each of the representations
------------------------------
and warranties made by any Loan Party or JIC in or pursuant to the Loan
Documents to which it is a party shall be true and correct in all
material respects on and as of such date as if made on and as of such
date, after giving effect to the Loans requested to be made or the
Letters of Credit to be issued on such date and the proposed use of the
proceeds thereof.
(e) No Default. No Default or Event of Default shall have
----------
occurred and be continuing on such date or will occur after giving effect
to the extension of credit requested to be made on such date and the
proposed use of the proceeds thereof.
(f) Notice of Borrowing; Application. The Borrower shall have
--------------------------------
submitted a Notice of Borrowing in accordance with Section 2.3 and
-----------
certifying to the matters set forth in Section 6.2(a) through and
including (e) and/or an Application in accordance with Section 3.2.
-----------
Each borrowing by or issuance of a Letter of Credit on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date of such extension of credit that the applicable conditions contained in
this Section 6.2 have been satisfied.
-----------
SECTION 7. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as any Commitment remains
in effect, any Loan or Letter of Credit shall be outstanding or any other
Obligation is due and payable to any Lender or the Administrative Agent
hereunder or under any other Loan Document, the Borrower shall and shall cause
each of its Restricted Subsidiaries to:
7.1 Financial Statements. Furnish to the Administrative Agent
--------------------
for subsequent distribution to each Lender:
(a) as soon as available, but in any event within 120 days after
the end of each fiscal year of the Borrower, a copy of the consolidated
balance sheet of the Borrower and the
48
<PAGE>
Restricted Subsidiaries as at the end of such year and the related
consolidated statements of income and shareholders' capital (deficit) and
of cash flows for such year, setting forth in each case in comparative
form the figures for the previous year, reported on without a "going
concern" or like qualification or exception, or qualification arising out
of the scope of the audit, by Arthur Andersen L.L.P. or other independent
certified public accountants of nationally recognized standing; and
(b) as soon as available, but in any event not later than 60
days after the end of each of the first three fiscal quarterly periods of
each fiscal year of the Borrower, the unaudited consolidated balance
sheet of the Borrower and the Restricted Subsidiaries as at the end of
such quarter and the related unaudited consolidated statements of income
and of cash flows for such quarter and the portion of the fiscal year
through the end of such quarter, setting forth in each case in
comparative form the figures for the previous year, certified by a
Responsible Officer as being fairly stated in all material respects
(subject to normal year-end audit adjustments).
All such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
7.2 Certificates; Other Information. Furnish to the
-------------------------------
Administrative Agent for subsequent distribution to each Lender:
(a) concurrently with the delivery of the financial statements
referred to in Section 7.1(a), a certificate of the independent certified
--------------
public accountants reporting on such financial statements stating that in
making the examination necessary therefor no knowledge was obtained of
any Default or Event of Default, except as specified in such certificate;
(b) concurrently with the delivery of the financial statements
referred to in Sections 7.1(a) or (b), a Compliance Certificate executed
--------------- ---
by a Responsible Officer of the Borrower and each of the Restricted
Subsidiaries;
(c) without duplication of the financial statements delivered
pursuant to Section 7.1, within five days after the same are sent, copies
-----------
of all financial statements and reports which the Borrower sends to the
holders of any class of its debt securities, and within five days after
the same are filed, copies of all financial statements and reports which
the Borrower may make to, or file with, the Securities and Exchange
Commission or any successor or analogous Governmental Authority; and
(d) promptly, such additional financial and other information as
any Lender may from time to time reasonably request.
49
<PAGE>
7.3 Payment of Obligations. Pay, discharge or otherwise satisfy
----------------------
at or before maturity or before they become delinquent, as the case may be, all
its material obligations of whatever nature, except where the amount or validity
thereof is currently being contested in good faith by appropriate proceedings
and reserves in conformity with GAAP with respect thereto have been provided on
the books of the Borrower or the relevant Restricted Subsidiary, as the case may
be.
7.4 Conduct of Business and Maintenance of Existence, etc.
-----------------------------------------------------
(a) Continue to engage in business of the same general type as now conducted by
it, except as otherwise permitted by Section 8.13, and preserve, renew and keep
------------
in full force and effect its organizational existence and take all reasonable
action to maintain all material rights, privileges and franchises necessary in
the normal conduct of its business except as otherwise permitted pursuant to
Section 8.4.
- -----------
(b) Comply with all Contractual Obligations and applicable
Requirements of Law, except to the extent that failure to comply therewith could
not reasonably be expected to have a Material Adverse Effect.
7.5 Maintenance of Property; Insurance. (a) Keep all material
----------------------------------
property useful and necessary in its business in good working order and
condition (ordinary wear and tear excepted) consistent with customary practices
in the cable industry; maintain with financially sound and reputable insurance
companies insurance on all its property in at least such amounts and against at
least such risks as are usually insured against in the same general area by
companies engaged in the same or a similar business; and furnish to the
Administrative Agent certificates of insurance from time to time received by it
for each such policy of insurance including insurance certificates evidencing
compliance with Section 7.5(b).
--------------
(b) In the event that the provisions of item (ii) of
Section 8.16 apply, then contemporaneously with the Borrower's compliance with
- ------------
Section 7.9 the Borrower shall cause (i) the Administrative Agent to be named,
- -----------
in a manner reasonably satisfactory to the Administrative Agent, (a) as lender
loss payee for the benefit of the Lenders under all policies of casualty
insurance maintained by the Borrower and the Restricted Subsidiaries and (b) as
an additional insured for the benefit of the Lenders on all policies of
liability insurance maintained by the Borrower and the Restricted Subsidiaries;
and (ii) all insurance policies to contain a provision that the policy may not
be cancelled, terminated or modified without thirty (30) days' prior written
notice to the Administrative Agent.
7.6 Inspection of Property; Books and Records; Discussions. Keep
------------------------------------------------------
and maintain a system of accounting established and administered in accordance
with sound business practices and keep and maintain proper books of record and
accounts; and permit representatives of any Lender to visit and inspect any of
its properties and examine and make abstracts from any of its books and records
during normal business hours and as often as may reasonably be requested and
upon reasonable notice and to discuss the business, operations, properties and
financial and other condition of the Borrower and the Restricted Subsidiaries
with officers and employees of the
50
<PAGE>
Borrower and the Restricted Subsidiaries and with their independent certified
public accountants; provided that representatives of the Borrower designated by
a Responsible Officer may be present at any such meeting with such accountants.
7.7 Notices. Promptly after the Borrower obtains knowledge
-------
thereof, give notice to the Administrative Agent and each Lender of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any Contractual
Obligation of JIC, the Borrower or any of the Restricted Subsidiaries or
(ii) litigation, investigation or proceeding which may exist at any time
between JIC, the Borrower or any of the Restricted Subsidiaries and any
Governmental Authority, which in either case could reasonably be expected
to have a Material Adverse Effect;
(c) any litigation or proceeding affecting the Borrower or any
of the Restricted Subsidiaries (i) which could reasonably be expected to
result in an adverse judgment of $10,000,000 or more and which is not
covered by insurance or (ii) in which injunctive or similar relief is
sought which in the case of this clause (ii) could reasonably be expected
to materially interfere with the ordinary conduct of business of the
Borrower or any of the Restricted Subsidiaries;
(d) the following events, as soon as possible and in any event
within 30 days after the Borrower knows thereof: (i) the occurrence of
any Reportable Event with respect to any Plan, a failure to make any
required contribution to a Plan, the creation of any Lien in favor of the
PBGC or a Plan or any withdrawal from, or the termination, Reorganization
or Insolvency of, any Multiemployer Plan or (ii) the institution of
proceedings or the taking of any other action by the PBGC or the Borrower
or any Commonly Controlled Entity or any Multiemployer Plan with respect
to the withdrawal from, or the terminating, Reorganization or Insolvency
of, any Plan; and
(e) any development or event which could reasonably be expected
to have a Material Adverse Effect.
Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action is proposed to be taken with respect thereto.
7.8 Environmental Laws. (a) Comply with, and use reasonable
------------------
efforts to require compliance by all tenants and subtenants, if any, with, all
applicable Environmental Laws and obtain and comply with and maintain, and use
reasonable efforts to require that all tenants and subtenants obtain and comply
with and maintain, any and all licenses, approvals, notifications, registrations
or
51
<PAGE>
permits required by applicable Environmental Laws except, in each case, to the
extent that failure to do so could not be reasonably expected to have a Material
Adverse Effect.
(b) Comply with all lawful orders and directives of all
Governmental Authorities regarding Environmental Laws except to the extent that
the same are being contested in good faith by appropriate proceedings diligently
pursued.
7.9 Collateral. (a) To ratably secure full and complete payment
----------
and performance of the Obligations (and the Obligations under and as defined in
the Tranche B Agreement), (i) the Borrower shall grant and convey to and create
in favor of, the Administrative Agent for the ratable benefit of the Lenders a
continuing first priority perfected Lien and security interest in, to and on all
of the Capital Stock of each direct or indirect Restricted Subsidiary of the
Borrower and any other direct or indirect Restricted Subsidiary of the Borrower,
now owned or hereafter acquired and/or designated by the Borrower; and (ii) the
Restricted Subsidiaries shall grant and convey to and create in favor of, the
Administrative Agent for the ratable benefit of the Lenders a continuing first
priority perfected Lien and security interest in, to and on all of the Capital
Stock of each Restricted Subsidiary owned by a Restricted Subsidiary, now owned
or hereafter acquired.
(b) With respect to any new Restricted Subsidiary created,
acquired or designated after the date hereof, the Borrower shall and shall cause
each such new Restricted Subsidiary, as applicable, to promptly (but in no event
later than 30 days after the creation, acquisition or designation of a
Restricted Subsidiary) (i) execute and deliver to the Administrative Agent such
new Pledge Agreements and/or amendments to existing Pledge Agreements as the
Administrative Agent deems necessary or advisable in order to grant to the
Administrative Agent, for the benefit of the Lenders, a perfected first priority
security interest in the Capital Stock of such Restricted Subsidiary and any
Restricted Subsidiaries of such Restricted Subsidiary, (ii) deliver to the
Administrative Agent the certificates representing the Capital Stock of such
Restricted Subsidiary and any Restricted Subsidiary of such Restricted
Subsidiary, together with undated stock powers, in blank, executed and delivered
by a duly authorized officer of the Borrower or such Restricted Subsidiary, as
applicable, (iii) take such other actions as shall be necessary or advisable to
grant to the Administrative Agent for the benefit of the Lenders a perfected
first priority security interest in such Capital Stock, including, without
limitation, the filing of such Uniform Commercial Code financing statements as
may be requested by the Administrative Agent, (iv) execute and deliver to the
Administrative Agent a Restricted Subsidiary Negative Pledge and (v) if
requested by the Administrative Agent, deliver to the Administrative Agent legal
opinions relating to the matters described in the preceding clauses (i), (ii),
(iii) and (iv), which opinions shall be in form and substance, and from counsel,
reasonably satisfactory to the Administrative Agent.
52
<PAGE>
(c) With respect to any assets (other than the Capital Stock of
Subsidiaries) from time to time acquired by the Borrower which are not
transferred to a Restricted Subsidiary in accordance with Section 8.16 (each, an
------------
"Acquired Asset" and collectively, the "Acquired Assets"), the Borrower shall,
-------------- ---------------
within 90 days after the date on which the aggregate fair market value of all
Acquired Assets owned by the Borrower exceeds $500,000, execute and deliver or
cause to be delivered to the Administrative Agent in a form reasonably
acceptable to the Administrative Agent (i) one or more mortgages and/or security
agreements which grant to the Administrative Agent a first priority perfected
security interest in the assets of the Borrower, whether then owned or
thereafter acquired (subject to any Liens permitted by Section 8.3) and
-----------
(ii) such additional agreements and other documents as the Administrative Agent
reasonably deems necessary to establish a valid, enforceable and perfected first
priority security interest in such assets (subject to any Liens permitted by
Section 8.3).
- -----------
(d) Upon request of the Administrative Agent, promptly execute
and deliver or cause to be executed and delivered to the Administrative Agent in
a form reasonably acceptable to the Administrative Agent such additional
agreements and other documents as the Administrative Agent reasonably deems
necessary to establish a valid, enforceable and perfected first priority
security interest in the Collateral.
7.10 Use of Proceeds. The Borrower shall use the proceeds of the
---------------
Loans and the Letters of Credit only for (a) financing permitted acquisitions,
(b) capital expenditures to expand and upgrade Cable Systems, (c) dividends or
distributions permitted under this Agreement, and (d) general corporate
purposes.
7.11 New Subsidiaries. Immediately upon the creation or
----------------
acquisition thereof, the Borrower shall notify the Administrative Agent of the
designation of any newly created or acquired Subsidiary as a Restricted
Subsidiary or an Unrestricted Subsidiary and shall provide the Administrative
Agent with an updated Schedule 5.14 within 30 days of any changes thereto,
-------------
provided that no designation of any newly created or acquired Subsidiary as an
- --------
Unrestricted Subsidiary shall be permitted (except by another Unrestricted
Subsidiary) unless such designation would otherwise be permitted under the
definition thereof and Sections 8.6 and 8.9(f). In addition, the Borrower shall
------------ ------
cause any newly created or acquired Restricted Subsidiary to execute and deliver
to the Administrative Agent, within 30 days of such creation or acquisition, a
Restricted Subsidiary Negative Pledge.
SECTION 8. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as any Commitment remains
in effect, any Loan or Letter of Credit is outstanding, or any other Obligation
is due and payable to any Lender or the Administrative Agent hereunder or under
any other Loan Document, the Borrower shall not, and the Borrower shall not
permit any of the Restricted Subsidiaries to, directly or indirectly:
53
<PAGE>
8.1 Financial Condition Covenants.
-----------------------------
(a) Leverage Ratio. Permit the Leverage Ratio at any time during
any period set forth below to be greater than the ratio set forth
opposite such period below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Effective Date through and including 6/30/99 6.00 to 1.00
7/01/99 through and including 6/30/2000 5.50 to 1.00
7/01/2000 through and including 6/30/2001 5.00 to 1.00
7/01/2001 and thereafter 4.50 to 1.00
</TABLE>
(b) Interest Coverage Ratio. Permit the ratio of Operating Cash
Flow for any fiscal quarter of the Borrower ending during any period set
forth below to Interest Expense for such fiscal quarter to be less than
the ratio set forth opposite such period below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Effective Date through 6/30/2000 1.50 to 1.00
7/1/2000 and thereafter 2.00 to 1.00
</TABLE>
(c) Pro Forma Debt Service Ratio. Permit, at any time, the ratio
----------------------------
of Annualized Operating Cash Flow based on the most recently ended fiscal
quarter to Pro Forma Debt Service to be less than 1.10 to 1.00.
8.2 Limitation on Indebtedness. Create, incur, assume or suffer
--------------------------
to exist any Indebtedness of the Borrower or any Restricted Subsidiary of the
Borrower, except:
(a) Indebtedness under this Agreement and the Tranche B
Agreement, other than L/C Obligations of the Borrower that are for the
benefit of or support the obligations of any Person other than the
Borrower or a Restricted Subsidiary;
(b) Indebtedness of the Restricted Subsidiaries resulting from
any loan or advance from the Borrower;
(c) Intercompany Subordinated Debt, provided that the
--------
Intercompany Subordinated Debt is unsecured and subordinated pursuant to
the terms and conditions of the Intercompany Subordinated Debt Agreement;
(d) Interest Rate Hedge Agreements entered into with the Lenders
or any of them for the purpose of hedging against interest rate
fluctuations with respect to variable rate Indebtedness of the Borrower
or any of the Restricted Subsidiaries; and
54
<PAGE>
(e) Indebtedness of the Borrower and/or any Restricted
Subsidiary not otherwise permitted by this Section 8.2, provided that
----------- --------
immediately prior to and after giving effect to the creation, incurrence
or assumption of such Indebtedness (i) the aggregate outstanding
principal amount of all such other Indebtedness of the Borrower and the
Restricted Subsidiaries, on a combined basis plus (without duplication)
the aggregate amount of all Indebtedness secured by Liens permitted under
subsection (d) of Section 8.3 shall not at any time exceed 5% of Maximum
-------------- -----------
Permitted Indebtedness and (ii) no Default exists and would then be
continuing.
8.3 Limitation on Liens. Create, incur, assume or suffer to
-------------------
exist any Lien upon any of its property, assets or revenues, whether now owned
or hereafter acquired, except for:
(a) Liens for taxes, assessments or governmental charges arising
in the ordinary course of business which are not yet due and payable or
which are being contested in good faith by appropriate proceedings,
provided that adequate reserves with respect thereto are maintained on
--------
the books of the Borrower or the Restricted Subsidiary, as the case may
be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other like Liens arising in the ordinary course of
business which are not yet due and payable;
(c) Liens created pursuant to the Security Documents;
(d) other Liens, provided that immediately prior to and after
--------
giving effect to the creation of any such Liens (i) the aggregate amount
of such Indebtedness secured by Liens permitted under this
subsection (d) plus (without duplication) the aggregate amount of all
--------------
Indebtedness of the Borrower and the Restricted Subsidiaries permitted
under Section 8.2(e) shall not at any time exceed 5% of Maximum Permitted
--------------
Indebtedness and (ii) no Default or Event of Default exists and would
then be continuing;
(e) encumbrances consisting of zoning restrictions, easements,
or other restrictions on the use of real property, none of which impair
in any material respect the use of such property by the Person in
question in the operation of its business, and none of which is violated
by existing or proposed structures or land use; and
(f) any attachment, prejudgment or judgment Lien in existence
less than sixty consecutive calendar days after the entry thereof, or
with respect to which execution has been stayed, or with respect to which
payment in full above any applicable customary deductible is covered by
insurance or a bond.
55
<PAGE>
8.4 Limitation on Fundamental Changes. Enter into any merger,
---------------------------------
consolidation or amalgamation with any Person, or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution), or convey, sell, lease,
assign, transfer or otherwise dispose of, all or substantially all of its
property, business or assets to any Person, or make any material change in its
present method of conducting business, except:
(a) a Restricted Subsidiary may merge into or be acquired by the
Borrower if the Borrower is the survivor thereof;
(b) a Restricted Subsidiary may merge into or be acquired by another
Restricted Subsidiary; and
(c) the Borrower or any Restricted Subsidiary may sell, lease,
transfer or otherwise dispose of any or all of its assets in a transaction
permitted under Section 8.5.
-----------
8.5 Limitation on Sale of Assets. Convey, sell, lease, assign,
----------------------------
exchange, transfer or otherwise dispose of any of its property, business or
assets (including, without limitation, receivables and leasehold interests),
whether now owned or hereafter acquired to any Person (a "Disposition"), except:
-----------
(a) Dispositions in the ordinary course of business (which shall not
be construed to include the Disposition of any License, Franchise or Cable
System);
(b) subject to the provisions of Section 8.16, Dispositions between
------------
the Borrower and the Restricted Subsidiaries or between the Restricted
Subsidiaries;
(c) the Borrower may designate any Restricted Subsidiary as an
Unrestricted Subsidiary in accordance with Section 8.6 and may make
-----------
Restricted Payments in accordance with Section 8.7; and
-----------
(d) other Dispositions, provided that all of the following
--------
conditions are satisfied: (i) the Borrower or such Restricted Subsidiary
receives consideration that represents the fair market value of such
property or assets at the time of such Disposition, (ii) any such
Disposition shall be on a non-recourse basis, except that the Borrower or
such Restricted Subsidiary may make commercially reasonable
representations, warranties and indemnities with respect to such properties
or assets that are normal and customary in the cable television business
("Permitted Sale Representations"), (iii) no Default or Event of Default
------------------------------
shall have occurred and be continuing either before or after the
consummation of such transaction and (iv) either (1) the Leverage Ratio is
less than or equal to 3.75 to 1.00 after giving effect to such Disposition
or (2) after giving effect to such proposed Disposition (x) the sum,
without duplication, of (A) the Net Unrestricted Designated Subsidiaries
Three Month Cash Flow for the prior twelve month period (or shorter period
commencing on the Effective Date) ending on the date of such proposed
transaction, (B) the Three Month Cash Flow attributable to the
56
<PAGE>
properties or assets to be sold, leased, transferred, assigned or otherwise
disposed of and (C) the Three Month Cash Flow attributable to all
properties or assets sold, leased, transferred, assigned or otherwise
disposed of during the prior twelve month period (or shorter period
commencing on the Effective Date) ending on the date of such proposed
transaction shall not exceed 15% of the Three Month Cash Flow of the
Borrower and the Restricted Subsidiaries, and (y) the sum, without
duplication of (A) the Net Unrestricted Designated Subsidiaries Three Month
Cash Flow for the five-year period (or shorter period commencing on the
Effective Date) ending on the date of such proposed transaction, (B) the
Three Month Cash Flow attributable to the properties or assets to be sold,
leased, transferred, assigned or otherwise disposed of and (C) the Three
Month Cash Flow attributable to all assets sold, leased, transferred,
assigned or disposed of during the five-year period (or shorter period
commencing on the Effective Date) ending on the date of such proposed
transaction shall not exceed 30% of the Three Month Cash Flow of the
Borrower and the Restricted Subsidiaries. Notwithstanding anything to the
contrary contained in the foregoing, if the Leverage Ratio is less than or
equal to 3.75 to 1.00 for a period of twelve consecutive months all prior
Dispositions and Unrestricted Subsidiary Designations shall be excluded
from subsequent determinations pertaining to the foregoing clause (y).
Upon request by and at the expense of the Borrower, the Administrative Agent
shall release any Liens arising under the Security Documents with respect to any
Collateral which (i) is permitted to be disposed of pursuant to Section 8.5(a),
--------------
(ii) consists of the Capital Stock of a Restricted Subsidiary which is
designated as an Unrestricted Subsidiary pursuant to Section 8.6, or (iii) is
-----------
sold or otherwise disposed of in compliance with the terms of Section 8.5(d).
--------------
8.6 Restricted/Unrestricted Designation of Subsidiaries. Be
---------------------------------------------------
permitted to designate a Restricted Subsidiary as an Unrestricted Subsidiary or
an Unrestricted Subsidiary as a Restricted Subsidiary unless (a) the Borrower
delivers to the Administrative Agent and the Lenders a written notice, not later
than ten (10) days prior to such designation, certifying that all conditions set
forth in this Section 8.6 are satisfied as of the proposed effective date of
-----------
such designation, which certification shall state the proposed effective date of
such designation and shall be signed by a Responsible Officer of the Borrower;
(b) no Default or Event of Default shall exist immediately before or after the
effective date of such designation; (c) after giving effect to such designation,
there shall not be any material and adverse effect on the Borrower and the
Restricted Subsidiaries on a consolidated basis with respect to the prospects
for the future generation of Operating Cash Flow, the general mix of assets or
the condition, quality and development level of technical equipment, and such
designation shall not render the Borrower and the Restricted Subsidiaries on a
consolidated basis insolvent or generally unable to pay its or their respective
debts as they become due; (d) in the case of the designation of an Unrestricted
Subsidiary as a Restricted Subsidiary, such notice shall also serve as the
certification of the Borrower that, with respect to such Restricted Subsidiary,
the representations and warranties contained herein are true and correct on and
as of the effective date of such designation; and (e) in the case of the
designation of any Restricted Subsidiary as an Unrestricted Subsidiary (an
"Unrestricted Subsidiary Designation"), either (1) the Leverage Ratio is less
- ------------------------------------
than or equal to 3.75 to 1.00 after giving effect to such Unrestricted
Subsidiary Designation
57
<PAGE>
or (2) after giving effect to such Unrestricted Subsidiary Designation the
following additional conditions are satisfied as of the effective date of such
proposed designation: (i) the sum, without duplication, of (x) the Net
Unrestricted Designated Subsidiaries Three Month Cash Flow for the prior twelve
month period (or shorter period commencing on the Effective Date) ending on the
date of such proposed designation and (y) the Three Month Cash Flow attributable
to all asset Dispositions made pursuant to Section 8.5(d) during the twelve
--------------
month period (or shorter period commencing on the Effective Date) ending on the
date of such proposed designation shall not exceed fifteen percent (15%) of the
Three Month Cash Flow of the Borrower and the Restricted Subsidiaries, and (ii)
the sum, without duplication, of (x) the Net Unrestricted Designated
Subsidiaries Three Month Cash Flow for the five-year period (or shorter period
commencing on the Effective Date) ending on the date of such proposed
designation and (y) the Three Month Cash Flow attributable to all asset
Dispositions made pursuant to Section 8.5(d) during the five-year period (or
--------------
shorter period commencing on the Effective Date) ending on the date of such
proposed designation shall not exceed thirty percent (30%) of the Three Month
Cash Flow of the Borrower and the Restricted Subsidiaries. Notwithstanding the
foregoing, if the Leverage Ratio is less than or equal to 3.75 to 1.00 for a
period of twelve consecutive months, all previous Unrestricted Subsidiary
Designations and asset Dispositions shall be excluded from subsequent
determinations pertaining to the foregoing clause (ii).
8.7 Limitation on Restricted Payments; Other Payment Limitations.
------------------------------------------------------------
Declare or pay any dividend or distribution in respect of, or make any payment
on account of, or set apart assets for a sinking or other analogous fund for,
the purchase, redemption, defeasance, retirement or other acquisition of, any
shares of or interests in any class of Capital Stock of the Borrower, whether
now or hereafter outstanding, either directly or indirectly, whether in cash or
property or in obligations of the Borrower or any of its Subsidiaries, or make,
or permit any payments of principal, interest, premium or fees on account of
Intercompany Subordinated Debt or make any payment in respect of any fees
payable to any Person (other than to the Borrower or a Restricted Subsidiary)
for management, consulting, oversight or similar services (collectively,
"Restricted Payments"), except that the Borrower and the Restricted Subsidiaries
-------------------
may make Restricted Payments in cash or Capital Stock so long as both
immediately before and after making such Restricted Payment (i) no Default or
Event of Default shall have occurred and be continuing or would result therefrom
and (ii) the Leverage Ratio is less than 5.50 to 1.00. Notwithstanding anything
to the contrary contained in the foregoing, prior to making any Restricted
Payment, the Borrower shall provide the Administrative Agent with a pro forma
calculation of the Leverage Ratio demonstrating that such Leverage Ratio is less
than 5.50 to 1.00 both before and after making such Restricted Payment, which
calculation shall be certified to by the Borrower.
8.8 Limitation on Acquisitions. Purchase any stock, bonds, notes,
--------------------------
debentures or other securities of or any assets constituting all or any
significant part of a business unit of any Person (collectively,
"Acquisitions"), except acquisitions (substantially all of which consist of
------------
Cable Systems or telecommunications systems) through the purchase of stock or
assets in any Permitted Line of Business, provided, that (i) no such acquisition
--------
may be made if a Default or an Event of Default shall have occurred and be
continuing or would result therefrom, (ii) prior to such
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<PAGE>
Acquisition, the Borrower provides evidence of pro forma compliance with all of
the terms and conditions of this Agreement, and in the case of Acquisitions in
excess of $50,000,000 a ten year cash flow projection for any such Cable System
or telecommunications system being acquired, demonstrating such compliance and
(iii) compliance in a timely manner by the Borrower with Section 8.16.
------------
8.9 Investments, Loans, Etc. Purchase or otherwise acquire or
------------------------
invest in the Capital Stock of, or any other equity interest in, any Person
(including, without limitation, the Capital Stock of the Borrower), or make any
loan to, or enter into any arrangement for the purpose of providing funds or
credit to, or, guarantee or become contingently obligated in respect of the
obligations of or make any other investment, whether by way of capital
contribution or otherwise, in, to or with any Person, or permit any Restricted
Subsidiary so to do (all of which are sometimes referred to herein as
"Investments"), provided that, so long as no Default or Event of Default shall
- ------------ --------
have occurred and be continuing or would result therefrom, nothing contained in
this Section 8.9 shall be deemed to prohibit the Borrower or any Restricted
-----------
Subsidiary from making Investments:
(a) in certificates of deposit with maturities of 270 days or less
from the date of acquisition and overnight bank deposits of any Lender or
of any commercial bank having capital and surplus in excess of
$500,000,000;
(b) in repurchase obligations of any Lender or of any commercial bank
satisfying the requirements of clause (a) of this Section 8.9, having a
-----------
term of not more than 30 days, with respect to securities issued or fully
guaranteed or insured by the United States Government;
(c) in commercial paper of a domestic issuer maturing not in excess
of 270 days from the date of acquisition and rated at least A-1 by S&P or
P-1 by Moody's;
(d) in indebtedness of a domestic issuer maturing not in excess of
270 days from the date of acquisition and having the highest rating by S&P
and Moody's;
(e) in Restricted Subsidiaries or for the acquisition or creation of
new Restricted Subsidiaries, provided that (i) in the case of an
--------
acquisition, the Borrower complies with the provisions of Section 8.8, (ii)
-----------
such Restricted Subsidiary is organized under the laws of any state of the
United States or the District of Columbia and (iii) not less than one
hundred percent (100%) of the voting control thereof and not less than one
hundred percent (100%) of the overall economic equity therein, at the time
of which any determination is being made, is owned, directly or indirectly,
beneficially and of record by the Borrower; and
(f) in Unrestricted Subsidiaries through Dispositions under
Section 8.5, designations under Section 8.6 and Acquisitions under
----------- -----------
Section 8.8, provided that such Investments are in compliance with
----------- --------
Sections 8.5, 8.6 and 8.8.
------------ --- ---
59
<PAGE>
8.10 Limitation on Transactions with Affiliates. Enter into any
------------------------------------------
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate (other
than a Restricted Subsidiary) other than transactions (a) otherwise permitted
under this Agreement, (b) entered into in the ordinary course of the Borrower's
or such Restricted Subsidiary's business, the terms of which are fair and
reasonable and in the best interests of the Loan Party which is party to the
transaction and which transaction is approved by the Board of Directors of the
Borrower or (c) which are existing transactions set forth on Schedule 8.10 and
-------------
future transactions which are in renewal or replacement of the transactions set
forth in Schedule 8.10 provided that such future transactions are of a type and
------------- --------
upon terms consistent with the transactions set forth on Schedule 8.10.
-------------
8.11 Certain Intercompany Matters. Fail to (i) satisfy customary
----------------------------
formalities with respect to organizational separateness, including, without
limitation, (x) the maintenance of separate books and records and (y) the
maintenance of separate bank accounts in its own name; (ii) act solely in its
own name and through its authorized officers and agents; (iii) commingle any
money or other assets of JIC or any Unrestricted Subsidiary with any money or
other assets of the Borrower or any of the Restricted Subsidiaries; or (iv) take
any action, or conduct its affairs in a manner, which could reasonably be
expected to result in the separate organizational existence of JIC, each
Unrestricted Subsidiary, the Borrower and the Restricted Subsidiaries being
ignored under any circumstance.
8.12 Limitation on Restrictions on Subsidiary Distributions.
------------------------------------------------------
Enter into or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary of the Borrower to (a)
pay dividends or make any other distributions in respect of any Capital Stock of
such Restricted Subsidiary held by, or pay any Indebtedness owed to, the
Borrower or any other Restricted Subsidiary of the Borrower, (b) make loans or
advances to the Borrower or any other Restricted Subsidiary of the Borrower or
(c) transfer any of its assets to the Borrower or any other Restricted
Subsidiary of the Borrower, except for such encumbrances or restrictions
existing under or by reason of (i) any restrictions existing under the Loan
Documents or any other agreements in effect on the date hereof, or (ii) any
restrictions with respect to a Restricted Subsidiary imposed pursuant to an
agreement which has been entered into in connection with the sale or disposition
of all or substantially all of the Capital Stock or assets of such Restricted
Subsidiary or any restrictions arising under Franchise Agreements, Pole
Agreements or leases entered into in the ordinary course of business.
8.13 Limitation on Lines of Business. Enter into any business,
-------------------------------
either directly or through any Restricted Subsidiary, except for the domestic
cable and telecommunications business (each, a "Permitted Line of Business").
--------------------------
8.14 No Negative Pledge. Covenant or agree with any other lender
------------------
or other Person, not to create, or not to allow to be created or otherwise
exist, any Lien upon any asset of the Borrower or any of the Restricted
Subsidiaries or covenant or agree with any other lenders or other Persons to any
other arrangement that is functionally equivalent or similar to a negative
pledge.
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<PAGE>
8.15 Tax Sharing Agreement. Pay any Taxes under the Tax Sharing
---------------------
Agreement or other similar agreement greater than the lesser of (i) the amount
that would have been payable by the Borrower if there were no Tax Sharing
Agreement or other similar agreement and (ii) the amount actually paid by JIC in
respect of such Taxes. Amend, supplement or in any manner modify, without the
written consent of the Majority Banks, the terms of the Tax Sharing Agreement.
8.16 Limitation on the Borrower's Ownership of Assets. The
------------------------------------------------
Borrower shall not be permitted to own any Cable System or other material asset
unless the Borrower either (i) transfers any assets it owns or acquires (other
than the Capital Stock of a Subsidiary) to a Restricted Subsidiary or (ii)
complies with the provisions of Section 7.9 within 90 days after the date on
-----------
which the aggregate fair market value of all Acquired Assets (as defined in
Section 7.9(c)) owned by the Borrower exceeds $500,000.
- --------------
8.17 Limitation on Issuance of Capital Stock. Issue, sell,
---------------------------------------
assign, pledge or otherwise encumber or dispose of any shares of Capital Stock,
except (i) the Restricted Subsidiaries may issue or sell Capital Stock to the
Borrower, (ii) the Borrower and the Restricted Subsidiaries may pledge the
Capital Stock of the Restricted Subsidiaries pursuant to the Pledge Agreements
and (iii) the Borrower can issue shares of its Capital Stock so long as both
before and after giving effect to such issuance and any related transactions no
Default or Event of Default shall have occurred and be continuing or would
result therefrom.
SECTION 9. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan or
Reimbursement Obligation when due in accordance with the terms hereof; or
the Borrower shall fail to pay any interest on any Loan or Reimbursement
Obligation, or any other amount payable hereunder, on or prior to the date
which is five days (or, if later, three Business Days) after any such
interest or other amount becomes due in accordance with the terms hereof;
or
(b) Any representation or warranty made or deemed made by JIC, the
Borrower or any other Loan Party herein or in any other Loan Document or
which is contained in any Information furnished at any time under or in
connection with this Agreement or any such other Loan Document shall prove
to have been incorrect in any material respect on or as of the date made or
deemed made; or
(c) The Borrower or any other Loan Party shall default in the
observance or performance of any agreement contained in Section 7.7(a) or
-------------
Section 8 of this Agreement or in Section 5(b) of the Pledge Agreements; or
---------
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<PAGE>
(d) The Borrower, JIC or any other Loan Party shall default in the
observance or performance of any other agreement contained in this
Agreement or any other Loan Document (other than as provided in paragraphs
(a) through (c) of this Section), and such default shall continue
unremedied for a period of 30 days after the Administrative Agent shall
have given the Borrower notice thereof; or
(e) (i) JIC, the Borrower or any of the Restricted Subsidiaries shall
default in making any payment of any principal of any Indebtedness
(including, without limitation, any Guarantee Obligation, but excluding the
Loans and Reimbursement Obligations) beyond the period of grace or cure, if
any, provided in the instrument or agreement under which such Indebtedness
was created; or (ii) JIC, the Borrower or any of the Restricted
Subsidiaries shall default in making any payment of any interest on any
such Indebtedness beyond the period of grace or cure, if any, provided in
the instrument or agreement under which such Indebtedness was created; or
(iii) JIC, the Borrower or any of the Restricted Subsidiaries shall default
in the observance or performance of any other agreement or condition
relating to any such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event
shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or beneficiary of such
Indebtedness (or a trustee or agent on behalf of such holder or
beneficiary) to cause, with the giving of notice if required, such
Indebtedness to become due or to be purchased or repurchased prior to its
stated maturity (or, in the case of any such Indebtedness constituting a
Guarantee Obligation, to become payable prior to the stated maturity of the
primary obligation covered by such Guarantee Obligation); provided that a
--------
default, event or condition described in clause (i), (ii) or (iii) of this
paragraph (e) shall not constitute an Event of Default under this Agreement
unless, at the time of such default, event or condition one or more
defaults, events or conditions of the type described in clauses (i), (ii)
and (iii) of this paragraph (e) shall have occurred with respect to
Indebtedness the outstanding principal amount of which exceeds in the
aggregate $10,000,000; or
(f) (i) JIC, the Borrower or any of the Restricted Subsidiaries shall
commence any case, proceeding or other action (A) under any existing or
future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to
have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (B) seeking appointment
of a receiver, trustee, custodian, conservator or other similar official
for it or for all or any substantial part of its assets, or JIC, the
Borrower or any of the Restricted Subsidiaries shall make a general
assignment for the benefit of its creditors; or (ii) there shall be
commenced against JIC, the Borrower or any of the Restricted Subsidiaries
any case, proceeding or other action of a nature referred to in clause (i)
above which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be commenced against
JIC, the Borrower or any of the Restricted Subsidiaries any case,
62
<PAGE>
proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part
of its assets which results in the entry of an order for any such relief
which shall not have been vacated, discharged, or stayed or bonded pending
appeal within 60 days from the entry thereof; or (iv) JIC, the Borrower or
any of the Restricted Subsidiaries shall take any action in furtherance of,
or indicating its consent to, approval of, or acquiescence in, any of the
acts set forth in clause (i), (ii), or (iii) above; or (v) JIC, the
Borrower or any of the Restricted Subsidiaries shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due; or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall
occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate,
any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of
the Majority Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the Borrower or any
Commonly Controlled Entity shall, or in the reasonable opinion of the
Majority Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other event or condition shall occur or exist with respect
to a Plan; and in each case in clauses (i) through (vi) above, such event
or condition, together with all other such events or conditions, if any,
could reasonably be expected to have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against JIC, the
Borrower or any of the Restricted Subsidiaries involving in the aggregate a
liability (not paid or fully covered by insurance) of $10,000,000 or more,
and all such judgments or decrees shall not have been vacated, discharged,
stayed or bonded pending appeal within 60 days after the entry thereof; or
(i) (i) Any material provision of the Loan Documents shall cease, for
any reason, to be in full force and effect, or the Borrower or any other
Loan Party shall so assert or (ii) the Lien created by any of the Security
Documents shall cease to be enforceable and of the same effect and priority
purported to be created thereby;
(j) A Change of Control shall occur;
(k) The Capital Stock of the Borrower or any portion thereof or any
Intercompany Subordinated Debt shall become subject to or covered by the
Lien of any Person; or
63
<PAGE>
(l) A default or event of default shall occur under the Tranche B
Agreement.
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) of this Section 9 with respect to the
---------
Borrower, automatically the Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement and the other Loan Documents (including, without
limitation, all amounts of L/C Obligations, whether or not the beneficiaries of
the then outstanding Letters of Credit shall have presented the documents
required thereunder) shall immediately become due and payable, and (B) if such
event is any other Event of Default, either or both of the following actions may
be taken: (i) with the consent of the Majority Lenders, the Administrative
Agent may, or upon the request of the Majority Lenders, the Administrative Agent
shall, by notice to the Borrower declare the Commitments to be terminated
forthwith, whereupon such Commitments shall immediately terminate; and (ii) with
the consent of the Majority Lenders, the Administrative Agent may, or upon the
request of the Majority Lenders, the Administrative Agent shall, by notice to
the Borrower, declare the Loans hereunder (with accrued interest thereon) and
all other amounts owing under this Agreement and the other Loan Documents
(including, without limitation, all amounts of L/C Obligations, whether or not
the beneficiaries of the then outstanding Letters of Credit shall have presented
the documents required thereunder) to be due and payable forthwith, whereupon
the same shall immediately become due and payable. With respect to all Letters
of Credit with respect to which presentment for honor shall not have occurred at
the time of an acceleration pursuant to this paragraph, the Borrower shall at
such time deposit in a cash collateral account opened by the Administrative
Agent an amount equal to the aggregate then undrawn and unexpired amount of such
Letters of Credit. Amounts held in such cash collateral account shall be
applied by the Administrative Agent to the payment of drafts drawn under such
Letters of Credit, and the unused portion thereof after all such Letters of
Credit shall have expired or been fully drawn upon, if any, shall be applied to
repay other Obligations of the Borrower hereunder and under the other Loan
Documents. After all such Letters of Credit shall have expired or been fully
drawn upon, all Reimbursement Obligations shall have been satisfied, all Loans
shall have been paid in full and no other Obligations shall be due and payable,
the balance, if any, in such cash collateral account shall be returned to the
Borrower (or such other Person as may be lawfully entitled thereto).
Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
SECTION 10. THE ADMINISTRATIVE AGENT
10.1 Appointment. Each Lender hereby irrevocably designates and
-----------
appoints the Administrative Agent as the agent of such Lender under this
Agreement and the other Loan Documents, and each such Lender irrevocably
authorizes the Administrative Agent, in such capacity, to take such action on
its behalf under the provisions of this Agreement and the other Loan Documents
and to exercise such powers and perform such duties as are expressly delegated
to the Administrative Agent by the terms of this Agreement and the other Loan
Documents, together with
64
<PAGE>
such other powers as are reasonably incidental thereto. Notwithstanding any
provision to the contrary elsewhere in this Agreement or any other Loan
Document, the Administrative Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the
Administrative Agent.
10.2 Delegation of Duties. The Administrative Agent may execute any
--------------------
of its duties under this Agreement and the other Loan Documents by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agents or attorneys
in-fact selected by it with reasonable care.
10.3 Exculpatory Provisions. Neither the Administrative Agent nor
----------------------
any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted to be
taken by it or such Person under or in connection with this Agreement or any
other Loan Document (except for its or such Person's own gross negligence or
willful misconduct) or (ii) responsible in any manner to any of the Lenders for
any recitals, statements, representations or warranties made by the Borrower or
any officer thereof contained in this Agreement or any other Loan Document or in
any certificate, report, statement or other document referred to or provided for
in, or received by the Administrative Agent under or in connection with, this
Agreement or any other Loan Document or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document or for any failure of the Borrower to perform its obligations hereunder
or thereunder. The Administrative Agent shall not be under any obligation to any
Lender to ascertain or to inquire as to the observance or performance of any of
the agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower.
10.4 Reliance by the Administrative Agent. The Administrative Agent
------------------------------------
shall be entitled to rely, and shall be fully protected in relying, upon any
Note, writing, resolution, notice, consent, certificate, affidavit, letter,
facsimile, statement, order or other document or conversation believed by it to
be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Borrower), independent accountants and other
experts selected by the Administrative Agent. The Administrative Agent may deem
and treat the payee of any Note as the owner thereof for all purposes unless a
written notice of assignment, negotiation or transfer thereof shall have been
filed with the Administrative Agent. The Administrative Agent shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Loan Document unless it shall first receive such advice or concurrence of
the Majority Lenders as it deems appropriate or it shall first be indemnified to
its satisfaction by the Lenders against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such action.
The Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, under this
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Agreement and the other Loan Documents in accordance with a request of the
Majority Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders and all future holders of
the Loans.
10.5 Notice of Default. The Administrative Agent shall not be
-----------------
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default hereunder unless the Administrative Agent has received notice from a
Lender (except in the case of a Default under Section 9(a)) or the Borrower
------------
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that the
Administrative Agent receives such a notice, the Administrative Agent shall give
notice thereof to the Lenders. The Administrative Agent shall take such action
with respect to such Default or Event of Default as shall be reasonably directed
by the Majority Lenders; provided that unless and until the Administrative Agent
--------
shall have received such directions, the Administrative Agent may (but shall not
be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Lenders.
10.6 Non-Reliance on the Administrative Agent and the Other
------------------------------------------------------
Lenders. Each Lender expressly acknowledges that neither the Administrative
- -------
Agent nor any of its officers, directors, employees, agents, attorneys-in-fact
or affiliates has made any representations or warranties to it and that no act
by the Administrative Agent hereinafter taken, including any review of the
affairs of the Borrower, shall be deemed to constitute any representation or
warranty by the Administrative Agent to any Lender. Each Lender represents to
the Administrative Agent that it has, independently and without reliance upon
the Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Borrower and made its own decision to make
its Loans hereunder and enter into this Agreement. Each Lender also represents
that it will, independently and without reliance upon the Administrative Agent
or any other Lender, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigation as it deems necessary
to inform itself as to the business, operations, property, financial and other
condition and creditworthiness of the Borrower. Except for notices, reports and
other documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Borrower which may come into
the possession of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates.
10.7 Indemnification. The Lenders agree to indemnify the
---------------
Administrative Agent in its capacity as such (to the extent not reimbursed by
the Borrower and without limiting the obligation of the Borrower to do so),
ratably according to their respective Specified Percentages in effect on the
date on which indemnification is sought (or, if indemnification is sought after
the date
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upon which the Loans shall have been paid in full, ratably in accordance with
their Specified Percentages immediately prior to such date), from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind whatsoever which
may at any time (including, without limitation, at any time following the
payment of the Loans) be imposed on, incurred by or asserted against the
Administrative Agent in any way relating to or arising out of, the Commitments,
this Agreement, any of the other Loan Documents or any documents contemplated by
or referred to herein or therein or the transactions contemplated hereby or
thereby or any action taken or omitted by the Administrative Agent under or in
connection with any of the foregoing; provided that no Lender shall be liable
--------
for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the Administrative Agent's gross negligence or willful
misconduct. The agreements in this Section shall survive the payment of the
Loans and all other amounts payable hereunder.
10.8 The Administrative Agent in Its Individual Capacity. The
---------------------------------------------------
Administrative Agent and its affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Borrower as though the
Administrative Agent were not the Administrative Agent hereunder and under the
other Loan Documents. With respect to the Loans made by it, the Administrative
Agent shall have the same rights and powers under this Agreement and the other
Loan Documents as any Lender and may exercise the same as though it were not the
Administrative Agent, and the terms "Lender" and "Lenders" shall include the
Administrative Agent in its individual capacity.
10.9 Successor Administrative Agent. (a) The Administrative
------------------------------
Agent may resign as the Administrative Agent upon 30 days' notice to the Lenders
and the appointment of a successor Administrative Agent as hereinafter set
forth; provided that concurrently with such resignation the Administrative Agent
--------
also resigns as the Administrative Agent for the Tranche B Agreement. If the
Administrative Agent shall resign as the Administrative Agent under this
Agreement, the other Loan Documents and the Tranche B Agreement, then, unless an
Event of Default shall have occurred and be continuing (in which case, the
Majority Lenders shall appoint a successor), the Borrower shall appoint from
among the Lenders a successor Administrative Agent for the Lenders, which
successor Administrative Agent shall be approved by the Majority Lenders (which
approval shall not be unreasonably withheld). If no successor Administrative
Agent shall have been so appointed by the Borrower (or in the case of an Event
of Default, by the Majority Lenders) and such successor Administrative Agent has
not accepted such appointment within 30 days after such resignation, then the
resigning Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent, which successor Administrative Agent hereunder
shall be either a Lender or, if none of the Lenders is willing to serve as
successor Administrative Agent, a major international bank having combined
capital and surplus of at least $500,000,000. Upon the acceptance of any
appointment as the Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall succeed to the rights, powers
and duties of the Administrative Agent, and the term "Administrative Agent"
shall mean such successor Administrative Agent effective upon such appointment
and approval, and the former Administrative Agent's rights, powers
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and duties as the Administrative Agent shall be terminated, without any other or
further act or deed on the part of such former Administrative Agent or any of
the parties to this Agreement or any holders of the Loans. After any retiring
Administrative Agent's resignation as the Administrative Agent, the provisions
of this Section 10 shall inure to its benefit as to any actions taken or omitted
----------
to be taken by it while it was the Administrative Agent under this Agreement and
the other Loan Documents.
(b) In the event that the Administrative Agent shall have breached
any of its material obligations to the Lenders hereunder, the Majority Lenders
may remove the Administrative Agent as the Administrative Agent hereunder and
under the Tranche B Agreement, effective on the date specified by them, by
written notice to the Administrative Agent and the Borrower. Upon any such
removal, the Borrower, provided that no Event of Default shall have occurred and
--------
be continuing (in which case the Majority Lenders shall make the appointment),
shall have the right to appoint a successor Administrative Agent hereunder and
under the Tranche B Agreement, which successor Administrative Agent shall be
approved by the Majority Lenders (which approval shall not be unreasonably
withheld). If no successor Administrative Agent shall have been so appointed by
the Borrower (or in the case of an Event of Default, by the Majority Lenders)
and such successor Administrative Agent has not accepted such appointment within
30 days after notification to the Administrative Agent of its removal, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent hereunder and under the Tranche B Agreement, which
successor Administrative Agent shall be either a Lender or, if none of the
Lenders is willing to serve as successor Administrative Agent, a major
international bank having combined capital and surplus of at least $500,000,000.
Such successor Administrative Agent, provided that no Event of Default shall
--------
have occurred and be continuing, shall be reasonably satisfactory to the
Borrower. Upon the acceptance of any appointment as the Administrative Agent
hereunder and under the Tranche B Agreement by a successor Administrative Agent,
such successor Administrative Agent shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be discharged
from its duties and obligations under this Agreement and the Tranche B
Agreement. The Borrower and the Lenders shall execute such documents as shall
be necessary to effect such appointment. After any retiring Administrative
Agent's removal hereunder and under the Tranche B Agreement as the
Administrative Agent, the provisions of this Section 10.9 and Section 10.9 of
------------ ------------
the Tranche B Agreement, respectively, shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was the Administrative Agent
under this Agreement, the other Loan Documents and the Tranche B Agreement. If
at any time there shall not be a duly appointed and acting Administrative Agent,
the Borrower agrees to make each payment due hereunder and under the Notes
directly to the Lenders entitled thereto during such time.
10.10 Managing Agents and Co-Agents. No Managing Agent or Co-
-----------------------------
Agent in their respective capacities as such shall have any duties or
responsibilities hereunder, or any fiduciary relationship with any Lender, and
no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or otherwise exist against any
Managing Agent or Co-Agent in their respective capacities as such.
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<PAGE>
SECTION 11. NEW RESTRICTED SUBSIDIARIES
The Borrower and each Restricted Subsidiary hereby agree to promptly,
after the creation, acquisition and/or designation of a Restricted Subsidiary,
notify the Administrative Agent of the existence thereof and to promptly cause
each such new Restricted Subsidiary to execute and deliver to the Administrative
Agent a Pledge Agreement in the form of Exhibit F hereto.
---------
SECTION 12. MISCELLANEOUS
12.1 Amendments and Waivers. Neither this Agreement nor any
----------------------
other Loan Document, nor any terms hereof or thereof may be amended,
supplemented or modified except in accordance with the provisions of this
Section 12.1. The Majority Lenders and each relevant Loan Party may, or, with
- ------------
the written consent of the Majority Lenders, the Administrative Agent and each
relevant Loan Party may, from time to time, (a) enter into written amendments,
supplements or modifications hereto and to the other Loan Documents for the
purpose of adding any provisions to this Agreement or the other Loan Documents
or changing in any manner the rights of the Lenders or of the Loan Parties
hereunder or thereunder or (b) waive, on such terms and conditions as the
Majority Lenders or the Administrative Agent, as the case may be, may specify in
such instrument, any of the requirements of this Agreement or the other Loan
Documents or any Default or Event of Default and its consequences; provided,
--------
however, that no such waiver and no such amendment, supplement or modification
- -------
shall (i) reduce the amount or extend the scheduled date of maturity of any Loan
or of any installment thereof, or reduce the stated rate of any interest or fee
payable hereunder or extend the scheduled date of any payment thereof or
increase the amount or extend the expiration date of any Commitment of any
Lender, or make any change in the method of application of any payment of the
Loans specified in Section 4.2 or Section 4.8, (ii) waive, extend or reduce any
----------- -----------
mandatory Commitment reduction pursuant to Section 4.2, (iii) amend, modify or
-----------
waive any provision of the Intercompany Subordinated Debt Agreement, this
Section 12.1 or reduce any percentage specified in the definition of Majority
- ------------
Lenders, or consent to the assignment or transfer by any Loan Party of any of
its rights and obligations under this Agreement and the other Loan Documents,
(iv) release the Collateral except for any Collateral which is (x) permitted to
be disposed of pursuant to Section 8.5(a) or (y) the subject of a transaction
--------------
permitted under Sections 8.5(c) or (d), which Collateral may be released by the
--------------- ---
Administrative Agent pursuant to Section 8.5, (v) amend, modify or waive any
-----------
condition precedent to any extension of credit set forth in Section 6, in each
case of (i), (ii), (iii), (iv) and (v) above, without the written consent of all
of the Lenders, (vi) amend, modify or waive any provision of Section 10 without
the written consent of the then Administrative Agent or (vii) amend, modify or
waive any provision of Section 3 without the written consent of the then Issuing
Lender. Any such waiver and any such amendment, supplement or modification
shall apply equally to each of the Lenders and shall be binding upon the Loan
Parties, the Lenders, the Administrative Agent and all future holders of the
Notes. In the case of any waiver, the Loan Parties, the Lenders and the
Administrative Agent shall be restored to their former position and rights
hereunder and under the other Loan Documents, and any Default or Event of
Default
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<PAGE>
waived shall be deemed to be cured and not continuing; but no such waiver shall
extend to any subsequent or other Default or Event of Default, or impair any
right consequent thereon.
12.2 Notices. All notices, requests and demands to or upon the
-------
respective parties hereto to be effective shall be in writing (including by
facsimile transmission) and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made (a) in the case of delivery by hand,
when delivered, (b) in the case of delivery by mail, three Business Days after
being deposited in the mails, postage prepaid, or (c) in the case of delivery by
facsimile transmission, when sent and receipt has been confirmed, addressed as
follows in the case of the Borrower, the Restricted Subsidiaries and the
Administrative Agent, and as set forth in Schedule 1.1 (or, with respect to any
------------
Lender that is an Assignee, in the applicable Assignment and Acceptance) in the
case of the other parties hereto, or to such other address as may be hereafter
notified by the respective parties hereto:
The Borrower: Jones Cable Holdings II, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
Attention: Treasurer
Fax: (303) 790-7324
(with a copy to General Counsel)
Fax: (303) 799-1644
The Restricted Subsidiaries: c/o Jones Cable Holdings II, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
Attention: Treasurer
Fax: (303) 790-7324
(with a copy to General Counsel)
Fax: (303) 799-1644
The Administrative Agent: The Bank of Nova Scotia
One Liberty Plaza
New York, New York 10006
Attention: Margot Bright
Fax: (212) 225-5091
provided that any notice, request or demand to or upon the Administrative Agent
- --------
or the Lenders pursuant to Section 2 or 3 shall not be effective until received.
--------- -
12.3 No Waiver; Cumulative Remedies. No failure to exercise and
------------------------------
no delay in exercising, on the part of the Administrative Agent or any Lender,
any right, remedy, power or privilege hereunder or under the other Loan
Documents shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
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<PAGE>
or further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
12.4 Survival of Representations and Warranties. All
------------------------------------------
representations and warranties made hereunder, in the other Loan Documents and
in any document, certificate or statement delivered pursuant hereto or in
connection herewith shall survive the execution and delivery of this Agreement
and the making of the Loans hereunder.
12.5 Payment of Expenses and Taxes. The Borrower agrees (a) to
-----------------------------
pay or reimburse the Administrative Agent for all its reasonable out-of-pocket
costs and expenses incurred in connection with the development, preparation and
execution of, and any amendment, supplement or modification to, this Agreement
and the other Loan Documents and any other documents prepared in connection
herewith or therewith, and the consummation and administration of the
transactions contemplated hereby and thereby, including, without limitation, the
reasonable fees and disbursements of counsel to the Administrative Agent, (b) to
pay or reimburse each Lender and the Administrative Agent for all its costs and
expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement, the other Loan Documents and any such other
documents (including costs and expenses incurred in connection with any
restructure or workout), including, without limitation, the reasonable fees and
disbursements of counsel to each Lender and of counsel to the Administrative
Agent, (c) without duplication of amounts payable pursuant to Sections 4.9 and
------------
4.10, to pay, indemnify, and hold each Lender and the Administrative Agent
- ----
harmless from, any and all recording and filing fees and any and all liabilities
with respect to, or resulting from any delay in paying, stamp, excise and other
taxes, if any, which may be payable or determined to be payable in connection
with the execution and delivery of, or consummation or administration of any of
the transactions contemplated by, or any amendment, supplement or modification
of, or any waiver or consent under or in respect of, this Agreement, the other
Loan Documents and any such other documents, and (d) without duplication of
amounts payable pursuant to Sections 4.9 and 4.10, to pay, indemnify, and hold
------------ ----
each Lender, each Issuing Lender and the Administrative Agent, and their
respective officers, directors, employees, affiliates, advisors, agents and
controlling persons (each, an "indemnitee"), harmless from and against any and
----------
all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement, performance and
administration of this Agreement, the other Loan Documents and any such other
documents or the use of the proceeds of the Loans (all the foregoing in this
clause (d), collectively, the "indemnified liabilities"), provided, that the
----------------------- --------
Borrower shall have no obligation hereunder to any indemnitee with respect to
indemnified liabilities arising from the gross negligence or willful misconduct
of such indemnitee. The agreements in this Section shall survive repayment of
the Loans and all other amounts payable hereunder.
12.6 Successors and Assigns; Participations and Assignments. (a)
------------------------------------------------------
This Agreement shall be binding upon and inure to the benefit of the Borrower,
the Lenders, the Administrative Agent and their respective successors and
assigns, except that neither the Borrower nor the
71
<PAGE>
Restricted Subsidiaries may assign or transfer any of its rights or obligations
under this Agreement without the prior written consent of each Lender.
(b) Any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to one or more banks or other
entities ("Participants") participating interests in any Loan owing to such
------------
Lender or any L/C Obligation of such Lender, any Commitment of such Lender or
any other interest of such Lender hereunder and under the other Loan Documents.
In the event of any such sale by a Lender of a participating interest to a
Participant, such Lender's obligations under this Agreement to the other parties
to this Agreement shall remain unchanged, such Lender shall remain solely
responsible for the performance thereof, such Lender shall remain the holder of
any such Loan for all purposes under this Agreement and the other Loan
Documents, and the Borrower and the Administrative Agent shall continue to deal
solely and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and the other Loan Documents. In no event
shall any Participant under any such participation have any right to approve any
amendment or waiver of any provision of any Loan Document, or any consent to any
departure by any Loan Party therefrom, except to the extent that such amendment,
waiver or consent would reduce the principal of, or interest on, the Loans or
any fees payable hereunder, or postpone the date of the final scheduled maturity
of the Loans, in each case to the extent subject to such participation. The
Borrower agrees that if amounts outstanding under this Agreement are due or
unpaid, or shall have been declared or shall have become due and payable upon
the occurrence of an Event of Default, each Participant shall, to the maximum
extent permitted by applicable law, be deemed to have the right of setoff in
respect of its participating interest in amounts owing under this Agreement to
the same extent as if the amount of its participating interest were owing
directly to it as a Lender under this Agreement, provided that, in purchasing
--------
such participating interest, such Participant shall be deemed to have agreed to
share with the Lenders the proceeds thereof as provided in Section 12.7(a) as
---------------
fully as if it were a Lender hereunder. The Borrower also agrees that each
Participant shall be entitled to the benefits of Sections 4.9, 4.10 and 4.11
------------ ---- ----
with respect to its participation in the Commitments and the Loans outstanding
from time to time as if it were a Lender; provided that, in the case of Section
-------- -------
4.10, such Participant shall have complied with the requirements of said Section
- ----
and provided, further, that no Participant shall be entitled to receive any
-------- -------
greater amount pursuant to any such Section than the transferor Lender would
have been entitled to receive in respect of the amount of the participation
transferred by such transferor Lender to such Participant had no such transfer
occurred.
(c) Any Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time and from time to time assign to any
Person (an "Assignee") all or any part of its rights and obligations under this
--------
Agreement and the other Loan Documents pursuant to an Assignment and Acceptance,
substantially in the form of Exhibit A, executed by such Assignee and such
---------
assigning Lender and delivered to the Administrative Agent for its acceptance
and recording in the Register (with a copy to the Borrower); provided that, (i)
--------
no such assignment (other than to any Lender or any affiliate thereof) shall be
in an aggregate principal amount of less than $5,000,000 and $1,000,000
multiples thereof, (ii) after giving effect to any such assignment, the
assigning Lender (together with any Lender which is an affiliate of such
assigning Lender) shall
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<PAGE>
retain no less than 51% of its original Commitment, unless otherwise agreed to
by the Borrower, (iii) no such assignment may be made unless such assigning
Lender also assigns a percentage of its interest in the Tranche B Agreement
equal to the percentage of the Total Commitment being assigned by such Lender
under this Agreement and to the same Assignee receiving such percentage of its
interest hereunder and (iv) each assignment (other than to any Lender or any
affiliate thereof) shall be subject to the prior written consent of the Borrower
(which consent shall not be unreasonably withheld). Upon such execution,
delivery, acceptance and recording, from and after the effective date determined
pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be
a party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Lender hereunder with a Commitment as set
forth therein, and (y) the assigning Lender thereunder shall, to the extent
provided in such Assignment and Acceptance, be released from its obligations
under this Agreement.
(d) Any Non-U.S. Lender that could become completely exempt from
withholding of any tax, assessment or other charge or levy imposed by or on
behalf of the United States or any taxing authority thereof ("U.S. Taxes") in
----------
respect of payment of any Obligations due to such Non-U.S. Lender under this
Agreement if the Obligations were in registered form for U.S. federal income tax
purposes may request the Borrower (through the Administrative Agent), and the
Borrower agrees thereupon, to exchange any promissory note(s) evidencing such
Obligations for promissory note(s) registered as provided in paragraph (f) below
and substantially in the form of Exhibit L (an "Alternative Note"). Alternative
--------- ----------------
Notes may not be exchanged for promissory notes that are not Alternative Notes.
(e) Each Non-U.S. Lender that could become completely exempt from
withholding of U.S. Taxes in respect of payment of any Obligations due to such
Non-U.S. Lender if the Obligations were in registered form for U.S. Federal
income tax purposes and that holds Alternative Note(s) (an "Alternative
-----------
Noteholder") (or, if such Alternative Noteholder is not the beneficial owner
- ----------
thereof, such beneficial owner) shall deliver to the Borrower prior to or at the
time such Non-U.S. Lender becomes an Alternative Noteholder a Form W-8
(Certificate of Foreign Status of the U.S. Department of Treasury) (or any
successor or related form adopted by the U.S. taxing authorities), together with
an annual certificate stating that (i) such Alternative Noteholder or beneficial
owner, as the case may be, is not a "bank" within the meaning of Section 881(c)
of the Code, is not a 10-percent shareholder (within the meaning of Section
871(h)(3)(B) of the Code) of the Borrower and is not a controlled foreign
corporation related to the Company (within the meaning of Section 864(d)(4) of
the Code) and (ii) such Alternative Noteholder or beneficial owner, as the case
may be, shall promptly notify the Borrower if at any time such Alternative
Noteholder or beneficial owner, as the case may be, determines that it is no
longer in a position to provide such certification to the Borrower (or any other
form of certification adopted by the U.S. taxing authorities for such purposes).
(f) An Alternative Note and the Obligation(s) evidenced thereby may
be assigned or otherwise transferred in whole or in part only by registration of
such assignment or transfer of such Alternative Note and the Obligation(s)
evidenced thereby on the Register (and each Alternative
73
<PAGE>
Note shall expressly so provide). Any assignment or transfer of all or part of
such Obligation(s) and the Alternative Note(s) evidencing the same shall be
registered on the Register only upon surrender for registration of assignment or
transfer of the Alternative Note(s) evidencing such Obligation(s), duly endorsed
by (or accompanied by a written instrument of assignment or transfer duly
executed by) the Alternative Noteholder thereof, and thereupon one or more new
Alternative Note(s) in the same aggregate principal amount shall be issued to
the designated Assignee(s). No assignment of an Alternative Note and the
Obligation(s) evidenced thereby shall be effective unless it has been recorded
in the Register as provided in this Section 12.6(f).
---------------
(g) The Administrative Agent, on behalf of the Borrower, shall
maintain at the address of the Administrative Agent referred to in Section 12.2
------------
a copy of each Assignment and Acceptance delivered to it and a register (the
"Register") for the recordation of the names and addresses of the Lenders
- ---------
(including Alternative Noteholders) and the Commitments of, and principal
amounts of the Loans owing to, each Lender from time to time. The entries in
the Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Administrative Agent and the Lenders may (and, in the case of any
Loan or other obligation hereunder not evidenced by a Note, shall) treat each
Person whose name is recorded in the Register as the owner of a Loan or other
obligation hereunder as the owner thereof for all purposes of this Agreement and
the other Loan Documents, notwithstanding any notice to the contrary. Any
assignment of any Loan or other obligation hereunder not evidenced by a Note
shall be effective only upon appropriate entries with respect thereto being made
in the Register. The Register shall be available for inspection by the Borrower
or any Lender at any reasonable time and from time to time upon reasonable prior
notice.
(h) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee together with payment to the Administrative
Agent of a registration and processing fee of $3,000, the Administrative Agent
shall (i) promptly accept such Assignment and Acceptance and (ii) on the
effective date determined pursuant thereto record the information contained
therein in the Register and give notice of such acceptance and recordation to
the Lenders and the Borrower.
(i) Subject to Section 12.15, the Borrower authorizes each Lender to
-------------
disclose to any Participant or Assignee (each, a "Transferee") and any
----------
prospective Transferee, subject to the Transferee agreeing to be bound by the
provisions of Section 12.15, any and all financial information in such Lender's
-------------
possession concerning the Borrower and the Restricted Subsidiaries which has
been delivered to such Lender by or on behalf of the Borrower pursuant to this
Agreement or which has been delivered to such Lender by or on behalf of the
Borrower in connection with such Lender's credit evaluation of the Borrower and
its Restricted Subsidiaries prior to becoming a party to this Agreement.
(j) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this Section concerning assignments of Loans
and Notes relate only to absolute assignments and that such provisions do not
prohibit assignments creating security interests,
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<PAGE>
including, without limitation, any pledge or assignment by a Lender of any Loan
or Note to any Federal Reserve Bank in accordance with applicable law.
12.7 Adjustments; Set-off. (a) If any Lender (a "benefitted
-------------------- ----------
Lender") shall at any time receive any payment of all or part of its Loans, or
- ------
interest thereon, or receive any collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in Section 9(f), or otherwise), in a greater proportion
------------
than any such payment to or collateral received by any other Lender, if any, in
respect of such other Lender's Loans, or interest thereon, such benefitted
Lender shall purchase for cash from the other Lenders a participating interest
in such portion of each such other Lender's Loan, or shall provide such other
Lenders with the benefits of any such collateral, or the proceeds thereof, as
shall be necessary to cause such benefitted Lender to share the excess payment
or benefits of such collateral or proceeds ratably with each of the Lenders;
provided, however, that if all or any portion of such excess payment or benefits
- -------- -------
is thereafter recovered from such benefitted Lender, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest.
(b) In addition to any rights and remedies of the Lenders provided
by law, each Lender shall have the right, without prior notice to the Borrower,
any such notice being expressly waived by the Borrower to the extent permitted
by applicable law, upon any amount becoming due and payable by the Borrower
hereunder (whether at the stated maturity, by acceleration or otherwise) to set-
off and appropriate and apply against such amount, to the extent permitted by
applicable law, any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by such Lender or
any branch or agency thereof to or for the credit or the account of the
Borrower. Each Lender agrees promptly to notify the Borrower and the
Administrative Agent after any such set-off and application made by such Lender,
provided that, to the extent permitted by applicable law, the failure to give
- --------
such notice shall not affect the validity of such set-off and application.
12.8 Counterparts; When Effective. This Agreement may be
----------------------------
executed by one or more of the parties to this Agreement on any number of
separate counterparts (including by facsimile transmission), and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with the Borrower and the Administrative Agent. This Agreement
shall become effective when the Administrative Agent has received counterparts
hereof executed by the Borrower, the Administrative Agent and each Lender (such
date herein referred to as the "Effective Date").
--------------
12.9 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
75
<PAGE>
12.10 Integration. This Agreement and the other Loan Documents
-----------
represent the agreement of JIC, the Borrower, the Administrative Agent and the
Lenders with respect to the subject matter hereof, and there are no promises,
undertakings, representations or warranties by the Administrative Agent or any
Lender relative to subject matter hereof not expressly set forth or referred to
herein or in the other Loan Documents.
12.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
-------------
OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
12.12 SUBMISSION TO JURISDICTION; WAIVERS. (a) EACH PARTY HERETO,
-----------------------------------
IN EACH CASE FOR ITSELF AND ITS SUCCESSORS AND ASSIGNS, HEREBY IRREVOCABLY AND
UNCONDITIONALLY:
(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH
IT IS A PARTY, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN
RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF
THE STATE OF NEW YORK, THE COURTS OF THE UNITED STATES OF AMERICA FOR THE
SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN
SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO
THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH
ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO
PLEAD OR CLAIM THE SAME;
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING
MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL
(OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO IT AT ITS
ADDRESS SET FORTH IN SECTION 12.2 OR SCHEDULE 1.1, AS APPLICABLE, OR AT
------------ ------------
SUCH OTHER ADDRESS OF WHICH THE ADMINISTRATIVE AGENT SHALL HAVE BEEN
NOTIFIED PURSUANT TO SECTION 12.2; AND
------------
(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT TO SUE IN ANY OTHER JURISDICTION.
76
<PAGE>
(b) THE BORROWER AND EACH SUBSIDIARY WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION
OR PROCEEDING REFERRED TO IN THIS SECTION ANY SPECIAL, EXEMPLARY, PUNITIVE OR
CONSEQUENTIAL DAMAGES.
12.13 Acknowledgements. The Borrower and each Restricted
----------------
Subsidiary hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Administrative Agent nor any Lender has any fiduciary
relationship with or duty to the Borrower or any Subsidiary arising out of
or in connection with this Agreement or any of the other Loan Documents,
and the relationship between the Administrative Agent and the Lenders, on
one hand, and the Borrower or any Subsidiary, on the other hand, in
connection herewith or therewith is solely that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among
the Lenders or among the Borrower, the Subsidiaries and the Lenders.
12.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE SUBSIDIARIES, THE
---------------------
ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.
12.15 Confidentiality. Each Lender agrees to keep confidential
---------------
all non-public information provided to it by or on behalf of the Borrower or any
of the Restricted Subsidiaries pursuant to this Agreement or any other Loan
Document; provided that nothing herein shall prevent any Lender from disclosing
--------
any such information (i) to the Administrative Agent or any other Lender, (ii)
to any Assignee or Participant, (iii) to its employees, directors, agents,
attorneys, accountants and other professional advisors, (iv) upon demand of any
Governmental Authority having jurisdiction over such Lender, (v) in response to
any order of any court or other Governmental Authority or as may otherwise be
required pursuant to any Requirement of Law, (vi) which has been publicly
disclosed other than in breach of this Agreement, or (vii) in connection with
the exercise of any remedy hereunder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE PAGES FOLLOW.]
77
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
JONES CABLE HOLDINGS II, INC.
By: /s/ J. Roy Pottle
------------------------------------
Name: J. Roy Pottle
----------------------------------
Title: Treasurer
---------------------------------
<PAGE>
The Administrative Agent, the Documentation
-------------------------------------------
Agent and the Syndication Agent:
-------------------------------
THE BANK OF NOVA SCOTIA,
as the Administrative Agent
By: /s/ Margot C. Bright
------------------------------------
Name: Margot C. Bright
----------------------------------
Title: Authorized Signatory
---------------------------------
NATIONSBANK OF TEXAS, N.A.,
as the Documentation Agent
By: /s/ David G. Jamel
------------------------------------
Name: David G. Jamel
----------------------------------
Title: Vice President
---------------------------------
SOCIETE GENERALE,
as the Syndication Agent
By: /s/ Elaine I. Khalil
------------------------------------
Name: Elaine I. Khalil
----------------------------------
Title: Vice President
---------------------------------
<PAGE>
The Managing Agents and the Lenders:
-----------------------------------
THE BANK OF NOVA SCOTIA, as a
Managing Agent and as a Lender
By: /s/ Margot C. Bright
------------------------------------
Name: Margot C. Bright
----------------------------------
Title: Authorized Signatory
---------------------------------
NATIONSBANK OF TEXAS, N.A., as a
Managing Agent and as a Lender
By: /s/ David B. James
------------------------------------
Name: David B. James
----------------------------------
Title: Vice President
---------------------------------
SOCIETE GENERALE, as a Managing Agent
and as a Lender
By: /s/ Elaine I. Khalil
------------------------------------
Name: Elaine I. Khalil
----------------------------------
Title: Vice President
---------------------------------
The Co-Agents and the Lenders:
-----------------------------
CORESTATES BANK, N.A., as a Co-Agent
and as a Lender
By: /s/ Philip D. Harrison
------------------------------------
Name: Philip D. Harrison
----------------------------------
Title: Assistant Vice President
---------------------------------
<PAGE>
CREDIT LYONNAIS NEW YORK
BRANCH, as a Co-Agent and as a Lender
By: /s/ James E. Morris
------------------------------------
Name: James E. Morris
----------------------------------
Title: Vice President
---------------------------------
PNC BANK, NATIONAL ASSOCIATION,
as a Co-Agent and as a Lender
By: /s/ Christopher Chaplin
------------------------------------
Name: Christopher Chaplin
----------------------------------
Title: Banking Officer
---------------------------------
MELLON BANK, N.A., as a Co-Agent and as
a Lender
By: /s/ Stephen R. Viehe
------------------------------------
Name: Stephen R. Viehe
----------------------------------
Title: Vice President
---------------------------------
ROYAL BANK OF CANADA, as a Co-Agent
and as a Lender
By: /s/ Edward Salazar
------------------------------------
Name: Edward Salazar
----------------------------------
Title: Senior Manager
---------------------------------
<PAGE>
THE CHASE MANHATTAN BANK,
as a Co-Agent and as a Lender
By: /s/ Ann B. Kerns
------------------------------------
Name: Ann B. Kerns
----------------------------------
Title: Vice President
---------------------------------
TORONTO DOMINION (TEXAS), INC.,
as a Co-Agent and as a Lender
By: /s/ Lisa Allison
------------------------------------
Name: Lisa Allison
----------------------------------
Title: Vice President
---------------------------------
BANQUE PARIBAS, as a Co-Agent and as a
Lender
By: /s/ Sonia Isaacs
------------------------------------
Name: Sonia Isaacs
----------------------------------
Title: Vice President
---------------------------------
BANK OF AMERICA, as a Co-Agent and as
a Lender
By: /s/ Shannon T. Ward
------------------------------------
Name: Shannon T. Ward
----------------------------------
Title: Vice President
---------------------------------
<PAGE>
ABN AMRO BANK N.V., as a Lender
By: /s/ James J. Johnston
------------------------------------
Name: James J. Johnston
----------------------------------
Title: Vice President
---------------------------------
By: /s/ Mary L. Honda
------------------------------------
Name: Mary L. Honda
----------------------------------
Title: Vice President
---------------------------------
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as a Lender
By: /s/ Donald H. Patrick
------------------------------------
Name: Donald H. Patrick
----------------------------------
Title: Vice President
---------------------------------
CREDIT AGRICOLE, as a Lender
By: /s/ David Bauhl
------------------------------------
Name: David Bauhl
----------------------------------
Title: Head of Corporate Banking
---------------------------------
THE DAI-ICHI KANGYO BANK, LTD.,
as a Lender
By: /s/ Masatsugu Morishita
------------------------------------
Name: Masatsugu Morishita
----------------------------------
Title: Joint General Manager
---------------------------------
<PAGE>
FIRST HAWAIIAN BANK, as a Lender
By: /s/
------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
THE FIRST NATIONAL BANK OF
MARYLAND, as a Lender
By: /s/ W. Blake Hampson
------------------------------------
Name: W. Blake Hampson
----------------------------------
Title: Vice President
---------------------------------
BANK OF TOKYO-MITSUBISHI TRUST
COMPANY, as a Lender
By: /s/ Augustine Chance Jr.
------------------------------------
Name: Augustine Chance Jr.
----------------------------------
Title: Vice President
---------------------------------
SAKURA BANK, as a Lender
By: /s/ Ofusa Sato
------------------------------------
Name: Ofusa Sato
----------------------------------
Title: Senior Vice President
---------------------------------
<PAGE>
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., LOS ANGELES AGENCY,
as a Lender
By: /s/ Genchi Imai
-------------------------------------
Name: Genchi Imai
----------------------------------
Title: Joint General Manager
---------------------------------
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, as a Lender
By: /s/ Shusai Nagai
------------------------------------
Name: Shusai Nagai
----------------------------------
Title: General Manager
---------------------------------
COLORADO NATIONAL BANK, as a Lender
By: /s/ Leslie M. Kelly
------------------------------------
Name: Leslie M. Kelly
----------------------------------
Title: Vice President
---------------------------------
THE FUJI BANK, LIMITED, LOS ANGELES
AGENCY, as a Lender
By: /s/ Nobuhiro Umemura
------------------------------------
Name: Nobuhiro Umemura
----------------------------------
Title: Joint General Manager
---------------------------------
<PAGE>
EXHIBIT 99(b)(1)
APPRAISAL REPORT:
FAIR MARKET VALUATION
OF
CABLE TV FUND 12-BCD VENTURE
PALMDALE/LANCASTER, CALIFORNIA
As of December 31, 1997
Prepared for:
JONES INTERCABLE, INC.
Englewood, Colorado
Prepared by:
STRATEGIS FINANCIAL CONSULTING, INC.
1130 Connecticut Avenue, N.W.
Suite 325
Washington, D.C. 20036
(202) 530-7500
February 20, 1998
(C) Copyright 1998 Strategis Financial Consulting, Inc.
<PAGE>
APPRAISAL REPORT:
FAIR MARKET VALUATION
OF
CABLE TV FUND 12-BCD VENTURE
PALMDALE/LANCASTER, CALIFORNIA
TABLE OF CONTENTS
-----------------
I. EXECUTIVE SUMMARY...................................................1
A. Introduction, Purpose, and Methodology............................1
B. Conclusions.......................................................2
II. PURPOSE OF APPRAISAL...............................................3
III. INDUSTRY OVERVIEW.................................................4
A. Historical Background.............................................4
B. Industry Characteristics..........................................6
1. General Background.............................................6
2. Regulation.....................................................8
3. Financial/Economic.............................................9
4. Competition...................................................10
IV. SYSTEM DESCRIPTION................................................13
A. History and Market...............................................13
B. Services.........................................................15
C. Rates............................................................20
D. Subscribers......................................................22
E. System Mileage...................................................23
F. Physical Plant...................................................23
G. Franchises.......................................................24
H. Management.......................................................25
I. Financial History................................................25
V. TOTAL SYSTEM VALUE.................................................26
A. Valuation Procedure and Methods..................................26
B. Discounted Cash Flow Methodology.................................28
1. Net Cash Flow/Return on Equity................................29
2. Net Cash Flow/Return On Investment............................30
3. Cash Flow Projections.........................................30
4. Residual Value................................................32
5. Discount Rates................................................33
<PAGE>
TABLE OF CONTENTS
-----------------
C. Direct Income Methodology........................................34
D. Value Conclusions................................................35
VI. CONTINGENCIES AND LIMITING CONDITIONS.............................36
VII. STATEMENT OF VALUE...............................................38
VIII. QUALIFICATIONS..................................................39
A. Qualifications of Strategis Financial Consulting, Inc............39
B. Qualifications of Andrew R. Gefen................................40
C. Qualifications of Elisabeth Boehler..............................41
EXHIBITS:
A. Valuation Methods and Summary of Values
B-1. Profit and Loss/Sources and Uses-Return on Equity - Low Value
B-2. Profit and Loss/Sources and Uses-Return on Equity - High Value
C-1. Debt Amortization-Return on Equity - Low Value
C-2. Debt Amortization-Return on Equity - High Value
D. Return on Investment
E. Cable Television Subscribers
F. Cable Television Service Rates
G. Cash Flow Projections
H. Capital Expenditures
I. Depreciation Schedule
J. Assumptions and Inputs
<PAGE>
APPRAISAL REPORT:
FAIR MARKET VALUATION
OF
CABLE TV FUND 12-BCD VENTURE
PALMDALE/LANCASTER, CALIFORNIA
I. EXECUTIVE SUMMARY
A. INTRODUCTION, PURPOSE, AND METHODOLOGY
Strategis Financial Consulting, Inc. was retained by Jones Intercable, Inc.
("Jones") to conduct a fair market valuation as of December 31, 1997, of the
Cable TV Fund 12-BCD Venture cable television system serving Palmdale and
Lancaster, California (the "System") and several neighboring communities. This
appraisal will be used by Jones as an independent estimate of the fair market
value of the System as of December 31, 1997, with the resulting value to be used
in conjunction with the purchase of the System by Jones.
Fair market value is the cash price a willing buyer would give a willing
seller in an arm's length transaction in order to complete the sale. It is
assumed that both buyer and seller have been informed of all relevant facts and
neither is under any compulsion to conclude the transaction. Strategis
Financial Consulting also assumes that the tangible assets will remain in their
present location and will continue to be employed in their highest and best use,
i.e., the delivery of cable television signals to subscribers.
Strategis Financial Consulting used five generally accepted cable
television valuation methods using the income approach to valuation in
establishing the range of total fair market values of the System as a going
concern. The first method used a multiple of the past year's operating income
derived from comparable asset values of privately-held and publicly-traded cable
companies. The second method used a lower multiple of the annualized current
month's operating income. The third method applied a slightly lower multiple of
next year's projected operating income. The fourth method
1
<PAGE>
was a discounted net cash flow analysis in which a purchase price (estimated
fair market value) was calculated to achieve a target after-tax return on
equity, given particular operating and financing assumptions specific to the
System's assets. The fifth method was a discounted cash flow analysis that
measured the net present value of the pre-tax operating cash flows (less capital
expenditures, plus the residual value of the System) that represent the return
on total investment.
B. CONCLUSIONS
Strategis Financial Consulting's conclusions as to the range of values are
based upon information and data supplied by System management, an onsite
inspection by a representative of Strategis Financial Consulting of a
representative portion of the System and service area, and general cable
industry information. In Strategis Financial Consulting's opinion, the data
which support the valuations are reliable and sound. Our estimate of the
overall fair market value of the System as a business enterprise, free and clear
of any encumbrances, is $140,059,000.
2
<PAGE>
II. PURPOSE OF APPRAISAL
Strategis Financial Consulting, Inc. was retained by Jones Intercable, Inc.
("Jones") to conduct a fair market valuation as of December 31, 1997 of the
Cable TV Fund 12-BCD Venture cable television system (the "System"), serving
Palmdale and Lancaster, California. This appraisal will be used by Jones as an
independent estimate of the fair market value of the System as of December 31,
1997 in conjunction with the purchase of the System by Jones.
Fair market value is the cash price a willing buyer would give a willing
seller in an arm's length transaction in order to complete the sale. It is
assumed that both buyer and seller have been informed of all relevant facts and
neither is under any compulsion to conclude the transaction and that the
tangible assets will remain in their present location and will continue to be
employed in their highest and best use, i.e., the delivery of cable television
signals to subscribers.
3
<PAGE>
III. INDUSTRY OVERVIEW
A. HISTORICAL BACKGROUND
Cable television was born in the late 1940s. The first systems were built
during the period 1948 to 1964. Most of these early systems were located in
rural areas where off-air television reception was limited and picture quality
was poor. The cable system basically provided a reception service, offering up
to 12 channels with no unique programming. Systems generally enjoyed high
levels of penetration, ranging from approximately 70% to 90% of homes passed.
During the period 1965 to 1972, cable systems were built in medium-sized
markets, importing distant television signals via terrestrial microwave.
Rulings by the Federal Communications Commission (FCC) in 1965 and 1966
initiated a regulatory period that lasted two decades. FCC constraints were
placed on importing distant signals which inhibited the construction of systems
in the largest 100 markets. The U.S. Supreme Court affirmed the FCC's
regulatory authority over the cable television industry. The typical cable
television system generally remained a 12- to 24- channel reception service with
some additional program selections via imported signals. Programming unique to
cable television did not exist. Basic penetrations of between 50% and 60% of
homes passed were typical for newly-cabled markets.
In 1972, the FCC eased its restrictions on signal importation, thus making
it feasible for cable television operators to enter the nation's top 100 markets
with differentiated product. Satellite delivered premium television services
(HBO, Showtime) and Super Stations (WTBS) were introduced in 1975. Cable
exclusive networks, such as ESPN, CNN, USA, and others, soon followed. During
the mid- to late-1970's, new 24- to 36-channel cable television systems emerged
as a result of these communications satellite services. Significant increases
in programming options allowed cable systems to attract ample numbers of
subscribers to attain operational profitability even where off-air broadcast
reception and leisure-time options were above average. The smallest 50 of the
top 100 markets were built first, followed by the larger
4
<PAGE>
metropolitan areas. Premium, or pay, services were the primary force behind
basic penetration gains reaching 30% to 45% of homes passed in these new
markets.
During the period 1979 to 1983, the remaining major markets were
franchised. Cable channel options increased dramatically, both in pay services
(Disney, Cinemax, Bravo, Movie Channel) and basic services (MTV, Lifetime,
Nickelodeon, regional sports, CNN, and others). Systems with 54 and more
channels were built, offering an abundance of program alternatives. Cable
system operators instituted price increases for pay services and established
elaborate tiering structures to compensate for local constraints on basic
service pricing. In newer cable markets, basic penetrations of homes passed
began to edge above the 40% level.
In 1984, the U.S. Congress approved and President Reagan signed the Cable
Communications Policy Act, the first comprehensive cable legislation to be
enacted. The most significant feature of the legislation was the ultimate
removal of price controls on basic cable service in all but the very smallest
cable systems. Discretionary price increases of up to 5% were allowed in 1985
and 1986, and all price controls were removed in January 1987. During the
period 1984 to 1992, the mix of cable offerings and pricing changed as growth in
pay subscriptions slowed down and local constraints on basic price increases
were removed. Basic penetrations continued to rise in major markets, and
nationwide penetration reached 60% of homes passed by cable. New revenue
sources emerged in the form of pay-per-view, advertising, and home shopping.
The industry emphasized programming quality and marketing in order to increase
overall penetration levels above the 60% level.
The Cable Television Consumer Protection and Competition Act of 1992 was
passed on October 5, 1992, which imposed significant new regulations,
particularly on subscriber rates and programming packaging. Generally,
programming packages were specifically segregated between the "basic tier" and
the "satellite programming tier(s)" since the level of regulation was different
for each of them. After the new regulations were implemented, the overall cable
industry experienced a slight reduction in revenues in 1993, but learned to cope
with the new regulations in 1994 and continued its overall
5
<PAGE>
growth due to added services, increased subscriber penetrations and repackaging
of programming services.
The Telecommunications Act of 1996, passed on February 8, 1996, revised the
Communications Act of 1934 and the Cable Act of 1992 in fundamental ways. It
highlighted competition in local loop telephone, video distribution, and long
distance telephone, and de-regulated cable rates beginning in 1999. The goal
was to create a competitive telecommunications marketplace. The FCC is in the
process of promulgating regulations to implement the law so its effect is still
uncertain.
B. INDUSTRY CHARACTERISTICS
1. General Background
Cable television is a capital intensive business. The right to operate a
cable system is authorized by the local government. Substantial up-front
capital is required in plant and equipment with second entrants facing even
greater capital construction costs due primarily to space limitations on utility
poles. A considerable percentage of total operating costs are fixed. Similar
to utilities, once cable television has exceeded its break-even requirements,
operating margins grow very rapidly and remain fairly predictable from year to
year.
Unlike most businesses, market analysis in cable is better pursued on the
basis of system type than generic geographic or demographic criteria. The
classification of a cable system in any individual market tends to reflect the
competitive characteristics and demand dynamics resident in that market. In
general, there are two primary categories of cable systems--classic and modern.
Classic cable systems are those built in locations where reception of over-the-
air television signals has historically been poor or limited. They were the
earliest systems built, usually serving communities with lower densities (40 to
90 homes per mile), higher subscriber penetrations (60% to 90% of homes passed),
lower average revenues per subscriber ($14 to 20 per month), and higher cash
flow margins (45% to 65%) relative to modern systems. They usually were built
with fewer channels but may have been upgraded at a later time. Expectations
for additional
6
<PAGE>
growth in these markets tends to be lower than the industry average. The
downside risk of investing in these systems is relatively low.
Modern cable systems have been constructed since the introduction of pay
and other cable-specific programming in the mid-1970's. They tend to serve
urban and suburban communities which have higher densities (70 to 120 and more
homes per mile), better quality off-air programming, and more extensive
competition for consumers' leisure time. These systems were built with broader
channel capacity (36 to 54 or more channels), individual subscriber
addressability, local programming capability, and the capacity for advertising
sales. They tend to have lower penetration (30% to 55%) than classic systems.
More rapid growth has been experienced in these systems than in classic systems
because of higher household growth rates, more potential for penetration gains,
and greater opportunities for ancillary revenues. They are also more risky
because of greater off-air competition and higher overall operating costs.
It is estimated that 32,255 communities are served throughout the United
States by approximately 13,000 operating cable systems. The industry is
structured into over 500 MSOs which manage these systems on a wholly-owned,
partially-owned, or management contract basis. Economic forces within the
industry are causing significant shifts in the ownership of these companies,
resulting in increasing consolidation of the industry into the hands of fewer,
larger operators.
Management characteristics in the industry vary considerably between the
MSO headquarters and system operating levels and between different categories of
systems. At the corporate level, nearly all of the mid-to-large sized MSOs have
a strong representation of professionally trained and field-seasoned management
among their ranks. Strong emphasis is placed on strategic, financial planning
and operating control functions at this level, and the staffing reflects those
requirements.
System-level management requirements vary significantly with the category
of system under consideration. Classic cable operations primarily require
custodial management to oversee customer service and maintenance functions.
Strategic, marketing, and financial management tends to be handled at the
corporate level. Billing
7
<PAGE>
functions are processed through service bureaus specializing in cable systems.
Very little management complexity is left at the system level, and the positions
tend to be filled accordingly. Large-scale, urban cable operations are much more
dynamic and demanding. They require far more sophisticated and versatile
management capabilities. The physical plant, budgets, and operating staffs in
these systems are considerably larger. More of the strategic, marketing, and
financial planning functions are handled locally. The political liaison
requirements with the cities are far more complex. Not surprisingly, the caliber
of management found in these systems is substantially higher than that found in
classic systems, and tends to be professionally trained, financially aware, and
politically astute.
2. Regulation
Historically, the extent to which the cable television industry has been
regulated at the local, state and federal levels, has varied. Following the
deregulation of service prices in the 1984 Cable Communications Policy Act, the
next several years saw regulatory constraints on cable reduced at both the local
and federal levels. Subsequent public perception of the industry as abusing its
newly-won pricing freedom and additional consolidation in the industry led to
enactment of the Cable Television Consumer Protection and Competition Act of
1992 on October 5, 1992, ushering in a new period of extensive regulation. Many
aspects of such regulation are currently the subject of judicial, administrative
or legislative proceedings or proposals. This law required the FCC to regulate
the operation of cable television systems in a number of areas, including rates
that may be charged by systems.
On September 1, 1993, rate changes mandated by the FCC under the 1992 Act
went into effect for most systems. The FCC implemented a benchmark rate
structure that was intended to reduce the federally regulated portion of the
average cable subscriber's monthly bill by 10%. Most of the resulting
reductions in subscriber bills were attributable to the decline in equipment and
additional outlet charges. However, with the mandated reconfiguration of basic
service and the expanded basic tier, some
8
<PAGE>
subscribers' bills increased. For cable operators, the effects of the rate
change were estimated to reduce revenue by 3% to 5% on an industrywide basis.
In February 1994, the FCC announced further rate reductions of 7% in order
to fully implement the 1992 Cable Act. As an alternative, cable systems were
permitted to file Cost of Service showings if implementation of the mandated
rate reductions was not feasible. By yearend 1995, widescale telecommunications
reform appeared imminent; although, the extent to which or even whether this
reform would entail relief from rate regulation was unclear. The likelihood
that providers of cable and telephony services would be allowed engage in both
businesses was a near certainty, however, the timetable for these changes was
uncertain.
The Telecommunications Act of 1996, passed on February 8, 1996, revised the
Communications Act of 1934 and the Cable Act of 1992 in fundamental ways. It
highlighted competition in local loop telephone, video distribution, and long
distance telephone, and de-regulated cable rates beginning in 1999. The goal
was to create a competitive telecommunications marketplace. The FCC is in the
process of promulgating regulations to implement the law so its effect is still
uncertain.
3. Financial/Economic
Cable's rapid financial growth and expectations for future growth have
drawn the attention of the capital markets and helped fuel consolidation within
the industry. With most cable markets already franchised and constructed,
growth-oriented MSOs turned to acquisitions as their primary method of
expansion. A flurry of acquisitions occurred during the period of 1986 through
1989, with the peak being reached in 1988. Most of these acquisitions were made
by companies already in the cable business who were seeking national
consolidation or regional clustering of cable television systems to produce
greater economies of scale and operating efficiencies. The number of
transactions decreased in 1990 due to federal government restrictions on banks
pertaining to highly leveraged transactions (HLT), uncertainty about the
regulatory environment, and other factors.
9
<PAGE>
HLT restrictions caused less money to be available for the expansion,
upgrading, and trading of cable systems in 1990 and 1991. These restrictions
were subsequently removed in June 1992, and while the number of acquisitions
increased, they did not reach the same levels seen in the latter half of the
1980's. Passage of the Cable Television Consumer Protection and Competition Act
of 1992 and the resultant rate regulation decreased the overall attractiveness
of the cable industry to potential investors.
During the early- to mid-1990s, several of the largest MSOs formed or were
exploring alliances with both long distance and local telephone companies, as
both the cable and telephone industries were planning to enter one another's
primary lines of business. Simultaneously, a number of mid-sized MSOs were
developing exit strategies based on the belief that success in the evolving
cable industry would require a critical mass of subscribers and access to
substantial amounts of capital.
While the development of voice, video and data delivery technologies holds
the promise of substantial new services and revenues for the industry, the near-
term outlook based on established programming services continues to be positive.
Operators expect to continue to increase operating income by continuing to
attract more subscribers, exploit current and additional opportunities for
ancillary revenues, and improve operating efficiencies.
4. Competition
During the next several years, the cable industry may face additional
competition which could emerge in the form of system overbuilds, the
introduction of new technologies, and entry into the video distribution business
by telephone companies.
The long-term viability of overbuilds in most cable markets is questionable
at best. An overbuilder splits up the subscriber base, incurring higher costs
per subscriber and lower margins overall. Many attempted overbuilders have been
bought out by the incumbent or have simply gone out of business. The likelihood
of a successful overbuild in all but a few markets is very small.
10
<PAGE>
Cable television has begun to face increasing competition from new
distribution technologies including direct-broadcast satellite (DBS), satellite
master antenna television (SMATV), and multichannel multipoint distribution
service (MMDS). The ultimate success or failure of any of these television
delivery systems will depend largely on a combination of the three
interconnected factors of technology, regulation, and economics. Strategis
Financial Consulting anticipates that the threat to cable television by these
technologies in the next few years will not be material, although various
technologies are proving adept at providing services in certain niche markets.
MMDS and SMATV typically have little or no effect on mature cable systems,
except in large urban areas where a high percentage of homes passed are in
multiple dwelling units (MDUs). DBS presents a greater competitive threat. The
DBS industry, which is still very young, has thus far focused on building its
customer base in areas not wired for cable television. As of 1994, leaders in
the DBS industry predicted that between 10% and 20% of television households
nationwide would use their service within ten years. However, DBS is hampered
by the fact that it does not carry off-air broadcast signals.
Telephone companies have long shown an interest in expanding into video
distribution. For the most part, this competition has not materialized as a
result of existing regulatory restraints and technical limitations. By the end
of 1993, there was widespread recognition that technological developments would
force dramatic changes in such regulation, as the telecommunications industry
entered a consolidation period characterized by mergers, joint ventures, and
acquisitions.
Fiber optics are increasingly being utilized as telephone and cable
companies begin experimenting with `full service' networks with the capability
of delivering voice, video and data services to the home. Several of the
largest MSOs, in conjunction with telephone companies, have built these
experimental systems to determine their feasibility from both technological and
marketing perspectives.
As of the mid- to late-1990s, the telephone industry is in the experimental
stage with regard to using fiber optic cable to deliver services to the home.
Cable companies, for their part, are focusing on the delivery of digital program
and data services via hybrid
11
<PAGE>
fiber and coaxial cable networks. For technological, financial, and regulatory
reasons, the full convergence of telecommunications services and service
providers is most likely years away.
12
<PAGE>
IV. SYSTEM DESCRIPTION
A. HISTORY AND MARKET
At the time of the appraisal, the System served 63,527 subscribers in
Palmdale, Lancaster, Edwards Air Force Base ("Edwards AFB"), and adjacent
portions of Los Angeles County. The provision of cable service was governed by
four franchise agreements held with the County of Los Angeles, the cities of
Palmdale and Lancaster, and Edwards AFB. As of December 31, 1997, the weighted
average remaining life of the four franchise agreements was 6.3 years.
Palmdale is located in the Antelope Valley of southern California,
approximately 60 freeway miles north of downtown Los Angeles. As of 1996, the
City of Palmdale had a population of roughly 112,000. Situated just south of
Edwards AFB, the Palmdale area has had a long-history of activity in the
aerospace industry. Major employers in the area included defense contractors
such as Boeing (aerospace) and Lockheed (aerospace), Edwards AFB, and the
Federal Aviation Administration Air Traffic Control Center. Other employers in
the area included Lance Campers (manufacturing) as well as warehouse and
distribution facilities for Michael's Arts and Crafts and Rite Aid Pharmacies.
Many area residents also commuted to downtown Los Angeles, the San Fernando
Valley, and surrounding areas, which were also accessible via commuter trains.
During the 1980s the Palmdale area was the fastest-growing part of
California. Economic development in the Palmdale area declined due to the
recession of the early 1990s; but, according to System management, the local
economy had largely recovered from the recession and was beginning to expand
again. The unemployment rate in the City of Palmdale was 5.5% in December 1997.
This rate compared favorably with Los Angeles county unemployment of 5.8%, was
the same as the statewide unemployment rate of 5.5%, but was somewhat higher
than the national unemployment rate of 4.7% during this period, according to the
U.S. Bureau of Labor Statistics.
13
<PAGE>
At the time of the appraisal, Direct Broadcast Satellite (DBS) service was
available in the Palmdale service area, with EchoStar and DirecTV being the
predominant service providers in the market. According to System management, as
of December 1997, the number of cable subscribers switching to DBS had
significantly slowed from a year earlier. System management estimated that, as
of December 31, 1997, DBS operators had a combined penetration of approximately
2.32% of homes in the service area. According to System management, the System
did not have any multichannel multipoint distribution service (MMDS, or wireless
cable) competitor. However, Pacific Telesis, the Regional Bell Operating
Company in the region, operated an MMDS system in nearby communities and could
in the future provide MMDS competition in the Palmdale service area, though
System management was not aware of any current plans for them to do so.
Table I presents demographic data published in Marketing Statistics'
Demographics USA 1997 for Los Angeles County. Data for population, households,
and Effective Buying Income (EBI) were estimated for 1996 and projected for
2001. Also presented, for comparison purposes, are data for the state of
California and the nation as a whole.
Los Angeles County, which encompasses the service area, had a population of
approximately 9,410,300 in 1996 and its population was forecast to grow at an
annual rate of 0.30% through 2001. This growth rate was lower than statewide and
nationwide population growth forecasted for the period of 0.88% and 0.84%,
respectively.
Average household EBI in Los Angeles County was $43,494 in 1995. While
this figure was higher than the national average household EBI of $42,191, it
was lower than the statewide figure for California of $44,430. Growth in
household EBI was forecast at 2.57% annually in Los Angeles County, and at 2.56%
and 2.97% throughout California and the U.S. as a whole, respectively. This
information is also presented in Table I.
14
<PAGE>
<TABLE>
<CAPTION>
TABLE I
Annual
1996 2001 Growth Rate
Estimate Projection 1996-2001
-------------- -------------- -----------
<S> <C> <C> <C>
Los Angeles County, CA
- ----------------------
Total Population 9,410,300 9,550,700 0.30%
Total Households 3,069,900 3,077,800 0.05%
Median Age 32.3 N/A
Effective Buying Income (EBI)
Total EBI (000's) $ 133,522,302 $ 151,954,394 2.62%
Average Household EBI $ 43,494 $ 49,371 2.57%
State of California
- -------------------
Total Population 32,686,800 34,149,600 0.88%
Total Households 11,085,300 11,477,900 0.70%
Median Age 33.3 N/A
Effective Buying Income (EBI)
Total EBI (000's) $ 492,516,991 $ 578,578,779 3.27%
Average Household EBI $ 44,430 $ 50,408 2.56%
United States of America
- ------------------------
Total Population 267,540,600 279,027,700 0.84%
Total Households 98,635,500 103,870,800 1.04%
Median Age 34.9 N/A
Effective Buying Income (EBI)
Total EBI (000's) $4,161,512,384 $5,072,856,995 4.04%
Average Household EBI $ 42,191 $ 48,838 2.97%
</TABLE>
B. SERVICES
Tables II (A)-(B) present programming services offered to System
subscribers as of the appraisal date. The vast majority of subscribers, except
those on Edwards AFB, were able to receive the 65 channel program line-up shown
in Table II (A). Limited basic service was comprised of 27 channels, 16 of
which were local off-air broadcast signals, two of which carried local access
programming, and ten of which were satellite delivered services. One local
origination service and one satellite service shared one channel. Expanded
basic service encompassed 30 satellite delivered services carried on
<PAGE>
channels 36-65. Premium services available included Cinemax, HBO, The Movie
Channel, The Disney Channel and Showtime. Also offered were two general audience
movie/event pay-per-view (PPV) services and The Playboy Channel and Adult Vision
for adults.
<TABLE>
<CAPTION>
TABLE II (A)
PALMDALE/LANCASTER/LOS ANGELES COUNTY
CABLE
(Off-Air) NAME OR
Channels CALL LETTERS SOURCE DESCRIPTION
- --------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
2 (2) KCBS Los Angeles, CA CBS
- --------------------------------------------------------------------------------------------------------
3 Jones Intercable News/ Local/ Local News/
Odyssey Satellite Religious
- --------------------------------------------------------------------------------------------------------
4 (4) KNBC Los Angeles, CA NBC
- --------------------------------------------------------------------------------------------------------
5 (5) KTLA Los Angeles, CA WBN/Independent
- --------------------------------------------------------------------------------------------------------
6 Great American Country Satellite Country Music Videos
- --------------------------------------------------------------------------------------------------------
7 (7) KABC Los Angeles, CA ABC
- --------------------------------------------------------------------------------------------------------
8 (28) KCET Los Angeles, CA PBS
- --------------------------------------------------------------------------------------------------------
9 (9) KCAL Los Angeles, CA Independent
- --------------------------------------------------------------------------------------------------------
10 Prevue Guide Satellite Pay Movie Previews
- --------------------------------------------------------------------------------------------------------
11 (11) KTTV Los Angeles, CA Fox
- --------------------------------------------------------------------------------------------------------
12 Knowledge TV Satellite Educational
- --------------------------------------------------------------------------------------------------------
13 (13) KCOP Los Angeles, CA UPN/Independent
- --------------------------------------------------------------------------------------------------------
14 (64) KHIZ Barstow, CA Independent
- --------------------------------------------------------------------------------------------------------
15 Antelope Valley Buyers Network Satellite Home Shopping
- --------------------------------------------------------------------------------------------------------
16 WTBS Satellite Independent - Atlanta, GA
- --------------------------------------------------------------------------------------------------------
17 (58) KLCS Los Angeles, CA PBS
- --------------------------------------------------------------------------------------------------------
18 (18) KSCI San Bernadino, CA Independent
- --------------------------------------------------------------------------------------------------------
19 Trinity Broadcasting Network Satellite Religious
- --------------------------------------------------------------------------------------------------------
20 C-SPAN Satellite U.S. Senate Coverage
- --------------------------------------------------------------------------------------------------------
21 Government Access Local Local
- --------------------------------------------------------------------------------------------------------
22 (22) KWHY Los Angeles, CA Independent
- --------------------------------------------------------------------------------------------------------
23 Jones Home Theatre 1 SATELLITE PAY-PER-VIEW MOVIES
- --------------------------------------------------------------------------------------------------------
24 The Playboy Channel/ SATELLITE/ PAY ADULT MOVIES/
Adult Vision SATELLITE PAY ADULT MOVIES
- --------------------------------------------------------------------------------------------------------
25 Jones Home Theatre 2 SATELLITE PAY-PER-VIEW MOVIES
- --------------------------------------------------------------------------------------------------------
26 HBO SATELLITE PAY MOVIES, SPECIALS
- --------------------------------------------------------------------------------------------------------
27 Cinemax SATELLITE PAY MOVIES
- --------------------------------------------------------------------------------------------------------
28 The Disney Channel SATELLITE Pay Movies, Family Shows
- --------------------------------------------------------------------------------------------------------
29 Showtime SATELLITE PAY MOVIES, SPECIALS
- --------------------------------------------------------------------------------------------------------
30 The Movie Channel SATELLITE PAY MOVIES
- --------------------------------------------------------------------------------------------------------
31 KHSC Ontario, CA Home Shopping
- --------------------------------------------------------------------------------------------------------
32 (62) KRCA Riverside, CA Independent
- --------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
TABLE II (A) CONTINUED
PALMDALE/LANCASTER/LOS ANGELES COUNTY
CABLE
(Off-Air) NAME OR
Channels CALL LETTERS SOURCE DESCRIPTION
- --------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
33 (52) KVEA Los Angeles, CA Telemundo
- --------------------------------------------------------------------------------------------------------
34 (34) KMEX Los Angeles, CA Univision
- --------------------------------------------------------------------------------------------------------
35 (38) K38CW Palmdale Low Power Independent
- --------------------------------------------------------------------------------------------------------
36 E! Entertainment Television Satellite Entertainment Information
- --------------------------------------------------------------------------------------------------------
37 American Movie Classics Satellite Classic Movies
- --------------------------------------------------------------------------------------------------------
38 CNBC Satellite Consumer News and Business
- --------------------------------------------------------------------------------------------------------
39 CNN Satellite 24-Hour News
- --------------------------------------------------------------------------------------------------------
40 Fox Sports West 2 Satellite Regional Sports Coverage
- --------------------------------------------------------------------------------------------------------
41 Fox Sports West Satellite Regional Sports Coverage
- --------------------------------------------------------------------------------------------------------
42 ESPN Satellite 24-Hour Sports
- --------------------------------------------------------------------------------------------------------
43 USA Network Satellite Entertainment, Movies
- --------------------------------------------------------------------------------------------------------
44 TNT Satellite Movies, Sports, Variety
- --------------------------------------------------------------------------------------------------------
45 TNN Satellite Country Music Videos
- --------------------------------------------------------------------------------------------------------
46 Lifetime Satellite Women's Programming, Variety
- --------------------------------------------------------------------------------------------------------
47 The Family Channel Satellite Family Programming
- --------------------------------------------------------------------------------------------------------
48 Nickelodeon Satellite Children's Programming
- --------------------------------------------------------------------------------------------------------
49 Cartoon Network Satellite Cartoons
- --------------------------------------------------------------------------------------------------------
50 A&E Satellite Biographies, Mysteries, Specials
- --------------------------------------------------------------------------------------------------------
51 Discovery Channel Satellite Nature, Science, Technology
- --------------------------------------------------------------------------------------------------------
52 BET Satellite Black Entertainment
- --------------------------------------------------------------------------------------------------------
53 MTV Satellite Music Videos, Variety
- --------------------------------------------------------------------------------------------------------
54 VH-1 Satellite Music Videos
- --------------------------------------------------------------------------------------------------------
55 Comedy Central Satellite Comedy Programming
- --------------------------------------------------------------------------------------------------------
56 The Food Network Satellite Culinary Programming
- --------------------------------------------------------------------------------------------------------
57 MSNBC Satellite News, Computer Information
- --------------------------------------------------------------------------------------------------------
58 ESPN 2 Satellite 24-Hour Sports
- --------------------------------------------------------------------------------------------------------
59 The History Channel Satellite Movies, Documentaries
- --------------------------------------------------------------------------------------------------------
60 Eye On People Satellite Entertainment, Interviews
- --------------------------------------------------------------------------------------------------------
61 Sci-Fi Channel Satellite Science Fiction
- --------------------------------------------------------------------------------------------------------
62 Animal Planet Satellite Nature, Pets, Wild Creatures
- --------------------------------------------------------------------------------------------------------
63 The Learning Channel Satellite Educational
- --------------------------------------------------------------------------------------------------------
64 Galavision Satellite Spanish Language Programming
- --------------------------------------------------------------------------------------------------------
65 The Weather Channel Satellite 24-Hour Weather
- --------------------------------------------------------------------------------------------------------
99 Product Information Network Satellite Infomercials
- --------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
Table II (B) presents the 68 channel line-up available to the approximately
2,070 subscribers served from the Edwards AFB hub site, which was fed by
microwave from the headend. These subscribers received programming similar to
that offered directly from the headend. The limited basic line-up was the same
with the exception of channel 6, which offered the local Command Channel in
place of Great American Country, and channel 21, which offered WGN in lieu of
Government access . The System's expanded basic service was comprised of 33
satellite-delivered services, while available premium and PPV services were the
same as those offered from the headend.
<TABLE>
<CAPTION>
TABLE II (B)
EDWARDS AIR FORCE BASE
CABLE
(Off-Air) Name or
Channels CALL LETTERS SOURCE DESCRIPTION
- ------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
2 (2) KCBS Los Angeles, CA CBS
- --------------------------------------------------------------------------------------------------------
3 Jones Intercable News/ Local/ Local News/
Odyssey Satellite Religious
- --------------------------------------------------------------------------------------------------------
4 (4) KNBC Los Angeles, CA NBC
- --------------------------------------------------------------------------------------------------------
5 (5) KTLA Los Angeles, CA WBN/Independent
- --------------------------------------------------------------------------------------------------------
6 Command Channel Local Local
- --------------------------------------------------------------------------------------------------------
7 (7) KABC Los Angeles, CA ABC
- --------------------------------------------------------------------------------------------------------
8 (28) KCET Los Angeles, CA PBS
- --------------------------------------------------------------------------------------------------------
9 (9) KCAL Los Angeles, CA Independent
- --------------------------------------------------------------------------------------------------------
10 Prevue Guide Satellite Pay Movie Previews
- --------------------------------------------------------------------------------------------------------
11 (11) KTTV Los Angeles, CA Fox
- --------------------------------------------------------------------------------------------------------
12 Knowledge TV Satellite Educational
- --------------------------------------------------------------------------------------------------------
13 (13) KCOP Los Angeles, CA UPN/Independent
- --------------------------------------------------------------------------------------------------------
14 (64) KHIZ Barstow, CA Independent
- --------------------------------------------------------------------------------------------------------
15 Antelope Valley Buyers Network Satellite Home Shopping
- --------------------------------------------------------------------------------------------------------
16 WTBS Satellite Independent - Atlanta, GA
- --------------------------------------------------------------------------------------------------------
17 (58) KLCS Los Angeles, CA PBS
- --------------------------------------------------------------------------------------------------------
18 (18) KSCI San Bernadino, CA Independent
- --------------------------------------------------------------------------------------------------------
19 Trinity Broadcasting Network Satellite Religious
- --------------------------------------------------------------------------------------------------------
20 C-SPAN Satellite U.S. Senate Coverage
- --------------------------------------------------------------------------------------------------------
21 WGN Satellite Independent - Chicago
- --------------------------------------------------------------------------------------------------------
22 (22) KWHY Los Angeles, CA Independent
- --------------------------------------------------------------------------------------------------------
23 Jones Home Theatre 1 SATELLITE PAY-PER-VIEW MOVIES
- --------------------------------------------------------------------------------------------------------
24 The Playboy Channel/ SATELLITE/ PAY ADULT MOVIES/
Adult Vision SATELLITE PAY ADULT MOVIES
- --------------------------------------------------------------------------------------------------------
25 Jones Home Theatre 2 SATELLITE PAY-PER-VIEW MOVIES
- --------------------------------------------------------------------------------------------------------
26 HBO SATELLITE PAY MOVIES, SPECIALS
- --------------------------------------------------------------------------------------------------------
27 Cinemax SATELLITE PAY MOVIES
- --------------------------------------------------------------------------------------------------------
28 The Disney Channel SATELLITE PAY MOVIES, FAMILY SHOWS
- ------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
TABLE II (B) CONTINUED
EDWARDS AIR FORCE BASE
CABLE
(Off-Air) Name or
Channels CALL LETTERS SOURCE DESCRIPTION
- --------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
29 Showtime SATELLITE PAY MOVIES, SPECIALS
- --------------------------------------------------------------------------------------------------------
30 The Movie Channel Satellite Pay Movies
- --------------------------------------------------------------------------------------------------------
31 KHSC Ontario, CA Home Shopping
- --------------------------------------------------------------------------------------------------------
32 (62) KRCA Riverside, CA Independent
- --------------------------------------------------------------------------------------------------------
33 (52) KVEA Los Angeles, CA Telemundo
- --------------------------------------------------------------------------------------------------------
34 (34) KMEX Los Angeles, CA Univision
- --------------------------------------------------------------------------------------------------------
35 (38) K38CW Palmdale Low Power Independent
- --------------------------------------------------------------------------------------------------------
36 E! Entertainment Television Satellite Entertainment Information
- --------------------------------------------------------------------------------------------------------
37 American Movie Classics Satellite Classic Movies
- --------------------------------------------------------------------------------------------------------
38 CNBC Satellite Consumer News and Business
- --------------------------------------------------------------------------------------------------------
39 CNN Satellite 24-Hour News
- --------------------------------------------------------------------------------------------------------
40 Fox Sports West 2 Satellite Regional Sports Coverage
- --------------------------------------------------------------------------------------------------------
41 Fox Sports West Satellite Regional Sports Coverage
- --------------------------------------------------------------------------------------------------------
42 ESPN Satellite 24-Hour Sports
- --------------------------------------------------------------------------------------------------------
43 USA Network Satellite Entertainment, Movies
- --------------------------------------------------------------------------------------------------------
44 TNT Satellite Movies, Sports, Variety
- --------------------------------------------------------------------------------------------------------
45 TNN Satellite Country Music Videos
- --------------------------------------------------------------------------------------------------------
46 Lifetime Satellite Women's Programming, Variety
- --------------------------------------------------------------------------------------------------------
47 The Family Channel Satellite Family Programming
- --------------------------------------------------------------------------------------------------------
48 Nickelodeon Satellite Children's Programming
- --------------------------------------------------------------------------------------------------------
49 Cartoon Network Satellite Cartoons
- --------------------------------------------------------------------------------------------------------
50 A&E Satellite Biographies, Mysteries,
Specials
- --------------------------------------------------------------------------------------------------------
51 Discovery Channel Satellite Nature, Science, Technology
- --------------------------------------------------------------------------------------------------------
52 BET Satellite Black Entertainment
- --------------------------------------------------------------------------------------------------------
53 MTV Satellite Music Videos
- --------------------------------------------------------------------------------------------------------
54 VH-1 Satellite Music Videos, Movies
- --------------------------------------------------------------------------------------------------------
55 Comedy Central Satellite Comedy Programming
- --------------------------------------------------------------------------------------------------------
56 The Food Network Satellite Culinary Programming
- --------------------------------------------------------------------------------------------------------
57 MSNBC Satellite News, Computer Information
- --------------------------------------------------------------------------------------------------------
58 ESPN 2 Satellite 24-Hour Sports
- --------------------------------------------------------------------------------------------------------
59 The History Channel Satellite Movies, Documentaries
- --------------------------------------------------------------------------------------------------------
60 Eye On People Satellite Entertainment, Interviews
- --------------------------------------------------------------------------------------------------------
61 Sci-Fi Channel Satellite Science Fiction
- --------------------------------------------------------------------------------------------------------
62 Animal Planet Satellite Nature, Pets, Wild Creatures
- --------------------------------------------------------------------------------------------------------
63 The Learning Channel Satellite Educational
- --------------------------------------------------------------------------------------------------------
64 Galavision Satellite Spanish Language Programming
- --------------------------------------------------------------------------------------------------------
65 The Weather Channel Satellite 24-Hour Weather
- --------------------------------------------------------------------------------------------------------
66 NASA Select Satellite NASA Programming
- --------------------------------------------------------------------------------------------------------
67 Headline News Satellite 24-Hour News
- --------------------------------------------------------------------------------------------------------
68 Great American Country Satellite Country Music Videos
- --------------------------------------------------------------------------------------------------------
99 Product Information Network Satellite Infomercials
- --------------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
C. RATES
The average monthly programming rates, equipment rental rates, and
installation charges to subscribers for the preceding services as of the date of
the appraisal, are outlined in Table III. Comparison data for basic service,
pay services, and monthly revenue per subscriber were taken from The Strategis
Group's publication Cable Trends: 1997, which presents year end 1996 operating
and financial data.
As shown in Table III, subscribers paid between $11.00 and $13.81 per month
for limited basic service and between $6.00 and $12.71 for expanded basic
service. Most of the subscribers to the System were served from the Palmdale
headend and paid a combined basic and expanded basic rate that was slightly
higher, at $26.52, than the average combined basic and expanded basic rate for
the nation, which was $25.84 as of 1996.
A la carte pay service rates throughout the System ranged from $6.00 for
Cinemax, Showtime and The Movie Channel, and $8.00 for The Disney Channel to
$10.00 for HBO. Packages of multiple premium services were available at reduced
rates. On a nationwide basis, the average revenue per pay unit was $7.77 in
1996, which as higher than the System's average revenue per pay unit of $6.46 in
1997.
PPV general audience movies were $3.95 throughout the System. Playboy
movies were $6.95, while Adult Vision movies were $5.95. Events were priced
individually.
Addressable Pioneer converter rentals were $2.15 per month throughout the
System, while the non-addressable converter monthly rental rate was $0.66.
Installation charges throughout the System were $25.39 for subscribers in pre-
wired homes, $35.54 in unwired homes, and $25.39 for reconnection of service.
Installation fees for subscribers in Edwards AFB military housing and
dormitories were $29.95 and $15.00, respectively.
Average revenue per subscriber per month on a nationwide basis was $35.46
as of the end of 1996, according to The Strategis Group research. This figure
includes revenues from basic, pay, and PPV services, as well as local
advertising, equipment
20
<PAGE>
rental, and miscellaneous income. During the twelve months prior to December 31,
1997, the System generated monthly average revenue of $39.27 per subscriber,
which was higher than the nationwide average for 1996.
<TABLE>
<CAPTION>
TABLE III
EDWARDS UNITED
PALMDALE AIR FORCE BASE STATES1
----------------------------------------------------
<S> <C> <C> <C>
Basic Service $13.81 $11.00 N/A
Expanded Basic 12.71 6.00 N/A
Combined Basic and Expanded Basic $26.52 $17.00 $25.84
----------------------------------------------------
Pay Services (a la carte) N/A
HBO $10.00 $10.00
Disney $ 8.00 $ 8.00
Cinemax $ 6.00 $ 6.00
The Movie Channel $ 6.00 $ 6.00
Showtime $ 6.00 $ 6.00
Monthly Revenue Per Pay Unit $ 6.46 $ 7.77
----------------------------------------------------
Pay Per View Movies
General Audience $ 3.95 $ 3.95
Playboy $ 6.95 $ 6.95
Adult $ 5.95 $ 5.95 N/A
----------------------------------------------------
Converters
Addressable $ 2.15 $ 2.15
Non-addressable $ 0.66 $ 0.66 N/A
----------------------------------------------------
Installation Charges: N/A
Pre-wired Home $25.39 $25.39
Unwired Home $35.54 $35.54
----------------------------------------------------
Monthly Revenue Per Subscriber $ 39.27 $ 35.46
----------------------------------------------------
</TABLE>
/1/ Source: The Strategis Group's Cable Trends: 1997
21
<PAGE>
D. SUBSCRIBERS
Table IV presents the number of homes passed, basic subscribers, expanded
basic subscribers, pay units, converter rentals, and addressable homes for the
System as of December 31, 1997. These figures are compared with similar figures
for the United States as a whole, taken from The Strategis Group's Cable Trends:
1997.
At the time of the appraisal, the System's basic penetration rate, at 72.2%
of homes passed, was higher than the corresponding rate for the nation of 65.8%.
Pay penetration for the System stood at 67.3%, which was below the national
average of 76.4%. Addressable home penetration for the System, at 60.8%, was
well above the national average of 48.1%.
<TABLE>
<CAPTION>
TABLE IV
SYSTEM UNITED STATES/1/
----------------------------------------
<S> <C> <C>
Homes Passed 88,035 95,500,000
---------------------------------------
Basic Subscribers 63,527 62,800,000
% of Homes Passed 72.2% 65.8%
---------------------------------------
Expanded Basic Subscribers 56,647 N/A
% of Basic Subscribers 89.2% N/A
---------------------------------------
Total Pay Units 42,733 48,000,000
% of Basic Subscribers 67.3% 76.4%
---------------------------------------
Converters 55,218 N/A
% of Basic Subscribers 86.9% N/A
---------------------------------------
Addressable Homes 38,619 30,200,000
% of Basic Subscribers 60.8% 48.1%
---------------------------------------
</TABLE>
/1/ Source: The Strategis Group's Cable Trends: 1997
22
<PAGE>
E. SYSTEM MILEAGE
According to System management, mileage figures for the System are based on
estimates from System maps. Since a complete walk-out of the current System
would be prohibitively expensive, Strategis Financial Consulting used the
following approach to corroborate the plant mileage:
1. Interviewed knowledgeable System personnel to ascertain the source and
reliability of the mileage estimates.
2. Noted the configuration of the System on area maps and the existence
and condition of plant in a representative portion of the area served
by the System.
3. Related average density of the System to general observations of
densities while inspecting the System and service area.
Table V presents management's best estimate of the number of route miles of
plant as represented by total strand and trench in the System as of the
appraisal date. Coaxial mileage was approximately 36.9% aerial and 63.1%
underground. Approximately 7.7% of total plant miles were fiber optic cable.
Based upon the above procedures and cost limitations, these estimates appear to
be reasonable.
<TABLE>
<CAPTION>
TABLE V
Aerial Underground Total
------------- --------------- -----------
<S> <C> <C> <C>
Coaxial Miles 373.3 639.5 1012.8
Fiber Optic Miles 80.0 4.0 84.0
</TABLE>
F. PHYSICAL PLANT
As of the valuation date, the System's administrative offices were located
at 41551 10th Street West, Palmdale, California. The headend was located south
of Lancaster, on a hill near Soledad Pass. The System maintained one headend
and eight microwave hub sites of which one was currently in use, and the other
seven were maintained for use as auxiliary standby units.
23
<PAGE>
Headend equipment from a variety of manufacturers was in use, however,
items made by Scientific-Atlanta (S/A) were predominant. Among these items were
S/A 6150 signal processors, 6350 modulators, 6270 demodulators, and 9640
receivers. Other equipment in use included Pioneer BE-2520, BE-3110, and BE-
4140 digital multimode encoders, DX DIR-647 receivers, General Instruments DSR-
4500 receivers, and M/A-Com Videociphers II units.
For the fiber optic portion of the distribution plant, the System used
Philips 2105-1009 transmitters and a Siecor Lightguide Shelf. Microwave
equipment included a Hughes AML 65-Channel High Power microwave system.
Off-air and microwave antennas were mounted on four self-supporting towers
ranging from 35 feet to 65 feet tall. Four 4.5-meter, one 5-meter and one 6-
meter S/A satellite dishes were used for program reception, and emergency power
was provided by a Fairbanks and Morse 50 kVa propane generator.
As of the appraisal date, the distribution plant capacity was 500 MHz, with
a 70-channel capacity. Approximately 30% of the System had recently undergone a
rebuild and upgrade to 550 MHz capacity. As of the appraisal date, the plant was
in very good condition. Overall, the System passed approximately 88,035 homes
with an estimated 1096.7 miles of plant, for an overall density of 80 homes per
mile.
Addressable homes totaled 38,563 in the System, and there were a total of
55,218 converters in the field. Converters provided to subscribers included
Pioneer addressable models, and Panasonic standard set-top models.
G. FRANCHISES
As of December 31, 1997, the System operated under a total of four
franchise agreements with different local government authorities. Table VI
identifies each agreement and its expiration date. As of the appraisal date,
the weighted average remaining life of the franchise agreements was 6.3 years.
24
<PAGE>
<TABLE>
<CAPTION>
TABLE VI
<S> <C>
Franchise Expiration
- --------- -------------------
Lancaster May 1, 2001
Los Angeles County October 1, 2005
Palmdale March 1, 2007
Edwards Air Force Base October 1, 2004
Weighted Average Remaining Life 6.3 Years
</TABLE>
H. MANAGEMENT
At the time of the appraisal, the System operated with approximately 125
full-time, 10 part-time and 7 part-time temporary employees. The largest group
of employees was in Customer Service, with 43 people, including part-time and
temporary help. The technical department had 24 employees; there were an
additional 12 installers, 9 construction people, and 11 studio technicians.
Advertising Sales and Marketing were handled by a staff of 16, plus three direct
salespeople.
Strategis Financial Consulting's representative met and spoke extensively
with the System's General Manager and Engineering Manager. Both were
experienced industry professionals and appeared to be well-versed on the
System's characteristics, including strengths and weaknesses.
I. FINANCIAL HISTORY
Unaudited financial statements for the year ending December 31, 1996,
showed that the System earned revenues of $27,990,638. Operating expenses
totaled $15,431,430, which resulted in operating income of $12,559,208 and an
operating profit margin of 44.9%. Unaudited statements for the year ending
December 31, 1997 indicated that operating profits of $13,574,648 were generated
on revenues of $29,890,452 for an operating margin of 45.4%.
25
<PAGE>
V. TOTAL SYSTEM VALUE
Strategis Financial Consulting has estimated the fair market value for the
System as a business enterprise to be $140,059,000, as of December 31, 1997.
Fair market value is the cash price a willing buyer would give a willing seller
in an arm's length transaction in order to complete the sale. It is assumed
that both buyer and seller have been informed of all relevant facts and neither
is under any compulsion to conclude the transaction and that the tangible assets
will remain in their present location and will continue to be employed in their
highest and best use, i.e., the delivery of cable television signals to
subscribers.
A. VALUATION PROCEDURE AND METHODS
Strategis Financial Consulting used the following basic methodology to
determine the overall fair market value of the System:
1. Performed an onsite review to observe a representative portion of the
market and homes passed, reviewed the number of subscribers, and
determined the quality and attractiveness of the services provided.
2. Made inquiries of management to ascertain and/or verify items relevant
to the appraisal.
3. Estimated the availability of additional homes passed and the
probability of future growth.
4. Reviewed selected financial records and other documents to verify
certain financial data.
5. Estimated the expected changes in operations that a buyer most likely
would institute.
6. Applied generally accepted methods of estimating the fair market value
of the entity as a whole.
A business valuation typically is performed using one or more of three
approaches: the cost approach, the market approach, and the income approach.
Since
26
<PAGE>
the System will be relying to a large degree on intangible assets to generate
income, the cost approach is not appropriate in this case. The market, or
comparable sales, approach has not been used because of the difficulty in
choosing sales that reflect the same profitability, size, and growth as the
System. Therefore, this valuation has been based on the income approach to
valuation. The income approach is the best approach to valuing the System
because it reflects the future earnings potential of the System.
There are various established methods of determining a business entity's
total fair market value using the income approach. The most commonly accepted
methods are as follows:
1. Capitalization of projected net cash flow.
2. Capitalization of single-year operating profit.
3. Dividend capitalization.
4. Market price-to-book equity.
5. Price-earnings multiple.
Of the methods listed above, Strategis Financial Consulting normally relies
primarily upon the capitalization of projected net cash flow, or "discounted
cash flow" approach, to estimate total value. Strategis Financial Consulting
generally favors discounted cash flow methodology because it considers the
broadest range of factors that will affect both the present and future income,
and therefore value, of a cable television system. Accordingly, Strategis
Financial Consulting usually gives greater consideration to the discounted cash
flow methods in its final judgment concerning the fair market value of a cable
television system.
Strategis Financial Consulting has prepared two discounted cash flow
valuations for the System, one which analyzes the projected return on equity and
one which analyzes the projected return on investment. Strategis Financial
Consulting also has considered the second general methodology listed above,
i.e., capitalization of operating profit, in conducting its valuation of the
System. The methodologies are described in
27
<PAGE>
Parts V-B and V-C of this report. The values for the overall fair market value
of the System are presented in Exhibit A.
The remaining methods listed above, although widely used in other
industries, generally are inappropriate for valuing cable television systems.
Dividend capitalization, based upon actual dividends or capacity, usually is
irrelevant since few publicly-traded cable companies pay dividends and earnings
(which should be reflective of a dividend capacity) are not reflective of the
capacity to generate operating income. A comparison of market price-to-book
equity also is not valid usually since book equity varies widely from one
company to another as to how much intangible and tangible value is reflected on
the books. Finally, an analysis of price-earnings multiples generally is not
appropriate because they also vary widely within the industry and are not
representative of the financial position of most cable systems.
B. DISCOUNTED CASH FLOW METHODOLOGY
Strategis Financial Consulting has generated two discounted cash flow
models to arrive at a total System value. The return-on-equity model is based
upon a hypothetical purchase price that would achieve a target after-tax return
on equity based on the present value of the projected net cash flows. The
return-on-investment model measures the net present value of the projected pre-
tax operating cash flows, less capital expenditures, plus the residual value of
the System, that represent the return on total investment.
Both the return-on-equity and return-on-investment methods are dependent
upon projections of the System's future net cash flow and residual value and on
selection of an appropriate discount rate. Strategis Financial Consulting's
calculations are based on detailed projections of a variety of factors which
will affect future cash flow including housing growth, plant mileage, basic and
pay subscriber growth, subscriber rates, operating expenditures, and capital
expenditures. The projections and assumptions used in Strategis Financial
Consulting's discounted cash flow models are set forth in Exhibits E, F, G, and
H. Exhibit E provides details of Strategis Financial Consulting's projections
for plant mileage, housing, and subscriber growth. Exhibit F shows the rates
subscribers
28
<PAGE>
were charged at the time of the appraisal for various services and Strategis
Financial Consulting's projections for future growth. Exhibit G lists revenues
and operating expenses for all years throughout the projection period, and
Exhibit H details capital expenditures anticipated for the System. In addition,
Exhibit J includes miscellaneous assumptions such as the average remaining life
of the franchises under which the System operates, tax rates, the net fair
market value of beginning tangible assets, the breakdown between debt and equity
and the interest rate anticipated on the debt, and the multiples and discount
rates used in the various appraisal methods. Strategis Financial Consulting's
determination and use of these factors is discussed further below.
1. Net Cash Flow/Return on Equity
This method involves the use of multiple year projected operations for the
System and a predetermined target after-tax return on equity for a hypothetical
outside buyer. The seven-year projection period is based on the average
remaining franchise life of the System. A complete discussion of the selection
of the projection period is provided in Part V-B-3 of this report.
Based on the use of typical debt-to-equity ratios and debt services,
Strategis Financial Consulting has made certain assumptions concerning the
capital structure that a "typical, prudent outside buyer" might experience as
well as the probable interest rates that would be applicable in connection with
any debt financing that might be incurred, as shown in Exhibit J. To calculate
future cash flows, Strategis Financial Consulting has projected future
subscribers, revenues, operating expenses, and capital expenditures. Strategis
Financial Consulting has then tested various hypothetical purchase prices, i.e.,
potential fair market values, to determine a value that yields the desired
return on equity, as shown in Exhibits C-1 and C-2.
Using the return-on-equity model, Strategis Financial Consulting has
generated low and high cash flow projections for the System shown in Exhibits B-
1 and B-2. The difference between the two projections reflects the range of
potential returns on equity
29
<PAGE>
that a buyer could reasonably expect to realize depending upon the initial
purchase price paid for the System.
2. Net Cash Flow/Return On Investment
This discounted cash flow method, similar to the preceding method, is used
to measure the net present value of the pre-tax operating cash flow, less
capital expenditures, plus the residual value of the System, that represent the
return on the total investment rather than that which could result from an
assumed purchase with a predetermined debt-to-equity ratio. To calculate future
cash flows, Strategis Financial Consulting has used the same projections for
future subscribers, revenues, operating expenses, and capital expenditures as in
the return-on-equity method. The projected cash flows for the System, plus the
last-year residual value of the System, less capital expenditures, are then
discounted to their present value using an acceptable discount factor based on
the weighted average cost of money, as shown in Exhibit J. Strategis Financial
Consulting has used the return on investment model, like the return on equity
model, to generate low and high values for the System. These values, shown in
Exhibit D, represent the present value of the future pre-tax operating cash
flows and reflect more conservative and more optimistic assumptions,
respectively, as to the likely return on investment that the System will
generate over time.
3. Cash Flow Projections
There are many factors that affect the projections of a specific cable
system's cash flow. With respect to the System, Strategis Financial Consulting
has analyzed the franchise area, the costs incurred to meet franchise
obligations, the length of the franchise period, the degree of competition, and
the historic results of the System's operations. Strategis Financial Consulting
also has examined factors that affect the industry, such as possibility of
regulation, competitive threats, rapid technical changes, and the development of
additional programming services. These factors have been incorporated into
Strategis Financial Consulting's projections of the System's future cash flows.
30
<PAGE>
The most critical factors in the expected cash flow of a specific cable
system are the opportunities for growth in the territory in which it operates,
i.e., its franchise area and the duration of the franchise. In making its cash
flow projections, Strategis Financial Consulting has carefully reviewed the
demographics of counties represented in the service area. Demographic
information was gathered from direct observation during Strategis Financial
Consulting's onsite visit, discussion with System management, Marketing
Statistics' Demographics USA 1996, U.S. Census Bureau data, and information
obtained from the local Chamber of Commerce.
Strategis Financial Consulting also has reviewed information pertaining to
the System's franchises in order to calculate their remaining life and made
inquiries of System management personnel to ascertain any relevant terms that
may affect the value of the System. Strategis Financial Consulting has
calculated a weighted average remaining life of 6.3 years for the franchises.
The projection period used for the cash flows normally is the weighted
average remaining life of the franchises, except when the weighted life of the
franchises falls below seven or exceeds ten years. When the franchise life
falls below seven years, Strategis Financial Consulting uses a seven-year
projection period, amortizing the franchises over fifteen years as mandated by
the Internal Revenue Service (IRS). When the franchise life exceeds ten years,
a ten-year projection period is used, with the franchises amortized over fifteen
years. Strategis Financial Consulting believes that the cash flows realized
from a projection period less than seven years generally are not reflective of
the value of a system than an investor would consider when utilizing discounted
cash flow methodology. Strategis Financial Consulting also believes that the
operating income resulting from income and expense projections beyond ten years
is increasingly uncertain and might produce less accurate values for the System.
Strategis Financial Consulting's cash flow projections are also based in
part on historical operating data such as subscriber rates, the ratio of
subscribers to homes passed, and the age and condition of the System's
distribution plant. Strategis Financial Consulting also has relied on
information provided by System management personnel,
32
<PAGE>
discussions with System personnel, and Strategis Financial Consulting's
familiarity with typical industry expenses and operating trends to project the
future financial performance of the System. As shown in Exhibits E through H,
Strategis Financial Consulting has projected increases in the number of basic
and pay subscribers, projected changes in service rates, and estimated
expenditures for future installation of cable plant and other future capital
requirements.
4. Residual Value
Under both the return-on-equity and the return-on-investment approaches,
Strategis Financial Consulting has calculated a residual value for the System
following the seven-year projection period. The residual represents the
anticipated value of the System at the end of the projection period. This value
is added to the System's cash flow stream in the final year of the projection
period and then discounted back to present value.
The residual is calculated as a multiple of the projected annual net cash
flow in the final year of the discounted cash flow analysis. The multiple used
reflects the degree of likelihood that the System will have significant future
income, and therefore value, at the end of the projection period. If the
franchise is likely to be renewed on the same terms as the current franchise,
and if there is a realistic expectation of continued growth in income, a higher
multiple will be applied. On the other hand, if the franchise is not likely to
be renewed, or is renewed on terms and conditions significantly different from
the current franchise, or if competitive or technological factors jeopardize the
operator's future income, a lower multiple is appropriate.
Based on its experience and familiarity with the cable industry, and its
analysis of the System, Strategis Financial Consulting has calculated the
System's residual value using seventh-year cash flow times a multiple of 9.0, as
shown in Exhibit J. This multiple reflects Strategis Financial Consulting's
view that the System is likely to have significant value in seven years, but
that certain unknowns and uncertainties must be factored into the multiple
nonetheless. Currently, the Cable Act of 1984 puts operators
32
<PAGE>
in a favorable position in that cable franchises are generally likely to be
renewed. However, the 1984 Act provides no guarantee of renewal, and it is
expected that the negotiation process required to obtain a renewal will result
in new franchises that will be on terms significantly different and probably
less favorable than current franchises. In addition, concerns about how re-
regulation of the cable industry will affect the Act's renewal provisions could
have the effect of reducing or eliminating the operator's expectation of
renewal.
5. Discount Rates
A critical component of both the return-on-equity and the return-on-
investment approaches is the selection of the rate at which future cash flows
are discounted to their present value. The discount rate represents the
investor's expected return on capital, i.e., the rate of return that reasonably
reflects the risk being undertaken by the investor.
Considering the relative risk associated with the cable industry in
comparison to other industries, and the risk associated with the System in
particular, Strategis Financial Consulting has adopted a range of discount rates
for its discounted cash flow methods. In the after-tax return-on-equity model,
Strategis Financial Consulting has applied a discount rate of 14.0% for its low
valuation, and a rate of 12.0% for its high valuation. In the pre-tax return-
on-investment model, the low valuation discount rate is 16.6%, while the high
valuation rate is 15.1%. The discount rates used in the two discounted cash
flow methods are indicated on Exhibit A and summarized in Exhibit J.
Strategis Financial Consulting has calculated the discount rate for the
return-on-equity model by first establishing a risk-free rate of return (the
current rate of return available on Treasury bills or Treasury bonds as of the
valuation date) and then adding the historical premium for risk that the market
has actually provided the holders of representative cable television stocks.
This assumes that using such historical data will provide a reasonable guide to
future return expectations after recognition for risk.
The discount rate incorporates systematic risk, which is the sensitivity of
the return on the subject investment to changes in the return for the market as
a whole.
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<PAGE>
Strategis Financial Consulting also has considered in our selection of the
discount rates unsystematic risk, which is any risk premium directly associated
with the industry, particular company, or the subject system. Thus, internal
risk factors, such as the possibility of competition, municipal and customer
relations, rate structure, franchise stability, etc., have been examined in our
selection of the discount rates.
The discount rate used in the return-on-investment model is determined by
the "band of investment" method. The rate is based on an average of the rate
applicable to equity and the cost of debt weighted in the proportions that are
utilized for the particular system.
C. DIRECT INCOME METHODOLOGY
An alternative valuation method to the discounted cash flow method is the
direct income method, in which the estimate of the cable system's value is based
on current net operating income times a multiple selected by the appraiser.
Strategis Financial Consulting has applied several alternative versions of this
method to the System. In the first model, Strategis Financial Consulting used
the System's actual annual net operating income for the 12-month period
preceding the valuation date, whenever the appropriate data was available. When
data was insufficient to ascertain the actual net operating income for the past
full year, Strategis Financial Consulting estimated the past year's annual net
operating income based on available financial information for the past several
months. In the second, the System's current cash flow as of the appraisal date
was annualized to create a "running rate" net operating income projection. In
the third model, Strategis Financial Consulting used the System's projected net
operating income for the twelve months following the appraisal date. The
results of these models are set forth in Exhibit A.
The multiples applied to each of these income figures are derived from a
variety of cable industry data. First, Strategis Financial Consulting has
looked at the income and stock value of several publicly traded cable companies
as of the appraisal date. From this analysis, Strategis Financial Consulting
has derived a range of multiples that it
34
<PAGE>
believes are applicable to privately held cable systems, which includes
adjustments for control and marketability. Taking into account multiples derived
from the sale of other cable television systems, Strategis Financial Consulting
has arrived at a composite figure for each model. In the historical income
model, Strategis Financial Consulting has applied a low multiple of 10 and a
high multiple of 11. The running rate and projected income models use slightly
lower multiples to account for the additional risk and uncertainty of using
projections rather than historical data. The multiples used in each of the three
direct income approaches are indicated in Exhibit A and summarized again in
Exhibit J.
D. VALUE CONCLUSIONS
The valuations yielded by each of the methods described above are shown in
Exhibit A. In arriving at a final System valuation, Strategis Financial
Consulting considered both discounted cash flow methods, i.e., the return-on-
equity and return-on-investment methods, and the direct income methods. Based
upon the foregoing analysis and a consideration of the various methods,
Strategis Financial Consulting concludes that the fair market value of the
System as a business enterprise as of December 31, 1997, was $140,059,000.
35
<PAGE>
VI. CONTINGENCIES AND LIMITING CONDITIONS
Our conclusions as to the value of the System are based upon the following,
which to the best of our knowledge and belief are reliable and sound:
1. Information and data obtained during an onsite inspection by a
representative of Strategis Financial Consulting of a representative
portion of the System and communities served.
2. Personal and telephone interviews with the System's employees.
3. Selected documents including:
a. Various operating data and maps.
b. Miscellaneous internal data and documents.
The following limiting conditions apply to the subject appraisal:
1. Strategis Financial Consulting is under no obligation to update the
appraisal to account for events or additional data subsequent to the
appraisal date. The appraisal is based on laws and regulations in
place as of December 31, 1997, and does not reflect subsequent
changes, if any, in the relevant laws and regulations.
2. Neither this report nor any portions thereof may be used for any
purpose other than as stated herein nor may it be reproduced or
excerpted without the prior written consent of Strategis Financial
Consulting.
3. No copies of this report will be furnished to entities other than the
client without the client's specific permission or direction unless
ordered by a court of competent jurisdiction.
4. The comments and judgments of Strategis Financial Consulting as to the
physical and terminal state of the cable system were made by
representatives who are expert in valuing cable television assets but
not by qualified cable television engineers. Consequently, readers
should not rely on any statement made herein for any purpose other
than those set forth in this appraisal.
36
<PAGE>
5. Strategis Financial Consulting did not consider, or factor into the
appraisal, any impact on value that might be caused by the presence of
toxic waste or hazardous material including electromagnetic radiation
or other forms of radio frequency radiation.
37
<PAGE>
VII. STATEMENT OF VALUE
Strategis Financial Consulting certifies that a personal inspection of a
representative portion of the communities and System was made by a qualified
representative of this firm and that, to the best of our knowledge, the
statements contained in this appraisal are correct and that the opinions stated
are based on consideration of the relevant factors. In addition, neither
Strategis Financial Consulting nor any of its representatives have any current
interest or contemplated future interest in the entities appraised. In
addition, the fee paid for this report by Jones Intercable, Inc. is in no way
dependent on the values determined herein.
Based on the various analyses, computations, and considerations discussed
in this report, it is our professional judgment, subject to the assumptions and
limitations stated in this report, that the range of values as stated in this
report are true and correct. Therefore, it is the professional opinion of
Strategis Financial Consulting that the fair market value of the Cable TV Fund
12-BCD Venture cable television system serving Palmdale and Lancaster,
California as a business enterprise, as of December 31, 1997, free and clear of
any encumbrances, is $140,059,000.
STRATEGIS FINANCIAL CONSULTING, INC.
/s/ Andrew R. Gefen
-------------------------------------
By: Andrew R. Gefen
President
February 20, 1998
38
<PAGE>
VIII. QUALIFICATIONS
A. QUALIFICATIONS OF STRATEGIS FINANCIAL CONSULTING, INC.
Strategis Financial Consulting, Inc. and its corporate parent, The
Strategis Group (formerly Malarkey-Taylor Associates-EMCI), have served the
communications industry for nearly 30 years specializing in the field of cable,
cellular, paging, mobile radio, and broadcasting technologies. Our companies
have completed thousands of projects for clients in the communications industry
and in the financial and investment communities. Our organizations are composed
of a multi-disciplinary team of professionals who combine academic training in
accounting, finance, engineering, marketing, management, economics, and law with
many years of experience solving problems for hundreds of clients in both the
public and private sectors.
A large portion of our financial, engineering, and managerial
professionals' time is devoted to the appraisal of cable television systems,
cellular telephone systems, paging systems, and broadcast stations. Since 1964,
we have appraised hundreds of communications properties for purposes of
financing, ownership transfers, property tax assessments, and estate planning
and probating. Our appraisal experience has included independent fair market
valuations and purchase price allocations, including valuation of both tangible
assets and intangible assets such as franchises, licenses, subscriber lists,
leases, and contracts. Strategis Financial has supplied expert testimony on
cable, cellular, paging, and broadcast property values in court and other legal
hearings.
39
<PAGE>
B. QUALIFICATIONS OF ANDREW R. GEFEN
Andrew R. Gefen is the President of Strategis Financial Consulting, Inc. He
has provided valuation, financial, accounting and consulting services to
numerous cellular telephone, cable television, broadcasting, and paging
companies. Mr. Gefen is involved in the fair market valuation and asset
appraisal of publicly and privately held cellular telephone systems, cable
television systems, broadcast stations, paging systems, programming networks,
and Multichannel Multipoint Distribution Service (MMDS) systems. He has valued
over 100 cellular telephone systems and over 200 cable television systems with
an aggregate value of over $3 billion.
Mr. Gefen has provided expert testimony on the valuation of cellular
telephone systems, MMDS systems, cable television systems, and paging systems.
He has also assisted in the development of a statewide cellular telephone
network, and provided consulting services to professional sports leagues, cable
television programming networks, and U.S. Government agencies. His work has
included valuation and due diligence projects in several countries in Europe and
Latin America.
He has acquired an in-depth knowledge of the values of cellular systems,
cable television systems, broadcast stations, and paging systems, including
their market characteristics, growth prospects, construction costs, operating
cost structures, and other industry issues. Mr. Gefen has substantial
experience in the tax issues arising from the purchase and sale of cable and
broadcast properties. In addition, he has supported the taxpayer's values of
tangible and intangible assets during Internal Revenue Service reviews.
Mr. Gefen was previously with the communications consulting firm of Frazier,
Gross & Kadlec, Washington, D.C., as the Manager of the Appraisal Group where he
directed and participated in the asset appraisals of over 200 communications
properties, primarily in the radio and television industry.
EXPERIENCE
President, Strategis Financial Consulting, Inc., Washington, D.C., 1988-present.
Business Analyst and Project Manager, American Management Systems, Arlington,
VA.
Planning Consultant, Panelvision Corporation, Pittsburgh, Pennsylvania.
Programmer and Chief Announcer, WBRU (FM), Providence, Rhode Island.
EDUCATION
M.S., Industrial Administration (M.B.A.), Carnegie-Mellon University,
Pittsburgh, Pennsylvania.
B.A., Economics, Brown University, Providence, Rhode Island.
40
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C. QUALIFICATIONS OF ELISABETH BOEHLER
Elisabeth Boehler joined Strategis Financial Consulting, Inc. as a
Consultant. She conducts financial analyses, financial modeling and research for
the telecommunications industry. Ms. Boehler was previously a consultant in the
telecommunications industry, providing marketing research and analysis to
Internet and satellite communications providers as well as Regional Bell
Operating Company and long distance carrier clients.
Ms. Boehler has significant experience in financial analysis. While an
analyst with the CBS Television Network in New York City, she prepared
consolidated network income statements, cash forecasts and budgets, and
performed variance and profitability analyses. While at GE Medical Systems
Europe she conducted a financial and process audit of their multi-national lease
portfolio.
EXPERIENCE
Analyst/Consultant, Weber and Associates, Sterling, VA, 1997.
Analyst, General Electric Medical Systems - Europe, Buc, France, 1994-1995.
Senior Financial Analyst, CBS Inc., New York, NY, 1991-1994.
Assistant Controller, Melhado, Flynn & Associates, New York, NY, 1990-1991.
EDUCATION
M.B.A., INSEAD, Fontainebleau, France.
B.S.M., Management, Tulane University, New Orleans, Louisiana
41
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<TABLE>
<CAPTION>
CABLE TV FUND 12-BCD VENTURE EXHIBIT A
-------------------
PALMDALE/LANCASTER, CALIFORNIA
AS OF DECEMBER 31, 1997
- ----------------------------------------------------------
VALUATION METHODS
- -----------------
LOW HIGH
--------------- -------------------
I. MULTIPLE OF PAST YEAR'S OPERATING INCOME
<S> <C> <C>
OPERATING INCOME, PER BOOKS (12/31/97) $ 13,574,648 $ 13,574,648
VALUATION MULTIPLE 10.0 11.0
------------ ------------
ESTIMATED FAIR MARKET VALUE $135,746,480 $149,321,128
------------ ------------
II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME
ESTIMATED OPERATING INCOME
TOTAL CURRENT YEAR'S REVENUE $ 30,715,440 $ 30,715,440
OPERATING MARGIN, PER BOOKS (12/31/97) 45.4% 45.4%
------------ ------------
"RUNNING RATE" OPERATING INCOME 13,947,881 13,947,881
VALUATION MULTIPLE 9.5 10.5
------------ ------------
ESTIMATED FAIR MARKET VALUE $132,504,873 $146,452,754
------------ ------------
III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME
OPERATING INCOME $ 15,112,833 $ 15,112,833
VALUATION MULTIPLE 9.0 10.0
------------ ------------
ESTIMATED FAIR MARKET VALUE $136,015,500 $151,128,333
------------ ------------
IV. DISCOUNTED CASH FLOW RETURN ON EQUITY
TARGET RETURN ON EQUITY 14.0% 12.0%
ESTIMATED FAIR MARKET VALUE $134,773,634 $145,249,519
------------ ------------
V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT
TARGET RETURN ON INVSTMT 16.6% 15.1%
ESTIMATED FAIR MARKET VALUE $132,642,183 $142,642,182
------------ ------------
SUMMARY OF VALUES
- -----------------
I. MULTIPLE OF PAST YEAR'S OPERATING INCOME $135,746,480 $149,321,128
II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME 132,504,873 146,452,754
III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME 136,015,500 151,128,333
IV. DISCOUNTED CASH FLOW RETURN ON EQUITY 134,773,634 145,249,519
V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT 132,642,183 142,642,182
------------ ------------
RANGE OF ESTIMATED FAIR MARKET VALUES $134,091,000 $146,027,000
ESTIMATED FAIR MARKET VALUE $140,059,000
============
</TABLE>
<PAGE>
- ------------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT B
PALMDALE/LANCASTER, CALIFORNIA LOW ANALYSIS
AS OF DECEMBER 31, 1997 ------------
- ------------------------------
RETURN ON EQUITY METHOD
PROFIT AND LOSS - LOW VALUE
- ---------------------------
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1998 1999 2000 2001
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $ 31,973,938 $ 34,262,832 $ 36,648,739 $ 39,160,090
OPERATING EXPENSES 16,861,105 17,741,776 18,734,945 19,948,909
------------ ------------ ------------ ------------
OPERATING INCOME $ 15,112,833 $ 16,521,056 $ 17,913,794 $ 19,211,181
OPERATING MARGIN 0.47 0.48 0.49 0.49
PARENT SERVICES/MGT FEE (5%) 1,598,697 1,713,142 1,832,437 1,958,005
FRANCHISE AMORTIZATION (15) 4,719,533 4,719,533 4,719,533 4,719,533
SUBSCRIBER LIST (7) 3,612,714 3,612,714 3,612,714 3,612,714
NON-COMPETE COVENANTS (0) 0 0 0 0
DEPRECIATION 5,825,519 10,426,269 8,342,439 6,901,809
INTEREST 6,570,012 6,570,012 6,570,012 6,157,774
------------ ------------ ------------ ------------
PRE-TAX INCOME $ (7,213,643) $ (10,520,615) $ (7,163,342) $ (4,138,655)
INCOME TAX (EXPENSE)/BENEFIT 2,452,639 3,577,009 2,435,536 1,407,143
------------ ------------ ------------ ------------
NET INCOME $ (4,761,004) $ (6,943,606) $ (4,727,806) $ (2,731,512)
SOURCES AND USES OF CASH
- ------------------------
SOURCES OF CASH -
PRE TAX INCOME $ (7,213,643) $ (10,520,615) $ (7,163,342) $ (4,138,655)
FRANCHISE AMORTIZATION (15) 4,719,533 4,719,533 4,719,533 4,719,533
SUBSCRIBER LIST (7) 3,612,714 3,612,714 3,612,714 3,612,714
NON-COMPETE COVENANTS (0) 0 0 0 0
DEPRECIATION 5,825,519 10,426,269 8,342,439 6,901,809
EQUITY 65,700,125
DEBT 65,700,125 0 0 0
RESIDUAL VALUE IN YEAR 7
------------ ------------ ------------ ------------
TOTAL SOURCES OF CASH $ 138,344,374 $ 8,237,902 $ 9,511,345 $ 11,095,402
USES OF CASH -
PURCHASE PRICE - CURRENT $ 134,773,634
CAPITAL EXPENDITURES 3,469,822 3,097,108 3,176,438 3,432,407
DEBT RETIREMENT 0 0 4,122,380 4,534,618
TAXES PAID ON NET INCOME 0 0 0 0
TAXES PAID ON SALE (RESIDUAL)
------------ ------------ ------------ ------------
TOTAL USES OF CASH $ 138,243,456 $ 3,097,108 $ 7,298,818 $ 7,967,025
ANNUAL CASH INCREASE/(DECREASE) $ 100,918 $ 5,140,794 $ 2,212,527 $ 3,128,377
CUMULATIVE CASH 100,918 5,241,711 7,454,238 10,582,615
<CAPTION>
YEAR ENDING DECEMBER 31, 2002 2003 2004 TOTAL
---- ---- ---- -----
<S> <C> <C> <C> <C>
REVENUES $ 41,934,909 $ 44,916,657 $ 48,083,687 $ 276,980,852
OPERATING EXPENSES 21,299,477 22,757,524 24,309,734 141,653,470
------------ ------------ ------------ ------------
OPERATING INCOME $ 20,635,432 $ 22,159,132 $ 23,773,953 $ 135,327,382
OPERATING MARGIN 0.49 0.49 0.49
PARENT SERVICES/MGT FEE (5%) 2,096,745 2,245,833 2,404,184 13,849,043
FRANCHISE AMORTIZATION (15) 4,719,533 4,719,533 4,719,533 33,036,733
SUBSCRIBER LIST (7) 3,612,714 3,612,714 0 21,676,286
NON-COMPETE COVENANTS (0) 0 0 0 0
DEPRECIATION 5,943,274 6,342,028 6,755,970 50,537,309
INTEREST 5,704,313 5,205,505 4,656,816 41,434,445
------------ ------------ ------------ ------------
PRE-TAX INCOME $ (1,441,148) $ 33,519 $ 5,237,450 $ (25,206,433)
INCOME TAX (EXPENSE)/BENEFIT 489,990 (11,396) (1,780,733) 8,570,187
------------ ------------ ------------ ------------
NET INCOME $ (951,157) $ 22,123 $ 3,456,717 $ (16,636,246)
SOURCES AND USES OF CASH
- ------------------------
SOURCES OF CASH - $ (1,441,148) $ 33,519 $ 5,237,450 $ (25,206,433)
PRE TAX INCOME 4,719,533 4,719,533 4,719,533 33,036,733
FRANCHISE AMORTIZATION (15) 3,612,714 3,612,714 0 21,676,286
SUBSCRIBER LIST (7) 0 0 0 0
NON-COMPETE COVENANTS (0) 5,943,274 6,342,028 6,755,970 50,537,309
DEPRECIATION 65,700,125
EQUITY 0 0 0 65,700,125
DEBT 213,965,577 213,965,577
RESIDUAL VALUE IN YEAR 7
------------ ------------ ------------ ------------
TOTAL SOURCES OF CASH $ 12,834,373 $ 14,707,795 $ 230,678,530 $ 425,409,721
USES OF CASH -
PURCHASE PRICE - CURRENT $ 134,773,634
CAPITAL EXPENDITURES 3,637,853 3,786,689 3,941,802 24,542,120
DEBT RETIREMENT 4,988,080 5,486,888 46,568,158 65,700,125
TAXES PAID ON NET INCOME 0 0 0 0
TAXES PAID ON SALE (RESIDUAL) 45,795,864 45,795,864
------------ ------------ ------------ ------------
TOTAL USES OF CASH $ 8,625,933 $ 9,273,577 $ 96,305,824 $ 270,811,743
ANNUAL CASH INCREASE/(DECREASE) $ 4,208,440 $ 5,434,218 $ 134,372,706 $ 154,597,979
CUMULATIVE CASH 14,791,055 20,225,273 154,597,979
</TABLE>
46
<PAGE>
- ------------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT B
PALMDALE/LANCASTER, CALIFORNIA HIGH ANALYSIS
AS OF DECEMBER 31, 1997 -------------
- ------------------------------
RETURN ON EQUITY METHOD
PROFIT AND LOSS - HIGH VALUE
- ----------------------------
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1998 1999 2000 2001 2002 2003 2004 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $ 31,973,938 $ 34,262,832 $36,648,739 $39,160,090 $41,934,909 $44,916,657 $ 48,083,687 $276,980,852
OPERATING EXPENSES 16,861,105 17,741,776 18,734,945 19,948,909 21,299,477 22,757,524 24,309,734 141,653,470
------------ ------------ ----------- ----------- ----------- ----------- ------------ ------------
OPERATING INCOME $ 15,112,833 $ 16,521,056 $17,913,794 $19,211,181 $20,635,432 $22,159,132 $ 23,773,953 $135,327,382
OPERATING MARGIN 0.47 0.48 0.49 0.49 0.49 0.49 0.49
PARENT SERVICES/MGT FEE (5%) 1,598,697 1,713,142 1,832,437 1,958,005 2,096,745 2,245,833 2,404,184 13,849,043
FRANCHISE AMORTIZATION (15) 4,719,533 4,719,533 4,719,533 4,719,533 4,719,533 4,719,533 4,719,533 33,036,733
SUBSCRIBER LIST (7) 3,612,714 3,612,714 3,612,714 3,612,714 3,612,714 3,612,714 0 21,676,286
NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0
DEPRECIATION 5,825,519 10,426,269 8,342,439 6,901,809 5,943,274 6,342,028 6,755,970 50,537,309
INTEREST 7,121,439 7,121,439 7,121,439 6,674,601 6,183,080 5,642,407 5,047,666 44,912,070
------------ ------------ ----------- ----------- ----------- ----------- ------------ ------------
PRE-TAX INCOME $ (7,765,069)$(11,072,041)$(7,714,768)$(4,655,481)$(1,919,915)$ (403,383)$ 4,846,600 $(28,684,058)
INCOME TAX (EXPENSE)/BENEFIT 2,640,124 3,764,494 2,623,021 1,582,864 652,771 137,150 (1,647,844) 9,752,580
------------ ------------ ----------- ----------- ----------- ----------- ------------ ------------
NET INCOME $ (5,124,946)$ (7,307,547)$(5,091,747)$(3,072,618)$(1,267,144)$ (266,233)$ 3,198,756 $(18,931,478)
SOURCES AND USES OF CASH
- ------------------------
SOURCES OF CASH -
PRE TAX INCOME $ (7,765,069)$(11,072,041)$(7,714,768)$(4,655,481)$(1,919,915)$ (403,383)$ 4,846,600 $(28,684,058)
FRANCHISE AMORTIZATION (15) 4,719,533 4,719,533 4,719,533 4,719,533 4,719,533 4,719,533 4,719,533 33,036,733
SUBSCRIBER LIST (7) 3,612,714 3,612,714 3,612,714 3,612,714 3,612,714 3,612,714 0 21,676,286
NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0
DEPRECIATION 5,825,519 10,426,269 8,342,439 6,901,809 5,943,274 6,342,028 6,755,970 50,537,309
EQUITY 71,214,387 71,214,387
DEBT 71,214,387 0 0 0 0 0 0 71,214,387
RESIDUAL VALUE IN YEAR 7 213,965,577 213,965,577
------------ ------------ ----------- ----------- ----------- ----------- ------------ ------------
TOTAL SOURCES OF CASH $148,821,471 $ 7,686,476 $ 8,959,919 $10,578,575 $12,355,606 $14,270,893 $230,287,680 $432,960,620
USES OF CASH -
PURCHASE PRICE - CURRENT $145,249,519 $145,249,519
CAPITAL EXPENDITURES 3,469,822 3,097,108 3,176,438 3,432,407 3,637,853 3,786,689 3,941,802 24,542,120
DEBT RETIREMENT 0 0 4,468,375 4,915,212 5,406,734 5,947,407 50,476,659 71,214,387
TAXES PAID ON NET INCOME 0 0 0 0 0 0 0 0
TAXES PAID ON SALE (RESIDUAL) 41,051,671 41,051,671
------------ ------------ ----------- ----------- ----------- ----------- ------------ ------------
TOTAL USES OF CASH $148,719,342 $ 3,097,108 $ 7,644,813 $ 8,347,619 $ 9,044,587 $ 9,734,096 $ 95,470,132 $282,057,697
ANNUAL CASH INCREASE/
(DECREASE) $ 102,130 $ 4,589,368 $ 1,315,106 $ 2,230,956 $ 3,311,019 $ 4,536,797 $134,817,548 $150,902,924
CUMULATIVE CASH 102,130 4,691,497 6,006,603 8,237,559 11,548,578 16,085,376 150,902,924
</TABLE>
47
<PAGE>
------------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT C
PALMDALE/LANCASTER, CALIFORNIA LOW ANALYSIS
AS OF DECEMBER 31, 1997 ------------
------------------------------
RETURN ON EQUITY METHOD
DEBT AMORTIZATION - LOW VALUE
- -----------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL YEAR 1 CASH
REQUIREMENTS $131,400,250
YEAR 1 DEBT
REQUIREMENTS 65,700,125
YEAR I EQUITY
REQUIREMENTS 65,700,125
FINANCING AVAILABLE $ 88,235,212 $98,233,417 $107,386,866 $116,439,664 $124,872,675 $134,130,305 $144,034,361
UNUSED LEVERAGE 22,535,087 32,533,292 45,809,121 59,396,537 72,817,629 87,562,147 103,501,780
SENIOR DEBT: 1998 1999 2000 2001 2002 2003 2004 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
BEGINNING DEBT $ 0 $65,700,125 $65,700,125 $61,577,745 $57,043,126 $52,055,046 $46,568,158
DEBT ADDED 65,700,125 0 0 0 0 0 0 65,700,125
TOTAL ANNUAL PAYMENT 6,570,012 6,570,012 10,692,393 10,692,393 10,692,393 10,692,393 10,692,393 66,601,989
INTEREST 6,570,012 6,570,012 6,570,012 6,157,774 5,704,313 5,205,505 4,656,816 41,434,445
PRINCIPAL REPAYMENT 0 0 4,122,380 4,534,618 4,988,080 5,486,888 6,035,577 25,167,544
ENDING BALANCE 65,700,125 65,700,125 61,577,745 57,043,126 52,055,046 46,568,158 40,532,581
LINE OF CREDIT:
BEGINNING DEBT $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
BORROWINGS 0 0 0 0 0 0 0 0
PRINCIPAL PAYMENTS 0 0 0 0 0 0 0 0
INTEREST 0 0 0 0 0 0 0 0
SENIOR DEBT COVERAGE 4.3 4.0 3.4 3.0 2.5 2.1 1.7
LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL DEBT COVERAGE 4.3 4.0 3.4 3.0 2.5 2.1 1.7
</TABLE>
48
<PAGE>
- -------------------------------
CABLE TV FUND 12-BCD VENTURE
PALMDALE/LANCASTER, CALIFORNIA EXHIBIT C
AS OF DECEMBER 31, 1997 HIGH ANALYSIS
- ------------------------------- -------------
<TABLE>
<CAPTION>
RETURN ON EQUITY METHOD
DEBT AMORTIZATION - HIGH VALUE
- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL YEAR 1 CASH $142,428,774
REQUIREMENTS
YEAR 1 DEBT REQUIREMENTS 71,214,387
YEAR 1 EQUITY REQUIREMENTS 71,214,387
FINANCING AVAILABLE $101,809,860 $113,346,250 $123,907,922 $134,353,458 $144,083,856 $154,765,737 $166,193,493
UNUSED LEVERAGE 30,595,473 42,131,863 57,161,910 72,522,658 87,659,790 104,289,077 122,258,982
SENIOR: 1998 1999 200O 2001 2002 2O03 2004 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
BEGINNING DEBT $ 0 $ 71,214,387 $ 71,214,387 $ 66,746,012 $ 61,830,800 $ 56,424,066 $ 50,476,659
DEBT ADDED 71,214,387 0 0 0 0 0 0 $71,214,387
TOTAL ANNUAL PAYMENTS 7,121,439 7,121,439 11,589,813 11,589,813 11,589,813 11,589,813 11,589,813 72,191,945
INTEREST 7,121,439 7,121,439 7,121,439 6,674,601 6,183,080 5,642,407 5,047,666 44,912,070
PRINCIPAL REPAYMENT 0 0 4,468,375 4,915,212 5,406,734 5,947,407 6,542,148 27,279,875
ENDING BALANCE 71,214,387 71,214,387 66,746,012 61,830,800 56,424,066 50,476,659 43,934,512
LINE OF CREDIT:
BEGINNING DEBT $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
BORROWINGS 0 0 0 0 0 0 0 0
PRINCIPAL PAYMENTS 0 0 0 0 0 0 0 0
INTEREST 0 0 0 0 0 0 0 0
SENIOR DEBT COVERAGE 4.7 4.3 3.7 3.2 2.7 2.3 1.8
LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL DEBT COVERAGE 4.7 4.3 3.7 3.2 2.7 2.3 1.8
</TABLE>
49
<PAGE>
- ------------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT D
PALMDALE/LANCASTER, CALIFORNIA ---------
AS OF DECEMBER 31, 1997
- ------------------------------
RETURN ON INVESTMENT METHOD
PROFIT AND LOSS
- ---------------
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1998 1999 2000 2001 2002 2003 2004 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $ 31,973,938 $ 34,262,832 $36,648,739 $39,160,090 $41,934,909 $44,916,657 $ 48,083,687 $276,980,852
OPERATING EXPENSES 16,861,105 17,741,776 18,734,945 19,948,909 21,299,477 22,757,524 24,309,734 141,653,140
------------ ------------ ----------- ----------- ----------- ----------- ------------ ------------
OPERATING INCOME 15,112,833 16,521,056 17,913,794 19,211,181 20,635,432 22,159,132 23,773,953 135,327,382
PLUS RESIDUAL VALUE 213,965,577 213,965,577
LESS CAPITAL EXPENDITURES 3,469,822 3,097,108 3,176,438 3,432,407 3,637,853 3,786,689 3,941,802 24,542,120
------------ ------------ ----------- ----------- ----------- ----------- ------------ ------------
TOTAL CASH FLOW $ 11,643,011 $ 13,423,948 $14,737,356 $15,778,774 $16,997,578 $18,372,444 $233,797,728 $324,750,839
NET PRESENT VALUE @ 16.6% $132,642,183
------------
NET PRESENT VALUE @ 15.1% $142,642,182
------------
</TABLE>
50
<PAGE>
- ------------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT E
PALMDALE/LANCASTER, CALIFORNIA ---------
AS OF DECEMBER 31, 1997
- ------------------------------
CABLE TELEVISION SUBSCRIBERS
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
BEGINNING MILES 1,096.7
MILES ADDED 14.5 15.9 18.6 21.3 23.0 23.4 21.8
CUMULATIVE MILES 1,111.2 1,127.1 1,145.6 1,167.0 1,189.9 1,213.3 1,237.1
DENSITY OF ADDITIONAL PLANT 73 73 73 73 73 73 73
HOMES PASSED - BEGINNING 88,035
NEW HOMES & EXTENSIONS 1,056 1,158 1,354 1,557 1,677 1,707 1,738
HOMES PASSED - ENDING 89,091 90,250 91,603 93,161 94,838 96,545 98,262
GROWTH IN HOMES 1.2% 1.3% 1.5% 1.7% 1.8% 1.8% 1.8%
BASIC - BEGINNING SUBSCRIBERS 63,527 65,180 66,930 68,392 70,021 71,755 73,529
AVERAGE SUBSCRIBERS 64,354 66,055 67,661 69,206 70,888 72,642 74,437
ENDING SUBSCRIBERS 65,180 66,930 68,392 70,021 71,755 73,529 75,344
PENETRATION 73.2% 74.2% 74.7% 75.2% 75.7% 76.2% 76.7%
EXPANDED BASIC - BEGINNING 56,647 58,121 59,682 60,985 62,437 63,984 65,566
AVERAGE SUBSCRIBERS 57,384 58,901 60,333 61,711 63,211 64,775 66,375
ENDING SUBSCRIBERS 58,121 59,682 60,985 62,437 63,984 65,566 67,185
PENETRATION 89.2% 89.2% 89.2% 89.2% 89.2% 89.2% 89.2%
PAY TV - BEGINNING UNITS 42,733 41,238 43,014 43,612 44,300 45,398 46,520
AVERAGE UNITS 41,985 42,126 43,313 43,956 44,849 45,959 47,094
ENDING UNITS 41,238 43,014 43,612 44,300 45,398 46,520 47,668
PENETRATION 63.3% 64.3% 63.8% 63.3% 63.3% 63.3% 63.3%
PAY PER VIEW - BEGINNING UNITS/MO 6,668 8,162 9,934 11,819 14,367 17,160 20,200
AVERAGE UNITS 7,415 9,048 10,876 13,093 15,763 18,680 21,849
ENDING UNITS 8,162 9,934 11,819 14,367 17,160 20,200 23,499
AVERAGE BUY RATE/MO 20.3% 23.3% 26.3% 30.3% 34.3% 38.3% 42.3%
CONVERTER RENTALS - BEGINNING 55,218 57,307 59,515 61,498 63,663 65,599 67,589
AVERAGE SUBSCRIBERS 56,262 58,411 60,507 62,581 64,631 66,594 68,611
ENDING SUBSCRIBERS 57,307 59,515 61,498 63,663 65,599 67,589 69,634
PENETRATION 87.9% 88.9% 89.9% 90.9% 91.4% 91.9% 92.4%
ADDRESSABLE HOMES 38,619 40,276 42,696 44,996 47,468 50,079 52,788
AVERAGE HOMES 39,447 41,486 43,846 46,232 48,773 51,433 54,193
ENDING HOMES 40,276 42,696 44,996 47,468 50,079 52,788 55,598
PENETRATION 61.8% 63.8% 65.8% 67.8% 69.8% 71.8% 73.8%
BASIC CHURN RATE 39% 39% 39% 39% 39% 39% 39%
</TABLE>
51
<PAGE>
- -------------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT F
PALMOALE/LANCASTER, CALIFORNIA ---------
AS OF DECEMBER 31, 1997
- -------------------------------
SERVICE RATES
- -------------
CURRENT RATES
- -------------
BASIC $13.72
EXPANDED BASIC 12.26
PAY 6.46
PAY PER VIEW 11.12
CONVERTER RENTALS 1.99
INSTALLATIONS-NEW 34.85
INSTALLATIONS-CHURN 25.39
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PERCENTAGE RATE INCREASES
- -------------------------
BASIC 4% 4% 3% 3% 3% 3% 3%
EXPANDED BASIC 4% 4% 3% 3% 3% 3% 3%
PAY 5% 1% 1% 1% 1% 1% 1%
PAY PER VIEW 0% 3% 3% 3% 3% 3% 3%
CONVERTER RENTALS 0% 3% 3% 3% 3% 3% 3%
INSTALLATIONS-NEW 0% 3% 3% 3% 3% 3% 3%
INSTALLATIONS-CHURN 0% 3% 3% 3% 3% 3% 3%
AVERAGE RATES
- -------------
BASIC $14.28 $14.79 $15.23 $15.69 $16.16 $16.65 $17.14
EXPANDED BASIC 12.80 13.26 13.66 14.07 14.49 14.93 15.37
PAY 6.75 6.81 6.88 6.95 7.02 7.09 7.16
PAY PER VIEW 11.12 11.46 11.80 12.15 12.52 12.89 13.28
CONVERTERS RENTALS 1.99 2.05 2.11 2.17 2.24 2.30 2.37
INSTALLATIONS-NEW 34.85 35.90 36.97 38.08 39.23 40.40 41.62
INSTALLATIONS-CHURN 25.39 26.15 26.94 27.74 28.58 29.43 30.32
</TABLE>
52
<PAGE>
- ------------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT G
PALMDALE/LANCASTER, CALIFORNIA ---------
AS OF DECEMBER 31, 1997
- ------------------------------
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1998 1999 2000 2001 2002 2003 2004 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
BASIC $11,028,024 $11,722,798 $12,368,031 $13,030,002 $13,746,992 $14,509,839 $15,314,354 $ 91,720,039
EXPANDED BASIC 8,811,455 9,373,445 9,889,368 10,418,674 10,991,972 11,601,938 12,245,221 73,332,074
PAY TV 3,399,201 3,444,693 3,577,172 3,666,577 3,778,466 3,910,701 4,047,388 25,824,199
PAY PER VIEW 989,752 1,243,927 1,540,129 1,909,626 2,368,132 2,890,480 3,482,338 14,424,384
CONVERTER RENTALS 1,341,675 1,434,692 1,530,755 1,630,728 1,734,676 1,840,978 1,953,650 11,467,154
INSTALLATIONS 625,075 662,559 688,032 729,419 771,905 814,624 859,672 5,151,286
COMMERCIAL 645,200 664,556 684,493 705,028 726,179 747,964 770,403 4,943,824
ADVERTISING 3,116,541 3,584,022 4,121,625 4,698,653 5,309,477 5,946,615 6,600,742 33,377,674
MISCELLANEOUS 2,017,015 2,132,140 2,249,133 2,371,383 2,507,109 2,653,518 2,809,918 16,740,218
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
TOTAL REVENUES $31,973,938 $34,262,832 $36,648,739 $39,160,090 $41,934,909 $44,916,657 $48,083,687 $276,980,852
OPERATING EXPENSES
OPERATIONS $ 4,284,146 $ 4,532,068 $ 4,794,870 $ 5,070,678 $ 5,371,867 $ 5,693,215 $ 6,032,802 $ 35,779,647
GENERAL & ADMINISTRATIVE 3,540,936 3,715,842 3,895,335 4,080,874 4,280,614 4,492,201 4,714,658 28,720,460
SALES & MARKETING 1,854,587 2,055,240 2,277,689 2,517,063 2,771,122 3,036,695 3,310,819 17,823,214
PROGRAMMING 7,181,435 7,438,626 7,767,051 8,280,294 8,875,874 9,535,414 10,251,455 59,330,149
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
TOTAL OPERATING EXPENSES $16,861,105 $17,741,776 $18,734,945 $19,948,909 $21,299,477 $22,757,524 $24,309,734 $141,653,470
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
OPERATING INCOME $15,112,833 $16,521,056 $17,913,794 $19,211,181 $20,635,432 $22,159,132 $23,773,953 $135,327,382
OPERATING MARGIN 47.3% 48.2% 48.9% 49.1% 49.2% 49.3% 49.4%
TOTAL REVENUE/BASIC
SUB/MONTH $ 41.40 $ 43.23 $ 45.14 $ 47.15 $ 49.30 $ 51.53 $ 53.83
CASH FLOW/BASIC
SUB/MONTH $ 19.57 $ 20.84 $ 22.06 $ 21.13 $ 24.26 $ 25.42 $ 26.62
OPERATIONS % OF REVENUE 13% 13% 13% 13% 13% 13% 13%
G & A PERCENTAGE OF
REVENUE 11% 11% 11% 10% 10% 10% 10%
SALES & MARKETING % OF
REVENUE 6% 6% 6% 6% 7% 7% 7%
PROGRAMMING % OF REVENUE 22% 22% 21% 21% 21% 21% 21%
</TABLE>
53
<PAGE>
- ------------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT H
PALMDALE/LANCASTER, CALIFORNIA
AS OF DECEMBER 31, 1997
- ------------------------------
CAPITAL EXPENDITURES
- --------------------
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1998 1999 2000 2001 2002 2003 2004 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
ASSUMPTIONS AND INPUTS
- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BV OF EXISTING PLANT $37,296,583
ADDITIONAL MILES OF PLANT 14.5 15.9 18.6 21.3 23.0 23.4 23.8
AERIAL PLANT PER MILE $ 32,966 $ 33,625 $ 34,298 $ 34,984 $ 35,683 $ 36,397 $ 37,125
UNDERGROUND PLANT PER MILE $ 39,607 $ 40,399 $ 41,207 $ 42,031 $ 42,872 $ 43,729 $ 44,604
PERCENTAGE OF PLANT AERIAL 0% 0% 0% 0% 0% 0% 0%
PERCENTAGE OF PLANT UNDERGROUND 100% 100% 100% 100% 100% 100% 100%
AVERAGE COST PER CONVERTER $ 152 $ 155 $ 158 $ 161 $ 165 $ 168 $ 171
PERCENTAGE CONVERTER USE 88% 89% 90% 91% 91% 92% 92%
PERCENTAGE REPLACEMENT 8% 5% 4% 4% 4% 4% 4%
INSTALLATION COST PER SUBSCRIBER $ 35 $ 36 $ 36 $ 37 $ 38 $ 39 $ 39
MISC CAPITAL PER SUBSCRIBER $ 5 $ 5 $ 5 $ 5 $ 5 $ 6 $ 6
INFLATION FACTOR FOR CAPITALS 0% 2% 2% 2% 2% 2% 2% 113%
ANNUAL COSTS
- ------------
PLANT ADDITIONS - AERIAL $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
- UNDERGROUND 573,379 641,187 764,437 896,945 985,169 1,022,960 1,062,200 5,946,276
PLANT REBUILD/UPGRADE 750,000 459,000 468,180 477,544 487,094 496,836 506,773 3,645,428
AVERAGE COST OF NEW CONVERTERS 220,937 241,237 207,893 238,828 260,901 273,708 287,128 1,730,633
CONVERTER REPLACEMENT 679,176 449,295 380,701 401,210 421,282 442,761 465,301 3,239,726
INSTALLATION COSTS 924,562 969,508 1,003,253 1,050,669 1,099,750 1,149,409 1,201,260 7,398,413
MISC, CAPITAL EXPENDITURES 321,768 336,881 351,973 367,211 383,656 40l,014 419,140 2,581,644
----------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
TOTAL CAPITAL EXPENDITURES $ 3,469,822 $3,097,108 $3,176,438 $3,432,407 $3,637,853 $3,786,689 $3,941,802 $24,542,120
AS A % OF OPERATING INCOME 23.0% 18.7% 17.7% 17.9% 17.6% 17.1% 16.6%
</TABLE>
54
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- ------------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT I
PALMDALE/LANCASTER. CALIFORNIA ---------
AS OF DECEMBER 31,1997
- ------------------------------
DEPRECIATION
- ------------
<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ESTIMATED DEPRECIATION RATES 14.3% 24.5% 17.5% 12.5% 8.9% 8.9% 8.9%
DEPRECIATION - BEG. & ADTNS 1998 1999 2000 2001 2002 2003 2004 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
YEAR 1 $ 5,825,519 $ 9,983,693 $7,130,044 $5,091,724 $3,640,440 $3,636,363 $3,640,440 $38,948,224
YEAR 2 442,577 758,482 541,684 386,829 276,572 276,262 2,682,406
YEAR 3 453,913 777,910 555,559 396,737 283,656 2,467,775
YEAR 4 490,491 840,596 600,328 428,708 2,360,123
YEAR 5 519,849 890,910 636,261 2,047,020
YEAR 6 541,118 927,360 1,468,478
YEAR 7 563,284 563,284
----------- ----------- ---------- ---------- ---------- ---------- ---------- -----------
TOTAL DEPRECIATION $ 5,825,519 $10,426,269 $8,342,439 $6,901,809 $5,943,274 $6,342,028 $6,755,970 $50,537,309
</TABLE>
55
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<TABLE>
<CAPTION>
CABLE TV FUND 12-BCD VENTURE EXHIBIT J
-------------
PALMDALE/LANCASTER, CALIFORNIA
AS OF DECEMBER 31, 1997
ASSUMPTIONS AND INPUTS
- ----------------------
<S> <C> <C>
REMAINING LIFE OF FRANCHISES (YEARS) 6
AVERAGE SUBSCRIBER LIFE (YEARS) 7
INCOME TAX RATE 34%
CAPITAL GAIN RATE 34%
NET FMV OF EXISTING ASSETS $37,296,583
SUBSCRIBERS IN FRANCHISES 100%
LOW HIGH
ANALYSIS ANALYSIS
-------- -----------
DEBT PERCENTAGE 50% 50%
EQUITY PERCENTAGE 50% 50%
RESIDUAL MULTIPLE (ROE & ROI) 9.0 9.0
MULT OF PAST YEAR'S OPERATING INCOME 10.0 11.0
MULT OF CURRENT YEAR'S OPERATING INCOME 9.5 10.5
MULT OF NEXT YEAR'S OPERATING INCOME 9.0 10.0
TARGET RETURN ON EQUITY 14.0% 12.0%
TARGET RETURN ON INVESTMENT 16.6% 15.1%
</TABLE>
56
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EXHIBIT 99(b)(2)
============
CONFIDENTIAL (to the 3 Fund 12 Rule 13e-3
============ Transaction Statements)
JONES INTERCABLE, INC.
Valuation of Palmdale/Lancaster System
February 23, 1998
WALLER CAPITAL
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CORPORATION
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JONES INTERCABLE, INC.
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Table of Contents
INTRODUCTION.......................................................I
STATE OF THE CABLE MARKET.........................................II
SYSTEM OVERVIEW..................................................III
VALUATION.........................................................IV
Scope and Approach
Methodology
DCF Analysis Summary
COMPARABLE TRANSACTION ANALYSIS....................................V
APPENDIX..........................................................VI
DCF Valuation
Comparable Transaction Valuation
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Waller Capital Corporation
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INTRODUCTION
At the request of Jones Intercable, Inc. ("Jones" or the "Company"), Waller
Capital Corporation ("Waller Capital") has conducted an appraisal of the fair
market value of the cable television system serving the Palmdale/Lancaster area
of California which is owned by a joint venture of Cable TV Funds 12-B, 12-C and
12-D (the "System"). This valuation,, as directed, assumes independence from the
Littlerock system owned by Cable TV Fund 14-B. As of December 31) 1997,, the
System passed 87,773 homes and served 65,447 equivalent basic subscribers for a
penetration rate of 72%.
Neither Waller Capital nor any of their representatives have any active or
contemplated direct interest in Jones, the Cable TV Fund or any of its
affiliates, except for incidental shareholdings of Jones.
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STATEMENT OF APPRAISAL ASSUMPTIONS AND LIMITING CONDITIONS
This appraisal has been prepared pursuant to the following general assumptions
and general limiting conditions:
1. We assume no responsibility for the legal description or matters including
legal or title considerations. Title to the subject assets, properties, and
business interests are assumed to be good and marketable unless otherwise
stated.
2. The subject assets, properties, and business interests are appraised free and
clear of any or all liabilities, liens and encumbrances unless otherwise
stated.
3. We assume responsible ownership and competent management with respect to the
subject assets, properties, or business interests.
4. The information furnished by others is believed to be reliable. However, we
issue no warranty or other form of assurance regarding its accuracy.
5. We assume that there is full compliance with all applicable Federal, state,
and local regulations and laws unless noncompliance is stated, defined, and
considered in the appraisal report.
6. We assume that all required licenses, certificates of occupancy, consents, or
legislative or administrative authority from any local, state or national
government, private entity or organization have been or can be obtained or
renewed for any use on which the valuation opinion contained in this report
is based.
7. Possession of this valuation opinion presentation, or a copy thereof, does
not carry with it the right of publication. It may not be used for any
purpose by any person other than the party to whom it is addressed without
our written consent and, in any event, only with proper written
qualifications and only in its entirety.
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8. We, by reason of this valuation, are not required to give testimony, or to
be in attendance in court with reference to the assets, properties, and
business interests in question unless arrangements have been previously
made.
9. No part of the contents of this presentation shall be disseminated to the
public through advertising, public relations, news, sales, or other media
without Waller Capital's prior written consent and approval.
10. We assume no responsibility for any financial reporting judgements which are
approximately those of management. Management accepts the responsibility for
any related financial reporting with respect to the assets, properties, and
business interests encompassed by this appraisal.
11. We have no responsibility to update this presentation for any changes
occurring subsequent to issuance.
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STATE OF THE CABLE MARKET
During 1994, the market for cable systems were dictated by regulatory matters.
RBOC interest early in the year created a near frenzy in the market. Moreover,
the FCC's announced alterations to current rate regulation schemes on February
22nd caused a serious market disruption. The market's bellwether transaction,
Bell Atlantic/TCI, collapsed, bringing the market for cable systems down.
Southwestern Bell's deal with Cox also unraveled. Other RBOCs were soon to
follow Bell Atlantic's lead and the demand for cable systems was greatly
reduced.
The transaction marketplace stalled until mid-summer 1994, as cable operators
once again worked to understand the impact of potential 17% basic rate rollbacks
and unclear cost-of-service guidelines. However, as in the prior year, cable
operators were willing to focus on acquisition opportunities once they
assimilated these changes. Perhaps the forces driving consolidation were now
even stronger as competition from telephone companies was more likely. The
necessity to amass capital and critical market mass to compete in voice and data
telecommunications was more evident.
Transaction activity picked up strongly in the second half of 1994 despite
generally weak capital markets. Commercial banks were supportive of the largest
MSOs, with commercial bank capital in short supply for many smaller and mid-
sized operators. The high yield debt market was weak, as rising short-term rates
limited demand
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among high yield buyers. Public equity markets were depressed due to the exodus
of RBOCs. However, many sellers were willing to accept securities from buyers,
the sale of Times Mirror, Summit Communications and Newhouse Broadcasting being
noteworthy.
Competitive forces increased their pressures upon the cable industry in late
1994 with two new digital DBS/DSS providers joining the four-year veteran
PrimeStar Partners ("PrimeStar") owned by GE American Communications. October
saw the launch of GM-Hughes Electronics' DirecTV ("DirecTV") and Hubbard
Broadcasting's United States Satellite Broadcasting ("USSB"), both using the
much-publicized 18-inch (Ku-band) digital satellite dish technology. The reduced
size of these antennae, coupled with broad channel offerings and digital-quality
audio, in large measure offset the initial high startup equipment price
associated with the new systems, and demand for the dishes was very brisk. While
most attractive to rural customers outside cable service areas, the DBS/DSS
systems are also very competitive inside cable service areas in the market for
premium and tier-level customers. The entry of DirecTV and USSB, along with
PrimeStar, has subjected cable MSOs in many areas to effective competition,
placing pressure on service rates. This pressure is likely to increase in the
future as DBS/DSS providers introduce interactivity to their product offerings.
By year-end 1994, the market for systems had stabilized. In addition, the fall
elections brought optimism on the regulatory front. Republican Senate Commerce
Committee chairman Larry Pressler introduced legislation that
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aimed to achieve sweeping cable/telecommunications deregulation and reform. The
market was enthusiastic that an approved bill would provide for the repeal of
the current federally controlled cable rate structure, and fully open the local
cable and telephony markets to both MSOs and telcos. In addition, the
legislation contemplated allowing the RBOCs to enter long-distance and telecom
equipment making markets, as well as relax the restrictive broadcast station
ownership rules currently in place.
1995 was a year of restructuring, mergers, acquisitions, strategic joint-
ventures, leveraging and the beginning of a what will prove to be a long battle
for the multimedia consumer dollar. Telcos, MSOs and long-distance carriers
("LDC"s) formed alliances in an attempt either to protect themselves from
unserved areas or to complement their current product offerings: 1) Bell
Atlantic/NYNEX (wireless, video programming) ii) U.S. West/Pactel's Airtouch
Communications (wireless); iii) AT&T/McCaw Cellular (wireless); iv)
Disney/BellSouth/Ameritech/SBC Communications (programming); v) MCI/News Corp.
(DBS, Internet); vi) Sprint/TCI/Comcast/Cox (cable, wireline and wireless
telephony). Perhaps the last alliance is the most telling of what will be MSO's
preferred method of competing in an open playing field where consumers can
choose one provider for cable, telephony and long-distance. Senator Pressler's
pending telecommunications reform legislation reform has caused cellular
providers, MSOs and LDCs to rethink their growth and product strategies in an
open, competitive environment and without exclusive franchise areas or protected
products.
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Over $20 billion in mergers were announced or closed in the cable industry
during 1995, including Time Warner/Cablevision Industries,, Intermedia/Viacom,
TCI/Viacom, Time Warner/Houston Industries (Paragon/KBLCOM), Comcast/E.W.
Scripps, Marcus/Sammons and Gannett/Multimedia. Through June 30, 1996, cable
systems serving 6.7 million subscribers were sold in deals valued at $13.7
billion, ahead of last years record of $10 billion over the same period. The
major deal of 1996 was US West Media's acquisition of Continental's cable
systems for $9.2 billion. MSOs faced the key operating decision of whether to
consolidate into strategic clusters or to sell to the highest bidder. Access to
capital was a key factor in this decision. The enormous expected costs to
upgrade cable plant using fiber so that voice and data transmission would be
possible prompted MSOs to look for scale economies by growing quickly via
acquisitions.
While the demand for capital remained strong throughout the year, the supply of
capital was also available through private and public debt markets to qualified
MSOs. In addition, an abundance of private equity was available to cable
companies as demonstrated by the following: 1) Austin Ventures/B.T. Capital
extended $20 million to Classic Cable; ii) Calpers extended $250 million to
Comcast; iii) Goldman Sachs extended $180 million to Marcus Cable; iv) Hicks
Muse extended $115 million to Marcus; v) J.P. Morgan extended $125 million to
FrontierVision; vi) Kelso/Charterhouse extended $300 million to Charter
Communications; and vii) Spectrum Partners/Fleet Ventures/T.A. Associates
extended $50 million to Galaxy.
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Two significant events have occurred in the regulatory arena which have
essentially removed the burdens imposed by the 1992 Cable Act on small cable
operators. As a result, small cable operators will have substantial flexibility
to increase rates based more on business and market considerations than on
regulatory limits. In June, 1995, the Federal Communications Commission issued
an order (the "Small Systems Order") adopting new rules that reduce the
regulatory burdens of the 1992 Cable Act on small cable systems that own MSOs
serving fewer than 400,000 subscribers. Under the Small Systems Order, the
regulatory benefits accruing to small cable systems remain effective even if
such systems are later acquired by an MSO that serves in excess of 400,000
subscribers. More recently, Congress enacted the 1996 Telecom Act that provides
regulatory relief for companies serving fewer than 600,000 subscribers. These
two events have allowed qualified MSOs to begin raising cable rates. This bodes
well for future growth in the cable industry's revenue and cash flow figures.
DBS competition has grown into a credible threat to cable's subscriber base.
Primestar, DirecTV, USSB and Echostar have acquired subscribers at an increasing
rate. Due to several multi-million dollar marketing campaigns, DBS has become a
significant threat to the high-end cable customer. However, the lack of local
broadcast stations, the high cost of initial setup and certain logistical
problems have hampered wide-scale defections to DBS services.
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RBOCs have also entered the video market by acquiring wireless cable operators,
or MDS/MMDS operators. The markets believe that RBOCs view wireless cable as a
short-term, stopgap measure to deliver video to the home, while they are
developing a long-term, cost-effective, quality delivery method.
During 1997, the cable industry continued to exhibit attractive opportunities
for growth and appreciation to well positioned MSOs. Whereas the public equity
markets battered MSOs during 1996, 1997 was a boom year. From the reevaluation
within the public market to the funds from private equity firms to the lessened
costs of high yield financing, MSO's saw increased investment in their companies
and within the industry. Cable modems and other data services became more of a
reality with an increased focus, improved technologies and increased capital
expenditures. Additionally, with refined compression methods, MSOs have been
able to increase their channel offerings without extensive capital expenditures.
In an effort to achieve economies of scale, clustering and consolidation of
systems continued to be the major goals of MSOs.
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SYSTEM OVERVIEW
Overview
- --------
The System has one headend and serves Lancaster, Palmdale, Edwards Air Force
Base and portions of Los Angeles County and is located in the Antelope Valley of
California. As of December 31, 1997, the Systems passed 87,773 homes with
1,012.7 miles of plant (86.7 homes per mile), and served 65,447 equivalent basic
subscribers, representing a 72% basic penetration. Equivalent pay units totaled
42,731 representing a 65.0% pay penetration. The largest employers of the area
are Edwards Air Force Base, Plant 42, Boeing and Lockheed. Recently, the
Antelope Valley has become the West Coast distribution center for Frito Lay,
Coca-Cola, UPS, Rite Aid, Lance Campers and Michael's Furniture.
Customer Service.
- -----------------
The System is operated from one full-service office in Palmdale, California. The
System employs 23 full-time and 9 part-time Customer Service representatives.
There is a large percentage of walk-in traffic due to the prevalent delay in
mail delivery within the area.
Technical Profile
- -----------------
The System has one headend and eight receive sites. In addition to the 1,012.7
miles of coaxial plant, the system also has 83.95 miles of fiber plant.
Currently, the longest trunk amplifier cascade is 10 amps and the longest line
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extender cascade is 2. Recently, the System completed a 159-mile
upgrade/retrofit that increased channel capacity from 450 MHz to 550 MHz. Also
included in thus project was a 15 mile fiber extension which reduced amplifier
cascades and provides redundancy.
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SCOPE AND APPROACH
The primary purpose of this valuation is to arrive at the fair market value of
the System. Fair market value is defined as the amount at which a property would
change hands between a willing buyer and a willing seller when neither is acting
under compulsion and when both have reasonable knowledge of all the relevant
facts. The valuation was determined on a cash-for-assets basis.
In arriving at our opinion as to the fair market value of Jones's cable
television System, we utilized audited and unaudited financial statements,
visited the System, met with the management of Jones to discuss its business,
current operations and prospects, analyzed published financial and operating
information considered by us to be comparable or related to the Company's cable
television System, and made other financial studies, analyses and investigations
as we deemed appropriate.
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POSITIVE AND NEGATIVE OBSERVATIONS
As outlined below, numerous elements, both quantitative and qualitative, were
factored into our valuation. We highlight below some of these elements that were
considered.
Positive Observations
- ---------------------
. Attractive Demographics: Average household income, as calculated by National
Decision Systems, is $64,743, significantly higher than the U.S. average
($55,449). Due to the technical profile of the largest employers (aerospace
and defense), the residents of the area are also highly educated.
. High Growth: As calculated by National Decision Systems, the area has
experienced substantial growth in households from 1980 - 1990 (100.88%). The
area's households are expected to grow over 3% per year from 1997 to 2000.
. Technical Condition: We believe that the market would judge the 550 Mhz
capacity to be sufficient for this market for the near future.
Negative Observations
- ---------------------
. Future Competition: While there is no current wireless competition, there
exists the potential that a buyer of the PacBell wireless operation, which
could be available for acquisition could have a serious impact in the area
due to its flat geography.
. Economic Diversity: The local economy, while increasingly diversified, still
is heavily dependent on the aerospace and defense industries.
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METHODOLOGY
The general methodology of the appraisal was to evaluate the Discounted Cash
Flow ("DCF") stream generated by the System over a ten-year period (fiscal 1998
to 2007), applying all relevant market and economic factors. The ten-year
projections were prepared by using Company projections as well as Waller
Capital's industry estimates. Developing projections required a general
understanding of the Company's current business and future plans. This
understanding was obtained through on-site due diligence, a review of ii) the
1998 System operations budget prepared by the Company, ii) other operating and
subscriber data and projections; and iii) demographic data as it relates to the
System's service area.
A sale was assumed to occur in the tenth year (2007) of the DCF model. The cash
flow sales multiples selected reflect the long-term prospects for cash flow
growth and the cash flow quality of the System. The multiple selected also
accounted for the presumed technical condition of the System at the time of
sale. The multiple selected was applied against the full tenth-year System cash
flow.
This analysis utilized a discount rate of 14% derived from Waller Capital's
Weighted Average Cost of Capital ("WACC") model. The Discount rate was
commensurate with a probable buyer's capital structure, operating risk and other
factors associated with the operations of Jones. The discount rate used was
consistent with the WACCs
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for an average cable buyers, private or public, and adjusted for certain factors
such as size, liquidity, leverage and risk associated with a typically cable
System buyer.
Waller Capital's analysis was further supported by comparable System sales.
Waller Capital examined specific transactions to determine if an appropriate
multiple of cash flow could be derived from current market information. Waller
Capital examined multiples from announced and completed cable television
transactions for 1996 and 1997, relying upon data from transactions executed by
Waller Capital, from Paul Kagan Associates, Inc., and general industry
information. However, comparable sales data is difficult to generalize from
because of the variability of factors such as System size, growth prospects,
penetration, location, demographics, technical System condition and franchise
terms,, which are often not publicly available. Given these limitations, Waller
Capital is of the opinion that comparable sales data offers only an
approximation of factors that help devise a fair market value and is used as a
reasonableness test of the DCF approach to value.
CONCLUSION
BASED ON THE INVESTIGATION AND ANALYSIS OUTLINED IN THIS REPORT,
THE FAIR MARKET VALUE OF THE SYSTEM, AS OF
JANUARY 1, 1998, WAS $142,604,000.
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DISCOUNTED CASH FLOW METHODOLOGY
A discounted cash flow ("DCF") approach was utilized to value the System as DCF
measures the current value of an investment as the present value of its future
economic benefits such as earnings and proceeds from disposition.
A DCF model was developed for the System. While we considered and implemented
some of the projections of revenues and expenses developed by the Company for
1998, industry projections and demographic forecasts were also used in our DCF
model.
To arrive at System cash flow, operating expenses were deducted from projected
revenues. Corporate and regional management allocations were not deducted from
revenue because a potential buyer would not incur these costs when managing the
System. Cash flows recorded on the balance sheet (capital expenditures) were
subtracted from System cash flow to determine debt free net cash flow. In
addition, we incorporated our estimates of long-term growth, discount rate,
inflation and other factors. Our DCF analysis yielded the value of the System.
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INCOME STATEMENT SUMMARY
Homes Passed and Subscriber Revenues
HOMES PASSED:
Homes passed growth was projected based on a combination of management's
projections, trailing homes passed growth, economic variables, discussions with
management, future prospects and unserved areas reachable by existing plant.
This analysis resulted in homes passed growth of approximately 1.5% per annum.
over the 10-year projection period.
BROADCAST/BASIC SUBSCRIBERS:
Broadcast and Basic services were combined,, in order to easily evaluate these
rates. The Broadcast/Basic tier reflect the subscribers that utilize the most
highly penetrated service in the System's rate package. Subscriber growth
estimates was based on a combination of factors including management's
forecasts, the System's demographics, current penetration, historical trends,
availability of off-air signals, local competition, current rates, service
offerings, and the technical quality of the System plant.
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PAY SUBSCRIBERS:
Pay subscriber growth was based on a combination of factors including
management's projections, the System's demographics,, current penetration,
historical trends, availability of off-air signals, other entertainment
alternatives, rates, service offerings, and the technical quality of the System
plant.
PPV MOVIES AND EVENTS:
PPV Movies and Events ("PPV") were combined and projected based on management
forecasts, discussions with management, economic variables, historical trends,
the availability of other entertainment alternatives and the technical quality
of the System's plant.
Revenues
BROADCAST/BASIC REVENUE:
For the purposes of this analysis, Broadcast, Basic and NPT rates were combined
and analyzed against the number of basic subscribers. Rate growth was projected
after considering current rates and a combination of factors including the
community's demographics, current penetration, historical trends, availability
of off-air signals, service offerings, and the technical quality of the System
plant.
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PAY REVENUE:
Pay Revenue was determined by considering current weighted rates and a
combination of factors including the System's demographics, current penetration,
historical trends, inflation rate, service offerings, and the technical quality
of the System plant.
PPV Revenue:
PPV Revenue was determined by considering current rates and a combination of
factors including the System's demographics, current penetration, historical
trends, availability of off-air signals, service offerings, and the technical
quality of the System plant.
ADVERTISING REVENUE:
Advertising Revenues were projected based on management's projections, economic
variables, discussions with management and historical trends. Advertising
revenues were projected using varying growth rates which increased over the I 0-
year projection period.
OTHER REVENUES:
Other Revenues were projected based on management's projections, economic
variables, discussions with management, the technical quality of the System
plant, and historical trends, as well as, new services potentially
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offered with the completion of a rebuild. Other Revenues include but are not
limited to the following: connection charges, converter rental revenue, late
fees and home shopping revenues. Other revenues were projected over the 10-year
projection period using varying growth rates and are expected to increase as new
services, such as cable modems and telephony services become available.
Operating Expenses
The following expenses reduced revenues in order to determine System cash flow:
PERSONNEL RELATED EXPENSES:
Personnel Expenses were determined by growing the 1997 Expense by a factor that
reflects inflation and customary increases in wages.
SUBSCRIBER RELATED EXPENSES:
Subscriber Related Expenses, which includes basic and tier programming costs and
customer billing, were determined by growing the 1997 Expense by a factor based
on discussions with management, increases in subscribers, the System's channel
line-up and the technical quality of the System plant.
________________________________________________________________________________
WALLER CAPITAL CORPORATION
-20-
<PAGE>
________________________________________________________________________________
JONES INTERCABLE, INC.
________________________________________________________________________________
REVENUE RELATED EXPENSES:
Revenue Related Expenses, which includes franchise fees, bad debt expense and
premium programming costs, were determined by growing the 1997 Expense by a
factor based on discussions with management, increases in subscribers, the
System's channel line-up and the technical quality of the System plant.
PAY-PER-VIEW EXPENSE:
Pay-Per-View Expense was determined by growing the 1997 expense by the inflation
rate over the 10-year projection period.
SYSTEM PLANT EXPENSES:
System Plant Expenses were determined by growing the 1997 Expense by a factor
based on historical trends as well as projected increases in subscribers and
plant extensions.
SYSTEM OFFICE RELATED EXPENSE:
System Office Related Expense was determined by growing the 1997 expense by the
inflation rate over the I 0-year projection period.
________________________________________________________________________________
WALLER CAPITAL CORPORATION
-21-
<PAGE>
________________________________________________________________________________
JONES INTERCABLE, INC.
________________________________________________________________________________
MARKETING RELATED EXPENSES:
Marketing Expense were based on discussions with management and were driven by
such factors as marketing efforts to retain pay subscribers, the growth in local
business advertising and technical System upgrades that would provide new
products in need of promotion.
ADVERTISING:
Advertising Expense was determined by growing the 1997 expense by the inflation
rate over the I 0-year projection period.
________________________________________________________________________________
WALLER CAPITAL CORPORATION
-22-
<PAGE>
________________________________________________________________________________
JONES INTERCABLE, INC.
________________________________________________________________________________
CAPITAL EXPENDITURE SUMMARY
System cash flow was then reduced by capital expenditures to determine debt free
net cash flow.
Recently the System was upgraded/retrofitted to increase channel capacity from
450 MHz to 550 MHz. Included through this upgrade was a 15-mile fiber extension
that further reduced amplifier cascades and provides redundancy. Currently, the
longest trunk amplifier cascade is 10 Amps.
In the future, to increase service rates and add new services needed to compete
with DBS, such as Internet access or digital services, Jones will need to
rebuild its System to 750 MHz. The capital expenditures needed to rebuild the
System are spread over 1999 and 2001 at $15,000 per mile. We have assumed a $35
per subscriber cost for maintenance costs per year.
________________________________________________________________________________
WALLER CAPITAL CORPORATION
-23-
<PAGE>
________________________________________________________________________________
JONES INTERCABLE, INC.
________________________________________________________________________________
TERMINAL VALUE / DISCOUNT RATE
Terminal Value
The valuation model utilized an exit multiple (which was applied to the 10th
year's cash flow) thereby assuming a sale of the System at the end of the DCF
projection period. The exit multiple utilized was 9.0x. The exit multiple was
determined after analyzing current and projected demographics, System growth
prospects, the technical condition of the System at the time of sale and
projected financial performance. We also considered the logical buyers for
System, which is determined principally by the consolidation that has already
occurred in the System's general market, and the characteristics of the System
within the Company's market.
Discount Rate
The resultant debt-free net cash flow streams and terminal value were discounted
back to the present value at a 14% discount rate. This discount rate was based
on the risk-adjusted industry Weighted Average Cost of Capital ("WACC"). WACC is
estimates of the overall rate of return required for an investment by both
equity and debt owners. Determination of the weighted average cost of capital
required a separate analysis of the cost of equity and the cost of debt.
________________________________________________________________________________
WALLER CAPITAL CORPORATION
-24-
<PAGE>
________________________________________________________________________________
JONES INTERCABLE, INC.
________________________________________________________________________________
The equity component was determined by using the Capital Asset Pricing Model
("CAPM"). The CAPM incorporates estimates of the risk-free rate for the use of
funds, an equity risk premium, an industry premium (Beta), as well as the risks
inherent with a specific investment in the System. The debt component of the
cost of capital was determined by using the after-tax cost of debt appropriate
for the Company.
________________________________________________________________________________
WALLER CAPITAL CORPORATION
-25-
<PAGE>
________________________________________________________________________________
JONES INTERCABLE, INC.
________________________________________________________________________________
COMPARABLE TRANSACTION ANALYSIS
The System has approximately 65,447 subscribers serviced from a single headend.
For a comparable System sales analysis, we utilized System of similar size and
characteristics of the System. Comparables were selected for a variety of
criteria including size, multiple locations, single headends and similar
demographics. The following is a summary of the comparable transactions
completed in 1996 and 1997. See the Appendix for the complete listing of
comparable transactions.
<TABLE>
<CAPTION>
Aggregate Basic Value/ Cash SCF
Value Subs Sub Flow Multiple
----- ---- --- ---- --------
($ million) (000) (millions)
<S> <C> <C> <C> <C> <C>
1996 Totals/Weighted Average $468 250 $1,869 $49 9.56x
1997 Totals/Weighted Average $519 295 $1,760 $55 9.42x
</TABLE>
Source: Waller Capital Corp.; Paul Kagan Associates
________________________________________________________________________________
WALLER CAPITAL CORPORATION
-26-
<PAGE>
________________________________________________________________________________
JONES INTERCABLE, INC.
________________________________________________________________________________
The comparable System sales analysis yielded a value per subscriber of $1,810
and a cash flow multiple of 9.5x. This, combined with the better quality of the
System, supports and validates Waller Capital's analysis which resulted in an
aggregate value for Jones System of $2,179 per subscriber and an 10.5x 1997 cash
flow multiple.
________________________________________________________________________________
WALLER CAPITAL CORPORATION
-27-
<PAGE>
________________________________________________________________________________
WALLER CAPITAL CORPORATION
________________________________________________________________________________
JONES INTERCABLE 23-Feb-98 7:18 PM
PALMDALE
MSO STATISTICS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Projected
-------- FYE 12/31,
-------- -----------------------------------------------------------------------------------
Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Period 1 2 3 4 5 6 7 8 9 10
- -------------------------------- -----------------------------------------------------------------------------------
OPERATIONS STATISTICS
- ------------------------ ----------
% Growth
----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Homes Passed (1) 87,773 88,380 89,706 91,948 93,328 94,727 96,148 97,591 99,054 100,540 102,048
% Growth N/A See Years 0.7% 1.5% 2.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
Plant Miles 1,013 1,020 1,035 1,061 1,077 1,093 1,109 1,126 1,143 1,160 1,177
Homes Per Mile 86.7 86.7 86.7 86.7 86.7 86.7 86.7 86.7 86.7 86.7 86.7
EQUIVALENT BASIC UNITS 65,447 See Years 66,285 68,176 70,340 71,862 72,940 74,034 75,145 76,272 77,416 78,577
% Growth N/A 1.3% 2.9% 3.2% 2.2% 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
% Penetration 74.6% 75.0% 76.0% 76.5% 77.0% 77.0% 77.0% 77.0% 77.0% 77.0% 77.0%
Pay Units 42,731 44,391 44,835 45,283 45,736 46,193 46,655 47,122 47,593 48,069 48,550
% Growth N/A See Years 3.9% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
% Basic 65.3% 67.0% 65.8% 64.4% 63.6% 63.3% 63.0% 62.7% 62.4% 62.1% 61.8%
PPV 38,833 39,013 39,403 39,797 40,195 40,597 41,003 41,413 41,827 42,245 42,668
% Growth N/A See Years 0.5% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
----------
- ------------------------
RATE SUMMARY
- ------------------------
Basic (1) $24.32 $26.92 $28.00 $29.12 $30.28 $31.49 $32.75 $34.06 $35.42 $36.84 $38.32
% Growth 10.7% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Pay $7.04 7.62 7.77 7.93 8.09 8.25 8.41 8.58 8.75 8.93 9.11
% Growth 8.2% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
PPV $1.91 2.08 2.16 2.25 2.34 2.43 2.53 2.63 2.74 2.85 2.96
% Growth 8.9% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
</TABLE>
<PAGE>
________________________________________________________________________________
WALLER CAPITAL CORPORATION
________________________________________________________________________________
JONES INTERCABLE 23-Feb-98 7:18 PM
PALMDALE
Discounted Cash Flow Anaysis (000 unless otherwise specified)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Projected
-------- FYE 12/31,
-------- ----------------------------------------------------------------------------------------
Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Period 1 2 3 4 5 6 7 8 9 10
-------- ----------------------------------------------------------------------------------------
- ------------------------
INCOME STATEMENT SUMMARY
- ------------------------ ----------
% GROWTH
----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Basic $19,104 MSO Stats $21,413 $22,905 $24,577 $26,113 $27,565 $29,098 $30,715 $32,423 $34,226 $36,129
% Growth N/A 12.1% 7.0% 7.3% 6.2% 5.6% 5.6% 5.6% 5.6% 5.6% 5.6%
Pay 3,610 MSO Stats 4,059 4,182 4,308 4,438 4,572 4,710 4,852 4,999 5,150 5,305
PPV 890 MSO Stats 974 1,023 1,074 1,129 1,185 1,245 1,308 1,374 1,443 1,516
Advertising 2,687 Inflation 2,800 2,884 2,971 3,060 3,151 3,246 3,343 3,444 3,547 3,653
Other 3,599 varies 3,800 3,914 4,227 4,565 4,931 5,325 5,751 6,211 6,397 6,589
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
TOTAL REVENUE $29,890 $33,046 $34,907 $37,157 $39,305 $41,404 $43,624 $45,970 $48,451 $50,763 $53,193
% Growth N/A 10.6% 5.6% 6.4% 5.8% 5.3% 5.4% 5.4% 5.4% 4.8% 4.8%
-----------------------------
Inflation Factor 3.00%
-----------------------------
OPERATING EXPENSES
Personnel Expenses $ 2,575 5%+Inflation 2,800 3,024 3,266 3,527 3,809 4,114 4,443 4,799 5,183 5,597
Subscriber Related
Expenses 5,218 See Growth 5,600 5,936 6,292 6,670 7,070 7,494 7,944 8,420 8,926 9,461
% Growth N/A 7.3% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
Revenue Related
Expenses 4,470 varies 4,700 5,076 5,482 5,866 6,276 6,716 7,186 7,689 8,227 8,803
Pay-Per-View 523 Inflation 575 592 610 628 647 667 687 707 728 750
System Plant Related
Expenses 1,302 varies 1,450 1,494 1,538 1,584 1,632 1,691 1,731 1,783 1,837 1,892
System Office Related
Expenses 410 Inflation 450 464 477 492 506 522 537 553 570 587
Marketing Related
Expenses 928 varies 1,050 1,082 1,114 1,147 1,182 1,217 1,254 1,291 1,330 1,370
Advertising Related
Expenses 891 varies 1,000 1,030 1,061 1,093 1,126 1,159 1,194 1,230 1,267 1,305
System G/A Expenses 2 varies 3 3 3 3 3 3 3 3 3 3
- - - - - - - - - - -
Total Operating
Expenses $16,318 $17,628 $18,699 $19,843 $21,010 $22,251 $23,573 $24,979 $26,476 $28,071 $29,769
% Growth N/A 8.0% 6.1% 6.1% 5.9% 5.9% 5.9% 6.0% 6.0% 6.0% 6.0%
----------
U.L. SYSTEM CASH
FLOW (EBITDA) $13,572 $15,418 $16,209 $17,314 $18,295 $19,153 $20,051 $20,991 $21,974 $22,693 $23,424
% Margin 45.4% 46.7% 46.4% 46.6% 46.5% 46.3% 46.0% 45.7% 45.4% 44.7% 44.0%
% Growth N/A 13.6% 5.1% 6.8% 5.7% 4.7% 4.7% 4.7% 4.7% 3.3% 3.2%
Revenue/Subscriber
/Month $ 38.06 $ 41.54 $ 42.67 $ 44.02 $ 45.58 $ 47.30 $ 49.10 $ 50.98 $ 52.94 $ 54.64 $ 56.41
SCF/Subscriber
/Year $207.38 $232.60 $237.73 $246.14 $254.58 $262.58 $270.84 $279.34 $288.11 $293.13 $298.10
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
WALLER CAPITAL CORPORATION
- --------------------------------------------------------------------------------
Jones Intercable 23-Feb-98 07:18 PM
Palmdale
Discounted Cash Flow Analysis (000 unless otherwise specified)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
Projected
FYE 12/31,
------ -------------------------------------------------------------------------------
Year 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Period 1 2 3 4 5 6 7 8 9 10
------ -------------------------------------------------------------------------------
- --------------------------
Summary Valuation Analysis Terminal
- -------------------------- Value
---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
System Cash Flow (EBITDA) $13,572 $15,418 $16,208 $17,314 $18,295 $19,153 $20,051 $20,991 $21,974 $22,693 $23,424 $210,816
% Growth
Upgrade/Rebuild Cap X 15K/Mile 8,321 8,445
Maintenance/New Build
Cap X $35/Sub 2,320 2,386 2,462 2,515 2,553 2,591 2,630 2,670 2,710 2,750
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Total Capital Expenditures 0 2,320 2,386 2,462 2,515 2,553 10,912 11,075 2,670 2,750 2,832
% of Revenue 0.0% 7.0% 6.8% 6.6% 6.4% 6.2% 25.0% 24.1% 5.5% 5.4% 5.3%
Capex/Basic Sub $ 0.0 $ 35.0 $ 35.0 $ 35.0 $ 35.0 $ 35.0 $ 147.4 $ 147.4 $ 35.0 $ 35.5 $ 36.0
Unlevered Free Cash Flow $13,572 $13,098 $13,822 $14,852 $15,779 $16,600 $ 9,139 $ 9,916 $19,305 $19,943 $20,592
Present Value
Interest Factor 0.9366 0.8216 0.7207 0.6322 0.5545 0.4864 0.4267 0.3743 0.3283 0.2880 0.2880
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Discounted
Cash Flows $12,268 $11,355 $10,703 $ 9,975 $ 9,205 $ 4,446 $ 4,231 $ 7,226 $ 6,548 $ 5,931 $ 60,717
------------------------
FMV $142,604
------------------------
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------
Assumptions
- ---------------------------------
<S> <C> <C> <C> <C>
Value per Sub Multiple of 1997 Value per Sub Multiple of 1998
Discount rate 14.00% 1997 Cash Flow 1998 Cash Flow
Inflation rate 3.0% ------------- ---------------- ------------- ----------------
Exit Multiple
(times EBITDA) 9.0% $2,179 10.5 $2,151 9.2
- ---------------------------------
</TABLE>
<PAGE>
JONES INTERCABLE, INC.
- --------------------------------------------------------------------------------
Weighted Average Cost of Capital
<TABLE>
<CAPTION>
Debt/ Debt/ Pfd/ Unlevered
Equity Market Total Market (Asset)
Company Name Beta (1) Equity Mkt Cap Equity Beta
- ------------ -------- ------ ------- ------ ---------
<S> <C> <C> <C> <C> <C>
Adelphia Communication Corporation 1.16 582.3% 85.3% 0.0% 0.26
Comcast Corporation 1.25 59.7% 37.4% 0.0% 0.92
Cox 0.26 29.0% 22.5% 0.0% 0.22
Century Communications Corp. 0.98 312.1% 75.7% 0.0% 0.34
Cablevision Systems Corporation 1.68 221.0% 68.8% 0.0% 0.72
TCA Cable TV, Inc. 0.81 27.5% 21.6% 0.0% 0.70
Tele-Communications, Inc. 1.16 116.5% 53.8% 0.0% 0.68
Time Warner 1.05 39.5% 28.3% 0.0% 0.85
U S WEST Media 0.77 60.2% 37.6% 0.0% 0.56
-------- ------ ------- ------ ----------
------------------------------------------------------------------------------------
MEAN 1.01 160.9% 47.9% 0.0% 0.58
MEDIAN 1.05 60.1% 37.6% 0.0% 0.68
------------------------------------------------------------------------------------
</TABLE>
Relevering of Mean Asset Beta (Mean/Median)
<TABLE>
<CAPTION>
Debt/ Pfd/ Relevered Cost of Cost of Cost of Cost of Cost of
Equity Equity Beta Debt(P/T) Debt(A/T) Preferred Equity Capital(2)
- -------- -------- --------- --------- --------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
110.0% 0.0% 0.97 7.75% 4.7% 0.0% 24.5% 14.1%
120.0% 0.0% 1.01 7.95% 4.8% 0.0% 25.2% 14.0%
130.0% 0.0% 1.04 8.15% 4.9% 0.0% 25.8% 14.0%
140.0% 0.0% 1.08 8.35% 5.0% 0.0% 26.5% 14.0%
150.0% 0.0% 1.11 8.55% 5.1% 0.0% 27.2% 14.0%
- -----------------------------------------------------------------------------------------------------------------------------
160.0% 0.0% 1.15 8.75% 5.3% 0.0% 27.9% 13.9%
- -----------------------------------------------------------------------------------------------------------------------------
170.0% 0.0% 1.18 8.95% 5.4% 0.0% 28.5% 14.0%
180.0% 0.0% 1.22 9.15% 5.5% 0.0% 29.2% 14.0%
190.0% 0.0% 1.25 9.35% 5.6% 0.0% 29.9% 14.0%
200.0% 0.0% 1.29 9.55% 5.7% 0.0% 30.6% 14.0%
210.0% 0.0% 1.32 9.75% 5.9% 0.0% 31.2% 14.0%
FORMULAS ASSUMPTIONS
- -------- -----------
Levered Beta D = Debt
Unlevered Beta = ----------- ----- ----------- E = Equity Risk Free Rate 5.78% (3)
1 + (D/E)(1-t)+(Pfd/E) t = Marginal Tax Rate Market Risk Premium 19.28%
Pfd = Preferred Marginal Tax Rate (t) 40.00%
Cost of Equity = Risk Free Rate + Levered Beta * (Market Risk Premium)
NOTES: (1) Source BARRA U.S. Equity Model
(2) Based in after-tax cost of debt.
(3) 10 Year Treasury as of January 2, 1998.
- -----------------------------------------------------------------------------------------------------------------------------
Waller Capital Corporation
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
WALLER CAPITAL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
JONES INTERCABLE, INC.
- --------------------------------------------------------------------------------
INDUSTRY TRANSACTIONS: ANNOUNCED/PROPOSED CABLE SYSTEM SALES AND TRADES
<TABLE>
<CAPTION>
ANNOUNCE AGGREGATE BASIC VALUE CASH SCF
DATE SELLER BUYER LOCATION VALUE SUBS SUB FLOW MULTIPLE
- -------- ------------------- ---------------------- -------------- --------- ----- ------- ---------- --------
($000,000) (000) ($000,000)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
1996 KC CABLE ASS. (CVI) CHARTER LONG BEACH, CA 150 70 2,143 17.4 8.6
- ----------------------------------------------------------------------------------------------------------------------------------
1996 Meredith Cable Continental MN based MSO 124 74 1,667 12.3 10.1
1996 Jones Intercable Century Comm. LA, Ventura, CA 104 59 1,763 10.5 9.9
- ----------------------------------------------------------------------------------------------------------------------------------
1996 COLUMBINE/WORLD TCI FORT COLLINS, CO 54 30 1,800 5.3 10.2
- ----------------------------------------------------------------------------------------------------------------------------------
1996 Jones Partners II Century Comm. Anaheim, CA 36 17 2,118 3.4 10.5
1997 Cablevision Insight Comm. Rockford, IL 97 65 1,492 10.2 9.5
1997 Insight Comm. Cox Comm. Phoenix, AZ 77 36 2,131 8.5 9.1
- ----------------------------------------------------------------------------------------------------------------------------------
1997 PRIME CABLE CHARTER COMM. HICKORY, NC 69 35 1,957 6.9 10.0
- ----------------------------------------------------------------------------------------------------------------------------------
1997 Palo Alto Co-Op Sun Country Cbl. Palo Alto, CA 54 27 2,042 4.7 11.5
1997 American Cable LP 5 Mediacom Dagsboro, DE 43 29 1,471 4.8 8.9
1997 Booth Comm Helicon Corp Boone, NC 35 19 1,852 3.7 9.5
1997 Harron Cable Marcus Cable Dallas, TX 35 22 1,601 3.8 9.1
1997 Pegasus Avalon Ptrs. CT, NH 30 15 1,954 3.3 9.0
1997 Auburn Cable Harron Comm Auburn, NY 28 14 1,958 2.8 10.2
1997 Cencom Partners Charter Communications Pelzer, SC 27 21 1,283 3.7 7.5
1997 IntrMeda G Force LLC Kauai, HI 24 12 2,065 2.8 8.6
- ----------------------------------------------------------------------------------------------------------------------------------
1996 TOTALS AND AVERAGES 5 DEALS $468 250 $1,869 $49 9.56 x
1997 TOTALS AND AVERAGES 11 DEALS $519 295 $1,760 $55 9.42 x
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 1 of 2
<PAGE>
Exhibit 99(b)(3)
================================================================================
JONES INTERCABLE CABLE TELEVISION SYSTEM
PALMDALE, CALIFORNIA
APPRAISAL OF NON-CURRENT ASSETS AS OF
DECEMBER 31, 1997
Prepared for:
The Jones Group, Ltd.
May 29, 1998
BOND &
PECARO
<PAGE>
JONES INTERCABLE CABLE TELEVISION SYSTEM
PALMDALE, CALIFORNIA
APPRAISAL OF NON-CURRENT ASSETS AS OF DECEMBER 31, 1997
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction 1
System Background 1
Industry Overview 2
Executive Summary 7
Valuation Method 7
Conclusion 10
The Jones Intercable Cable Television System, Palmdale, California
System Background 13
Demographic Profile 13
Media Overview 18
Market Analysis 19
Discounted Cash Flow Analysis 24
Comparable Sales Analysis 31
Conclusion 32
Exhibits
--------
A. Qualifications of James R. Bond, Jr., Julie A. Kroskin, and Laura R. Stark
</TABLE>
<PAGE>
JONES INTERCABLE CABLE TELEVISION SYSTEM
PALMDALE, CALIFORNIA
APPRAISAL OF NON-CURRENT ASSETS AS OF DECEMBER 31, 1997
INTRODUCTION
------------
Bond & Pecaro has been retained to determine the fair market value of the
non-current assets of the Jones Intercable cable television system in Palmdale,
California, ("the Palmdale System") as of December 31, 1997. Among these assets
were towers, electronic equipment, office equipment, vehicles, a cable
television distribution plant, cable television franchises, and a cable
television subscriber base.
System Background
- -----------------
The Palmdale System serves Palmdale, Lancaster, Elizabeth Lake, Green
Valley, Leona Valley, Quartz Hill, Edwards Air Force Base, and portions of Los
Angeles and Kern Counties in California. Most of the system's cable distribution
plant operates at 500 mHz with a capacity of 80 channels. Ten vacant channels
were available for use as of December 31, 1997.
The system is 60% addressable and provides impulse pay-per-view services to
subscribers. As of December 31, 1997, the system had 643 miles of underground
cable distribution plant and 453 miles of aerial plant. Approximately 87,773
homes are passed by the system's cable distribution plant.
-1-
<PAGE>
As of December 31, 1997, the system had approximately 63,521 basic
subscribers, representing a basic subscriber penetration of 72.4%. The system
had approximately 42,731 pay subscriptions as of December 31, 1997, yielding a
pay to basic ratio of approximately 67.3%.
The Palmdale System operates under the provisions of four cable television
franchises. The expiration dates associated with each of the franchises are as
follows:
<TABLE>
<CAPTION>
Franchise Expiration Date
--------- ---------------
<S> <C>
Lancaster May, 2001
Los Angeles County October, 2005
Palmdale May, 2007
Edwards Air Force Base October, 2004
</TABLE>
Industry Overview
- -----------------
The cable television industry developed in the late 1940s in order to
provide television service to communities in rural Pennsylvania that were too
isolated to receive over-the-air broadcasts. Since that time, the industry has
grown and diversified to provide a broad range of educational, entertainment,
cultural, and sports programming to large urban areas and rural communities
alike.
According to Broadcasting & Cable Yearbook 1997, the cable industry in the
United States consists of approximately 11,800 operating systems serving over
34,000 communities throughout the United States. Approximately 100 additional
cable television franchises have been approved but have yet to be constructed.
-2-
<PAGE>
Each system has been granted a franchise by its local municipal government.
Franchises are awarded competitively, and the winning bidder must generally
provide guarantees that expensive investments in local employment, local
programming, and system technical design will be made.
The construction of a cable television system is extremely capital
intensive. The cost of installing aerial cable often comprises the single
largest investment made by a cable television system operator. Underground cable
television installation is even more expensive, when considered on a per-mile
basis. Additionally, investments must be made in headend facilities, satellite
receiving equipment, office facilities, and subscriber equipment such as
converter units, that ultimately deliver cable television service to households.
Numerous changes have occurred in the development of cable television
technology. Original systems used vacuum tube electronics and provided only a
few off-air channels to subscribers. By contrast, modern systems are capable of
providing over 100 channels of service, including satellite signals and locally
originated programs. These systems use solid state amplifiers and addressable
converter equipment to control subscriber service levels.
Cable television systems provide entertainment, news, music, and other
forms of programming to the public. The cable operator must pay a fee, usually
calculated on a per-subscriber basis, to program suppliers. These fees may
either be determined on a fixed basis or calculated as a percentage of system
revenues.
-3-
<PAGE>
In order to cover the costs of operation, systems sell "basic" services
such as local television signals, local origination programs, and some satellite
services for a fixed monthly fee to all subscribers. Customers also have the
option to subscribe to additional "premium" or "pay" services, such as Home Box
Office and Showtime, which offer movies, sports, entertainment, and cultural
programming.
In some cases, cable systems generate additional revenues by selling
advertising time to local and national businesses, government agencies, and
political organizations which seek to deliver information to the general public.
Given the substantial fixed costs resulting from the capital requirements
of the business, as well as high programming costs, cable operators seek to
maximize system penetration. Two types of system penetration are of paramount
importance in the industry.
The first is basic penetration, which is a measure of the number of homes
subscribing to cable television as a proportion of the homes which are passed by
cable; if 400 homes subscribed to cable service in a community of 1,000 homes,
basic penetration would be 40%.
The second important measure is pay penetration, which gauges the
popularity of pay services among those households which subscribe to basic cable
service. If each of the 400 cable households in the example subscribed to two
pay services, pay penetration would be 200%. Approximately 67% of all households
in the United States are currently served by cable television.
-4-
<PAGE>
The linkage between basic penetration, pay penetration, and customer
development is fundamental to the cable industry. Operators constantly seek to
provide programming and services that will develop the widest appeal among local
households. The more effectively the cable operator is able to meet the
preferences of the public, the larger the system's subscriber base will be. This
relationship between subscribers and revenues is axiomatic in the cable industry
and is the primary determinant of success or failure among system operators.
The cable industry has become increasingly competitive in recent years.
Overall financial performance of the industry has fallen short of expectations
that were developed in the early 1980s, when a large number of cable television
facilities were constructed. Traditional broadcast stations continue to be the
mainstay of television viewing in the United States. In recent years, the FCC
has issued many additional licenses for new independent television stations
throughout the country. Moreover, cable operators have come under increasing
competitive pressure from videocassette rental outlets, satellite program
services, and other competing technologies.
In order to build the largest possible subscriber base, systems invest
heavily in tangible assets, such as distribution equipment and satellite
equipment, and intangible assets such as marketing systems and programming
agreements. Similarly, investments in equipment and intangible assets, such as
managerial talent, may be oriented toward controlling costs and increasing
profitability.
-5-
<PAGE>
It is in this marketplace, one defined by heavy capital investment, the
relationship between subscriber base size and revenues, and increasing
competition, that the Palmdale System operates.
In performing this analysis, various sources were employed. These include
1997 Broadcasting & Cable Yearbook; 1997 Television and Cable Factbook; Market
Statistics Demographics USA 1997, County Edition; the National Association of
Broadcasters and Bond & Pecaro, Inc. The Television Industry: 1997 Television
Market-by-Market Review; Paul Kagan Associates Cable TV Investor; other industry
publications; internal financial statements and reports provided by the Palmdale
System; and financial information and projections supplied by The Jones Group,
Ltd. Additionally, the appraiser relied upon information furnished by system
management relative to the age, condition, and adequacy of the system's physical
plant. These materials are assumed to be accurate with respect to factual
matters.
-6-
<PAGE>
JONES INTERCABLE CABLE TELEVISION SYSTEM
PALMDALE, CALIFORNIA
APPRAISAL OF NON-CURRENT ASSETS AS OF DECEMBER 31, 1997
EXECUTIVE SUMMARY
-----------------
An analysis to determine the fair market value of the non-current assets of
the Palmdale System has been made. Fair market value is defined as the price in
cash or cash equivalents that would be paid by a willing buyer to a willing
seller in an arm's-length transaction in which neither party acts under any
compulsion to buy or sell. The effective date of this analysis is December 31,
1997.
Valuation Method
In order to determine the fair market value of the non-current assets of
the Palmdale System, a discounted cash flow projection was developed. This
income approach measures the expected economic benefits these assets bring to
their holder. The fair market value of the assets of the system may therefore be
expressed by discounting these future benefits.
It is generally accepted that the value of a telecommunications business
lies in the fact that it is a "going concern." That is, its value reflects the
revenues and, ultimately, the after-tax cash flow that the business may
reasonably be expected to generate over a period of years. The potential resale
value of the business at the end of that period is also
-7-
<PAGE>
an important factor in the valuation of such properties. A number of factors
contribute to going concern value, including the formation of a business plan;
the construction of the system headend facility; the development of a functional
general, administrative, and technical organization; establishment of a sales
and marketing organization; and the coordination of all of these functions into
a well defined and efficient operating organization.
The market, or comparable sales, approach provides a useful means by which
assumptions made in the development of the discounted cash flow analysis can be
tested against marketplace transactions.
The discounted cash flow model incorporates variables such as capital
expenditures, homes passed by the system, basic penetration, pay penetration,
system revenue projections, anticipated system operating expenses and profits,
and various discount rates. The variables used in the analysis reflect
historical system and market growth trends as well as anticipated system
performance and market conditions.
The capital expenditures provision reflects the amount of investment
required to expand and maintain a competitive cable television business in the
Palmdale, California area.
The discounted cash flow projection period of ten years was judged to be an
appropriate time horizon for the analysis. Cable operators and investors
typically expect to recover their investments within a ten year period. It is
over this period that projections
-8-
<PAGE>
regarding market demographics, system basic and pay penetration, and operating
profit margins can be made with the highest degree of accuracy.
Over this ten year period, household growth in the Palmdale area,
anticipated market penetration percentages, and system operating performance
expectations were used to project the system's operating profits.
Income taxes were deducted from the projected operating profits to
determine after-tax net income. Depreciation and amortization expenses were
added back to the after-tax income stream and projected capital expenditures
were subtracted to calculate the system's net after-tax cash flow.
The stream of annual cash flow was adjusted to present value using a
discount rate appropriate for the cable television industry. The discount rate
used is based upon an after-tax rate calculated for the cable television
industry.
Additionally, it was necessary to project the system's residual value at
the end of the ten year projection period. In order to determine this value, an
operating cash flow multiple was applied to the system's 2007 operating cash
flow projection. The terminal value represents the hypothetical value of the
system at the end of the projection period. Taxes were deducted from the
indicated terminal value. The net terminal value was then discounted to present
value.
The results of these approaches are considered and given appropriate weight
in the consolidation portion of the analysis. In order to verify the results of
the discounted cash flow analysis, the appraiser also utilized a comparable
sales approach, relying upon an
-9-
<PAGE>
analysis of subscriber multiples. The results of this analysis support the
conclusion resulting from application of the income approach.
Conclusion
Based upon the application of the income and market approaches, the
indicated fair market value of the non-current assets of the Palmdale system as
of December 31, 1997 is determined to be $131,952,600.
Recipients of this report agree that all of the information contained
herein is of a confidential nature. This report may not, in whole or in part, be
reproduced or distributed to others. Each recipient agrees to treat it in a
confidential manner, and will not, directly or indirectly, disclose or permit
its agents or affiliates to disclose any such information without the consent of
Bond & Pecaro, Inc.
This analysis is based upon a number of projections. Projections are
inherently subject to varying degrees of uncertainty. Their accuracy depends,
among other things, upon the reliability of the underlying assumptions and the
occurrence of events beyond the control of Bond & Pecaro, Inc.
Certain information and assumptions are based upon historical industry
data. Some of the assumptions set forth inevitably will prove not to have been
correct. Consequently, the results of operations will vary from those set forth
in the projections and such variations may be material.
-10-
<PAGE>
Bond & Pecaro, Inc. makes no representations or warranties as to the
accuracy or completeness of the information or projections and assumptions
contained herein, or otherwise furnished in connection with this analysis.
Neither Bond & Pecaro, Inc. nor its personnel assume any liability for damages,
direct or indirect, arising out of or related to this report, the information or
assumptions or projections contained herein, any omissions from this report, or
any information otherwise provided regarding this report.
Neither this firm nor any of its employees has any present or anticipated
economic interest in the Jones Intercable cable television system or The Jones
Group, Ltd. The compensation received by the firm was in no way contingent upon
the values or the conclusions developed herein.
This appraisal was prepared for The Jones Group, Ltd. in connection with
internal management requirements. The report is not to be otherwise cited or
disseminated without the prior written consent of Bond & Pecaro, Inc.
-11-
<PAGE>
All information and conclusions contained in this report are based upon the
best knowledge and belief of the undersigned, whose qualifications are attached
hereto.
BOND & PECARO, INC. BY /s/ James R. Bond, Jr.
1201 Connecticut Ave., N.W. -----------------------------
Suite 450 James R. Bond, Jr.
Washington, D.C. 20036
(202) 775-8870
May 29, 1998 BY /s/ Julie A. Kroskin
-----------------------------
Julie A. Kroskin
BY /s/ Laura R. Stark
-----------------------------
Laura R. Stark
-12-
<PAGE>
JONES INTERCABLE CABLE TELEVISION SYSTEM
PALMDALE, CALIFORNIA
APPRAISAL OF NON-CURRENT ASSETS AS OF DECEMBER 31, 1997
JONES INTERCABLE CABLE TELEVISION SYSTEM
----------------------------------------
SYSTEM BACKGROUND
The Palmdale System serves Palmdale, Lancaster, Elizabeth Lake, Green
Valley, Leona Valley, Quartz Hill, Edwards Air Force Base, and portions of Los
Angeles and Kern Counties in California. The technical operations of the
Palmdale System are conducted at nine sites. These consist of a main office
located at 41551 10th Avenue West in Lancaster, a headend facility at 3565 Vista
View, Tenhi Peak in Palmdale, and seven AML sites located in Lancaster,
Palmdale, Quartz Hill, Leona Valley, Elizabeth Lake, and Edwards Air Force Base,
all in California.
DEMOGRAPHIC PROFILE
The Palmdale System is located within the Los Angeles, California
television market, which, according to Broadcasting & Cable Yearbook 1997, ranks
second in the United States.
Population, income, retail sales, employment composition, and other
economic characteristics of the market were considered in this analysis.
-13-
<PAGE>
Population Growth
The current and projected populations of the Los Angeles market are shown
in Table 1. In 1996, the market population was approximately 15.6 million. The
population of the market area is projected to increase at an annual rate of 0.7%
through the year 2001, based upon forecasts contained in Market Statistics
Demographics USA 1997, County Edition. This is slightly below the 0.9% projected
annual rate of population growth for the State of California, as well as the
0.8% annual increase projected for the United States.
Income Growth
Summary income data for the Los Angeles market are also contained in
Table 1. Current income levels and projected growth rates for the market are
compared with averages for the State of California and for the United States.
Total Effective Buying Income ("EBI")/1/ in the Los Angeles market during
the 1996-2001 period is projected to increase from approximately $224.2 billion
to $260.9 billion. Per capita EBI is projected to increase from $14,357 to
$16,102 over the same period. EBI per household is approximately 0.9% lower than
the average for the State of California and almost 4.4% higher than the national
average.
- ------------
/1/ EBI is defined by Market Statistics Demographics USA 1997, County
Edition as "personal income less personal tax and non-tax payments."
-14-
<PAGE>
The projected income growth rate for the Los Angeles market is below
that of the state and nation. The per capita and per household income growth
rates for the market are similar to state levels, but are lower than national
rates.
In summary, incomes in the Los Angeles area are relatively low in
comparison to national averages. In contrast, economic growth rates in the
market are also lower than national averages reflecting the modest growth
characteristics of the area.
Retail Sales Growth
Retail sales data provide additional information regarding economic
activity in the Los Angeles market. As reflected in Table 1, total, per capita,
and per household retail sales for the market are projected to grow at compound
annual rates of 2.0%, 1.3%, and 1.5%, respectively, during the 1996-2001 period.
Projected retail sales in the area are compared to those for the State of
California and the United States. Using these measures, the total retail sales
growth in the Los Angeles market falls well below state and national averages.
For example, total retail sales growth during the 1996-2001 period is expected
to average 2.0% in the Los Angeles market, compared to 2.9% in the State of
California, and 4.0% in the United States as a whole. Retail sales per capita of
$7,675 in the market are well below the national average of $9,214 and also
below the California average of $8,213.
-15-
<PAGE>
Employment Composition
Major employers in the market, those with more than 5,000 employees,
include county and federal governments, Bank of America, and Kaiser Permanente.
Major employers in the Palmdale area include Coca Cola, United Parcel Service,
Frito Lay, SST, Rite Aid Drug, and Michael's Crafts.
The estimated unemployment rate in the Los Angeles market as of
November 1997 was 6.0%, representing a decline from a 7.0% level at the end of
1996./1/ The current rate is higher than the 5.7% unemployment rate for the
State of California and considerably higher than the 4.6% national average.
- ----------
/1/ Unemployment data from the Bureau of Labor Statistics.
-16-
<PAGE>
Table 1
-------
Demographic and Economic Projections for the Los Angeles DMA,
the State of California, and the United States
<TABLE>
<CAPTION>
Annual
1996 2001 Change
---- ---- ------
<S> <C> <C> <C> <C>
Population
(Thousands) Los Angeles 15,612.4 16,204.8 0.7%
California 32,686.8 34,149.6 0.9%
U.S. 267,540.6 279,027.7 0.8%
Households
(Thousands) Los Angeles 5,091.4 5,219.7 0.5%
California 11,085.3 11,477.9 0.7%
U.S. 98,635.5 103,870.8 1.0%
Average Household Size
Los Angeles 3.1 3.1 0.0%
California 2.9 3.0 0.7%
U.S. 2.7 2.7 0.0%
Total Effective Buying
Income
(Millions) Los Angeles 224,152.6 260,924.1 3.1%
California 492,517.0 578,578.8 3.3%
U.S. 4,161,512.4 5,072,857.0 4.0%
EBI per Capita
Los Angeles $ 14,357 $ 16,102 2.3%
California 15,068 16,942 2.4%
U.S. 15,555 18,180 3.2%
EBI per Household
Los Angeles $ 44,026 $ 49,988 2.6%
California 44,430 50,408 2.6%
U.S. 42,191 48,838 3.0%
Total Retail Sales
(Millions) Los Angeles 119,822.0 132,440.8 2.0%
California 268,441.8 309,301.4 2.9%
U.S. 2,465,147.1 3,004,997.9 4.0%
Retail Sales per Capita
Los Angeles $ 7,675 $ 8,173 1.3%
California 8,213 9,057 2.0%
U.S. 9,214 10,770 3.2%
Retail Sales per Household
Los Angeles $ 23,534 $ 25,373 1.5%
California 24,216 26,948 2.2%
U.S. 24,992 28,930 3.0%
</TABLE>
Source: Market Statistics Demographics USA 1997, County Edition.
-17-
<PAGE>
MEDIA OVERVIEW
The Palmdale System faces competition from area television stations, local
radio stations, newspapers, direct broadcast satellite ("DBS"), and
videocassette rental outlets for audience share and advertising revenues.
There are 20 commercial television stations operating in the Los Angeles
market:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Call Letters Channel Affiliation
- ------------ ------- -----------
- --------------------------------------------------------------------------------
<S> <C> <C>
KCBS-TV 2 CBS
KNBC 4 NBC
KTLA 5 Independent
KABC-TV 7 ABC
KCAL 9 Independent
KTTV 11 Fox
KCOP 13 Independent
KSCI 18 Independent
KWHY-TV 22 Independent
KZKI 30 Independent
KVMD 31 Independent
KMEX-TV 34 Univision
KTBN-TV 40 Independent
KRPA 44 Independent
KHSC-TV 46 Independent
KVEA 52 Telemundo
KDOC-TV 56 Independent
KSTV-TV 57 Independent
KRCA 62 Independent
KHIZ 64 Independent
- --------------------------------------------------------------------------------
</TABLE>
Of the radio stations licensed to the Los Angeles market, 27 achieved a
measurable audience share in the last Arbitron rating period, as reported in
Duncan's
-18-
<PAGE>
American Radio, Spring 1997. These include six AM radio stations and 21 FM radio
stations.
The Los Angeles market is also served by the following cable television
operators: American Cablesystems of California (206,403 subscribers), Century
Southwest Cable TV (170,164 subscribers), and Cox Cable Orange County, Inc.
(135,662 subscribers). The major daily newspaper serving the area is the Los
Angeles Times, with a total circulation of 967,065 daily and 1,349,889 on
Sundays. Three DBS systems are active in the Los Angeles market: Direct TV,
USSB, and Prime Star. Additionally, there are numerous videocassette rental
outlets in the Los Angeles area.
MARKET ANALYSIS
Homes Passed
The initial parameter upon which the discounted cash flow projection is
based is homes passed, or "passings." Two factors affect the number of homes
passed, new plant construction and household growth. Plant expansion improves
system coverage by allowing the system to offer service to previously unserved
areas. Household growth is the result of new construction and occupancies in
areas that are already served by the system.
-19-
<PAGE>
It has been assumed that the number of households in the Palmdale System
franchise area will increase at a rate equivalent to the average growth
projected for the areas served by the system as a whole, or approximately 0.7%
per year.
Basic and Expanded Basic Penetration
Basic and expanded basic subscriber penetration at the system are currently
72.4% and 89.3% (expressed as a ratio of basic subscribers), respectively. It is
likely that basic and expanded basic penetration will demonstrate a modest
growth trend over the projected 10 year period.
For the purpose of this analysis, the appraiser has assumed that basic
subscriber penetration will gradually increase from its current level to
approximately 76.4% by 2007, as shown in Table 2. Basic subscribers at the
system are projected to increase at an annual rate of 1.8% through 2002, which
is consistent with management expectations, and 0.7% through 2007, reflecting
industry standards. Expanded basic subscribers have been projected to remain at
a 89.3% penetration ratio of basic subscribers through 2007. These rates are
derived from the historical and anticipated performance of the system and the
experience of the cable television industry in general.
-20-
<PAGE>
Pay Penetration
As of December 31, 1997, pay penetration at the Palmdale System attained a
level of 67.3%. Pay penetration is projected to increase to approximately 90.3%
by 2007, as indicated in Table 2. This estimate is reasonable in light of the
historical performance of the system and the anticipated performance of the
cable television industry in general.
Rates
System service rates are projected in Table 3. These are based upon
prevailing rates in the Palmdale System with provisions for anticipated
increases, where appropriate.
As of December 31, 1997, monthly rates were $13.81 for basic service,
$12.71 for expanded basic service, $6.00 to $10.00 for each pay service, and
$1.10 to $2.15 for each converter. Installation fees ranged from $17.00 to
$29.00, depending upon the type of installation service performed.
Due to regulatory and competitive restrictions, service rates for basic and
expanded basic services are expected to grow, while premium channel service
rates are expected to remain relatively flat. These assumptions are consistent
with management expectations for service rate growth.
-21-
<PAGE>
Table 2
-------
Jones Intercable Cable Television System Subscriber Projections
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
---- ---- ---- ---- ---- ---- ---- ---- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subscribers
- -----------
Homes Passed/1/ 88,387 89,006 89,629 90,257 90,888 91,525 92,165 92,810 93,460 94,114
Basic Subscribers:
Beginning of Year 63,521 64,664 65,828 67,013 68,219 69,447 69,933 70,423 70,916 71,412
Net Additions 1,143 1,164 1,185 1,206 1,228 486 490 493 496 500
End of Year 64,664 65,828 67,013 68,219 69,447 69,933 70,423 70,916 71,412 71,912
Average Basic Subscribers/2/ 64,093 65,246 66,421 67,616 68,833 69,690 70,178 70,670 71,164 71,662
Expanded Basic Subscribers (EOY)/2/ 57,745 58,784 59,843 60,920 62,016 62,450 62,888 63,328 63,771 64,217
Premium Subscribers (EOY) 45,006 47,330 49,724 52,188 54,724 56,716 58,733 60,775 62,843 64,937
Basic Service Penetration 73.2% 74.0% 74.8% 75.6% 76.4% 76.4% 76.4% 76.4% 76.4% 76.4%
Expanded Basic Penetration (% Subs.) 89.3% 89.3% 89.3% 89.3% 89.3% 89.3% 89.3% 89.3% 89.3% 89.3%
Premium Penetration (% Subs.) 69.6% 71.9% 74.2% 76.5% 78.8% 81.1% 83.4% 85.7% 88.0% 90.3%
</TABLE>
<TABLE>
<CAPTION>
2005 2006 2007
---- ---- ----
<S> <C> <C> <C>
Subscribers
- -----------
Homes Passed/1/ 92,810 93,460 94,114
Basic Subscribers:
Beginning of Year 70,423 70,916 71,412
Net Additions 493 496 500
End of Year 70,916 71,412 71,912
Average Basic Subscribers/2/ 70,670 71,164 71,662
Expanded Basic Subscribers (EOY)/2/ 63,328 63,771 64,217
Premium Subscribers (EOY) 60,775 62,843 64,937
Basic Service Penetration 76.4% 76.4% 76.4%
Expanded Basic Penetration (% Subs.) 89.3% 89.3% 89.3%
Premium Penetration (% Subs.) 85.7% 88.0% 90.3%
</TABLE>
- ----------------------
/1/ Number of area households is projected to increase at 0.7% per year. See
text.
/2/ Basic and expanded basic subscribers are projected to increase at annual
rates of 1.8% and 0.7%. See text.
-22-
<PAGE>
Table 3
-------
Jones Intercable Cable Television System Revenue Projections
(Dollar Amounts Shown in Thousands)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service Revenue
- ---------------
Basic Service Revenue $10,921.4 $11,431.1 $11,963.7 $12,519.8 $13,100.3 $13,631.4
Expanded Basic Service Revenue 8,983.8 9,410.9 9,857.9 10,325.2 10,813.5 11,269.2
Basic Commercial & Pay Revenue/1/ 706.2 776.8 854.5 940.0 1,034.0 1,137.4
Premium Service Revenue 3,679.7 3,872.6 4,070.4 4,274.2 4,483.9 4,673.8
Pay-per-view Revenue/2/ 1,140.1 1,460.5 1,870.9 2,396.6 3,070.0 3,407.7
--------- --------- --------- --------- --------- ---------
Subtotal Service Revenue $25,431.2 $26,951.9 $28,617.4 $30,455.8 $32,501.7 $34,119.5
Other Revenue
- -------------
Advertising Revenue $ 3,197.2 $ 3,804.7 $ 4,527.6 $ 5,387.8 $ 6,411.5 $ 7,052.7
Installation 575.8 575.8 575.8 575.8 575.8 575.8
Equipment Rentals 1,246.6 1,358.8 1,481.1 1,614.4 1,759.7 1,918.1
Franchise Fees/3/ 1,181.8 1,203.1 1,224.7 1,246.8 1,269.2 1,278.1
FCC Pass Thru Revenue/3/ 32.4 33.0 33.5 34.2 34.8 35.0
Other Revenue 839.6 915.2 997.6 1,087.4 1,185.3 1,292.0
--------- --------- --------- --------- --------- ---------
Subtotal Other Revenue $ 7,073.4 $ 7,890.5 $ 8,840.4 $ 9,946.3 $11,236.3 $12,151.7
Total Revenue $32,504.6 $34,842.4 $37,457.8 $40,402.1 $43,738.0 $46,271.2
</TABLE>
<TABLE>
<CAPTION>
2004 2005 2006 2007
---- ---- ---- ----
<S> <C> <C> <C> <C>
Service Revenue
- ---------------
Basic Service Revenue $14,114.2 $14,611.6 $15,123.8 $15,659.6
Expanded Basic Service Revenue 11,679.0 12,101.6 12,537.0 12,993.3
Basic Commercial & Pay Revenue/1/ 1,251.1 1,376.2 1,513.8 1,665.2
Premium Service Revenue 4,841.9 5,012.2 5,184.5 5,359.1
Pay-per-view Revenue/2/ 3,782.5 4,198.6 4,660.4 5,173.0
--------- --------- --------- ---------
Subtotal Service Revenue $35,668.7 $37,300.2 $39,019.5 $40,850.2
Other Revenue
- -------------
Advertising Revenue $ 7,758.0 $ 8,533.8 $ 9,387.2 $10,325.9
Installation 575.8 575.8 575.8 575.8
Equipment Rentals 2,090.7 2,278.9 2,484.0 2,707.6
Franchise Fees/3/ 1,287.0 1,296.1 1,305.1 1,314.3
FCC Pass Thru Revenue/3/ 35.3 35.5 35.8 36.0
Other Revenue 1,408.3 1,535.0 1,673.2 1,823.8
--------- --------- --------- ---------
Subtotal Other Revenue $13,155.1 $14,255.1 $15,461.1 $16,783.4
Total Revenue $48,823.8 $51,555.3 $54,480.6 $57,633.6
</TABLE>
- --------------------
/1/ Basic commercial and pay revenue projected to increase at a 10.0% annual
rate.
/2/ Pay-per-view revenue projected to increase at a 28.1% annual rate for the
years 1998-2002 and 11% thereafter. See text.
/3/ Franchise Fees and FCC Pass Through Revenue projected to increase based upon
a 1998-2002 subscriber growth rate of 1.8% and 0.7% thereafter. See text.
-23-
<PAGE>
DISCOUNTED CASH FLOW ANALYSIS
System Revenue Projections
Most of the revenue projections appearing in Table 3 are calculated by
multiplying the number of subscribers to a particular level of service by the
projected rate.
Commercial service revenue is projected to increase at an annual rate of
10.0%, based upon management expectations for the system. Similarly, pay-per-
view service revenue is projected to increase at a 28.1% annual rate through
2002, based upon system projections, and 11% through 2007, which conforms to
industry performance projections.
Commercial advertising revenue is projected to increase at a 19.0% annual
rate through 2002, consistent with management expectations. This growth rate
decreases after 2002, to a level of 10.0%, reflecting industry expectations.
Annual installation revenue was projected to remain constant during the
projection period. Equipment rental revenues, as well as other revenues, are
projected to increase by 9.0% annually through 2007, according to industry
estimates.
As indicated in Table 3, total system revenues are projected to increase
from $32.5 million in 1998 to $57.6 million in 2007.
Operating Profit Margins
Operating profit margins are based upon historical operating performance of
the Palmdale System. Operating profits are defined as profit before interest,
depreciation, tax, and corporate allocation charges. During the past three
years, system operating profit
-24-
<PAGE>
margins have been within the 44.9% to 46.0% range. For the purposes of this
analysis, the system's 1997 operating profit margin of 45.4% has been used in
projecting future operating profits.
Depreciation
Depreciation expense for each year has been determined using the MACRS
schedule for Five, Seven, 15, and 39 Year Property, based upon the reported cost
of fixed assets present at the system.
Federal, State, and Local Tax Rates
An estimated tax rate of 41.0% was applied to the projected taxable income
of the system. This estimated rate reflects the effective combined federal,
state, and local tax rates in effect on December 31, 1997.
Subsequent Capital Expenditures
Subsequent annual capital expenditures were estimated to approximate 5.0%
of the cost of the fixed assets at the Palmdale System as of December 31, 1997.
Supplemental provisions were made to incorporate management projections of
capital expenditures associated with conversion to digital television. These
expenditures are necessary in order to replace assets that become irreparable,
technically obsolete, or for other reasons are no
-25-
<PAGE>
longer useful to the system. In addition, as the system matures, additional
equipment and facilities will be necessary to improve and expand its productive
capacity.
Net After-Tax Cash Flow
Net after-tax cash flow was determined in two steps. After taxes were
subtracted from the system's taxable income, non-cash depreciation expenses were
added back to net income to yield after-tax cash flow. From the after-tax cash
flow, the provision for subsequent capital expenditures was deducted to
calculate net after-tax cash flows.
Discount Rate
A discount rate of 12.0% was used to calculate the present value of the net
after-tax cash flows. In order to account for the risk associated with
investments in the cable television industry and the system in particular, a
premium was added to a base discount rate to develop the 12.0% rate employed in
this analysis. The base rate reflects application of the Weighted Average Cost
of Capital ("WACC") model.
Residual Cash Flow Multiple
The residual cash flow multiple refers to the factor used to estimate the
system's value at the end of the projection period. A multiplier of 10.0 was
applied to the Year 10 operating cash flow. Generally, multiples used in the
valuation of cable television systems of this type range from 8.0 to 12.0 times
operating cash flow, depending upon market
-26-
<PAGE>
conditions and profit potential. Exceptional circumstances will warrant
multiples outside of this range.
The selected multiple of 10.0 was used to estimate the value of the system
at the end of the investment period. This multiple reflects the state of the
market for cable television systems as of December 31, 1997, tempered by the
economic conditions of the system's franchise service area, and the uncertainty
introduced by re-regulation of the cable television industry and the prospects
for increased competition from wireless cable and DBS operators.
Present Value of Residual
In the analysis, capital gains taxes were deducted from the discounted
terminal value at a rate of 41.0%. This result was then discounted for present
value using a rate of 12%.
The results of the discounted cash flow analysis are summarized in Tables 4
and 5. Based upon the assumptions outlined above, the indicated fair market
value of the system's non-current assets is $131,952,600. This value
incorporates the cumulative present value of the net after-tax cash flows of
$75,776,400 and the discounted residual value of $56,176,200.
-27-
<PAGE>
Table 4
-------
Jones Intercable Cable Television System Discounted Cash Flow Analysis
(Dollar Amounts Shown in Thousands)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Projected System Revenues/1/ $32,504.6 $34,842.4 $37,457.8 $40,402.1 $43,738.0 $46,271.2
Operating Profit Margin/2/ 45.4% 45.4% 45.4% 45.4% 45.4% 45.4%
Operating Cash Flow $14,757.1 $15,818.4 $17,005.8 $18,342.6 $19,857.1 $21,007.1
Less: Depreciation 13,476.1 20,023.2 16,627.7 14,542.8 13,746.7 13,877.4
Taxable Income $ 1,281.0 $(4,204.8) $ 378.1 $ 3,799.8 $ 6,110.4 $ 7,129.7
Taxes 525.2 0.0 0.0 0.0 2,494.2 2,923.2
Net Income $ 755.8 $(4,204.8) $ 378.1 $ 3,799.8 $ 3,616.2 $ 4,206.5
Add Back: Depreciation 13,476.1 20,023.2 16,627.7 14,542.8 13,746.7 13,877.4
Net After-Tax Cash Flow $14,231.9 $15,818.4 $17,005.8 $18,342.6 $17,362.9 $18,083.9
Capital Expenditures 3,055.6 4,155.6 4,155.6 5,655.6 5,655.6 5,655.6
Net After-Tax Cash Flow $11,176.3 $11,662.8 $12,850.2 $12,687.0 $11,707.3 $12,428.3
Present Value Net After-Tax Cash Flow $10,560.6 $ 9,839.6 $ 9,679.8 $ 8,532.9 $ 7,030.3 $ 6,663.7
Cum. Present Value Net After-Tax Cash Flow $10,560.6 $20,400.2 $30,080.0 $38,612.9 $45,643.2 $52,306.9
Cum. Present Value Net After-Tax Cash Flow $75,776.4
=========
</TABLE>
<TABLE>
<CAPTION>
2004 2005 2006 2007
---- ---- ---- ----
<S> <C> <C> <C> <C>
Projected System Revenues/1/ $48,823.8 $51,555.3 $54,480.6 $57,633.6
Operating Profit Margin/2/ 45.4% 45.4% 45.4% 45.4%
Operating Cash Flow $22,166.0 $23,406.1 $24,734.2 $26,165.7
Less: Depreciation 13,942.7 12,335.9 10,219.2 9,718.4
Taxable Income $ 8,223.3 $11,070.2 $14,515.0 $16,447.3
Taxes 3,371.6 4,538.8 5,951.2 6,743.4
Net Income $ 4,851.7 $ 6,531.4 $ 8,563.8 $ 9,703.9
Add Back: Depreciation 13,942.7 12,335.9 10,219.2 9,718.4
Net After-Tax Cash Flow $18,794.4 $18,867.3 $18,783.0 $19,422.3
Capital Expenditures 5,655.6 5,655.6 3,355.6 2,855.6
Net After-Tax Cash Flow $13,138.8 $13,211.7 $15,427.4 $16,566.7
Present Value Net After-Tax Cash Flow $ 6,289.8 $ 5,647.1 $ 5,887.6 $ 5,645.0
Cum. Present Value Net After-Tax Cash Flow $58,596.7 $64,243.8 $70,131.4 $75,776.4
Cum. Present Value Net After-Tax Cash Flow
</TABLE>
----------------------
/1/ See Table 3.
/2/ Based upon actual 1997 system operating cash flow margin. See text.
-28-
<PAGE>
Table 5
-------
Valuation of Jones Intercable Cable Television System (Income Approach)
(Dollar Amounts Shown in Thousands)
<TABLE>
<CAPTION>
<S> <C>
Year 10 Operating Cash Flow/1/ $ 26,165.7
10 X Cash Flow Multiple/2/ 261,657.0
Capital Gains Tax $ 87,182.4
----------
Future Residual Value $174,474.6
Discounted to Present Value @ 12% $ 56,176.2
Plus: Cumulative Present Value
Net After-Tax Cash Flow/1/ $ 75,776.4
----------
Valuation of Palmdale System (Income Approach) $131,952.6
==========
</TABLE>
- ----------------
/1/ See Table 4.
/2/ See text.
-29-
<PAGE>
COMPARABLE SALES ANALYSIS
The value of $131.9 million yielded by the discounted cash flow analysis of
the Palmdale System corresponds to a price per subscriber of $2,077. This
multiple is consistent with the range of prices paid by purchasers of similar
cable properties and the expectation of increased revenues in the Palmdale area
and the prospects for continued market growth.
In recent years, there have been many sales of cable television systems in
the United States. Table 6 identifies five cable television system sales which
occurred within the past year. These sales have been selected based upon their
comparability to the Palmdale System.
As shown in Table 6, the price per subscriber has been computed for each of
these sales. This measure is calculated by dividing the reported purchase price
of the cable television system by the total number of basic subscribers. The
average price per subscriber paid for the five comparable cable television
system sales transactions listed in Table 6 is approximately $2,087.
-30-
<PAGE>
Table 6
-------
Cable Television System Comparable Sales
<TABLE>
<CAPTION>
Price Price
Date Location Seller Buyer (mil.) Per Sub
- ---- -------- ------ ----- ------ -------
<S> <C> <C> <C> <C> <C>
Jan. 97 Palo Alto, CA Palo Alto Co-Op Sun Country Cable $ 54.1 $2,042
Feb. 97 Independence, MO Jones Investments Jones Intercable 171.2 2,004
Aug. 97 Phoenix, AZ Insight Communications Cox Communications 77.0 2,131
Dec. 97 Evansville, IN TCI Insight Communications 131.0 2,098
Dec. 97 Brigham, UT Insight Communications TCI 125.0 2,160
------ ------
Average $111.6 $2,087
====== ======
</TABLE>
Source: Paul Kagan Associates Cable TV Investor.
Note: Price per subscriber calculations are rounded.
-31-
<PAGE>
JONES INTERCABLE CABLE TELEVISION SYSTEM
PALMDALE, CALIFORNIA
APPRAISAL OF NON-CURRENT ASSETS AS OF DECEMBER 31, 1997
CONCLUSION
----------
Based upon the application of the income approach, employing a discounted
cash flow analysis, the fair market value of the non-current assets of Jones
Intercable cable television system was determined to be $131,952,600.
Assumptions employed in this analysis include market net revenue growth,
system market revenue shares, and operating profit margins. These assumptions
and the results of the discounted cash flow analysis were confirmed through and
independent comparable sales transactions.
-32-
<PAGE>
EXHIBIT A
QUALIFICATIONS OF JAMES R. BOND, JR., JULIE A. KROSKIN, AND
LAURA R. STARK
<PAGE>
PROFESSIONAL EXPERIENCE AND QUALIFICATIONS
------------------------------------------
JAMES R. BOND, JR.
------------------
James R. Bond, Jr. is a principal in the consulting firm of Bond & Pecaro, Inc.,
a Washington based consulting firm specializing in valuations, asset appraisals,
and related financial services for the communications industry. In this
capacity, he is routinely retained to examine and study economic issues which
affect media businesses.
Before the formation of Bond & Pecaro, Inc., Mr. Bond was a Vice President with
Frazier, Gross & Kadlec, Inc. Mr. Bond joined that firm in 1978, was appointed
Manager of Asset Appraisal Services in 1979, and in 1982 was named Vice
President. In this capacity he engaged in the development and preparation of
asset appraisal reports for owners of broadcast and cable television properties.
Mr. Bond has been retained to appraise, for a fee, the assets of over 1,500
radio, television, radio common carrier, and cable television properties. He is
a member of the Society of Broadcast Engineers (SBE), the Cable Television Tax
Professionals Institute (CTTPI), and the Society of Cable Television Engineers
(SCTE). He is a member and director of the Broadcast and Cable Television
Financial Management Association (BCFM), and serves on the National Association
of Broadcasters (NAB) Tax Advisory Panel and Depreciation Task Force. Mr. Bond
is a Certified Senior Radio Broadcast Engineer (SBE), a Certified Senior
Television Broadcast Engineer (SBE), and holds an FCC First Class Radiotelephone
Operator License.
He has testified as an expert witness in connection with numerous
telecommunications valuation matters before federal, state, and local courts.
Mr. Bond received a Bachelor of Arts degree in Radio, Television, and Motion
Pictures for the University of North Carolina at Chapel Hill in 1976. Mr. Bond
also holds a Masters Degree in Business Administration for the University of
Virginia in Charlottesville, Virginia.
<PAGE>
PROFESSIONAL EXPERIENCE AND QUALIFICATIONS
------------------------------------------
JULIE A. KROSKIN
----------------
Julie A. Kroskin is an associate in the firm of Bond & Pecaro, Inc., a
Washington based consulting firm specializing in valuations, asset appraisals,
and related financial services for the communications industry.
Ms. Kroskin received a Bachelor of Arts degree in Radio, Television and Film
from the University of Maryland at College Park.
Prior to her association with Bond & Pecaro, Inc., Ms. Kroskin worked as a
customer and technical support representative at American Cablecom in
Beltsville, Maryland.
<PAGE>
PROFESSIONAL EXPERIENCE AND QUALIFICATIONS
------------------------------------------
LAURA R. STARK
--------------
Laura R. Stark is an associate with the consulting firm of Bond & Pecaro, Inc.,
a Washington based consulting firm specializing in valuations, asset appraisals,
and related financial services for the communications industry.
Ms. Stark received a Bachelor of Arts degree in Telecommunication Arts from the
University of Georgia.
Prior to her association with Bond & Pecaro, Inc., Ms. Stark worked as a video
production assistant at Oppix & Hider, Inc. in Arlington, Virginia and was
program director and operations manager for Radio Station WUOG at the University
of Georgia in Athens.
<PAGE>
EXHIBIT 99(d)(1)
[LOGO OF JONES INTERCABLE, INC. APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY STATEMENT
VOTE OF THE LIMITED PARTNERS OF CABLE TV FUND 12-D, LTD.
This Proxy Statement is being furnished in connection with the solicitation
of the written consents of the limited partners of Cable TV Fund 12-D, Ltd.
(the "Partnership") by Jones Intercable, Inc., the general partner of the
Partnership (the "General Partner"), on behalf of the Partnership, for the
purpose of obtaining limited partner approval of the sale of the Palmdale,
California cable television system (the "Palmdale System") owned by the Cable
TV Fund 12-BCD Venture (the "Venture"), a joint venture in which the
Partnership has a 76 percent ownership interest, for $138,205,200 in cash,
subject to customary working capital closing adjustments that may have the
effect of increasing or decreasing the sales price by a non-material amount.
The Palmdale System is proposed to be sold to Jones Communications of
California, Inc., an indirect wholly owned subsidiary of the General Partner.
Proxies in the form enclosed, properly executed and duly returned, will be
voted in accordance with the instructions thereon. Limited partners are urged
to sign and return the enclosed proxy as promptly as possible. Proxies cannot
be revoked except by delivery of a proxy dated as of a later date. Officers
and other employees of the General Partner may solicit proxies by mail, by
fax, by telephone or by personal interview. The deadline for the receipt of
proxy votes is September 15, 1998, unless extended, but the vote of the
Partnership's limited partners will be deemed to be concluded on the date, at
least 20 business days from the date the proxy materials are sent to limited
partners, that the General Partner, on behalf of the Partnership, is in
receipt of proxies executed by the holders of a majority of the limited
partnership interests either consenting to or disapproving of the proposed
transaction. The General Partner may extend the deadline for receipt of proxy
votes if a majority of the limited partners fail to express an opinion on the
transaction by September 15, 1998. If the General Partner extends the deadline
for receipt of proxy votes, the limited partners will be informed by mail of
the reason for the extension and the new deadline. The cost of the proxy
solicitation will be paid by the General Partner.
The Partnership has only one class of limited partners and no limited
partner has a right of priority over any other limited partner. The
participation of the limited partners is divided into limited partnership
interests and each limited partner owns one limited partnership interest for
each $500 of capital contributed to the Partnership.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE>
Only limited partners of record at the close of business on July 31, 1998
are entitled to notice of, and to participate in, this vote of limited
partners. It is very important that all limited partners participate in the
voting. The Cable TV Fund 12-BCD Venture's ability to complete the transaction
discussed in the Proxy Statement and the Partnership's ability to make a
distribution to its partners of its portion of the net proceeds of the sale of
the Palmdale System pursuant to the terms of the Partnership's limited
partnership agreement (the "Partnership Agreement") are dependent upon the
approval of the transaction by the holders of a majority of the Partnership's
limited partnership interests.
The proposal that is the subject of this proxy solicitation will be adopted
only if approved by the holders of a majority of the limited partnership
interests. Each limited partnership interest entitles the holder thereof to
one vote on the proposal. Because the Partnership Agreement requires that the
proposal to sell the Palmdale System be approved by the holders of a majority
of the limited partnership interests, abstentions and non-votes will be
treated as votes against the proposal. A properly executed consent returned to
the general partner on which a limited partner does not mark a vote will be
counted as a vote for the proposed sale of the Palmdale System. Because
limited partners do not have dissenters' or appraisal rights in connection
with the proposed sale of the Palmdale System, if the holders of a majority of
the limited partnership interests approve the proposal, all limited partners
will receive a distribution of the net sale proceeds in accordance with the
procedures prescribed by the Partnership Agreement regardless of how or
whether they vote on the proposal.
Jones Intercable, Inc., as the general partner of the Partnership, urges you
to sign and return the enclosed proxy card as promptly as possible. The proxy
card should be returned in the enclosed envelope.
JONES INTERCABLE, INC.
General Partner
LOGO
[SIGNATURE OF ELIZABETH M. STEELE]
Elizabeth M. Steele
Secretary
Dated: August 7, 1998
<PAGE>
LOGO
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY STATEMENT
VOTE OF THE LIMITED PARTNERS OF CABLE TV FUND 12-D, LTD.
This Proxy Statement is being furnished in connection with the solicitation
of the written consents of the limited partners of Cable TV Fund 12-D, Ltd.
(the "Partnership") by Jones Intercable, Inc., the general partner of the
Partnership (the "General Partner"), on behalf of the Partnership, for the
purpose of obtaining limited partner approval of the sale of the Palmdale,
California cable television system (the "Palmdale System") owned by the Cable
TV Fund 12-BCD Venture (the "Venture"), a joint venture in which the
Partnership has a 76 percent ownership interest, for $138,205,200 in cash,
subject to customary working capital closing adjustments that may have the
effect of increasing or decreasing the sales price by a non-material amount.
The Palmdale System is proposed to be sold to Jones Communications of
California, Inc., an indirect wholly owned subsidiary of the General Partner.
Proxies in the form enclosed, properly executed and duly returned, will be
voted in accordance with the instructions thereon. Limited partners are urged
to sign and return the enclosed proxy as promptly as possible. Proxies cannot
be revoked except by delivery of a proxy dated as of a later date. Officers
and other employees of the General Partner may solicit proxies by mail, by
fax, by telephone or by personal interview. The deadline for the receipt of
proxy votes is September 15, 1998, unless extended, but the vote of the
Partnership's limited partners will be deemed to be concluded on the date, at
least 20 business days from the date the proxy materials are sent to limited
partners, that the General Partner, on behalf of the Partnership, is in
receipt of proxies executed by the holders of a majority of the limited
partnership interests either consenting to or disapproving of the proposed
transaction. The General Partner may extend the deadline for receipt of proxy
votes if a majority of the limited partners fail to express an opinion on the
transaction by September 15, 1998. If the General Partner extends the deadline
for receipt of proxy votes, the limited partners will be informed by mail of
the reason for the extension and the new deadline. The cost of the proxy
solicitation will be paid by the General Partner.
The Partnership has only one class of limited partners and no limited
partner has a right of priority over any other limited partner. The
participation of the limited partners is divided into limited partnership
interests and each limited partner owns one limited partnership interest for
each $500 of capital contributed to the Partnership.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE>
As of May 31, 1998, the Partnership had 237,339 limited partnership
interests outstanding held by 16,278 persons. There is no established trading
market for such interests. To the best of the General Partner's knowledge, no
person or group of persons beneficially own more than five percent of the
limited partnership interests. During the past several years, Smithtown Bay,
LLC and Madison Partnership Liquidity Investors XIII, LLC, two firms
unaffiliated with the Partnership, the General Partner and each other, have
conducted tender offers for interests in the Partnership. As of May 31, 1998,
Smithtown Bay, LLC and its affiliates owned 11,047 limited partnership
interests, or 4.7 percent of the limited partnership interests. As of such
date, Madison Partnership Liquidity Investors XIII, LLC and its affiliates
owned 10,499 limited partnership interests, or 4.4 percent of the limited
partnership interests. Pursuant to the terms of agreements between the
Partnership and the General Partner and such firms, all of the limited
partnership interests held by these firms will be voted in the same manner as
the majority of all other limited partners who vote on the sale of the
Palmdale System. Thus, for example, if the limited partnership interests voted
in favor of the transaction constitute a majority of all limited partnership
interests voted but not a majority of all limited partnership interests, these
firms will be required to vote their limited partnership interests in favor of
the transaction, and in such event the votes of these firms could be
sufficient to cause the transaction to be approved by a majority of all
limited partnership interests, which is the vote necessary to cause the
transaction to be approved. The General Partner owns 200 limited partnership
interests. Officers and directors of the General Partner own no limited
partnership interests. The 200 limited partnership interests owned by the
General Partner will be voted in favor of the proposed transaction. Only
limited partners of record at the close of business on July 31, 1998 will be
entitled to notice of, and to participate in, the vote.
As of the date of this Proxy Statement, the Partnership's only asset is its
76 percent ownership interest in the Venture. Cable TV Fund 12-B, Ltd. ("Fund
12-B") has a 9 percent ownership interest in the Venture and Cable TV Fund 12-
C, Ltd. ("Fund 12-C") has a 15 percent ownership interest in the Venture. As
of the date of this Proxy Statement, the Venture owns only the Palmdale
System. The Venture sold its cable television system serving Houghton and
Hancock, Michigan (the "Houghton/Hancock System") in 1987, the Venture sold
its cable television system serving California City, California (the
"California City System") in 1992, the Venture sold its cable television
system serving Tampa, Florida (the "Tampa System") in 1996 and the Venture
sold its cable television system serving Albuquerque, New Mexico (the
"Albuquerque System") in June 1998.
Upon the consummation of the proposed sale of the Palmdale System, the
Venture will repay all of its remaining indebtedness, which, with accrued
interest, is estimated to total approximately $48,484,000, and then the
Venture will distribute approximately $91,642,700 to the Partnership, Fund 12-
B and Fund 12-C in proportion to their ownership interests in the Venture. The
Partnership will receive 76 percent of the net sale proceeds, estimated to
total approximately $69,229,300, and the Partnership will distribute this
portion of the net sale proceeds to its partners of record as of the closing
date of the sale of the Palmdale System. Because limited partners have already
received distributions in an amount in excess of the capital initially
contributed to the Partnership by the limited partners, the Partnership's
portion of the net proceeds from the Palmdale System's sale will be
distributed 75 percent to the limited partners and 25 percent to the General
Partner. Based upon the Venture's financial information as of March 31, 1998,
as a result of the Palmdale System's sale, the limited partners of the
Partnership, as a group, will receive approximately $51,921,975 and the
General Partner will receive approximately $17,307,325. Limited partners will
receive $219 for each $500 limited partnership interest, or $438 for each
$1,000 invested in the Partnership, from the Partnership's portion of the net
proceeds of the Palmdale System's sale. Distributions will be net of
California non-resident withholding, if applicable, and distribution checks
will be issued to the limited partners' account registration or pursuant to
any special payment instruction of record. Once the Partnership has completed
the distribution of its portion of the net proceeds from the sale of the
Palmdale System, limited partners of the Partnership will have received a
total of $774 for each $500 limited partnership interest, or $1,548 for each
$1,000 invested in the Partnership, taking into account the prior
distributions to limited partners made in 1996 and July 1998 from the net
proceeds of the sales of the Tampa System and the Albuquerque System.
After the sale of the Palmdale System by the Venture, the Partnership will
cease to be a public entity subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). See "Certain Information About the Partnership and the General
Partner."
2
<PAGE>
Limited partners should note that there are certain income tax consequences
of the proposed sale of the Palmdale System, which are outlined herein under
the caption "Federal and State Income Tax Consequences."
The Board of Directors of the General Partner has approved the proposed sale
of the Palmdale System and the General Partner recommends approval of the
transaction by the holders of the Partnership's limited partnership interests.
In determining the fairness of the proposed transaction, the General Partner
followed the procedures mandated by Section 2.3(b)(iv)(b) of the Partnership's
limited partnership agreement (the "Partnership Agreement"), which provides
that the Partnership's cable television systems may be sold to the General
Partner or to one of its affiliates if the price paid by the General Partner
or such affiliate is determined by the average of three separate, independent
appraisals of the fair market value of the system to be sold. Because the
purchase price to be paid to the Venture is equal to the average of three
separate, independent appraisals of the fair market value of the Palmdale
System, the Board of Directors of the General Partner has concluded that the
consideration to be paid to the Venture for the Palmdale System is fair to all
unaffiliated limited partners of the Partnership.
The proposal that is the subject of this proxy solicitation will be adopted
only if approved by the holders of a majority of the limited partnership
interests. Each limited partnership interest entitles the holder thereof to
one vote on the proposal. Because the Partnership Agreement requires that the
proposal to sell the Palmdale System be approved by the holders of a majority
of the limited partnership interests, abstentions and non-votes will be
treated as votes against the proposal. A properly executed consent returned to
the General Partner on which a limited partner does not mark a vote will be
counted as a vote for the proposed sale of the Palmdale System. Because
limited partners do not have dissenters' or appraisal rights in connection
with the proposed sale of the Palmdale System, if the holders of a majority of
the limited partnership interests approve the proposal, all limited partners
will receive a distribution of the Partnership's portion of the net sale
proceeds in accordance with the procedures prescribed by the Partnership
Agreement regardless of how or whether they vote on the proposal.
The General Partner has also prepared proxy statements that are being
delivered to the limited partners of Fund 12-B and Fund 12-C in connection
with their votes to approve the sale of the Palmdale System by the Venture.
The closing of the sale of the Palmdale System will occur only if the
transaction is approved by the holders of a majority of the limited
partnership interests of each of the three constituent partnerships of the
Venture. Copies of the proxy statements being delivered to the limited
partners of the Venture's two other constituent partnerships have been filed
with the Securities and Exchange Commission (the "Commission") and can be
obtained either from the Commission or from the General Partner upon written
request to Elizabeth M. Steele, Secretary, Jones Intercable, Inc., 9697 East
Mineral Avenue, Englewood, Colorado 80112, (303) 792-3111. See also "Certain
Information About the Partnership and the General Partner."
The approximate date on which this Proxy Statement and Form of Proxy are
being sent to limited partners is August 7, 1998.
SPECIAL FACTORS
THE PARTNERSHIP'S INVESTMENT OBJECTIVES
The Partnership was formed to acquire, develop, operate and, ultimately,
sell cable television systems. The primary objectives of the Partnership have
been to obtain capital appreciation in the value of the Partnership's cable
television properties; to generate tax losses that could be used to offset
taxable income of limited partners from other sources; and to obtain equity
build-up through debt reduction. It was contemplated from the outset of the
Partnership's existence that capital appreciation in Partnership cable
television properties would be converted to cash by a sale of such properties
at such time as the General Partner determined that the Partnership's
investment objectives had substantially been achieved and after a holding
period of approximately five to seven years. It also was contemplated from the
outset of the Partnership's existence that the General Partner or one of its
affiliates could be the purchaser of the Partnership's cable television
properties.
3
<PAGE>
The Venture was formed to pool the financial resources of three public
partnerships sponsored by the General Partner with identical investment
objectives and to enable them to acquire a greater number of and/or larger
cable television systems than any one of the partnerships could acquire on
their own. The Venture acquired the Palmdale System in April 1986. Based upon
the track record of prior public partnerships sponsored by the General Partner
that had liquidated or were in the process of liquidating their assets during
the period that limited partnership interests in the Partnership were being
sold and based upon disclosures made to prospective investors about the
Partnership's investment objectives in the Cable TV Fund 12 prospectus and
accompanying sales brochure, investors in the Partnership reasonably could
have anticipated that the Partnership's investment objectives would be
achieved and its assets liquidated after a holding period of approximately
five to seven years. Due to the uncertain and then adverse regulatory
environment that developed in the early 1990s for the cable television
industry, the resultant decline in the prices for cable television systems and
the subsequent inactivity in the cable television system marketplace, the
General Partner determined that it would be prudent to delay the sale of the
Palmdale System until market conditions improved, and as a result the Palmdale
System has been held by the Venture for over 12 years.
The purpose of the sale of the Palmdale System, from the Partnership's
perspective, is to attain the Partnership's primary investment objective with
respect to the Palmdale System, i.e., to convert the Partnership's capital
appreciation in the Palmdale System to cash. The sale proceeds will be used to
repay all of the Venture's debt, and the remaining sale proceeds will be
distributed to the three constituent partnerships of the Venture. The
Partnership in turn will distribute its portion of the net sale proceeds to
the partners of the Partnership in accordance with the distribution procedures
established by the Partnership Agreement. The sale of the Palmdale System is
thus the necessary final step in the Partnership's accomplishment of its
investment objectives with respect to the Palmdale System.
PRIOR ACQUISITIONS AND SALES
The Partnership was formed in January 1986 as a Colorado limited partnership
in connection with a public offering of its limited partnership interests. In
March 1986, the Partnership invested all of its limited partner capital
contributions in the Venture, through which it acquired a 76 percent ownership
interest in the Venture. The Venture ultimately acquired five cable television
systems: the Houghton/Hancock System was acquired in May 1986, the California
City System was acquired in April 1986, the Albuquerque System was acquired in
August 1986, the Palmdale System was acquired in April 1986 and the Tampa
System was acquired in December 1986.
The Houghton/Hancock System was sold in August 1987 to an unaffiliated cable
television system operator for a sales price of $5,000,000 and the California
City System was sold in April 1992 to an unaffiliated cable television system
operator for a sales price of $2,608,000. The sale proceeds from the Venture's
sales of the Houghton/Hancock System and the California City System were used
to reduce the Venture's indebtedness. None of the sale proceeds were
distributed to the Venture's three constituent partnerships and thus none of
the sale proceeds were distributed to the Partnership or its partners. No vote
of the limited partners of the Partnership was required in connection with the
sale of either of these systems because neither of these systems constituted
all or substantially all of the Partnership's assets.
The Venture sold the Tampa System in February 1996 to a subsidiary of the
General Partner for a sales price of $110,395,667, which price was determined
by the average of three separate, independent appraisals of the fair market
value of the Tampa System. Because the Venture's debt arrangements did not
allow the Venture to make distributions on the sale of Venture assets, in
February 1996 the Venture's debt arrangements were amended to permit a
$55,000,000 distribution to the Venture's three constituent partnerships from
the Tampa System's sale proceeds, and the balance of the Tampa System's sale
proceeds was used to reduce Venture indebtedness. The Partnership's portion of
this distribution was $41,547,000, all of which was distributed to the limited
partners. No vote of the limited partners of the Partnership was required in
connection with the sale of the Tampa System because the assets of the Tampa
System did not constitute all or substantially all of the Partnership's
assets. Immediately following its acquisition of the Tampa System, the
subsidiary of the General
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Partner that had acquired the Tampa System conveyed the Tampa System, along
with certain other cable television systems owned by the subsidiary of the
General Partner, and cash in the amount of $3,500,000, to Time Warner
Entertainment Advance/Newhouse Partnership ("Time Warner"), an unaffiliated
cable television system operator, in exchange for cable television systems
owned by Time Warner serving communities in Prince Georges County, Maryland
and Reston, Virginia. The Venture's sale of the Tampa System and the
subsequent exchange of the Tampa System for Time Warner systems are the
subject of litigation filed by several limited partners of the Partnership.
See "Special Factors, Legal Proceedings."
The Venture sold the Albuquerque System in June 1998 to a subsidiary of the
General Partner for a sales price of $222,963,267, which price was determined
by the average of three separate, independent appraisals of the fair market
value of the Albuquerque System. Upon the closing of the sale of the
Albuquerque System, the Venture settled working capital adjustments that
increased proceeds by $3,168,601, repaid its then outstanding Senior Notes
balance of $41,544,890 plus $128,195 in accrued interest and a $1,342,455 make
whole premium, paid $799,950 in capital lease obligations, and repaid
$57,316,378 of the outstanding balance and accrued interest on its credit
facility. The Venture then distributed $125,000,000 of the net sale proceeds
to the three constituent partnerships of the Venture in proportion to their
ownership interests in the Venture. The Partnership's portion of this
distribution was $94,428,308, of which $90,101,856 was distributed to the
limited partners and $4,326,452 was distributed to the General Partner. The
transaction was approved by the holders of a majority of the Partnership's
limited partnership interests in a vote of the limited partners conducted
through the mails in May 1998.
Limited partners of the Partnership have received distributions from the
Tampa System sale and the Albuquerque System sale totaling $131,648,856. All
distributions to date have given the Partnership's limited partners an
approximate return of $555 for each $500 limited partnership interest, or
$1,110 for each $1,000 invested in the Partnership. The Partnership intends to
make a distribution of the Partnership's portion of the net proceeds of the
sale of the Venture's Palmdale System to its partners. Following this
distribution, the Partnership will be liquidated and dissolved.
THE GENERAL PARTNER'S OBJECTIVES
The purpose of the Palmdale System's sale from the General Partner's
perspective is to enable the Venture to sell the Palmdale System at a fair
price and to enable the General Partner (through an indirect wholly owned
subsidiary) to acquire a cable television system operating in a marketplace in
which the General Partner itself desires to own and operate a cable television
system. The General Partner currently is one of the ten largest cable
television system operators in the United States, with owned and managed
systems totaling in excess of 1 million basic subscribers. A key element of
the General Partner's strategy is to increase the number of owned subscribers
clustered in attractive demographic areas. The General Partner is making
progress in clustering its owned subscribers in two primary groups of cable
systems. The General Partner's Maryland/Virginia cluster is based primarily on
geography. The General Partner's suburban cluster is based on similar market
and operating characteristics, rather than geography. The General Partner
believes that its clustering strategy may allow it to obtain both economies of
scale and operating efficiencies, for example in areas such as marketing,
administration and capital expenditures. The General Partner desires to add
the Palmdale System to its suburban cluster, which currently includes the
cable systems serving the communities of Savannah and Augusta, Georgia, Pima
County, Arizona, Albuquerque, New Mexico and Independence, Missouri.
In contrast to the Partnership, which is a limited partnership with a finite
term and which sought cable television properties with high growth potential
during a holding period of approximately five to seven years, the General
Partner, a corporation with perpetual existence, is seeking to acquire cable
television systems that can generate a steady stream of income and may
appreciate in value over a longer holding period. The Palmdale System
satisfies this objective of the General Partner. The General Partner also may
be in a better position than the Partnership and the Venture to access both
debt and equity to finance the long-term development of the Palmdale System.
The General Partner may be able to leverage the Palmdale System at a higher
level than the Venture has done and, accordingly, the General Partner may be
able to generate a greater return on its investment in the Palmdale System
than the Partnership and the Venture would be able to do within the same time.
Because
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the General Partner's investment horizon is much longer term than the
Partnership's investment horizon, and the General Partner will not need to
sell the Palmdale System to achieve its investment objectives, it can better
withstand the costs associated with meeting the competition and the regulatory
risks inherent in long-term holding and development of the Palmdale System.
RELEVANT PROVISIONS OF THE PARTNERSHIP AGREEMENT
Section 2.2(k) of the Partnership Agreement provides that the sale of all or
substantially all of the Partnership's assets is subject to the approval of
the holders of a majority of the Partnership's limited partnership interests.
Because its investment in the Venture is the Partnership's sole remaining
asset and because the Palmdale System represents 100 percent of the Venture's
assets and 100 percent of the Venture's revenues, the sale of the Palmdale
System is being submitted for limited partner approval to the limited partners
of the Partnership, Fund 12-B and Fund 12-C.
Section 2.3(b)(iv)(b) of the Partnership Agreement permits the Partnership
to sell any or all of its cable television systems directly to the General
Partner or one or more of its affiliates if the system to be sold has been
held by the Partnership for at least three years, or if it is part of, or
related to, another system that has been held for three years, and provided
that the price paid to the Partnership by the General Partner or any such
affiliate is determined by the average of three separate, independent
appraisals of the particular cable television system or systems being sold,
and that the cost of such appraisals is not borne by the Partnership. Because
the Palmdale System has been held by the Venture for at least three years and
the purchase price to be paid to the Venture is equal to the average of three
separate, independent appraisals of the fair market value of the Palmdale
System obtained at the General Partner's expense, these requirements of the
Partnership Agreement have been satisfied.
LEGAL PROCEEDINGS
The General Partner is a defendant in a now consolidated civil action filed
by limited partners of the Partnership derivatively on behalf of the
Partnership, Fund 12-B and Fund 12-C in the Arapahoe County District Court in
the State of Colorado. The consolidated complaint generally alleges that the
General Partner breached its fiduciary duty to the plaintiffs and to the other
limited partners of the Partnership, Fund 12-B and Fund 12-C and the Venture
in connection with the Venture's sale of the Tampa System to a subsidiary of
the General Partner and the subsequent trade of the Tampa System to Time
Warner. The consolidated complaint also sets forth a claim for breach of
contract and a claim for breach of the implied covenant of good faith and fair
dealing. Among other things, the plaintiffs assert that the subsidiary of the
General Partner that acquired the Tampa System paid an inadequate price for
the Tampa System. The price paid for the Tampa System was determined by the
average of three separate, independent appraisals of the Tampa System's fair
market value as required by the limited partnership agreements of the
Partnership, Fund 12-B and Fund 12-C. The plaintiffs have challenged the
adequacy and independence of the appraisals. The consolidated complaint seeks
damages in an unspecified amount and an award of attorneys' fees, and the
complaint also seeks punitive damages and certain equitable relief.
The General Partner has filed its answer to the consolidated complaint and
has generally denied the substantive allegations in the complaint and has
asserted a number of affirmative defenses. The General Partner intends to
defend this lawsuit vigorously.
On August 29, 1997, the General Partner moved for summary judgment in its
favor on the ground that plaintiffs did not make demand on the General Partner
for the relief they seek before commencing their lawsuits or show that such a
demand would have been futile. On January 8, 1998, the Court (1) held that
plaintiffs did not make demand before commencing their lawsuits or show that
such demand would have been futile, (2) stayed the consolidated case and
vacated the February 17, 1998 trial date, (3) ordered that plaintiffs make a
demand on the General Partner and that the General Partner appoint an
independent counsel to review, consider and report on that demand, (4) ordered
that the independent counsel be appointed at the March 1998 meeting of the
General Partner's Board of Directors, and (5) ordered that the independent
counsel will be subject to the approval of the
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Court. The Court set a new trial date for October 26, 1998 in the event that
the case is not resolved through the independent counsel process or otherwise.
On March 10, 1998, the General Partner's Board of Directors appointed an
independent counsel. The plaintiffs did not object to the General Partner's
choice, and the Court has approved the General Partner's choice of independent
counsel.
Section 2.2 of the Partnership Agreement provides that the General Partner
will not be liable to the Partnership or to the limited partners for any act
or omission performed or omitted by it in good faith pursuant to the authority
granted to the General Partner by the Partnership Agreement. This provision
further provides that the General Partner will be liable to the Partnership
and to the limited partners only for fraud, bad faith or gross negligence in
the performance of the cable television activities of the Partnership or
negligence in the management of the internal affairs of the Partnership.
Section 9.6 of the Partnership Agreement provides that the Partnership "shall
indemnify and save harmless the General Partner and its affiliates and any
agent or officer or director thereof, from any loss or damage incurred by
them, including legal fees and expenses and amounts paid in settlement by
reason of any action performed by the General Partner or any agent, officer or
director thereof on behalf of the Partnership or in furtherance of its
interest; provided, however, that the foregoing shall not relieve the General
Partner of its fiduciary duty to the limited partners or liability for (nor
shall the General Partner be indemnified for) its fraud, bad faith or gross
negligence in the performance of the cable television activities of the
Partnership or negligence in the management of the internal affairs of the
Partnership." In accordance with the foregoing provisions of the Partnership
Agreement, the Partnership, together with Fund 12-B and Fund 12-C, which have
identical partnership agreement provisions with respect to general partner
liability and indemnification, will be obligated to indemnify and save
harmless the General Partner from any loss incurred by it, including its legal
fees and expenses and amounts paid in settlement, in connection with the
litigation concerning the Tampa System sale unless the General Partner is
found to have breached its fiduciary duty to the limited partners in
connection with the Tampa System sale or is found to have committed fraud or
to have acted in bad faith or with gross negligence in connection with the
Tampa System sale. Amounts reimbursed to the General Partner by the three
constituent partnerships of the Venture would be in proportion to their
ownership interests in the Venture and such amounts may be significant, but
the General Partner expects that any such reimbursement will not have a
material adverse effect on the Partnership or the Venture.
In voting on the proposed sale of the Palmdale System, limited partners
should consider that the General Partner determined both the sales price of
the Tampa System and the sales price of the Palmdale System in a substantially
similar way, i.e., both prices were determined by averaging three separate,
independent appraisals of the fair market value of the respective systems
obtained in accordance with the provisions of Section 2.3(b)(iv)(b) of the
three partnerships' limited partnership agreements. Limited partners should be
aware that The Strategis Group, Inc., one of the firms that rendered
appraisals of the Tampa System for purposes of determining the Tampa System's
sale price, is the parent company of Strategis Financial Consulting, Inc.,
which rendered one of the three appraisals of the Palmdale System for purposes
of determining the Palmdale System's sale price. Limited partners should also
consider that Bond & Pecaro, Inc., another firm that rendered an appraisal of
the Palmdale System for purposes of determining the Palmdale System's sale
price, also serves as the General Partner's expert witness in the Tampa
litigation, aiding the General Partner in the defense of this litigation.
REASONS FOR THE TIMING OF THE SALE
The Partnership has a finite legal existence of 17 years, over 12 of which
have passed. It was not intended or expected, however, that the Partnership
would hold its cable systems for 17 years. Although it was not possible at the
outset of the Partnership to determine precisely how quickly the investment
objectives with respect to any particular system would be achieved, investors
were informed that the General Partner's past experience with prior
partnerships had shown that five to seven years was the average length of time
from the acquisition of a cable system to its sale. Investors in the
Partnership also were able to examine the track record of the General
Partner's prior partnerships because such track record was set forth in the
prospectus delivered in connection with the Partnership's initial public
offering. At the time of the formation of the Partnership, the track record
showed that prior partnerships had rarely held their cable systems for any
longer than six years.
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It is the General Partner's publicly announced policy that it intends to
liquidate all of its managed partnerships, including the Partnership, as
opportunities for sales of partnership cable television systems arise in the
marketplace. The General Partner has determined that, as part of this general
liquidation plan, it is in the best interests of the Venture and the three
constituent partnerships of the Venture to sell the Palmdale System. During
the years that the Venture has owned and operated the Palmdale System, senior
management of the General Partner, including Glenn R. Jones, the General
Partner's Chief Executive Officer, James B. O'Brien, the General Partner's
President and Chief Operating Officer, and Kevin P. Coyle, the General
Partner's Vice President/Finance and Chief Financial Officer, has monitored
the performance of the Palmdale System. The General Partner has overseen the
Palmdale System's growth in the number of homes passed, the miles of cable
plant and the number of basic and premium subscribers. The General Partner's
management has regularly reviewed the Palmdale System's budgets, it has
examined the Palmdale System's liquidity and capital needs and it has
carefully monitored the Palmdale System's revenue and cash flow growth to
confirm that the Partnership's primary investment objective, i.e., capital
appreciation in the Palmdale System, was being achieved.
The General Partner concluded in January 1998 that, because the Palmdale
System met the General Partner's objective of acquiring cable systems with
operating characteristics like those of the Palmdale System, the General
Partner would exercise its right under Section 2.3(b)(iv)(b) of the
Partnership Agreement to acquire the Palmdale System. The General Partner
accordingly did not market the system for sale and did not solicit third party
buyers for the Palmdale System but instead contracted with independent
appraisal firms to prepare appraisals of the fair market value of the Palmdale
System so that the General Partner could determine the price it would offer to
pay for the Palmdale System. The three appraisals obtained by the General
Partner valued the Palmdale System at $140,059,000, $131,952,600 and
$142,604,000, respectively. The General Partner's Chief Financial Officer then
took the three appraised values and averaged them pursuant to the requirements
of Section 2.3(b)(iv)(b) of the Partnership Agreement, and thereby determined
that the price the General Partner would offer for the Palmdale System would
be $138,205,200. The General Partner's senior management also agreed that this
was a fair price and accepted it on behalf of the Venture. See "Special
Factors, The Appraisals."
No arm's-length negotiations of the terms of the purchase and sale agreement
were conducted because neither the Partnership nor the Venture have any
employees or management other than the employees and management of the General
Partner. When the appraisal process was completed in March 1998, the General
Partner prepared the standard purchase and sale agreement that it uses for the
acquisition of cable television systems from its managed partnerships. This
agreement was executed by officers of the General Partner both on behalf of
the General Partner as buyer and on behalf of the Venture as seller. A written
memorandum to the General Partner's Board of Directors from the General
Partner's management outlining the terms of the transaction, including the
means by which management had determined the sales price for the Palmdale
System, the results of the three appraisals, the operating and financial
statistics of the Palmdale System and the reasons why the General Partner
should purchase the Palmdale System, was submitted to the Board of Directors
with a recommendation from management that the Board of Directors approve the
transaction, which the Board of Directors did on March 10, 1998. The directors
also were provided with copies of the three appraisal reports that management
had used in determining the sales price and a copy of the draft purchase and
sale agreement. As discussed below, the Board of Directors unanimously
concluded that the transaction was fair to the unaffiliated limited partners
of the Partnership. See "Special Factors, Recommendation of the General
Partner and Fairness of the Proposed Sale of Assets."
When investing in the Partnership, by virtue of the provisions of Section
2.2(k) of the Partnership Agreement, the limited partners vested in the
General Partner the right and responsibility to determine when the
Partnership's investment objectives had been substantially achieved. The
Palmdale System was acquired by the Venture because, in the opinion of the
General Partner at the time of the Palmdale System's acquisition, it had the
potential for capital appreciation within a reasonable period of time. It is
the General Partner's opinion that during the over 12 years that the Palmdale
System has been held by the Venture, the Partnership's investment objectives
with respect to the Palmdale System have been achieved. The General Partner
used no specific benchmarks or measurement tools in determining that the
Partnership's investment objectives have been achieved. The General Partner
conducted a subjective evaluation of a variety of factors including the length
of
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the holding period, the prospect for future growth as compared to the
potential risks, the cash on cash return to investors, the after-tax internal
rate of return to limited partners and the amount of gain to be recognized on
the sale of assets.
The Palmdale System together with the neighboring California City System was
acquired by the Venture in April 1986 for an aggregate purchase price of
approximately $55,000,000. In addition, an affiliate of the General Partner
received a brokerage fee of approximately $2,100,000 from the Venture in
connection with the Palmdale System's acquisition. At acquisition, the
Palmdale System together with the neighboring California City System consisted
of approximately 470 miles of cable plant passing approximately 44,000 homes
and serving approximately 28,000 basic subscribers. The California City System
was sold in April 1992 for a sales price of $2,608,000. At the time of its
sale, the California City System served approximately 1,645 basic subscribers
and the Palmdale System served approximately 51,775 basic subscribers. As of
December 31, 1997, the Palmdale System consisted of approximately 1,096 miles
of cable plant passing approximately 88,000 homes and serving approximately
63,520 basic subscribers. During the holding period, the Venture used
approximately $52,301,000 in capital expenditures to expand the cable plant of
the Palmdale System. The increase in the value of the Palmdale System during
the holding period is demonstrated by the fact that the Palmdale System
together with the neighboring California City System was purchased for
$55,000,000 and the Palmdale System alone is proposed to be sold for
$138,205,200, a difference of $83,205,200.
In evaluating whether now was the time for the Venture to sell the Palmdale
System, the General Partner generally considered the benefits to the limited
partners that might be derived by the Venture's holding the Palmdale System
for an additional period of time. The General Partner assumed that the
Palmdale System might continue to appreciate in value and, if so, the Palmdale
System would be able to be sold for a greater sales price in the future. The
General Partner weighed these assumptions about the Palmdale System's
continuing growth against the risks to investors from a longer holding period,
i.e., the risks that regulatory, technology and/or competitive developments
could cause the Palmdale System to decline in value, which would result in a
lesser sales price in the future. A longer holding period would expose
investors to the risk that competition from direct broadcast satellite
companies, telephone companies and/or neighboring cable companies could
diminish the number of subscribers to the Palmdale System's basic and premium
services, thereby decreasing the value of the Palmdale System. A longer
holding period also would expose investors to the risk that changes in the
regulations promulgated by the governmental agencies that oversee cable
operations could make cable systems a less desirable investment, thereby
decreasing the value of the Palmdale System. The General Partner's decision to
sell the Palmdale System was greatly influenced by the fact that the
originally contemplated holding period had been exceeded.
The General Partner is in a better position than the Partnership to bear the
risks of investment in the Palmdale System. The Partnership is limited in its
ability to obtain additional equity financing, in part because the limited
partnership interests are non-assessable. The Partnership Agreement also
contains limits on the amounts that the Partnership can borrow. And the
Partnership has only one asset, its interest in the Venture, and the Venture's
only asset is the Palmdale System, all of which gives the Partnership limited
collateral for borrowings. The General Partner, on the other hand, is one of
the nation's largest cable television companies with longer term investment
objectives. For example, if significant competition to the Palmdale System
were to develop, the General Partner would be in a better position than the
Partnership and the Venture to finance the marketing campaigns or
technological improvements necessary to meet such competition.
Therefore, in light of all of the above factors, the General Partner has
determined that now is the appropriate time for the Partnership to convert its
capital appreciation in the Palmdale System to cash through the sale of the
Venture's Palmdale System.
CERTAIN EFFECTS OF THE SALE
Upon consummation of the sale of the Palmdale System, the proceeds of the
sale will be used to repay all of the Venture's debts and then the Venture
will distribute the remaining sale proceeds to the three constituent
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partnerships of the Venture in proportion to their ownership interests in the
Venture, and then the Partnership will distribute its portion of the net sale
proceeds (approximately $69,229,300) to its partners of record as of the
closing date pursuant to the terms of the Partnership Agreement. Because the
limited partners have already received distributions in an amount in excess of
the capital initially contributed to the Partnership by the limited partners,
the net proceeds from the Palmdale System's sale will be distributed 75
percent to the limited partners and 25 percent to the General Partner. Based
upon the Venture's financial information as of March 31, 1998, as a result of
the Palmdale System's sale, the limited partners of the Partnership, as a
group, will receive approximately $51,921,975 and the General Partner will
receive approximately $17,307,325. Limited partners will receive $219 for each
$500 limited partnership interest, or $438 for each $1,000 invested in the
Partnership, from the Partnership's portion of the net proceeds of the
Palmdale System's sale. Once the distributions of the net proceeds from the
sale of the Palmdale System have been made, limited partners will have
received a total of $774 for each $500 limited partnership interest, or $1,548
for each $1,000 invested in the Partnership, taking into account the prior
distributions to limited partners made from the net proceeds of the sales of
the Tampa System and the Albuquerque System. Both the limited partners and the
General Partner will be subject to federal and state income tax on the income
resulting from the sale of the Palmdale System. See the detailed information
below under the caption "Federal and State Income Tax Consequences."
Another effect of the sale is that it will result in an indirect wholly
owned subsidiary of the General Partner acquiring the Palmdale System. Thus,
as a result of this transaction, the General Partner will make a substantial
equity investment in the Palmdale System and it will have a greater equity
ownership interest in the Palmdale System than it does now as the general
partner of the three partnerships that comprise the Venture. Instead of the
residual 25 percent interest in the net proceeds from the sale of the Palmdale
System that the General Partner will receive as the general partner of the
three partnerships that comprise the Venture, the General Partner will have a
100 percent interest in any future capital appreciation of the Palmdale
System. The General Partner's acquisition of the Palmdale System will advance
its goal of increasing the number of owned subscribers in attractive
demographic areas and may allow the General Partner to obtain economies of
scale and operating efficiencies by adding the Palmdale System to its suburban
cluster of systems with similar market and operating characteristics. The
General Partner also will bear 100 percent of the risk of system losses and
any diminution in system value. As the general partner of the three
partnerships that comprise the Venture, the General Partner earns management
fees and receives reimbursement of its direct and indirect expenses allocable
to the operation of the Palmdale System. The General Partner's right to
receive such fees and reimbursements related to the Palmdale System will
terminate on the Venture's sale of the Palmdale System.
Neither Colorado law nor the Partnership Agreement afford dissenters' or
appraisal rights to limited partners in connection with the proposed sale of
the Palmdale System. If the proposed transaction is approved by the holders of
a majority of limited partnership interests, all limited partners will receive
a distribution in accordance with the procedures prescribed by the Partnership
Agreement regardless of how or whether they vote on the proposal.
RECOMMENDATION OF THE GENERAL PARTNER AND FAIRNESS OF THE PROPOSED SALE OF
ASSETS
The General Partner believes that the proposed sale of the Palmdale System
and the distribution of the net proceeds therefrom are both procedurally and
substantively fair to all unaffiliated limited partners of the Partnership,
and it recommends that the limited partners approve the transaction. The
General Partner's recommendation that the limited partners approve the sale of
the Palmdale System and its fairness determination should not be deemed to be
free from potential conflicts of interest, however, in light of the fact that
one of its subsidiaries is the proposed purchaser of the Palmdale System.
Because the purchaser of the Palmdale System would benefit from a lower sales
price, the General Partner has an economic interest in conflict with the
economic interest of the limited partners.
In determining the substantive and procedural fairness of the proposed
transaction, the General Partner's Board of Directors on March 10, 1998
considered each of the following factors, all of which had a positive effect
on its fairness determination. The factors are listed in descending order of
importance, i.e., the first factor listed
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was given the most weight in the determination that the proposed transaction
is fair, although, as a practical matter, this is an approximation of the
weight given to each factor because each factor is relevant and the General
Partner's Board of Directors was not able to weigh the relative importance of
each factor precisely:
(i) the limited partnership interests are at present illiquid and the
cash to be distributed to limited partners as a result of the proposed sale
of the Palmdale System will provide limited partners with liquidity and
with the means to realize the appreciation in the value of the Palmdale
System;
(ii) the sales price represents a fair market valuation of the Palmdale
System as determined by the average of three separate appraisals of the
Palmdale System by qualified independent appraisers;
(iii) the Venture has held the Palmdale System for over 12 years, a
holding period beyond that originally anticipated;
(iv) the conditions and prospects of the cable television industry in
which the Venture is engaged, including the developing threat of
competition from DBS services and telephone companies, and the working
capital and other financial needs of the Venture if it were to continue to
own the Palmdale System;
(v) the terms and conditions of the purchase and sale agreement,
including the fact that the sales price will be paid in cash, the fact that
the Venture was not required to make many of the representations and
warranties about the Palmdale System or give indemnities that are
customarily given in transactions of this nature, the fact that the
purchaser's obligation to close is not contingent upon its ability to
obtain financing, and the fact that the Venture will pay no brokerage fees
upon the sale of the Palmdale System, which it likely would have paid if
the Palmdale System were being sold to an unaffiliated party; and
(vi) the sale is being conducted in accordance with the terms of the
Partnership Agreement, including the fact that the proposed transaction
will not occur unless it is approved by the holders of at least a majority
of the limited partnership interests.
An officer of The Jones Group, Ltd., the cable brokerage subsidiary of the
General Partner, worked with each of the independent appraisers hired to
prepare fair market value appraisals of the Palmdale System, providing them
with current and historical profit and loss statements for the Palmdale System
and with current subscriber reports. Certain officers and all of the directors
of the General Partner received the final appraisal reports. The members of
the Board of Directors of the General Partner adopted the analyses and
conclusions of Strategis Financial Consulting, Inc., which valued the Palmdale
System at $140,059,000, because such firm's valuation procedures, assumptions
and methodologies most closely approximate the valuation procedures,
assumptions and methodologies used by the General Partner's management in
evaluating cable television systems. The General Partner's Board of Directors
did not specifically adopt the $140,059,000 value placed on the Albuquerque
System by Strategis Financial Consulting, Inc., but the Board did consider the
fact that the value determined by this appraisal firm was the closest of the
three appraisals to the average of the three appraisals and concluded that
this fact supported its fairness determination.
In making its fairness determination, the General Partner's Board of
Directors did not consider that Strategis' overall fair market value of the
Palmdale System exceeds the sales price by approximately $1,853,800 or that
Strategis' "high" market value estimate exceeds the sales price by
approximately $7,821,800. Because it was the methodology for determining the
sales price mandated by the partnership agreements, the General Partner's
Board of Directors considered the fact that the sales price to be paid to the
Venture for the Palmdale System was determined by averaging three independent
appraisals of the fair market value of the Palmdale System to be very
persuasive evidence of the fairness of the proposed transaction. As provided
in Section 2.3(b)(iv)(b) of the Partnerships' three partnership agreements,
the General Partner may purchase a cable television system from the
Partnerships if the price paid to the Partnerships by the General Partner is
determined by the average of three separate, independent appraisals of the
cable television system to be sold. It does not provide that the purchase
price shall be determined by the highest of the three appraisals. In light of
this governing partnership agreement provision, the General Partner's Board of
Directors did not consider offering the Venture a sales price equal to
Strategis' appraisal values. Whenever a sum is to be determined by the average
of three values, there will be, by definition, values that are higher than and
values that are lower than the average. This implies to the General Partner
that such a process, agreed by all parties, is fair.
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<PAGE>
The General Partner considered the fact that the $138,205,200 purchase price
to be paid to the Venture for the Palmdale System was determined by the
average of three independent appraisals of the fair market value of the
Palmdale System to be very persuasive evidence of the fairness of the proposed
transaction. The General Partner reviewed and considered the three appraisals
but it did not consider specific comparable transactions in reaching its
conclusions that the values for the Palmdale System determined by the three
appraisals are within the range of values seen in the marketplace for
comparable cable television systems in similar condition. The General Partner
is regularly engaged in the sale and/or purchase of cable television systems
in the marketplace both for its own account and for the account of its various
managed partnerships. It is the cumulative experience of the General Partner's
management and Board of Directors in such transactions on which the fairness
conclusions were based. The General Partner considered that the fair market
valuations of the Palmdale System were done by respected industry appraisers
using customary measures of value. Based upon the General Partner's knowledge
of and experience in the cable television industry, and its review and
consideration of the appraisals, it has concluded that the values for the
Palmdale System determined by the three appraisals are fair and within the
range of values seen in the marketplace for comparable cable television
systems in similar condition.
The $138,205,200 purchase price represents the current fair market value of
the Palmdale System on a going concern basis. The $138,205,200 purchase price
for the Palmdale System also compares favorably to the $38,461,594 net book
value of the Palmdale System at March 31, 1998. The liquidation value of a
cable television system, i.e., the sale of the system on other than a going
concern basis, is not usually considered to be an accurate indicator of the
value of a cable television system, primarily because the assets of a cable
television system typically are worth less when considered separately than
when considered as a going concern. The assets of a cable television system
consequently are not normally sold or purchased separately. A fair market
valuation of a system should, in the General Partner's view, be a valuation of
the system as a going concern. The liquidation value of the Palmdale System
therefore was not considered by the General Partner in reaching its
determination of fairness.
Because there has never been an established trading market for the
Partnership's limited partnership interests, the General Partner does not have
access to any reliable, official information about the historical or current
market prices for the Partnership's limited partnership interests in the very
limited secondary market where such interests from time to time have been
sold. The General Partner believes that such secondary market deeply discounts
the underlying value of the limited partnership interests due to their highly
illiquid nature. Therefore, even if trading information were available, the
historical or current market prices for the Partnership's limited partnership
interests would not necessarily be indicative of the value of the
Partnership's 76 percent ownership of the Venture's cable television system
assets. For these reasons, the General Partner did not consider the historical
or current market prices for the limited partnership interests when reaching
its fairness determination.
During the past several years, however, several limited partners of the
Partnership who are not in any other way affiliated with the Partnership or
with the General Partner conducted tender offers for interests in the
Partnership at prices ranging from $316 to $410 per $500 limited partnership
interest. The $219 per $500 limited partnership interest to be distributed to
limited partners from the Partnership's portion of the net proceeds of the
Palmdale System's sale compares favorably to these tender offer prices,
especially in light of the fact that the tender offer prices theoretically
reflected both the distributions made to limited partners from the
Partnership's portion of the net proceeds from the Albuquerque System sale
($380 per $500 limited partnership interest) and the distributions to be made
to limited partners from the sale of the Palmdale System.
The fact that the Venture has held the Palmdale System for a period beyond
that originally anticipated was another important factor in the General
Partner's fairness determination--the General Partner believes that the
transaction is fair because a sale at this time will convert an illiquid
investment into a liquid one for all partners. And the current state of the
cable television industry also was considered by the General Partner in making
its fairness determination because the General Partner believes that it is
fair to investors that someone other than the Partnership and the Venture take
on the uncertainties and risks involved in continuing to own and operate the
Palmdale System.
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<PAGE>
The fairness of the transaction is also demonstrated in an analysis of
certain of the terms and conditions of the purchase and sale agreement, which
generally are more favorable to the Venture than reasonably could be expected
if the purchaser were not an affiliated company. There is no financing
contingency to closing. Because of the General Partner's existing extensive
knowledge about the Palmdale System, the Venture has not been required to make
many of the representations and warranties about the quality of the Palmdale
System's tangible assets, the quantity of the Palmdale System's subscribers or
the validity of the Palmdale System's intangible assets customarily found in
cable television system transactions. The Venture likely would have been
required to give such representations and warranties to an unaffiliated party
if the Palmdale System were being sold to an unaffiliated party. In addition,
the Venture is not required to indemnify the purchaser for defects discovered
by the purchaser after the closing. This frees the Venture from having to
reserve a portion of the sale proceeds to cover typical indemnification
obligations. The Venture also will pay no brokerage fee in connection with the
sale of the Palmdale System, which it likely would have paid if the Palmdale
System were being sold to an unaffiliated party. This will result in more
funds from the sale being available for distribution to the Venture's three
constituent partnerships and thus to their partners.
The General Partner is aware and considered that although consummation of
this transaction will result in a distribution to the Partnership's limited
partners of approximately $438 per $1,000 of limited partnership capital
invested in the Partnership, there are several potential negative consequences
of the transaction to limited partners. For example, the proposed sale will
require the limited partners to recognize, for federal income tax purposes, a
gain resulting from the sale. And although the three fair market valuations
established by the independent appraisals took into account the present value
of the projected future growth of the Palmdale System and the sales price (the
average of the three appraisals) thus takes into account the present value of
the projected future growth of the Palmdale System, the proposed sale will
deprive the limited partners of an opportunity to participate in the actual
future growth of the Palmdale System, if any. The General Partner nevertheless
concluded that the cash distributions to the limited partners of the
Partnership from the sale of the Palmdale System outweighed these
consequences.
As disclosed above, the proposed transaction is subject to various potential
conflicts of interest arising out of the Partnership's relationships with the
General Partner. Because the General Partner and its affiliates are engaged in
the ownership and operation of cable television systems, they are generally in
the market to purchase cable television systems for their own account. A
potential conflict thus arises from the General Partner's fiduciary duty as
general partner of the Partnership and its management's fiduciary duty to the
General Partner's shareholders when it determines that Partnership cable
television systems will be sold to the General Partner or one of its
affiliates and not to an unaffiliated third party. This potential conflict of
interest was disclosed to limited partners in the prospectus delivered to
investors at the time of the public offering of interests in the Partnership.
Prior to the Partnership's public offering, the General Partner entered into
negotiations with certain state securities administrators as part of the
process of clearing the offering in the "merit" states, i.e., those states
that permit the sale of securities only if the state securities administrator
deems the offering as a whole to be fair, just and equitable. Several of the
merit state securities administrators focused on the potential conflicts of
interest in the event that the Partnership were to sell one or more of its
cable television systems to the General Partner or one of its affiliates. The
General Partner agreed to include the provision in the Partnership Agreement
that permits the Partnership to sell its cable television systems directly to
the General Partner or one of its affiliates only after a three-year holding
period and only if the General Partner or such affiliate pays a purchase price
that is not less than the average of three separate independent appraisals of
the particular cable television system being sold. The General Partner has
concluded that the mechanisms for determining the purchase price to be paid to
the Partnership provide sufficient procedural safeguards to minimize the
effects of the potential conflicts of interest inherent in any such
transaction. The fact that these procedures have been carried out in
connection with the Venture's proposed sale of the Palmdale System, together
with the fact that the transaction also is conditioned upon receipt of the
approval of the holders of a majority of the limited partnership interests in
the three partnerships that comprise the Venture, enable the General Partner
to conclude that the proposed transaction is both procedurally and financially
fair to all partners.
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<PAGE>
The directors of the General Partner who are not employees of the General
Partner did not vote separately to approve the transaction, nor did the
outside directors retain an unaffiliated representative to act solely on
behalf of the limited partners for the purposes of negotiating the terms of
the proposed sale of the Palmdale System and/or preparing a report concerning
the fairness of the proposed sale. While the directors of the General Partner
recognized that the interests of the General Partner and the limited partners
may not in all respects necessarily be the same, they recognized also that the
purchase price was determined in accordance with the terms of the Partnership
Agreement, that is, by averaging three separate independent appraisals of the
Palmdale System's fair market value. The members of the Board of Directors
relied on the specific right of the General Partner under Section
2.3(b)(iv)(b) of the Partnership Agreement to purchase the Palmdale System.
The members of the Board of Directors reviewed and considered the appraisals
and, based upon their general knowledge of cable television system
transactions undertaken by the General Partner and its affiliates and by
unaffiliated cable television companies, concluded that the values for the
Palmdale System determined by the appraisers were fair and were within the
industry norms for comparable transactions. All 13 directors of the General
Partner participated in the March 10, 1998 meeting to discuss and vote on the
Partnership's sale of the Palmdale System to the General Partner. Each of
Messrs. Glenn R. Jones, James B. O'Brien, Josef J. Fridman, Robert Kearney,
Siim A. Vanaselja, James J. Krejci, William E. Frenzel, Donald L. Jacobs,
Howard O. Thrall, Robert E. Cole, Raphael M. Solot, Sanford Zisman and Robert
B. Zoellick voted to approve the transaction. No director of the General
Partner raised any questions or expressed any reservations about the fairness
of the transaction to the Venture, to its three constituent partnerships or to
the limited partners of the Partnership.
It is anticipated that if the proposed transaction is not consummated, the
General Partner's current management team will continue to manage the Palmdale
System on behalf of the Venture until such time as the Palmdale System could
be sold. No other alternatives have been or are being considered.
THE APPRAISALS
At regular intervals during the holding period, the General Partner obtained
appraisals of all of the Partnership's cable television systems so that the
General Partner could fulfill its obligation of reporting the Partnership's
asset values to trustees and custodians of qualified plans that own limited
partner interests in the Partnership. These appraised values also have been
reported to all investors in the quarterly and annual reports mailed to
limited partners with copies of the Partnership's periodic reports on Forms
10-Q and 10-K. The most recent appraisal of the Palmdale System done prior to
the General Partner's decision to buy the system from the Venture was done as
of July 31, 1997 by Strategis Financial Consulting, Inc., which valued the
Palmdale System as of such date at $136,518,000. This old appraisal was not
used by the General Partner's management in determining the sales price that
the General Partner would offer for the Palmdale System and it was not
considered by the General Partner's Board of Directors in making its fairness
determinations.
In determining the price that the General Partner would offer for the
Palmdale System, in January 1998 the General Partner retained Strategis
Financial Consulting, Inc., Bond & Pecaro, Inc. and Waller Capital Corporation
to prepare separate appraisals of the fair market value of the Palmdale System
as of December 31, 1997. Each of the appraisers were asked to determine the
cash price a willing buyer would give a willing seller, neither being under
any compulsion to buy or sell and both having reasonable knowledge of relevant
facts, in an arm's-length transaction to acquire the Palmdale System. Upon
receipt of the three appraisal reports, management of the General Partner
examined each of them and discussed among themselves the merits of the
appraisals' assumptions, methodologies and conclusions, and, based on their
experience in and knowledge of the cable television industry, they found each
of them to be fair and reasonable. The appraisal reports were then submitted
to the Board of Directors of the General Partner for review. As disclosed
above, the Board of Directors of the General Partner unanimously approved the
transaction based upon a price determined by averaging these three appraisals.
The written appraisal reports are available for inspection and copying at
the offices of the General Partner during regular business hours by any
interested limited partner of the Partnership or by his or her authorized
representative. Copies of such appraisals will be mailed by the General
Partner to any interested limited partner
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<PAGE>
or to his or her authorized representative upon written request to the General
Partner at the expense of the requesting limited partner. Copies of these
three appraisals also have been publicly filed with the Securities and
Exchange Commission and may be inspected at the Commission's public reference
facilities and at its World Wide Web site.
The General Partner provided each of the appraisers with the same current
and historical profit and loss statements for the Palmdale System and with the
same current subscriber reports. The appraisers also gathered information
about the Palmdale System's subscribers, channel line-up, technology, cable
plant, penetration rates and the local economy from questionnaires that each
individual appraisal firm prepared and provided to the general manager of the
Palmdale System and from conversations with the Palmdale System's management
team. From this information, the appraisers used their independent analyses to
project cash flow, determine growth of homes passed, the Palmdale System's
future penetration and possible rate adjustments. The appraisals thus reflect
the application of the appraisers' expertise to the data about the Palmdale
System supplied by the General Partner.
The General Partner's $138,205,200 offer for the Palmdale System was based
on the three separate, independent appraisals of the Palmdale System prepared
by Strategis Financial Consulting, Inc., Bond & Pecaro, Inc. and Waller
Capital Corporation as of December 31, 1997. Strategis Financial Consulting,
Inc. concluded that the Palmdale System's overall fair market value as of
December 31, 1997 was $140,059,000. Bond & Pecaro, Inc. concluded that the
Palmdale System's overall fair market value as of December 31, 1997 was
$131,952,600. Waller Capital Corporation concluded that the Palmdale System's
overall fair market value as of December 31, 1997 was $142,604,000.
The General Partner believes that the three appraisals were current as of
March 10, 1998, the date that the General Partner's Board of Directors made
its fairness determination and the date on which the purchase and sale
agreement was executed. In the General Partner's view, the assumptions
regarding system operations and the cable television system marketplace
underlying the three appraisals have generally remained unchanged since the
date of the appraisals.
The Strategis Appraisal
Strategis Financial Consulting, Inc. ("Strategis") has served the
communications industry for nearly 30 years. Its team of financial,
engineering and managerial professionals devotes a substantial portion of its
time to the appraisal of cable television systems, cellular telephone systems,
paging systems, mobile radio and broadcast stations. Strategis was selected by
the General Partner to render an opinion as to the fair market value of the
Palmdale System in light of such overall qualifications. No limitations were
imposed with respect to the appraisal to be rendered by Strategis. The firm
was selected by the General Partner to prepare an independent appraisal of the
Palmdale System because of the General Partner's familiarity with the firm and
its good reputation in the cable television industry. Strategis has prepared
independent appraisals of other cable television systems owned and/or managed
by the General Partner. The principals of Strategis are not affiliated in any
way with the General Partner.
Strategis used five generally accepted cable television valuation methods
using the income approach to valuation in establishing the range of fair
market values of the Palmdale System as a going concern. The first method used
a multiple of 1997's operating income derived from comparable asset values of
privately held and publicly traded cable companies. The second method used a
lower multiple of the Palmdale System's December 1997 operating income
annualized. The third method applied a slightly lower multiple of 1998's
projected operating income. The fourth method was a discounted net cash flow
analysis in which a purchase price (estimated fair market value) was
calculated to achieve a target after-tax return on equity, given particular
operating and financing assumptions unique to the Palmdale System's assets.
The fifth method was a discounted cash flow analysis that measured the net
present value of the pre-tax operating cash flows (less capital expenditures,
plus the residual value of the Palmdale System) that represent the return on
total investment. For each valuation method, Strategis established a "high"
and a "low" estimated fair market value.
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<PAGE>
The first valuation method used a multiple of 1997's operating income of the
Palmdale System derived from comparable asset values of certain cable
companies. The cable companies used to generate baseline values for this
methodology included Adelphia Communications Corporation, Cablevision Systems
Corporation, Century Communications Corp., Comcast Corporation, Cox
Communications, C-TEC, EW Scripps, Group Televisa, Knight-Ridder, Media
General, TCA Cable TV, Inc., Telecommunications, Inc., Time Warner, United
International Holdings, US West MediaOne Group, the Washington Post and the
General Partner. Strategis determined, based upon its expertise and knowledge
of the cable television industry, a "low" multiple of 10 and a "high" multiple
of 11, concluding that a system comparable to the Palmdale System would be
unlikely to sell for less than 10 times its past year's operating income and
would be unlikely to sell for more than 11 times its past year's operating
income. These operating income multiples were determined based upon several
factors. First, the "pre-determined target returns on equity" developed in
connection with the fourth valuation method discussed below were examined for
the implied capitalization rate. The capitalization rate is the inverse of the
valuation multiple. The basic equation supporting a valuation multiple is a
fraction, with one being the numerator and the rate of return minus the growth
rate being the denominator. For the rates of return, Strategis refers to the
"predetermined (pre-tax) target returns on equity" calculated as follows:
12%/(l-.34) = 18.2%
14%/(l-.34) = 21.2%
For the rate of growth estimate, Strategis examined projected growth in the
Palmdale System's operating income over the projection term. The average
annual growth rate in operating cash flow is approximately 8 percent on
Strategis' model. The inverse of the capitalization rate implies multiples of:
<TABLE>
<S> <C> <C>
1
(18.2%-8.0%) = 9.8 high
1
(21.2%-8.0%) = 7.6 low
</TABLE>
These calculated multiples were then adjusted by Strategis based on its
experience in the cable television industry. According to Strategis, in its
judgment, the implied high and low multiples, if applied to trailing twelve
months operating cash flow, would not provide an adequate estimate of value
for a mature cable system such as the Palmdale System. The multiples
ultimately used by Strategis in its first valuation method, 10 and 11, as
adjusted from the capitalization rate approach, in Strategis' judgment
appropriately reflect the value of the Palmdale System. This method resulted
in an estimated fair market value ranging from a low of $135,746,480 to a high
of $149,321,128 for the Palmdale System.
The second valuation method used a lower multiple of the Palmdale System's
December 1997 operating income annualized. Strategis determined, again based
on its expertise and knowledge of the cable television industry, a "low"
multiple of 9.5 and a "high" multiple of 10.5, concluding that a system
comparable to the Palmdale System would be unlikely to sell for less than 9.5
times the dollar amount of its annualized current month's operating income and
would be unlikely to sell for more than 10.5 times the dollar amount of its
annualized current month's operating income. These multiples are slightly
lower than those used in the previous methodology because of the increased
risk and time factors involved in using current as compared to historical
information. This method resulted in an estimated fair market value ranging
from a low of $132,504,873 to a high of $146,452,754 for the Palmdale System.
The third valuation method applied a slightly lower multiple of 1998's
projected operating income of the Palmdale System. For this valuation,
Strategis first estimated, through its own analyses of current financial and
operating data provided by the General Partner, 1998's operating income for
the Palmdale System. The projection of 1998's operating income for this third
valuation method is the sum derived by subtracting projected operating
expenses from projected revenues of the Palmdale System to be generated during
the first twelve months following the valuation date. Strategis projected
growth in residential service revenue based on
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<PAGE>
previously established or reasonably foreseeable patterns of growth in: the
marketplace and plant facilities (homes passed); the subscriber base; the
amount of programming to be sold to subscribers and the rates charged for
programming, associated equipment rentals and service installations. Strategis
projected revenue for commercial accounts to increase at a steady but lower
rate than residential revenue, while advertising revenue was projected based
on Strategis' estimates of the long term potential growth for local
advertising in the Palmdale System's market. Operating expenses were projected
by Strategis based on the Palmdale System's actual historical expenses and
Strategis' familiarity with cable system operating expenses typical for a
system of the Palmdale System's size. Line item expenses within the technical-
operations, general and administrative, sales and marketing, and programming
departments were examined and projected based on their relationship to the
number of subscribers or plant miles, whichever was appropriate, and included
a general inflation component. Based on its expertise and knowledge of the
cable television industry, Strategis set a "low" multiple of 9 and a "high"
multiple of 10 concluding that a system comparable to the Palmdale System
would be unlikely to sell for less than 9 times the system's projected
operating income for the following year and would be unlikely to sell for more
than 10 times the system's projected operating income for the following year.
These multiples are slightly lower than those used in the previous
methodologies because of the increased risk and time factors involved in using
projected as compared to historical and current information. This method
resulted in an estimated fair market value ranging from a low of $136,015,500
to a high of $151,128,333 for the Palmdale System.
The fourth valuation method was a discounted net cash flow analysis in which
a purchase price (estimated fair market value) was calculated to achieve a
target after-tax return on equity given particular operating and financing
assumptions specific to the Palmdale System. This method involved the use of
projected operations for the Palmdale System and a pre-determined target
return on equity for a hypothetical buyer. Strategis used the Capital Asset
Pricing Model ("CAPM") as a guide in developing discount rates used in the
discounted cash flow model for the fourth valuation method. The CAPM was
developed to estimate the rate of return on equity that would be required by
investors to take on the risk of a given investment. Strategis used the CAPM
in conjunction with observations of actual market transactions and its
judgment. The following illustrates use of the CAPM and the support it
provided for the "pre-determined target return on equity" used to value the
Palmdale System.
To estimate a "pre-determined target return on equity" for the CAPM,
Strategis examined movements in stock prices over 1996 and 1997 of the same
cable television multiple system operators that it examined in determining the
multiples for the first valuation method discussed above. The movements in
individual stock prices were compared to movements in the stock market as a
whole, as indicated by the price of the Standard & Poor's 500 stock index. The
extent to which movements in a particular stock are related to movements in
the market overall is reflected in the stock's "beta." Strategis calculated
individual betas for the above-listed cable television multiple system
operators. Average and median betas for the entire group were then multiplied
by the "equity risk premium," which measures the additional return to equity
investors over and above the return to holders of non-equity investments. The
risk-free rate of investment is then added to determine the required equity
return of the investment. The equation is as follows:
Beta* (Equity Risk Premium) + Risk-Free Rate = Required Return on Equity
In doing this analysis, Strategis found that the average beta for the group
of companies it examined was 1.06 and that the median beta for this same group
of companies was 1.11. It determined that the equity risk premium was 12.7
percent based upon average annual premiums over 1988 to 1997 as calculated in
Ibbotson Associates' Stocks, Bonds, Bills and Inflation (SBBI) Yearbook 1998.
Strategis also found that the risk-free rate was 5.7 percent, which was the
yield on intermediate term government bonds as of December 1997. This
statistic was derived from the SBBI Yearbook 1998. The calculations are as
follows:
(1.06* 12.7%) + 5.7% = 19.2% Required Return on Equity
(1.11* 12.7%) + 5.7% = 19.8% Required Return on Equity
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<PAGE>
Strategis then multiplied these rates by 1 minus the tax rate to calculate
the after-tax required return on equity rates as follows:
19.2%* (1-.34) = 12.7%
19.8%* (1-.34) = 13.1%
Based on Strategis' professional judgment, in Strategis' opinion these
calculations provide reasonable support for the use of 12% as the high and 14%
as the low after-tax "pre-determined target returns on equity."
Based on system information made available to Strategis by the General
Partner and on information generally available to Strategis about the cable
television industry, the firm made assumptions and projections of a variety of
factors that will affect future cash flow including housing growth, plant
mileage, growth in the number of subscribers for basic and pay television,
adjustments in subscriber rates, increases in operating expenses and capital
expenditures. Strategis also made specific assumptions concerning the capital
structure that a typical, prudent buyer might experience, as well as the
probable interest rates that would be applicable in connection with any debt
financing that might be incurred. Strategis did a "high" and a "low" analysis.
In its "high" analysis, Strategis projected that the Palmdale System's
revenues would grow from $31,973,938 in 1998 to $48,083,687 in 2004; that the
Palmdale System's operating expenses would grow from $16,861,105 in 1998 to
$24,309,734 in 2004; and that net loss of $5,124,946 in 1998 would decrease to
become net income of $3,198,756 in 2004. In Strategis' "low" analysis,
revenues and operating expenses are projected to increase to the same levels
by 2004, but net loss of $4,761,004 in 1998 is projected to become net income
of $3,456,717 in 2004. Strategis projected that the Palmdale System would add
approximately 14 to 23 miles of cable plant per year between 1998 and 2004,
resulting in growth of the Palmdale System's cable plant from 1,096 miles in
1997 to 1,237 miles in 2004. Strategis projected that the number of homes
passed by the Palmdale System would grow from 88,035 in 1997 to 98,282 in
2004. Strategis projected that basic subscribers would grow from 63,527 in
1997 to 75,344 in 2004. Strategis projected basic penetration of the Palmdale
System increasing from 73.2 percent in 1998 to 76.7 percent in 2004. Strategis
projected that premium television subscriptions would grow from 42,733 in 1997
to 47,668 in 2004. Strategis estimated that the Palmdale System would take
moderate rate increases between 1998 and 2004, with, for example, a 4 percent
increase in basic rates in 1998 and 1999 and 3 percent increases in basic
rates each year thereafter, and a 4 percent increase in expanded basic rates
in 1998 and 1999, and a 3 percent increase in such rates each year thereafter.
Strategis estimated that rate increases for pay television subscriptions would
average 1 percent per year after a 5 percent increase in 1998. Strategis
estimated that rate increases for pay-per-view showings, converter rentals and
installations would average 3 percent per year. These projections, if true,
would result in an increase in basic rates from $14.28 in 1998 to $17.14 in
2004, and an increase in the rates for the expanded basic tier from $12.80 in
1998 to $15.37 in 2004. As explained in the preceding paragraphs, the "low"
value was determined using a 14 percent return on equity and the "high" value
was determined using a 12 percent return on equity. This method resulted in an
estimated fair market value ranging from a low of $134,773,634 to a high of
$145,249,519 for the Palmdale System.
The fifth valuation method was a discounted cash flow analysis that measured
the net present value of the pre-tax operating cash flows (less capital
expenditures, plus the residual value of the Palmdale System) that represent
the return on the total investment rather than those that could result from an
assumed "purchase" with a pre-determined debt to equity ratio. The same set of
financial projections that the firm prepared and used in the fourth valuation
methodology were used for growth in subscribers, revenues, operating expenses
and capital expenditures. The projected pre-tax operating cash flows for the
Palmdale System, plus the last-year residual value of the Palmdale System less
capital expenditures, were discounted to the present time at an acceptable
current cost of money. This method indicated the present value of the future
pre-tax operating cash flows, using an acceptable discounted factor based on
the weighted average cost of money. The "high" value was determined using a
15.1 percent target return on investment and the "low" value was determined
using a 16.6 percent target return on investment. This method resulted in an
estimated fair market value ranging from a low of $132,642,183 to a high of
$142,642,182 for the Palmdale System.
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<PAGE>
Strategis' valuation methodologies resulted in differing values for the
Palmdale System. The reason for this is grounded in the basic approach that
the firm takes. The five different methods allow five different views of a
system's value. The first method looks at past performance, but allows nothing
for future performance. The second method looks at the system as it is as of
the date of the appraisal. The third method looks at the system's projected
operating income in the first year following the date of the appraisal. Both
discounted cash flow methods fully consider the future value of the system by
recognizing projected operating income and expenses, including capital
expenditures. Based upon all of the available information about a system being
appraised, the appraiser decides how to weight each of the five methods. The
final estimated fair market value is not a straight average of all of the
methods. Although the weighting is not shown in the appraisal report,
Strategis generally prefers the discounted cash flow methods since they
consider a broader range of factors that represent all sources of value,
present and future. Strategis accordingly generally gives greater
consideration to the discounted cash flow methods in its final judgment
concerning the fair market value of a cable television system. Strategis'
conclusions as to the range of values were based upon information and data
supplied by the General Partner, Strategis' onsite inspection of the Palmdale
System in January 1998, interviews with the Palmdale System's onsite
management team and general cable television industry information. The fair
market value appraisal of $140,059,000 reached by Strategis was based on the
various valuations generated by it, and Strategis' general knowledge and
expertise in the cable television industry.
As compensation for rendering an opinion as to the fair market value of the
Palmdale System, the General Partner paid Strategis a fee of $7,885. Such fee
was not contingent upon the conclusion reached by Strategis in its opinion. As
compensation for rendering opinions as to the fair market value of other cable
television systems owned and/or managed by the General Partner and its
affiliates, and completing the analysis of the allocations of purchase prices
between tangible and intangible assets for various cable television systems
owned and/or managed by the General Partner and its affiliates, Strategis has
received fees and expense reimbursements totaling $288,621 during the two
years ended December 31, 1997.
The Bond & Pecaro Appraisal
Bond & Pecaro, Inc. ("Bond & Pecaro") is a consulting firm specializing in
valuations, asset appraisals and related financial services for the
communications industry. The firm has appraised assets of more than 1,500
media properties. Bond & Pecaro was selected by the General Partner to render
an opinion as to the fair market value of the Palmdale System in light of such
overall qualifications and because of the firm's good reputation in the
industry. No limitations were imposed with respect to the appraisal to be
rendered by Bond & Pecaro. Bond & Pecaro has prepared independent appraisals
of other cable television systems owned and/or managed by the General Partner.
Bond & Pecaro also is serving as the General Partner's expert witness aiding
the General Partner in its defense of the litigation filed by limited partners
of Fund 12-D challenging the terms of the Venture's sale of the Tampa System
to a subsidiary of the General Partner. See "Special Factors, Legal
Proceedings." The principals of Bond & Pecaro are not affiliated in any way
with the General Partner.
Bond & Pecaro used both the income and the market methodologies to determine
the fair market value of the Palmdale System as of December 31, 1997. The firm
developed a discounted cash flow analysis to determine the value of the
Palmdale System based upon its economic potential. Bond & Pecaro noted that it
is generally accepted that the value of a telecommunications business such as
a cable television system lies in the fact that it is a "going concern." That
is, a cable system's value reflects the revenues and, ultimately, the after-
tax cash flow that the business may reasonably be expected to generate over a
period of years. The potential resale value of the business at the end of that
period is also an important factor in the valuation of such properties. Bond &
Pecaro noted that a number of factors contributed to going concern value,
including the formation of a business plan, the construction of the system
headend facility, the development of a functional general, administrative and
technical organization, the establishment of a sales and marketing
organization and the coordination of all of these functions into a well-
defined and efficient operating organization. As described below, Bond &
Pecaro's discounted cash flow model incorporates variables such as capital
expenditures, homes passed by the system, basic penetration, paid penetration,
system revenue projections, anticipated system operating expenses and profits
and various discount rates. The variables in the analysis reflect historical
system and market growth trends as
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well as anticipated system performance and market conditions. The capital
expenditures provision reflects the amount of investment that Bond & Pecaro
projected will be required to expand and maintain a competitive cable
television business in the Palmdale, California area. Bond & Pecaro's
discounted cash flow projection period of ten years was deemed by the firm to
be an appropriate time horizon for the firm's analysis because cable operators
and investors typically expect to recover their investments within a ten-year
period. Thus, it was over this period that projections regarding market
demographics, system basic and pay penetration, and operating profit margins
were made by Bond & Pecaro. Bond & Pecaro looked at the ten year period to
project household growth in the Palmdale area, anticipated market penetration
percentages and system operating performance expectations in order to project
the Palmdale System's operating profits during the next ten years. The firm
deducted income taxes from the projected operating profits to determine after-
tax net income. Depreciation and amortization expenses were added back to the
after-tax income stream and projected capital expenditures were subtracted to
calculate the Palmdale System's net after-tax cash flow. Bond & Pecaro then
adjusted the stream of annual cash flow to present value using a discount rate
the firm deemed appropriate for the cable television industry. To determine
the Palmdale System's residual value at the end of the ten-year projection
period, Bond & Pecaro applied an operating cash flow multiple of 10 to the
system's 2007 operating cash flow projection. In Bond & Pecaro's opinion the
terminal value represents the hypothetical value of the system at the end of
the projection period and the net terminal value was discounted to present
value. The results of Bond & Pecaro's analysis indicated to the firm that the
value of the Palmdale System as of December 31, 1997 was $131,952,600. In
order to verify the results of the discounted cash flow analysis, as described
below, Bond & Pecaro also utilized a comparable sales approach, relying upon
an analysis of subscriber multiples. The results of this analysis supported
the firm's conclusions about valuation resulting from application of the
income approach.
Bond & Pecaro reported that the initial parameter upon which its discounted
cash flow projection was based was homes passed. Two factors affect the number
of homes passed: new plant construction and household growth. In preparing its
projection, Bond & Pecaro assumed that the number of households in the
Palmdale System's franchise area will increase at a rate equivalent to the
average growth projected for the areas served by the system as a whole, or
approximately 0.7 percent per year. Bond & Pecaro concluded that the basic
penetration rate would grow gradually over the 10-year projected period from
the current 72.4 percent to approximately 76.4 percent by 2007. The firm
projected that pay penetration of the Palmdale System will increase from a
level of 67.3 percent in December 1997 to approximately 90.3 percent by 2007.
Bond & Pecaro concluded that due to regulatory and competitive restrictions,
service rates for basic and expanded basic services are expected to grow with
inflation while premium channel service rates are expected to remain
relatively flat throughout the 10-year projected period. Bond & Pecaro
estimated that basic commercial and pay revenue will increase at a 10 percent
annual rate through 2007, that pay-per-view service revenue will increase at a
28.1 percent annual rate for the years 1998 through 2002 and at an 11 percent
annual rate thereafter, that commercial advertising will increase at a 19.0
percent annual rate through 2002 and at a 10 percent annual rate thereafter,
and that annual installation revenue would remain constant during the
projection period. The firm concluded that equipment rental revenues as well
as other revenues also should increase by 9 percent annually through 2007.
Bond & Pecaro concluded that total system revenues would increase from
$32,500,000 in 1998 to $57,600,000 in 2007. For purposes of its appraisal,
Bond & Pecaro assumed that the Palmdale System would maintain an operating
profit margin of 45.4 percent, which was the system's operating profit margin
in 1997. Bond & Pecaro used an estimated tax rate of 41.0 percent to project
the taxable income of the Palmdale System because the estimated rate reflects
the combined federal, state and local tax rates in effect on December 31,
1997. Depreciation expense for each year was determined using the MACRS
schedule for 5, 7, 15 and 39 year property based upon the reported cost of
fixed assets present at the Palmdale System. Subsequent annual capital
expenditures were estimated to approximate 5 percent of the cost of the fixed
assets of the Palmdale System as of December 31, 1997. Supplemental provisions
were made to incorporate projections of capital expenditures associated with
the conversion to digital television.
Bond & Pecaro then determined the net after-tax cash flow for the Palmdale
System. After taxes were subtracted from the system's taxable income, non-cash
depreciation expenses were added back to net income to yield after-tax cash
flow. From the after-tax cash flow, the provision for subsequent capital
expenditures was
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<PAGE>
deducted to calculate the net after-tax cash flows. Bond & Pecaro used a
discount rate of 12 percent to calculate the present value of the net after-
tax cash flows. In order to account for the risks associated with investments
in the cable television industry and in the Palmdale System in particular,
Bond & Pecaro added a premium to a base discount rate to develop the 12
percent rate employed in its analysis. Bond & Pecaro then applied a multiplier
of 10 to the Palmdale System's 2007 operating cash flow. Bond & Pecaro's
appraisal noted that multiples used in the valuation of cable television
systems of a type similar to the Palmdale System range from 8 to 12 times
operating cash flow, depending on market conditions and a system's profit
potential. Bond & Pecaro noted also that exceptional circumstances will
warrant multiples outside of this range. The appraisal report indicated that
the selected multiple of 10 was used to estimate the value of the system at
the end of the investment period. According to Bond & Pecaro, this multiple
reflects the state of the market for cable television systems as of December
31, 1997, tempered by the economic conditions of the system's franchise
service area, the uncertainty introduced by re-regulation of the cable
television industry and the prospects for increased competition from wireless
cable companies and direct broadcast satellite operators. The 10-year
discounted cash flow projection of Bond & Pecaro yielded a value of
$131,952,600 for the Palmdale System.
In order to correlate this statistical valuation with the realities of the
marketplace, Bond & Pecaro analyzed the sale of five comparable cable
television systems that took place in 1997. The sales examined by Bond &
Pecaro were selected based upon their comparability to the Palmdale System.
The five cable television system transactions examined by Bond & Pecaro were:
(i) the sale of the Palo Alto, California cable television system by one
unaffiliated cable television system operator to another for a sales price of
$54,100,000 or a price per subscriber of $2,042, (ii) the sale of the
Independence, Missouri cable television system by one of the General Partner's
managed partnerships to a subsidiary of the General Partner for a sales price
of $171,200,000 or a price per subscriber of $2,004, (iii) the sale of the
Phoenix, Arizona cable television system by one unaffiliated cable television
system operator to another for a sales price of $77,000,000 or a price per
subscriber of $2,131, (iv) the sale of the Evansville, Indiana cable
television system by one unaffiliated cable television system operator to
another for a sales price of $131,000,000 or a price per subscriber of $2,098,
and (v) the sale of the Brigham, Utah cable television system by one
unaffiliated cable television system operator to another for a sales price of
$125,000,000 or a price per subscriber of $2,160. Bond & Pecaro determined
that the average price per subscriber paid for the five comparable cable
television systems sales was approximately $2,087. As noted above, Bond &
Pecaro's discounted cash flow model concluded that the Palmdale System's
overall fair market value was $131,952,600. This $131,952,600 value reflects a
price of approximately $2,077 per subscriber, which Bond & Pecaro judged to be
consistent with prevailing subscriber multiples of comparable sales in 1997.
A representative of Bond & Pecaro consulted with system management regarding
market factors and system-specific issues that impacted the value of the
system's tangible and intangible assets. Specific data provided by the system
and the General Partner included historical audited financial statements,
operating statistical summaries, system technical data, market demographic
data and related materials. Other sources consulted in the preparation of the
appraisal included industry factbooks, government publications and similar
reference materials. Bond & Pecaro also relied upon information furnished by
the Palmdale System's management relating to the age, condition and adequacy
of the system's physical plant.
As compensation for rendering an opinion as to the fair market value of the
Palmdale System, the General Partner paid Bond & Pecaro a fee of $10,375. Such
fee was not contingent upon the conclusions reached by Bond & Pecaro in its
opinion. As compensation for rendering opinions as to the fair market value of
other cable television systems owned and/or managed by the General Partner and
its affiliates, Bond & Pecaro has received fees totaling $17,098 during the
two years ended December 31, 1997.
The Waller Appraisal
Waller Capital Corporation ("Waller") is a firm specializing in financial
services and asset appraisals for the telecommunications industry. Waller was
selected by the General Partner to render an opinion as to the fair market
value of the Palmdale System in light of its overall qualifications and
because of the firm's good reputation in the cable television industry. No
limitations were imposed with respect to the appraisals to be
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<PAGE>
rendered by Waller. Waller has prepared independent appraisals of other cable
television systems owned and/or managed by the General Partner. Neither Waller
nor any of its representatives have any active or contemplated direct interest
in the General Partner, in any of its managed partnerships or in any of its
affiliates, except for incidental shareholdings in the General Partner, which
is a publicly traded company.
In arriving at its opinion as to the fair market value of the Palmdale
System, Waller utilized audited and unaudited financial statements, visited
the Palmdale System, met with the management of the General Partner to discuss
the Palmdale System's business, current operations and prospects, analyzed
published financial and operating information and prospects, analyzed
published financial and operating information considered by Waller to be
comparable or related to the Palmdale System, and made other financial
studies, analysis and investigations as Waller deemed appropriate. Waller
indicated in its report that the primary purpose of its valuation was to
arrive at the fair market value of the Palmdale System, with fair market value
defined as the amount at which a property would change hands between a willing
buyer and a willing seller when neither is acting under compulsion and when
both have reasonable knowledge of the relevant facts. The valuation was
determined on a cash-for-assets basis.
Numerous elements, both quantitative and qualitative, were factored into
Waller's valuation. Waller concluded that the Palmdale System has attractive
demographics with, for example, average household income in the area served by
the system being significantly higher than the national average. Waller also
noted that due to the technical profile of the largest employers in the
Palmdale area (aerospace and defense), the residents of the area are also
highly educated. The firm further noted that the Palmdale area has experienced
substantial growth in households, with the area's households expected to grow
over 3 percent per year from 1997 to 2000. Waller also concluded that the
technical condition of the system at 550 Mhz capacity will be sufficient for
the Palmdale market for the near future. On the negative side, Waller noted
that while there is no current wireless competition to the Palmdale System,
there exists the potential of wireless competition due to the Palmdale area's
flat geography. Waller also noted that the local economy, while increasingly
diversified still is heavily dependent on the aerospace and defense industries
and a downturn in either of these industries could negatively impact system
revenues.
The general methodology of Waller's appraisal was to evaluate the discounted
cash flow stream generated by the Palmdale System over a ten year period (1998
to 2007), applying all relevant market and economic factors. Waller's ten year
projections were prepared using information provided by the General Partner
together with Waller's industry estimates. Waller developed its projections
through on-sight due diligence, a review of the Palmdale System's 1998
operating budget prepared by the General Partner, other operating and
subscriber data and projections and demographic data relating to the Palmdale
System's service area. A sale was assumed to occur in the tenth year (2007) of
the discounted cash flow model. The cash flow sales multiple selected
reflected the long-term prospects for cash flow growth and the cash flow
quality of the Palmdale System. The multiple selected also accounted for the
presumed technical condition of the Palmdale System at 2007. The multiple
selected was applied against the full tenth year cash flow. Waller's analysis
utilized a discount rate of 14 percent derived from Waller's weighted average
cost of capital ("WACC") model. The discount rate was commensurate with a
probable buyers capital structure, operating risk and other factors associated
with the operations of the Palmdale System. The discount rate used was
consistent with the WACCs for an average cable buyer, private or public, and
adjusted for certain factors such as size, liquidity, leverage and risk
associated with a typical cable system buyer. The cable companies used to
generate the WACC model were Adelphia Communications Corporation, Comcast
Corporation, Cox Communications, TCA Cable TV, Inc., Telecommunications, Inc.,
Time Warner and US Media One Group.
Like Strategis and Bond & Pecaro, Waller developed its discounted cash flow
model based upon its own assumptions about the Palmdale System. Waller
projected that homes passed growth would be approximately 1.5 percent per year
over the ten year projection period, growing from 88,380 homes passed in 1998
to 102,048 homes passed in 2007. Waller projected that system plant miles
would grow from 1,020 in 1998 to 1,177 in 2007. Waller concluded that
subscriber growth would range from 1.3 percent to 3.2 percent in any
particular year, with growth generally averaging 1.5 percent per year and
that, as a result, subscribers would grow from
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<PAGE>
66,285 in 1998 to 78,577 in 2007. Waller projected growth in the number of pay
units generally averaging 1 percent per year during the ten year projection
period, with pay units increasing from 44,391 in 1998 to 48,550 in 2007.
Waller also examined growth in rates charged to subscribers, concluding that
basic service rates would increase at approximately 4 percent per year,
growing from $26.92 in 1998 to $38.32 in 2007. Waller concluded that rates for
pay programming would increase approximately 2 percent per year, with rates
increasing from $7.62 in 1998 to $9.11 in 2007. Waller concluded that total
system revenue would increase from $33,046,000 in 1998 to $53,193,000 in 2007,
with growth in basic service revenues the primary reason for such increase.
Waller also included that total operating expenses would grow from $17,628,000
in 1998 to $29,769,000 in 2007. Because Waller concluded that expenses would
increase at a slightly higher rate than revenue, Waller concluded that
expenses would increase at a slightly higher rate than revenue, Waller
concluded that the Palmdale System's cash flow would grow less dramatically,
from $15,418,000 in 1998 to $23,424,000 in 2007.
Waller's analysis was further supported by comparable system sales. Waller
examined specific transactions to determine if an appropriate multiple of cash
flow could be derived from current market information. Waller examined
multiples from announced and completed cable television transactions in 1996
and 1997, relying upon data from transactions executed by Waller, from Paul
Kagan & Associates, Inc. and from general industry information sources. Waller
acknowledged that comparable sales data is difficult to generalize from
because of the variability of factors such as system size, growth prospects,
penetration, location, demographics, technical system condition and franchise
terms, which information often is not publicly available. Given these
limitations, Waller is of the opinion that comparable sales data offers only
an approximation of factors that help devise a fair market value and is used
as a reasonableness test of the discounted cash flow approach to value.
For its comparable system sales analysis, Waller examined transactions
involving cable television systems of similar size and characteristics to the
Palmdale System. Waller examined five transactions that occurred in 1996 and
eleven transactions that occurred in 1997. The five cable television system
transactions examined by Waller from 1996 were: (i) the sale of the Long
Beach, California cable television system by one unaffiliated cable television
system operator to another for a sales price of $150,000,000 or a price per
subscriber of $2,143, (ii) the sale a Minnesota system by one unaffiliated
cable television system operator to another for a sales price of $124,000,000
or a price per subscriber of $1,667, (iii) the sale of the Walnut Valley,
California cable television system by the General Partner to an unaffiliated
cable television system operator for a sales price of $104,000,000 or a price
per subscriber of $1,763, (iv) the sale of the Fort Collins, Colorado cable
television system by one unaffiliated cable television system operator to
another for a sales price of $54,000,000 or a price per subscriber of $1,800,
and (v) the sale of the Yorba Linda, California cable television system by one
of the General Partner's managed partnerships to an unaffiliated cable
television system operator for a sales price of $36,000,000 or a price per
subscriber of $2,118. The eleven 1997 cable television system transactions
examined by Waller were: (i) the sale of the Rockford, Illinois cable
television system by one unaffiliated cable television system operator to
another for a sales price of $97,000,000 or a price per subscriber of $1,492,
(ii) the sale of the Phoenix, Arizona cable television system by one
unaffiliated cable television system operator to another for a sales price of
$77,000,000 or a price per subscriber of $2,131, (iii) the sale of the
Hickory, North Carolina cable television system by one unaffiliated cable
television system operator to another for a sales price of $69,000,000 or a
price per subscriber of $1,957, (iv) the sale of the Palo Alto, California
cable television system by one unaffiliated cable television system operator
to another for a sales price of $54,100,000 or a price per subscriber of
$2,042, (v) the sale of the Dagsboro, Delaware cable television system by one
unaffiliated cable television system operator to another for a sales price of
$43,000,000 or a price per subscriber of $1,471, (vi) the sale of the Boone,
North Carolina cable television system by one unaffiliated cable television
system operator to another for a sales price of $35,000,000 or a price per
subscriber of $1,852, (vii) the sale of cable television system serving a
portion of Dallas, Texas by one unaffiliated cable television system operator
to another for a sales price of $35,000,000 or a price per subscriber of
$1,601, (viii) the sale of several small systems in Connecticut and New
Hampshire by one unaffiliated cable television system operator to another for
a sales price of $30,000,000 or a price per subscriber of $1,954, (ix) the
sale of the Auburn, New York cable television system by one unaffiliated cable
television system operator to another for a sales price of $28,000,000 or a
price per subscriber of $1,958, (x) the sale of the Pelzer, South Carolina
cable television system by one unaffiliated cable television system operator
to
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another for a sales price of $27,000,000 or a price per subscriber of $1,283,
and (xi) the sale of the Kauai, Hawaii cable television system by one
unaffiliated cable television system operator to another for a sales price of
$24,000,000 or a price per subscriber of $2,065. Waller determined that the
average price per subscriber paid for the comparable cable television system
sales was approximately $1,810 and a cash flow multiple of 9.5. Waller
concluded that this comparable sales analysis supported and validated Waller's
discounted cash flow analysis, which resulted in an aggregate value for the
Palmdale System of $2,179 per subscriber and a 10.5 times 1997 cash flow
multiple, because the Palmdale System is of better quality than the average
comparable system sold.
Based on its various analyses and investigations of the Palmdale System,
Waller concluded that the fair market value of the Palmdale System as of
December 31, 1997 was $142,604,000.
As compensation for rendering an opinion as to the fair market value of the
Palmdale System, the General Partner paid Waller a fee of $15,212. Such fee
was not contingent upon the conclusion reached by Waller in its opinion.
Waller received no fees from the General Partner and its affiliates during the
two years ended December 31, 1997.
COSTS OF THE TRANSACTION
The following is a reasonably itemized estimate of all expenses incurred or
to be incurred in connection with the proposed sale of the Palmdale System,
all of which will be paid by the General Partner, including without limitation
the cost of soliciting the votes of the holders of limited partnership
interests:
<TABLE>
<S> <C>
Filing fees $21,007
Legal fees $10,000
Accounting fees $10,000
Appraisal fees $33,473
Printing costs $30,000
Postage and miscellaneous costs $ 5,000
</TABLE>
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PROPOSED SALE OF ASSETS
THE PURCHASE AND SALE AGREEMENT
Pursuant to the terms and conditions of a purchase and sale agreement dated
as of March 10, 1998 (the "Purchase and Sale Agreement") by and between the
Venture as seller and the General Partner as purchaser, the Venture agreed to
sell the Palmdale System to the General Partner or to a subsidiary of the
General Partner. The General Partner has assigned its rights and obligations
as purchaser to Jones Communications of California, Inc., an indirect wholly
owned subsidiary. The purchaser intends to finance the acquisition of the
Palmdale System using cash on hand and borrowings available under credit
facilities dated as of October 29, 1996 among Jones Cable Holdings II, Inc.,
as the borrower, and several lenders, including The Bank of Nova Scotia,
NationsBank of Texas, N.A. and Societe Generale as the managing agents. The
maximum amount available under the credit facilities is $600 million. One $300
million facility reduces quarterly beginning March 31, 2000 through the final
maturity date of December 31, 2005 and the lenders' revolving commitment under
the other $300 million facility terminates on October 27, 1998, 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. Interest on amounts outstanding under the credit facilities varies
from the "base rate," which generally approximates the prime rate, to the base
rate plus 1/4 percent or LIBOR plus 1/2 percent to 1 1/4 percent depending on
certain financial covenants. The effective interest rate on the $130,000,000
outstanding at March 31, 1998 was 6.18 percent. The credit facilities are
secured by a pledge of the stock of all of the subsidiaries of the borrower.
Jones Communications of California, Inc. is a wholly owned subsidiary of Jones
Cable Holdings II, Inc., which in turn is a wholly owned subsidiary of the
General Partner.
Based upon amounts estimated as of March 31, 1998, the aggregate cost of the
acquisition of the Palmdale System to the purchaser, including working capital
adjustments, will be approximately $138,288,803. Amounts borrowed by the
purchaser to acquire the Palmdale System will be repaid from cash generated by
the operations of the Palmdale System and other systems owned by Jones Cable
Holdings II, Inc. and from other sources of funds, including possible future
refinancings.
The closing of the sale will occur on a date upon which the Venture and the
purchaser mutually agree. It is anticipated that the closing will occur in the
fourth quarter of 1998. Because the closing is conditioned upon, among other
things, the approval of the limited partners of the Venture's three
constituent partnerships and the consent of governmental franchising
authorities and other third parties, there can be no assurance that the
proposed sale will occur. If all conditions precedent to the purchaser's
obligation to close are not eventually satisfied or waived, the purchaser's
obligation to purchase the Palmdale System will terminate.
THE PALMDALE SYSTEM
The assets to be acquired consist primarily of the real and personal,
tangible and intangible assets of the Venture's Palmdale System. The purchaser
will purchase all of the tangible assets of the Palmdale System, including,
among other things, the headend equipment, underground and aboveground cable
distribution systems, towers, earth satellite receive stations, and furniture
and fixtures of the Palmdale System. The purchaser also will acquire certain
of the intangible assets of the Palmdale System, including, among other
things, all of the franchises, leases, agreements, permits, licenses and other
contracts and contract rights of the Palmdale System. Also included in the
sale are any parcels of real estate owned by the Palmdale System, the
subscriber accounts receivable of the Palmdale System and all of the Palmdale
System's engineering records, files, schematics, maps, reports, promotional
graphics, marketing materials and reports filed with federal, state and local
regulatory agencies. Certain of the Palmdale System's assets will be retained
by the Venture, including cash or cash equivalents on hand and in banks,
certain insurance policies and rights and claims thereunder, and any federal
or state income tax refunds to which the Venture may be entitled.
SALES PRICE
Subject to the customary working capital closing adjustments described
below, the sales price for the Palmdale System is $138,205,200. The sales
price will be reduced by any accounts payable and accrued expenses
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and vehicle lease obligations existing on the closing date. The sales price
will be increased by any accounts receivable existing on the closing date. The
sales price for the Palmdale System also will be adjusted as of the closing
date with respect to all items of income and expense associated with the
operation of the Palmdale System. This adjustment will reflect, in accordance
with generally accepted accounting principles, that all expenses and income
attributable to the period on or after the closing date are for the account of
the purchaser and those prior to the closing date are for the account of the
seller. While these adjustments may have the effect of increasing or
decreasing the sales price, any adjustment is not expected to be material.
Please see Note 6 of the Notes to Unaudited Pro Forma Financial Statements for
a detailed accounting of the estimated closing adjustments.
CONDITIONS TO CLOSING
The purchaser's obligations under the Purchase and Sale Agreement are
subject to the following conditions: (a) the Venture shall have obtained all
material consents and approvals from governmental authorities and third
parties with whom the Venture has contracted that are necessary for the
transfer of the Palmdale System, (b) all representations and warranties of the
Venture shall be true and correct in all material respects as of the closing
date and (c) termination or expiration of the statutory waiting period
applicable to the Purchase and Sale Agreement and the transactions
contemplated thereby under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"). The Venture must obtain the consents of the
four franchising authorities to the transfer of the Palmdale System's cable
franchises. The Venture and the General Partner have filed all documents
required to obtain the consents of the franchising authorities to the transfer
of the Palmdale System's cable franchises. It is anticipated that the Venture
will not experience any significant difficulty in obtaining the necessary
consents and approvals to the currently proposed sale. If, however, the
Venture fails to obtain certain non-material consents and approvals of third
parties with whom the Palmdale System has contracted, the purchaser likely
will waive this condition to closing. In such circumstances, the purchaser
would agree to indemnify the Venture for any liabilities incurred in
connection with a closing without prior receipt of all necessary consents.
The Venture's obligations under the Purchase and Sale Agreement are subject
to the following conditions: (a) the receipt of the purchase price for the
Palmdale System, (b) the limited partners of the Partnership, Fund 12-B and
Fund 12-C shall have approved the Venture's sale of the Palmdale System to the
purchaser on the terms and conditions of the Purchase and Sale Agreement and
(c) the statutory waiting periods applicable to the Purchase and Sale
Agreement and the transactions contemplated thereby under the HSR Act shall
have terminated or shall have expired.
FEDERAL AND STATE INCOME TAX CONSEQUENCES
The purpose of the following discussion of the income tax consequences of
the proposed transaction is to inform the limited partners of the Partnership
of the federal and state income tax consequences to the Partnership and to its
partners arising from the proposed sale of the Palmdale System. These tax
consequences are expected to be incurred in 1998, the year in which the sale
is expected to close. The tax information included herein was prepared by the
tax department of the General Partner. The tax information is taken from tax
data compiled by the General Partner in its role as the Partnership's tax
administrator and is not based upon the advice or formal opinion of counsel.
The tax discussion that follows is merely intended to inform the limited
partners of factual information and should not be considered tax advice.
Section 5.3 of the Partnership Agreement specifies that Partnership
distributions of cable television system net sale proceeds shall be allocated
100 percent to limited partners until they have received a return of their
initial capital contributions and thereafter such distributions will be made
75 percent to the limited partners and 25 percent to the General Partner.
Because limited partners have already received distributions in an amount in
excess of the capital they initially contributed to the Partnership, all of
the net proceeds from the sale of the Palmdale System distributed to the
Partnership will be allocated 75 percent to the limited partners and 25
percent to the General Partner.
26
<PAGE>
The allocation of gain from the sale of the Palmdale System will be
allocated 75 percent to the limited partners and 25 percent to the limited
partners in accordance with Section 5.2 of the Partnership Agreement. This
allocation follows the underlying economic gain of the partners and hence
satisfies the "substantial economic effect" test enacted in IRC Section 704(b)
regarding special partnership allocations.
Application of the allocation provisions of Section 5.2 ensures that the
limited partners' net sum of allocable partnership loss and income during the
Partnership's life will equal the net economic gain realized from their
investment in the Partnership. The estimated allocable limited partner income
from the Palmdale System sale reported below incorporates the application of
the special partnership allocation rules of Section 5.2.
By the expected date of the Palmdale System's sale in 1998, most of the
limited partners will have received certain tax benefits from their investment
in the Partnership. Assuming maximum federal income tax rates and no other
sources of passive income, original limited partners of the Partnership will
have received $14,952,357 in tax benefits from Partnership losses ($126 per
$1,000 invested).
The sale of the Palmdale System will result in a partnership gain for
federal income tax purposes. The amount of this gain allocated to limited
partners will be approximately $66,655,226. The General Partner estimates that
$54,474,592 ($459 per $1,000 invested) of this gain will be treated as
ordinary income. This amount of ordinary income results from the recapture of
depreciation on personal property under IRC Section 1245. The General Partner
estimates that the remainder of the gain, $12,180,634 ($103 per $1,000
invested), will be treated as long term capital gain under IRC Section 1231.
No significant passive loss carryforwards from the Partnership should be
available to offset these gain allocations.
Assuming the 31 percent rate applies to ordinary income and the 20 percent
rate applies to long term capital gain income, as a result of the sale of the
Palmdale System, a limited partner will be subject to federal income taxes of
$ per $1,000 invested in the Partnership. The taxable income will be
recognized in the year of the closing of the sale, which is expected to be
1998.
Limited partners that have more recently acquired their partnership
interests in the limited partnership secondary market and/or through limited
tender offers will have allocable income from the sale in the amounts reported
above. Because the Partnership does not have an IRC Section 754 election in
effect, the purchase of a limited partnership interest in the Partnership
places the new investor in the same position as the limited partner from whom
the interest was purchased. However, the new investor will not have the prior
investor's passive loss carryforwards or tax basis in the Partnership.
Newer investors in the Partnership will likely have a greater reportable net
taxable income from the sale of the Palmdale System than investors who have
held their limited partnership interests for a longer period of time. Also,
recent investors will not have their net tax basis in their partnership
interests reflected on their annual Schedule K-1. Such limited partners must
track their tax basis by adjusting their original cost by allocable income or
loss and partnership distributions. Their adjusted tax basis will be pertinent
in the year when they sell their limited partnership interests or when the
Partnership is liquidated.
Limited partners who are non-resident aliens or foreign corporations
("foreign persons") are subject to a withholding tax on their share of the
Partnership's income from the sale of the Palmdale System. The withholding
rates are 39.6 percent for individual partners and 35 percent for corporate
partners. The tax withheld will be remitted to the Internal Revenue Service
and the foreign person will receive a credit on their U.S. tax return for the
amount of the tax withheld by the Partnership. The tax withheld will be
treated as a distribution to the limited partner.
The sale of the Palmdale System will require certain limited partners to
report their income to the State of California. The General Partner is
required by California law to withhold 7 percent of each domestic non-resident
partner's allocable income from the sale of the Palmdale System and 9.3
percent of each foreign non-resident partner's allocable income from the sale
of the Palmdale System. This withholding requirement does not apply
27
<PAGE>
to residents of the State of California or to tax-exempt entities such as
trusts and IRAs. This withholding process will require affected limited
partners to file non-resident income tax returns in the State of California
for 1998. The General Partner anticipates that most limited partners will
likely receive a refund from this reporting process. Detailed California
reporting instructions and blank forms will be provided to affected limited
partners in their 1998 annual tax reporting package, which will be mailed to
limited partners in March 1999.
CERTAIN INFORMATION ABOUT THE PARTNERSHIP
AND THE GENERAL PARTNER
The General Partner acquires, develops and operates cable television systems
for itself and for its managed limited partnerships. Based on the number of
basic subscribers served by the General Partner's owned and managed cable
television systems, the General Partner is one of the larger cable television
system operators in the United States serving in excess of 1 million basic
subscribers. The principal executive offices of the Partnership and the
General Partner are located at 9697 East Mineral Avenue, Englewood, Colorado
80112, and their telephone number is (303) 792-3111.
The limited partnership interests of the Partnership are registered pursuant
to Section 12(g) of the Exchange Act. As such, the Partnership currently is
subject to the informational reporting requirements of the Exchange Act and,
in accordance therewith, is obligated to file periodic reports, proxy
statements and other information with the Commission relating to its business,
financial condition and other matters. Reports and other information filed by
the Partnership can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the following regional offices of the Commission: 7 World
Trade Center, Suite 1300, New York, New York 10048 and Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The
Commission also maintains a World Wide Web site that contains reports, proxy
statements and information statements of registrants (including the
Partnership) that file electronically with the Commission at
http://www.sec.gov. The Partnership's registration and reporting requirements
under the Exchange Act will be terminated upon the dissolution of the
Partnership, which is expected to occur soon after the sale of the Venture's
Palmdale System.
The General Partner also is subject to the informational filing requirements
of the Exchange Act and, in accordance therewith, files periodic reports,
proxy statements and other financial information with the Securities and
Exchange Commission relating to its business, financial condition and other
matters. Information, as of particular dates, concerning the General Partner's
directors and officers, their compensation, options granted to them, the
principal holders of the General Partner's securities and any material
interest of such persons in transactions with the General Partner is required
to be disclosed in certain documents filed with the Commission. Such reports,
proxy statements and other information may be inspected at the above-listed
public reference facilities maintained by the Commission and at the
Commission's World Wide Web site. Copies of such materials may be obtained
upon payment of the Commission's prescribed charges by writing to the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C.
20549.
The name, business address and principal occupation and employment for the
past five years of each of the directors and executive officers of the General
Partner are set forth in Schedule 1 to this Proxy Statement. To the best
knowledge of any of the persons listed on Schedule 1 hereto, except as
disclosed on such schedule, no persons listed on such schedule beneficially
own any limited partnership interests in the Partnership.
Except as disclosed herein, neither the General Partner nor, to the best of
its knowledge, any of the persons listed on Schedule 1 hereto, has any
contract, arrangement, understanding or relationship with any other person
with respect to any limited partnership interest of the Partnership,
including, but not limited to, any contract, arrangement, understanding or
relationship concerning the transfer or the voting of any of such interests,
joint ventures, loan or option arrangements, puts or calls, guaranties of
loans, guaranties against loss or the giving or withholding of proxies.
28
<PAGE>
CERTAIN RELATED PARTY TRANSACTIONS
The General Partner and its affiliates engage in certain transactions with
the Venture. The General Partner believes that the terms of such transactions
are generally as favorable as could be obtained by the Venture from
unaffiliated parties. This determination has been made by the General Partner
in good faith, but none of the terms were or will be negotiated at arm's-
length and there can be no assurance that the terms of such transactions have
been or will be as favorable as those that could have been obtained by the
Venture from unaffiliated parties.
The purchase price for the Palmdale System was determined in accordance with
the provisions of the Partnership Agreement but the proposed sale of the
Palmdale System by the Venture to one of the General Partner's subsidiaries
was not negotiated at arm's-length and thus there can be no assurance that the
terms of such transaction have been or will be as favorable as those that
could have been obtained by the Venture from an unaffiliated purchaser.
The General Partner charges the Venture a management fee relating to the
General Partner's management of the Venture's cable television systems, and
the Venture reimburses the General Partner for certain allocated overhead and
administrative expenses in accordance with the terms of the Partnership
Agreement. These expenses consist primarily of salaries and benefits paid to
corporate personnel, rent, data processing services and other facilities
costs. Such personnel provide engineering, marketing, administrative,
accounting, legal and investor relations services to the Venture. Allocations
of personnel costs are based primarily on actual time spent by employees of
the General Partner with respect to cable television systems managed. Systems
owned by the General Partner and its subsidiaries and all other systems owned
by partnerships for which Jones Intercable, Inc. or one of its subsidiaries is
the general partner are also allocated a proportionate share of these
expenses. No duplicate management or other fees or reimbursements are charged
to the Partnership.
The General Partner from time to time also advances funds to the Venture and
charges interest on the balances payable by the Venture. The interest rate
charged the Venture approximates the General Partner's weighted average cost
of borrowing.
Knowledge TV, Inc. is an affiliate of the General Partner that owns and
operates Knowledge TV, a network that provides programming related to
computers and technology; business, careers and finance; health and wellness;
and global culture and languages. Knowledge TV, Inc. sells its programming to
the cable television systems owned by the Venture.
Jones Computer Network, Ltd., an affiliate of the General Partner, operated
the television network Jones Computer Network. This network provided
programming focused primarily on computers and technology. Jones Computer
Network sold its programming to the cable television systems owned by the
Venture. Jones Computer Network terminated its programming in April 1997.
The Great American Country network provides country music video programming
to the cable television systems owned by the Venture. This network is owned
and operated by Great American Country, Inc., a subsidiary of Jones
International Networks, Ltd., an affiliate of the General Partner.
Jones Galactic Radio, Inc. is a company owned by Jones International
Networks, Ltd., an affiliate of the General Partner, Superaudio, a joint
venture between Jones Galactic Radio, Inc. and an unaffiliated entity,
provides satellite programming to the cable television systems owned by the
Venture.
The Product Information Network Venture (the "PIN Venture") is a venture
among a subsidiary of Jones International Networks, Ltd., an affiliate of the
General Partner, and two unaffiliated cable system operators. The PIN Venture
operates the Product Information Network ("PIN"), which is a 24-hour network
that airs long-form advertising generally known as "infomercials." The PIN
Venture generally makes incentive payments of approximately 60 percent of its
net advertising revenue to the cable systems that carry its programming. The
Venture's systems carry PIN for all or part of each day. Revenues received by
the Venture from the PIN Venture
29
<PAGE>
relating to the Venture's owned cable television systems totaled $54,005 for
the three months ended March 31, 1998 and $199,997 for the year ended December
31, 1997.
The programming fees paid by the Venture to Knowledge TV, Inc., Jones
Computer Network, Ltd., Great American Country and Superaudio (collectively,
the "affiliated programming providers") are governed by the terms of the
various master programming agreements entered into by and between the General
Partner and each of the affiliated programming providers. Generally, with
respect to most video programming services, cable operators pay to programmers
a monthly license fee per subscriber that is based on a number of factors,
including the perceived value of the programming, the size of the cable
operator and the level of distribution of the programming service within the
cable operator's systems and the other terms and conditions under which the
programming is provided. The General Partner negotiates master programming
agreements with each programming network distributed on any of its owned or
managed cable systems. The Venture pays the same per subscriber rate for all
of its programming, including the programming provided by affiliates of the
General Partner, as the General Partner pays for the programming it provides
on cable television systems that it owns itself, i.e., the General Partner
does not receive any markup for programming provided to the Venture under its
master programming agreements. The master programming agreements entered into
by and between the General Partner and the affiliated programming providers
were negotiated by officers of the General Partner with representatives of the
affiliated programming providers.
The charges to the Venture for related party transactions were as follows
for the periods indicated:
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED FOR THE YEAR ENDED
MARCH 31, 1998 DECEMBER 31,
-------------- --------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C> <C>
Management fees................ $1,045,622 $4,133,751 $4,118,188 $5,069,985
Allocation of expenses......... 1,138,307 4,615,841 5,491,265 7,183,663
Interest expense............... 0 0 0 220,743
Amount of notes and advances
outstanding................... 0 0 0 4,198,739
Highest amount of notes and
advances outstanding.......... 0 0 0 4,574,572
Programming fees:
Knowledge TV, Inc. .......... 35,982 131,277 126,665 145,598
Jones Computer Network,
Ltd. ....................... 0 85,543 248,044 283,339
Great American Country....... 33,988 131,863 141,753 0
Superaudio................... 30,847 118,032 116,710 135,861
</TABLE>
30
<PAGE>
USE OF PROCEEDS FROM PALMDALE SYSTEM SALE
The following is a brief summary of the Venture's estimated use of proceeds
and of the Partnership's estimated use of its portion of the proceeds from the
Venture's sale of the Palmdale System. All of the following selected financial
information is based upon amounts as of March 31, 1998 and certain estimates
of liabilities at closing. Final results may differ from these estimates. A
more detailed discussion of the financial consequences of the sale of the
Palmdale System is set forth below under the caption "Unaudited Pro Forma
Financial Information." All limited partners are encouraged to review
carefully the unaudited pro forma financial statements and notes thereto.
If the holders of a majority of limited partnership interests of the three
partnerships that comprise the Venture approve the proposed sale of the
Palmdale System and the transaction is closed, the Venture will repay all of
its outstanding indebtedness, which, with accrued interest, is estimated to
total approximately $48,484,000, and then the approximately $91,642,700 net
sale proceeds will be distributed to the three constituent partnerships of the
Venture in proportion to their ownership interests in the Venture. The
Partnership will receive 76 percent of the net sale proceeds, estimated to
total approximately $69,229,300. Pursuant to the terms of the Partnership
Agreement, the $69,229,300 distribution will be allocated 75 percent to the
limited partners ($51,921,975) and 25 percent to the General Partner
($17,307,325). The Partnership will distribute the $51,921,975 to its limited
partners of record as of the closing date of the sale of the Palmdale System.
The estimated uses of the sale proceeds are as follows:
<TABLE>
<S> <C>
Contract Sales Price of the Palmdale System.................... $138,205,200
Add:Cash on Hand............................................... 1,837,796
Estimated Net Closing Adjustments.......................... 83,603
Less:Repayment of Debt Plus Accrued Interest................... (48,483,899)
------------
Cash Available for Distribution to Joint Venturers........ 91,642,700
Cash Distributed to Fund 12-B and Fund 12-C............... 22,413,400
------------
Cash Available for Distribution by the Partnership........ $ 69,229,300
============
Limited Partners' Share (75%)............................. $ 51,921,975
============
General Partner's Share (25%)............................. $ 17,307,325
============
</TABLE>
Based upon financial information available at March 31, 1998, below is an
estimate of all cash distributions that will have been made to limited
partners after the distribution of the proceeds from the sale of the Palmdale
System is completed.
<TABLE>
<S> <C>
Summary of Estimated Cash Distributions to Limited Partners:
Return of Limited Partners' Initial Capital on the 1996 Sale
of the Venture's Tampa System............................... $ 41,547,000
Return of Limited Partners' Initial Capital on the 1998 Sale
of the Venture's Albuquerque System......................... 77,122,500
Limited Partners' Share of Residual Proceeds on the 1998 Sale
of the Venture's Albuquerque System......................... 12,979,356
Limited Partners' Share of Residual Proceeds on the 1998 Sale
of the Venture's Palmdale System............................ 51,921,975
------------
Total Estimated Cash Received by Limited Partners............ $183,570,831
============
Total Cash Received per $1,000 of Limited Partnership
Capital..................................................... $ 1,548
============
Total Cash Received per $500 Limited Partnership Interest ... $ 774
============
</TABLE>
31
<PAGE>
Based on financial information available at March 31, 1998, the following
table presents the estimated results of the Partnership when the Venture has
completed the sale of the Palmdale System:
<TABLE>
<S> <C>
Dollar Amount Raised........................................ $ 118,669,500
Number of Cable Television Systems Purchased Directly....... None
Number of Cable Television Systems Purchased Indirectly..... Five
Date of Closing of Offering................................. December 1986
Date of First Sale of Properties............................ August 1987
Tax and Distribution Data per $1,000 of Limited Partnership
Capital:
Federal Income Tax Results
Ordinary Income (Loss)
--from operations....................................... $ (1,629)
--from recapture........................................ $ 1,933
Capital Gain (Loss)..................................... $ 243
Cash Distributions to Investors
Source (on GAAP basis)
--investment income..................................... $ 548
--return of capital..................................... $ 1,000
Source (on cash basis)
--sales................................................. $ 1,548
</TABLE>
32
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF CABLE TV FUND 12-D, LTD.
The following unaudited pro forma financial statements assume that as of
March 31, 1998, the Venture had sold the Albuquerque System and the Palmdale
System. The sales price for the Palmdale System is $138,205,200. The funds
available to the Venture from the sale of the Palmdale System, adjusting for
the estimated net closing adjustments, are expected to total approximately
$138,288,803. Such funds plus cash on hand will be used to repay all of the
Venture's indebtedness and to distribute $91,642,700 to the three constituent
partnerships of the Venture pursuant to the percentage ownership interests in
the Venture of each partnership and then each partnership will distribute its
share of the distribution pursuant to the terms of their partnership
agreements. The Partnership will receive $69,229,300 from such distribution.
Pursuant to the terms of the Partnership Agreement, the $69,229,300
distribution will be allocated 75 percent to the limited partners
($51,921,975) and 25 percent to the General Partner ($17,307,325). The limited
partner distribution of $51,921,975 represents $219 for each $500 limited
partnership interest or $438 for each $1,000 invested in the Partnership.
The unaudited pro forma financial statements should be read in conjunction
with the appropriate notes to the unaudited pro forma financial statements.
ALL OF THE FOLLOWING UNAUDITED PRO FORMA FINANCIAL INFORMATION IS BASED UPON
AMOUNTS AS OF MARCH 31, 1998 AND CERTAIN ESTIMATES OF LIABILITIES AT CLOSING.
FINAL RESULTS MAY DIFFER FROM SUCH INFORMATION.
33
<PAGE>
CABLE TV FUND 12-D, LTD.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
------------ ------------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............. $ 2,636,162 $ 89,006,538 $91,642,700
Receivables, net...................... 4,106,106 (4,106,106) --
Investment in Cable Television
Properties:
Property, plant and equipment, net.. 105,588,913 (105,588,913) --
Franchise costs and other intangible
assets, net........................ 7,157,864 (7,157,864) --
------------ ------------- -----------
Total investment in cable
television properties............ 112,746,777 (112,746,777) --
Deposits, Prepaid Expenses and
Deferred Charges..................... 4,084,663 (4,084,663) --
------------ ------------- -----------
Total Assets...................... $123,573,708 $ (31,931,008) $91,642,700
============ ============= ===========
LIABILITIES AND PARTNERS' CAPITAL
(DEFICIT)
Liabilities:
Debt................................ $148,273,330 $(148,273,330) $ --
Trade accounts payable and accrued
liabilities........................ 3,391,963 (3,391,963) --
Subscriber prepayments.............. 461,659 (461,659) --
Distributions payable to joint
venture partners................... -- 22,413,400 22,413,400
Accrued distribution to Limited
Partners........................... -- 51,921,975 51,921,975
Accrued distribution to General
Partner............................ -- 17,307,325 17,307,325
------------ ------------- -----------
Total Liabilities................. 152,126,952 (60,484,252) 91,642,700
------------ ------------- -----------
Minority Interest in Joint Venture.... (7,239,425) 7,239,425 --
Partners' Capital (Deficit):
General Partner..................... (118,881) 118,881 --
Limited Partners.................... (21,194,938) 21,194,938 --
------------ ------------- -----------
Total Partners' Capital (Deficit). (21,313,819) 21,313,819 --
------------ ------------- -----------
Total Liabilities and Partners'
Capital (Deficit)................ $123,573,708 $ (31,931,008) $91,642,700
============ ============= ===========
</TABLE>
The accompanying notes to unaudited pro forma financial statements are
an integral part of this unaudited balance sheet.
34
<PAGE>
CABLE TV FUND 12-D, LTD.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES.............................. $ 82,675,018 $(82,675,018) $ --
COSTS AND EXPENSES:
Operating expenses.................. 45,958,487 (45,958,487) --
Management fees and allocated
overhead from
Jones Intercable, Inc. ............ 8,749,592 (8,749,592) --
Depreciation and amortization....... 21,837,251 (21,837,251) --
------------ ------------ ------------
OPERATING INCOME...................... 6,129,688 (6,129,688) --
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense.................... (10,934,909) 10,934,909 --
Other, net.......................... 6,973 (6,973) --
------------ ------------ ------------
Total other income (expense), net. (10,927,936) 10,927,936 --
------------ ------------ ------------
CONSOLIDATED NET LOSS................. (4,798,248) 4,798,248 --
MINORITY INTEREST IN CONSOLIDATED NET
LOSS................................. 1,173,555 (1,173,555) --
------------ ------------ ------------
NET LOSS.............................. $ (3,624,693) $ 3,624,693 --
============ ============ ============
NET LOSS PER LIMITED PARTNERSHIP
INTEREST............................. $ (15.12) $ --
============ ============
</TABLE>
The accompanying notes to unaudited pro forma financial statements are an
integral part of this unaudited statement.
35
<PAGE>
CABLE TV FUND 12-D, LTD.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
----------- ------------ -----------
<S> <C> <C> <C>
REVENUES ............................... $20,912,442 $(20,912,442) $ --
COST AND EXPENSES:
Operating expenses.................... 11,508,297 (11,508,297) --
Management fees and allocated overhead
from Jones Intercable, Inc........... 2,183,929 (2,183,929) --
Depreciation and amortization......... 5,858,534 (5,858,534) --
----------- ------------ -----------
OPERATING INCOME........................ 1,361,682 (1,361,682) --
----------- ------------ -----------
OTHER INCOME (EXPENSE):
Interest expense...................... (2,675,112) 2,675,112 --
Other, net............................ (50,084) 50,084 --
----------- ------------ -----------
Total other income (expense), net... (2,725,196) 2,725,196 --
----------- ------------ -----------
CONSOLIDATED NET LOSS................... (1,363,514) 1,363,514 --
MINORITY INTEREST IN CONSOLIDATED NET
LOSS................................... 333,488 (333,488) --
----------- ------------ -----------
NET LOSS................................ $(1,030,026) $ 1,030,026 $ --
=========== ============ ===========
NET LOSS PER LIMITED PARTNERSHIP
INTEREST............................... $ (4.30) $ --
=========== ===========
</TABLE>
The accompanying notes to unaudited pro forma financial statements are an
integral part of this unaudited statement.
36
<PAGE>
CABLE TV FUND 12-D, LTD.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1) The accompanying unaudited consolidated financial statements include 100
percent of the accounts of the Partnership and those of the Venture reduced by
the 24 percent minority interest in the Venture. All interpartnership accounts
and transactions have been eliminated.
2) The Venture sold the Albuquerque System for $222,683,739. Such funds were
used to repay indebtedness and to distribute $125,000,000 to the three
constituent partnerships of the Venture pursuant to the percentage ownership
interests in the Venture of each partnership. The Partnership received
$94,428,308 from such distribution. Pursuant to the terms of the Partnership
Agreement, the Partnership returned to the limited partners the remaining
$77,122,500 of capital initially contributed to the Partnership and the
remainder was allocated 75 percent to the limited partners ($12,979,356) and
25 percent to the General Partner ($4,326,452).
3) The Partnership has a 76 percent ownership interest in the Venture
through capital contributions made during 1986 of $102,353,444. The following
calculations present the sale of the Palmdale System and the resulting
estimated distributions to be received by the Partnership.
4) The unaudited pro forma balance sheet of the Partnership assumes that the
Venture had sold the Palmdale System for $138,205,200 as of March 31, 1998.
The unaudited statements of operations of the Partnership assumes that the
Venture had sold the Palmdale System as of January 1, 1997.
5) The Partnership will receive $69,229,300 from the Venture. Pursuant to
the terms of the Partnership Agreement, the $69,229,300 distribution will be
allocated 75 percent to the limited partners ($51,921,975) and 25 percent to
the General Partner ($17,307,325). The limited partner distribution of
$51,921,975 represents $219 for each $500 limited partnership interest or $438
for each $1,000 invested in the Partnership.
6) The estimated gain recognized from the sale of the Palmdale System and
corresponding estimated distribution to limited partners as of March 31, 1998
has been computed as follows:
GAIN ON SALE OF ASSETS:
<TABLE>
<S> <C>
Contract sales price............................................. $138,205,200
Less: Net book value of investment in cable television properties
at March 31, 1998.......................................... (38,461,594)
------------
Gain on sale of assets........................................... $ 99,743,606
============
Partnership's share of gain on sale of assets.................... $ 75,346,320
============
DISTRIBUTIONS TO PARTNERS:
Contract sales price............................................. $138,205,200
Add: Trade receivables, net..................................... 1,012,541
Prepaid expenses........................................... 658,063
Less: Accrued liabilities........................................ (1,374,377)
Subscriber prepayments..................................... (212,624)
------------
Adjusted cash received .......................................... 138,288,803
Less: Outstanding debt plus accrued interest to third parties.... (48,483,899)
Add: Cash on hand............................................... 1,837,796
------------
Cash available for distribution to joint venturers............... 91,642,700
Cash distributed to Fund 12-B and Fund 12-C...................... 22,413,400
------------
Cash available for distribution by the Partnership............... $ 69,229,300
============
Limited Partners' share (75%).................................... $ 51,921,975
============
General Partner's share (25%).................................... $ 17,307,325
============
</TABLE>
37
<PAGE>
AVAILABLE INFORMATION
The Partnership's Annual Report on Form 10-K/A No.1 for the fiscal year
ended December 31, 1997 and the Partnership's Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 1998 are being mailed to the limited
partners of the Partnership together with this Proxy Statement. Copies of the
three independent appraisals of the fair market value of the Palmdale System
and copies of the Purchase and Sale Agreement between the Venture and the
General Partner have been publicly filed with the Securities and Exchange
Commission and may be inspected at the Commission's public reference
facilities and at its World Wide Web site, and such documents also are
available to each limited partner of the Partnership upon written request to
Elizabeth M. Steele, Secretary, Jones Intercable, Inc., 9697 East Mineral
Avenue, Englewood, Colorado 80112. Copies of these documents will be provided
at the expense of the requesting limited partner.
A Rule 13e-3 Transaction Statement furnishing certain additional information
with respect to the transaction described herein has been jointly filed by the
Partnership and the General Partner with the Securities and Exchange
Commission. This document may be inspected at the Commission's public
reference facilities and at its World Wide Web site.
INCORPORATION BY REFERENCE
The following documents, which have been filed by the Partnership with the
Securities and Exchange Commission pursuant to the requirements of the
Exchange Act are hereby incorporated by reference: (i) the Partnership's
Annual Report on Form 10-K/A No. 1 for the fiscal year ended December 31,
1997, (ii) the Partnership's Current Report on Form 8-K dated March 10, 1998
and (iii) the Partnership's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1998.
38
<PAGE>
SCHEDULE 1
EXECUTIVE OFFICERS AND DIRECTORS OF THE GENERAL PARTNER
Set forth below is the name, residence or business address, present
principal occupation or employment and five-year employment history of the
executive officers and directors of the General Partner. Also set forth is the
aggregate number of limited partnership interests of the Partnership
beneficially owned by each such person. The present principal occupation of
each executive officer of the General Partner is as an executive officer of
the General Partner. The Partnership has no officers or employees. All persons
listed except for Messrs. Fridman, Kearney and Vanaselja are citizens of the
United States. Messrs. Fridman, Kearney and Vanaselja are citizens of Canada.
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Glenn R. Jones Mr. Jones has served as Chairman of the Board of 0
c/o Jones Intercable, Directors and Chief Executive Officer of the
Inc. 9697 E. Mineral General Partner since its formation in 1970. He
Avenue Englewood, CO served as President of the General Partner from
80112 1984 to 1988. Mr. Jones has been involved in
the cable television business in various
capacities since 1961.
Robert E. Cole Mr. Cole was appointed a Director of the General 0
c/o Jones Intercable, Partner in March 1996. Mr. Cole is currently
Inc. self-employed as a partner of First Variable
9697 E. Mineral Avenue Insurance Marketing and is responsible for
Englewood, CO 80112 marketing to National Association of Securities
Dealers, Inc. firms in northern California,
Oregon, Washington and Alaska. From 1993 to
1995, Mr. Cole was the director of marketing
for Lamar Life Insurance Company; from 1992 to
1993, Mr. Cole was senior vice president of PMI
Inc., a third party lender serving the special
needs of corporate owned life insurance (COLI);
and from 1988 to 1992, Mr. Cole was the
principal of a specialty investment banking
firm that provided services to finance the
ownership and growth of emerging companies,
productive assets and real property.
Kevin P. Coyle Mr. Coyle, Group Vice President/Finance of the 0
c/o Jones Intercable, General Partner, has been the General Partner's
Inc. 9697 E. Mineral Chief Financial Officer since 1990. Mr. Coyle
Avenue Englewood, CO has been an associate of the finance department
80112 of the General Partner since 1981.
William E. Frenzel Mr. Frenzel was appointed a Director of the 0
1775 Massachusetts General Partner in April 1995. He has been a
Avenue, NW Guest Scholar since 1991 with the Brookings
Washington, DC 20036 Institution, a research organization located in
Washington, DC. Until his retirement in January
1991, Mr. Frenzel served for twenty years in
the United States House of Representatives.
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Josef J. Fridman Mr. Fridman was appointed a director of the 0
c/o BCI Telecom Holding Inc. General Partner in February 1998. He is senior
1000 rue de la vice-president, law and corporate secretary of
Gauchetiere Bureau 1100 BCE Inc. Mr. Fridman joined Bell Canada, a
Montreal (PQ) wholly owned subsidiary of BCE Inc., in 1969,
Canada H3B 4Y8 and he has held increasingly senior positions
with Bell Canada and BCE Inc. since such time.
He has held his current position since 1991.
Donald L. Jacobs Mr. Jacobs was appointed a Director of the 0
60435 Tekampe Road General Partner in April 1995. Mr. Jacobs is a
Bend, OR 97702 retired executive officer of TRW. Prior to his
retirement in 1992, he was Vice President and
Deputy Manager of the Space and Defense Sector;
prior to that appointment, he was the Vice
President and General Manager of the Defense
Systems Group; and prior to that appointment,
he was President of ESL, Inc., a subsidiary of
TRW.
Larry Kaschinske Mr. Kaschinske has been the Controller and Chief 0
c/o Jones Intercable, Accounting Officer of the General Partner since
Inc. 9697 E. Mineral 1994. Mr. Kaschinske has been an associate of
Avenue Englewood, CO the finance department of the General Partner
80112 since 1984.
Robert Kearney Mr. Kearney was appointed a Director of the 0
c/o BCI Telecom Holding General Partner in July 1997. Mr. Kearney is a
Inc. retired executive officer of Bell Canada. Prior
1000 rue de la to his retirement in December 1993, Mr. Kearney
Gauchetiere was the President and Chief Executive Officer
Bureau 1100 of Bell Canada. He served as Chairman of BCE
Montreal (PQ) Canadian Telecom Group in 1994 and as Deputy
Canada H3B 4Y8 Chairman of BCI Management Limited in 1995.
James J. Krejci Mr. Krejci has been a Director of the General 0
3100 Arapahoe Avenue Partner since 1987. Mr. Krejci is President and
Boulder, CO 80303 CEO of Imagelink Technologies, Inc., a
privately financed company with leading
technology in the desktop or personal computer
videoconferencing market. Prior to joining
Imagelink Technologies in July 1996, he was the
President of the International Division of
International Gaming Technology headquartered
in Reno, Nevada. Prior to joining International
Gaming Technology in May 1994, Mr. Krejci had
been a Group Vice President of the General
Partner since 1987.
James B. O'Brien Mr. O'Brien has been President and a Director of 0
c/o Jones Intercable, the General Partner since 1989 and a member of
Inc. the Executive Committee of the General
9697 E. Mineral Avenue Partner's Board of Directors since 1993.
Englewood, CO 80112 Mr. O'Brien has been with the General Partner
since 1982 in various operational management
positions.
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Raphael M. Solot Mr. Solot was appointed a Director of the 0
501 South Cherry Street General Partner in March 1996. Mr. Solot is an
Denver, CO 80222 attorney in private practice. He has practiced
law for 34 years with an emphasis on franchise,
corporate and partnership law and complex
litigation.
Cheryl M. Sprague Ms. Sprague joined the General Partner as Group 0
c/o Jones Intercable, Vice President/Human Resources in November
Inc. 1997. Prior to November 1997 and since December
9697 E. Mineral Avenue 1995, Ms. Sprague served as Director, Human
Englewood, CO 80112 Resources for Westmoreland Coal Company. From
October 1993 to December 1995, Ms. Sprague
served as President of Peak Executive
Resources. From April 1992 to October 1993, Ms.
Sprague was Vice President, Human Resources for
Penrose-St. Francis Healthcare System.
Elizabeth M. Steele Ms. Steele joined the General Partner in 1987 as 0
c/o Jones Intercable, Vice President/General Counsel and Secretary.
Inc. Prior to that time, Ms. Steele was a partner at
9697 E. Mineral Avenue Davis, Graham & Stubbs, a Denver, Colorado law
Englewood, CO 80112 firm that serves as counsel to the General
Partner.
Howard O. Thrall Mr. Thrall was appointed a director of the 0
c/o Jones Intercable, General Partner in March 1996 and he had
Inc. previously served as a director of the General
9697 E. Mineral Avenue Partner from December 1988 to December 1994.
Englewood, CO 80112 Mr. Thrall is now a management and
international marketing consultant. From
September 1993 through July 1996, Mr. Thrall
served as Vice President of Sales, Asian
Region, for World Airways, Inc. From 1984 until
August 1993, Mr. Thrall was with the McDonnell
Douglas Corporation, where he was a Regional
Vice President, Commercial Marketing with the
Douglas Aircraft Company subsidiary.
Siim A. Vanaselja Mr. Vanaselja was appointed a Director of the 0
c/o BCI Telecom Holding General Partner in August 1996. Mr. Vanaselja
Inc. joined BCE Inc., Canada's largest
1000 rue de la telecommunications company, in February 1994
Gauchetiere and he has served in various capacities with
Bureau 1100 that company and its subsidiaries since that
Montreal (PQ) time. He currently serves as Executive Vice
Canada H3B 4Y8 President and Chief Financial Officer of Bell
Canada International Inc. and Vice President of
BCI Telecom Holding Inc., BCE Inc.
subsidiaries. Prior to joining BCE Inc., Mr.
Vanaselja was a partner in the Toronto office
of KPMG Peat Marwick Thorne.
Ruth E. Warren Ms. Warren has been Group Vice 0
c/o Jones Intercable, President/Operations of the General Partner
Inc. since 1990. Ms. Warren has been with the
9697 E. Mineral Avenue General Partner in various operational
Englewood, CO 80112 management positions since 1980.
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Cynthia A. Winning Ms. Winning joined the General Partner as Group 0
c/o Jones Intercable, Vice President/Marketing in December 1994.
Inc. Prior to joining the General Partner, Ms.
9697 E. Mineral Avenue Winning served in 1994 as the President of PRS
Englewood, CO 80112 Inc., a Denver, Colorado sports and event
marketing company. From 1979 to 1981 and from
1986 to 1994, Ms. Winning served as the Vice
President and Director of Marketing for
Citicorp Retail Services, Inc.
Sanford Zisman Mr. Zisman was appointed a Director of the 0
3773 Cherry Creek North Drive- General Partner in June 1996. Mr. Zisman is a
Denver, CO 80209 principal in the law firm Zisman & Ingraham,
P.C. of Denver, Colorado. He has practiced law
for 32 years, with an emphasis on tax, business
and estate planning and probate administration.
Robert L. Zoellick Mr. Zoellick was appointed a Director of the 0
3900 Wisconsin General Partner in April 1995. Mr. Zoellick is
Avenue, NW the John M. Olin Professor at the U.S. Naval
Washington, DC 20016 Academy for the 1997-1998 term. From 1993
through 1997, he was an Executive Vice
President at 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.
</TABLE>
S-4
<PAGE>
[LOGO OF JONES INTERCABLE, INC. APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE PARTNERSHIP BY THE GENERAL PARTNER
The undersigned Limited Partner of Cable TV Fund 12-D, Ltd., a Colorado
limited partnership, hereby votes on the sale of Cable TV Fund 12-BCD Venture's
Palmdale, California cable television system to Jones Communications of
California, Inc., an indirect wholly owned subsidiary of Jones Intercable,
Inc., for a sales price of $138,205,200 in cash, subject to normal closing
adjustments, pursuant to the terms and conditions of that certain Purchase and
Sale Agreement dated as of March 10, 1998, as follows:
[_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS
(YOU MUST SIGN ON THE REVERSE SIDE OF THIS PROXY CARD FOR YOUR VOTE TO COUNT.)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED LIMITED PARTNER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE PROPOSED SALE TRANSACTION.
PLEASE SIGN EXACTLY AS NAME
APPEARS ON LABEL.
DATED: ______________________, 1998
___________________________________
Beneficial Owner Signature
(Investor)
___________________________________
Authorized Trustee/Custodian
Signature
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
================================================================================
<PAGE>
[LOGO OF JONES INTERCABLE, INC. APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE PARTNERSHIP BY THE GENERAL PARTNER
The undersigned Limited Partner of Cable TV Fund 12-D, Ltd., a Colorado
limited partnership, hereby votes on the sale of Cable TV Fund 12-BCD Venture's
Palmdale, California cable television system to Jones Communications of
California, Inc., an indirect wholly owned subsidiary of Jones Intercable,
Inc., for a sales price of $138,205,200 in cash, subject to normal closing
adjustments, pursuant to the terms and conditions of that certain Purchase and
Sale Agreement dated as of March 10, 1998, as follows:
[_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS
(YOU MUST SIGN ON THE REVERSE SIDE OF THIS PROXY CARD FOR YOUR VOTE TO COUNT.)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED LIMITED PARTNER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE PROPOSED SALE TRANSACTION.
ALL OWNERS MUST SIGN EXACTLY AS
NAME(S) APPEAR ON LABEL.
When limited partnership
interests are held by more than
one person, all owners must sign.
When signing as attorney, as
executor, administrator, trustee
or guardian, please give full
title as such. If a corpo-ration,
please sign in full corporation
name by autho-rized officer. If a
partnership, please sign in
partnership name by authorized
person.
DATED: ______________________, 1998
___________________________________
Signature - Investor 1
___________________________________
Signature - Investor 2
___________________________________
Signature - Investor 3
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
================================================================================
<PAGE>
EXHIBIT 99(d)(2)
FORM 10-K/A NO. 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to _______
Commission file number: 0-14206
CABLE TV FUND 12-D, LTD.
------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-1010423
-------- ----------
(State of Organization) (IRS Employer Identification No.)
P.O. Box 3309, Englewood, Colorado 80155-3309 (303) 792-3111
- --------------------------------------------- --------------
(Address of principal executive office and Zip Code) (Registrant's telephone
no. including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited Partnership
Interests
Indicate by check mark whether the registrants, (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days:
Yes x No _____
-----
Aggregate market value of the voting stock held by non-affiliates of the
registrant: N/A
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. X
-----
DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE>
All statements, other than statements of historical facts, included in
this Form 10-K Report that address activities, events or developments that the
Partnership, the Venture or the General Partner expects, believes or anticipates
will or may occur in the future are forward-looking statements. These forward-
looking statements are based upon certain assumptions and are subject to a
number of risks and uncertainties. Actual events or results may differ
materially from those discussed in the results predicted by these forward-
looking statements as a result of various factors.
PART I.
-------
ITEM 1. BUSINESS
----------------
THE PARTNERSHIP. Cable TV Fund 12-D, Ltd. (the "Partnership") is a
Colorado limited partnership that was formed pursuant to the public offering of
limited partnership interests in the Cable TV Fund 12 Limited Partnership
Program (the "Program"), which was sponsored by Jones Intercable, Inc. (the
"General Partner"). Cable TV Fund 12-A, Ltd. ("Fund 12-A"), Cable TV Fund 12-B,
Ltd. ("Fund 12-B") and Cable TV Fund 12-C, Ltd. ("Fund 12-C") are the other
partnerships that were formed pursuant to that Program. In 1986, the
Partnership, Fund 12-B and Fund 12-C formed a general partnership known as Cable
TV Fund 12-BCD Venture (the "Venture"), in which the Partnership owns a 76
percent interest, Fund 12-B owns a 9 percent interest and Fund 12-C owns a 15
percent interest. The Partnership and the Venture were formed for the purpose of
acquiring and operating cable television systems.
The Partnership does not directly own any cable television systems.
The Partnership's sole asset is its 76 percent interest in the Venture. The
Venture owns the cable television systems serving Palmdale, Lancaster and Rancho
Vista and the military installation of Edwards Air Force Base, all in California
(the "Palmdale System") and Albuquerque, New Mexico (the "Albuquerque System").
See Item 2. The Palmdale System and the Albuquerque System may collectively be
referred to as the "Systems." The Venture has entered into an agreement to sell
the Albuquerque System to the General Partner, and the General Partner expects
the Palmdale System will also be sold in 1998.
PROPOSED DISPOSITION OF CABLE TELEVISION SYSTEM. Pursuant to the terms
and conditions of a purchase and sale agreement dated as of July 28, 1997 (the
"Purchase and Sale Agreement") by and between the Venture as seller and the
General Partner as purchaser, the Venture agreed to sell the Albuquerque System
to the General Partner or to a subsidiary of the General Partner. The General
Partner has assigned its rights and obligations as purchaser to Jones
Communications of New Mexico, Inc., an indirect wholly owned subsidiary. Subject
to the customary working capital closing adjustments, the sales price for the
Albuquerque System is $222,963,267, which price is based on the average of three
separate independent appraisals of the Albuquerque System's fair market value.
The closing of the sale will occur on a date upon which the Venture and the
purchaser mutually agree. It is anticipated that the closing will occur in the
second quarter of 1998 within a few weeks after receipt of the approval of the
sale by the limited partners of the Venture's three constituent limited
partnerships: the Partnership, Fund 12-B and Fund 12-C. The General Partner
anticipates that it will conduct a vote of the limited partners of the
Partnership, Fund 12-B and Fund 12-C in March and April 1998.
The purchaser's obligations under the Purchase and Sale Agreement are
subject to the following conditions: (a) the Venture shall have obtained all
material consents and approvals from governmental authorities and third parties
with whom the Venture has contracted that are necessary for the transfer of the
Albuquerque System, (b) all representations and warranties of the Venture shall
be true and correct in all material respects as of the closing date and (c)
termination or expiration of the statutory waiting period applicable to the
Purchase and Sale Agreement and the transactions contemplated thereby under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). The Venture's obligations under the Purchase and Sale Agreement are
subject to the following conditions: (a) the receipt of the purchase price for
the Albuquerque System, (b) the limited partners of the Partnership, Fund 12-B
and Fund 12-C shall have approved the Venture's sale of the Albuquerque System
and (c) the statutory waiting periods applicable to the Purchase and Sale
Agreement and the
2
<PAGE>
transactions contemplated thereby under the HSR Act shall have terminated or
shall have expired. All waiting periods under the HSR Act have expired, thereby
removing this as a condition to closing.
Upon the consummation of the proposed sale of the Albuquerque System,
the Venture will repay its outstanding Senior Notes balance of $41,544,890 plus
a make whole premium that, based on current market interest rates, is estimated
to total $2,016,985, plus accrued interest and, pursuant to an amendment to the
Venture's credit facility, distribute $125,000,000 to the Partnership, Fund 12-B
and Fund 12-C in proportion to their ownership interests in the Venture. The
remaining proceeds will be used to repay a portion of the outstanding balance
and accrued interest on its credit facility. The closing adjustments will not
affect the amount of the net sale proceeds distributed to the Partnership, Fund
12-B and Fund 12-C. The Partnership will receive 76 percent of the net sale
proceeds, estimated to total approximately $94,428,308, and the Partnership will
distribute this portion of the net sale proceeds to its partners of record as of
the closing date of the sale of the Albuquerque System. Based upon financial
information as of December 31, 1997, as a result of the Albuquerque System's
sale, the limited partners of the Partnership, as a group, will receive
approximately $90,101,856 and the General Partner will receive approximately
$4,326,452. Limited partners will receive $380 for each $500 limited partnership
interest, or $759 for each $1,000 invested in the Partnership from the
Partnership's portion of the net proceeds of the Albuquerque System's sale. Once
the Partnership has completed the distribution of its portion of the net
proceeds from the sale of the Albuquerque System, limited partners of the
Partnership will have received a total of $555 for each $500 limited partnership
interest, or $1,109 for each $1,000 invested in the Partnership, taking into
account the prior distributions to limited partners made in 1995 and 1996 from
the net proceeds of the sale of the Tampa System.
CABLE TELEVISION SERVICES. The Systems offer to subscribers various
types of programming, which include basic service, tier service, premium
service, pay-per-view programs and packages including several of these services
at combined rates.
Basic cable television service usually consists of signals of all
national television networks broadcast by their local affiliates, various
independent and educational television stations (both VHF and UHF) and certain
signals received from satellites. Basic service also usually includes programs
originated locally by the system, which may consist of music, news, weather
reports, stock market and financial information and live or videotaped programs
of a public service or entertainment nature. FM radio signals are also
frequently distributed to subscribers as part of the basic service.
The Systems offer tier services on an optional basis to its
subscribers. A tier generally includes most of the cable networks such as
Entertainment and Sports Programming Network (ESPN), Cable News Network (CNN),
Turner Network Television (TNT), Family Channel, Discovery and others, and the
cable television operators buy tier programming from these networks. The
Systems also offer a package that includes the basic service channels and the
tier services.
The Systems also offer premium services to subscribers, which consist
of feature films, sporting events and other special features that are presented
without commercial interruption. The cable television operators buy premium
programming from suppliers such as HBO, Showtime, Cinemax, 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 than the basic service or tier service programming, and consequently
cable operators price premium service separately when sold to subscribers.
The Systems also offer to subscribers pay-per-view programming. Pay-
per-view is a service that allows subscribers to receive single programs,
frequently consisting of motion pictures that have recently completed their
theatrical exhibitions and major sporting events, and to pay for such service on
a program-by-program basis.
REVENUES. Monthly service fees for basic, tier and premium services
constitute the major source of revenue for the Systems. At December 31, 1997,
the Systems' monthly basic service rates ranged from $8.35 to
3
<PAGE>
$13.81, monthly basic and tier ("basic plus") service rates ranged from $17.00
to $26.52 and monthly premium services ranged from $1.95 to $10.95 per premium
service. In addition, the Venture earns revenues from the Systems' pay-per-view
programs and advertising fees. Related charges may include a nonrecurring
installation fee that ranges from $4.95 to $35.54; however, from time to time
the Systems have followed the common industry practice of reducing or waiving
the installation fee during promotional periods. Commercial subscribers such as
hotels, motels and hospitals are charged a nonrecurring connection fee that
usually covers the cost of installation. Except under the terms of certain
contracts with commercial subscribers and residential apartment and condominium
complexes, the subscribers are free to discontinue the service at any time
without penalty. For the year ended December 31, 1997, of the total fees
received by the Systems, basic service and tier service fees accounted for
approximately 64% of total revenues, premium service fees accounted for
approximately 12% of total revenues, pay-per-view fees were approximately 3% of
total revenues, advertising fees were approximately 9% of total revenues and the
remaining 12% of total revenues came principally from equipment rentals,
installation fees and program guide sales. The Venture is dependent upon the
timely receipt of service fees to provide for maintenance and replacement of
plant and equipment, current operating expenses and other costs of the Systems.
FRANCHISES. The Systems are constructed and operated under non-
exclusive, fixed-term franchises or other types of operating authorities
(referred to collectively herein as "franchises") granted by local governmental
authorities. These franchises typically contain many conditions, such as time
limitations on commencement and completion of construction, conditions of
service, including the number of channels, types of programming and the
provision of free service to schools and certain other public institutions, and
the maintenance of insurance and indemnity bonds. The provisions of local
franchises are subject to federal regulation.
Following are the franchises held by the Venture relating to the
Systems and the expiration date of each franchise:
<TABLE>
<CAPTION>
ALBUQUERQUE SYSTEM PALMDALE SYSTEM
- ------------------ ---------------
<S> <C> <C> <C>
Bernalillo County 08/05/2011 Edwards AFB 09/30/2004
City of Albuquerque 09/01/1999 City of Lancaster 05/04/2001
Kirtland AFB 10/01/1999 Los Angeles County 10/29/2005
Sandoval County 03/03/2002 Los Angeles County-Green Valley/ 10/29/2005
Town of Bernalillo 08/17/2001 Elizabeth Lake/Leona Valley
Valencia County 01/21/2000 City of Palmdale 02/13/2007
Village of Bosque Farms 10/13/1999
Village of Corrales 04/20/2006
Village of Los Ranchos 05/14/2011
</TABLE>
The Venture's franchises provide for the payment of fees to the
issuing authorities and generally range from 3% to 5% of the gross revenues of a
cable television system. The 1984 Cable Act prohibits franchising authorities
from imposing annual franchise fees in excess of 5% of gross revenues and also
permits the cable television system operator to seek renegotiation and
modification of franchise requirements if warranted by changed circumstances.
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.
4
<PAGE>
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 General Partner has experienced
overbuilds in connection with certain systems that it has owned or managed for
limited partnerships, and currently there are overbuilds in the systems owned or
managed by the General Partner but not in any of the systems owned by the
Venture. Constructing and developing a cable television system is a capital
intensive process, and it is often difficult for a new cable system operator to
create a marketing edge over the existing system. Generally, an overbuilder
would be required to obtain franchises from the local governmental authorities,
although in some instances, the overbuilder could be the local government
itself. In any case, an overbuilder would be required to obtain programming
contracts from entertainment programmers and, in most cases, would have to build
a complete cable system, including headends, trunk lines and drops to individual
subscribers homes, throughout the franchise areas.
DBS. High-powered direct-to-home satellites have made possible the
---
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. 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 faces technical and legal obstacles to
offering its customers local broadcast programming, although at least one DBS
provider is now attempting to do so. In addition to emerging high-powered DBS
competition, cable television systems face competition from a major medium-
powered satellite distribution provider and several low-powered providers, whose
service requires use of much larger home satellite dishes. Not all subscribers
terminate cable television service upon acquiring a DBS system. The General
Partner has observed that there are DBS subscribers that also elect to subscribe
to cable television service in order to obtain the greatest variety of
programming on multiple television sets, including local programming not
available through DBS service. The ability of DBS service providers to compete
successfully with the cable television industry will depend on, among other
factors, the ability of DBS providers to overcome certain legal and technical
hurdles and the availability of equipment at reasonable prices.
Telephone and Utilities. Federal cross-ownership restrictions
-----------------------
historically limited entry by local telephone companies into the cable
television business. The 1996 Telecommunications Act (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. The General Partner cannot predict at this time the extent of telephone
company competition that will emerge to owned or managed cable television
systems. The entry of telephone companies as direct competitors, however, is
likely to continue over the next several years and could adversely affect the
profitability and market value of the General Partner's owned and managed
systems. The entry of electric utility companies into the cable television
business, as now authorized by the 1996 Telecom Act, could have a similar
adverse effect. The local electric utility in the Washington D.C. area recently
announced plans to participate in RCN, a planned video competitor.
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, which
may preclude operators of franchised systems from serving residents of such
private complexes. Private cable systems that do not cross public rights of way
are free from the federal, state and local regulatory requirements imposed on
franchised cable television operators. In some cases, the Venture has been
unable to provide cable television service to buildings in which private
operators have secured exclusive contracts to provide video and telephony
services. The Venture is interested in providing these same services, but
expects that the market to install and provide these services in multi-unit
buildings will continue to be highly competitive.
MMDS. Cable television systems also compete with wireless program
----
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
5
<PAGE>
programming over-the-air to paying subscribers. The MMDS industry is less
capital intensive than the cable television industry, and it is therefore more
practical to construct MMDS systems in areas of lower subscriber penetration.
Wireless cable systems are now in direct competition with cable television
systems in several areas of the country, including the system in Pima County,
Arizona owned by the General Partner. Telephone companies have acquired or
invested in wireless companies, and may use MMDS systems to provide services
within their service areas in lieu of wired delivery systems. Enthusiasm for
MMDS has waned in recent months, however, as Bell Atlantic and NYNEX have
suspended their investment in two major MMDS companies. To date, the Venture has
not lost a significant number of subscribers, nor a significant amount of
revenue, to MMDS operators competing with the Venture's cable television
systems. A series of actions taken by the FCC, however, including reallocating
certain frequencies to the wireless services, are intended to facilitate the
development of wireless cable television systems as an alternative means of
distributing video programming. In addition, Local Multipoint Distribution
Services ("LMDS"), could also pose a significant threat to the cable television
industry, if and when it becomes established. 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 1996 Telecom
Act alters the regulatory structure governing the nation's telecommunications
providers. It removes barriers to competition in both the cable television
market and the local telephone market. Among other things, it also reduces the
scope of cable rate regulation.
The 1996 Telecom Act requires the FCC to undertake a host of
implementing rulemakings, the final outcome of which cannot yet be determined.
Moreover, Congress and the FCC have frequently revisited the subject of cable
regulation. Future legislative and regulatory changes could adversely affect the
Venture's operations and there has been a recent increase in calls to maintain
or even tighten cable regulation in the absence of widespread effective
competition. This section briefly summarizes key laws and regulations affecting
the operation of the Venture's cable systems and does not purport to describe
all present, proposed, or possible laws and regulations affecting the Venture.
Cable Rate Regulation. The 1992 Cable Act imposed an extensive rate
---------------------
regulation regime on the cable television industry. Under that regime, all
cable systems are subject to rate regulation, unless they face "effective
competition" in their local franchise area. Federal law now defines "effective
competition" on a community-specific basis as requiring either low penetration
(less than 30%) by the incumbent cable operator, appreciable penetration (more
than 15%) by competing multichannel video providers ("MVPs"), or the presence of
a competing MVP affiliated with a local telephone company.
Although the FCC rules control, local government units (commonly
referred to as local franchising authorities or "LFAs") are primarily
responsible for administering the regulation of the lowest level of cable -- the
basic service tier ("BST"), which typically contains local broadcast stations
and public, educational, and government ("PEG") access channels. Before an LFA
begins BST rate regulation, it must certify to the FCC that it will follow
applicable federal rules, and many LFAs have voluntarily declined to exercise
this authority. LFAs also have primary responsibility for regulating cable
equipment rates. Under federal law, charges for various types of cable equipment
must be unbundled from each other and from monthly charges for programming
services. The 1996 Telecom Act allows operators to aggregate costs for broad
categories of equipment across geographic and functional lines. This change
should facilitate the introduction of new technology.
The FCC itself directly administers rate regulation of any cable
programming service tiers ("CPST"), which typically contain satellite-delivered
programming. Under the 1996 Telecom Act, the FCC can regulate CPST rates only if
an LFA first receives at least two rate complaints from local subscribers and
then files a
6
<PAGE>
formal complaint with the FCC. When new CPST rate complaints are filed, the FCC
now considers only whether the incremental increase is justified and will not
reduce the previously established CPST rate.
Under the FCC's rate regulations, most cable systems were required to
reduce their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price cap scheme that allows for the
recovery of inflation and certain increased costs, as well as providing some
incentive for expanding channel carriage. The FCC has modified its rate
adjustment regulations to allow for annual rate increases and to minimize
previous problems associated with regulatory lag. Operators also have the
opportunity of bypassing this "benchmark" regulatory scheme in favor of
traditional "cost-of-service" regulation in cases where the latter methodology
appears favorable. Premium cable services offered on a per-channel or per-
program basis remain unregulated, as do affirmatively marketed packages
consisting entirely of new programming product. Federal law requires that the
BST be offered to all cable subscribers, but limits the ability of operators to
require purchase of any CPST before purchasing premium services offered on a
per-channel or per-program basis.
The 1996 Telecom Act sunsets FCC regulation of CPST rates for all
systems (regardless of size) on March 31, 1999. Certain critics of the cable
television industry have called for a delay in the regulatory sunset and some
have even urged more rigorous rate regulation in the interim, including a limit
on operators passing through to their customers increased programming costs. The
1996 Telecom Act also relaxes existing uniform rate requirements by specifying
that uniform rate requirements do not apply where the operator faces "effective
competition," and by exempting bulk discounts to multiple dwelling units,
although 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. In July 1997, the Eighth
Circuit Court of Appeals vacated certain aspects of the FCC's initial
interconnection order. That decision is now on appeal to the U.S. Supreme Court.
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 General Partner
is now witnessing the beginning of LEC competition in a few of its cable
communities.
Under the 1996 Telecom Act, a LEC providing video programming to
subscribers will be regulated as a traditional cable operator (subject to local
franchising and federal regulatory requirements), unless the LEC elects to
provide its programming via an "open video system" ("OVS"). To qualify for OVS
status, the LEC must reserve two-thirds of the system's activated channels for
unaffiliated entities. RCN and affiliates of local power companies recently have
been certified to provide OVS service in areas encompassing the General
Partner's cable systems in suburban Maryland and Virginia. This OVS potential
competition is not yet operational.
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
7
<PAGE>
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,
although the FCC recently expressed an interest in reviewing and reimposing this
limit.
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. The investment of BCI Telecom Holding Inc. ("BCI") in the
General Partner could, therefore, adversely affect any plan to acquire FCC
broadcast or common carrier licenses. The Partnership, however, does not
currently plan to acquire such licenses.
Must Carry/Retransmission Consent. The 1992 Cable Act contains
---------------------------------
broadcast signal carriage requirements that allow local commercial television
broadcast stations to elect once every three years between requiring a cable
system to carry the station ("must carry") or negotiating for payments for
granting permission to the cable operator to carry the station ("retransmission
consent"). Less popular stations typically elect "must carry," and more popular
stations typically elect "retransmission consent." Must carry requests can
dilute the appeal of a cable system's programming offerings, and retransmission
consent demands may require substantial payments or other concessions. Either
option has a potentially adverse affect on the Venture's business. Additionally,
cable systems are required to obtain retransmission consent for all "distant"
commercial television stations (except for satellite-delivered independent
"superstations" such as WGN). The burden associated with "must carry" may
increase substantially if broadcasters proceed with planned conversion to
digital transmission and the FCC determines that cable systems must carry all
analogue and digital broadcasts in their entirety.
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 mandating a modest rate reduction. The reduction sparked some
increase in part-time use, but did not make commercial leased access
substantially
8
<PAGE>
more attractive to third party programmers. Certain of those programmers have
now appealed the revised rules to the D.C. Court of Appeals. Should the courts
and the FCC ultimately determine that an additional reduction in access rates is
required, cable operators could lose programming control of a substantial number
of channels.
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. There recently has been increased
interest in further restricting the marketing practices of cable programmers,
including subjecting programmers who are not affiliated with cable operators to
all of the existing program access requirements.
Inside Wiring. The FCC recently determined that an incumbent cable
-------------
operator can be required by the owner of a multiple dwelling unit ("MDU")
complex to remove, abandon or sell the "home run" wiring it initially provided.
In addition, the FCC is reviewing the enforceability of contracts to provide
exclusive video service within a MDU complex. The FCC has proposed abrogating
all such contracts held by incumbent cable operators, but allowing such
contracts when held by new entrants. These changes, and others now being
considered by the FCC, would, if implemented, make it easier for a MDU complex
owner to terminate service from an incumbent cable operator in favor of a new
entrant and leave the already competitive MDU sector even more challenging for
incumbent cable operators.
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. Federal requirements
governing Emergency Alert Systems and Closed Captioning adopted in 1997 will
impose additional costs on the operation of cable systems. The FCC is currently
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. 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.
Internet Access. Many cable operators have begun offering high speed
---------------
internet service to their customers. At this time, there is no significant
federal or local regulation of this service. However, as internet services
develop, it is possible that new regulations could be imposed.
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 Venture's ability to obtain desired broadcast
programming. In addition, the cable industry pays music licensing fees to BMI
and is negotiating a similar arrangement with ASCAP. Copyright clearances for
nonbroadcast programming services are arranged through private negotiations.
9
<PAGE>
State and Local Regulation. Cable television systems generally are
--------------------------
operated pursuant to nonexclusive franchises granted by a municipality or other
state or local government entity in order to cross public rights-of-way. Federal
law now prohibits franchise authorities from granting exclusive franchises or
from unreasonably refusing to award additional franchises. Cable franchises
generally are granted for fixed terms and in many cases include monetary
penalties for non-compliance and may be terminable if the franchisee fails to
comply with material provisions.
The terms and conditions of franchises vary materially from
jurisdiction to jurisdiction. Each franchise generally contains provisions
governing cable operations, service rates, franchise fees, system construction
and maintenance obligations, system channel capacity, design and technical
performance, customer service standards, and indemnification protections. A
number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. Although LFAs have considerable
discretion in establishing franchise terms, there are certain federal
limitations. For example, LFAs cannot insist on franchise fees exceeding 5% of
the system's gross revenues, cannot dictate the particular technology used by
the system, and cannot specify video programming other than identifying broad
categories of programming.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the franchise authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal. Similarly, if a franchise
authority's consent is required for the purchase or sale of a cable system or
franchise, such authority may attempt to impose more burdensome or onerous
franchise requirements in connection with a request for consent. Historically,
franchises have been renewed for cable operators that have provided satisfactory
services and have complied with the terms of their franchises.
GENERAL. The Venture's business consists of providing cable television
services to a large number of customers, the loss of any one of which would have
no material effect on the Venture's business. The Systems have had some
subscribers who later terminated the service. Terminations occur primarily
because people move to another home or to another city. In other cases, people
terminate on a seasonal basis or because they no longer can afford or are
dissatisfied with the service. The amount of past due accounts in the Systems is
not significant. The Venture's policy with regard to past due accounts is
basically one of disconnecting service before a past due account becomes
material.
The Venture does not depend to any material extent on the availability
of raw materials; it carries no significant amounts of inventory and it has no
material backlog of customer orders. Neither the Venture nor the Partnership has
any employees because all properties are managed by employees of the General
Partner. The General Partner has engaged in research and development activities
relating to the provision of new services but the amount of the Venture's funds
expended for such research and development has never been material.
Compliance with federal, state and local provisions that have been
enacted or adopted regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment has had no material
effect upon the capital expenditures, earnings or competitive position of the
Venture.
ITEM 2. PROPERTIES
------------------
The cable television systems owned by the Venture are described below:
10
<PAGE>
<TABLE>
<CAPTION>
Ownership SYSTEM ACQUISITION DATE
---------- ------ ----------------
<S> <C> <C>
Cable TV Fund 12-B, Ltd., Cable TV Palmdale System April 1986
Fund 12-C, Ltd. and Cable TV Fund Albuquerque System August 1986
12-D, Ltd. own a 9%, 15% and 76%
interest, respectively, through
their interest in Cable TV Fund
12-BCD Venture
</TABLE>
The following sets forth (i) the monthly basic plus service rates
charged to subscribers and (ii) the number of basic subscribers and pay units
for the Systems. The monthly basic service rates set forth herein represent,
with respect to systems with multiple headends, the basic service rate charged
to the majority of the subscribers within the system. In cable television
systems, basic subscribers can subscribe to more than one pay TV service. Thus,
the total number of pay services subscribed to by basic subscribers are called
pay units. As of December 31, 1997, the Palmdale System operated cable plant
passing approximately 87,800 homes, with an approximate 72% penetration rate,
and the Albuquerque System operated cable plant passing approximately 236,600
homes, with an approximate 48% penetration rate. Figures for numbers of
subscribers and homes passed are compiled from the General Partner's records and
may be subject to adjustments.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------
Palmdale System 1997 1996 1995
- ---------------- ---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $ 26.52 $ 24.77 $ 23.27
Basic subscribers 63,521 63,188 61,993
Pay units 42,731 45,108 46,699
</TABLE>
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------
Albuquerque System 1997 1996 1995
- ------------------ ---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $ 25.35 $ 23.95 $ 22.85
Basic subscribers 114,553 112,460 109,911
Pay units 68,113 61,210 57,189
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
-------------------------
David Hirsch, Marty, Inc. Pension Plan (By its Trustee and Beneficiary,
-----------------------------------------------------------------------
Martin Ury) and 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-1800, Division 3).
The General Partner is a defendant in a now consolidated civil action
filed by limited partners of the Partnership derivatively on behalf of the
Partnership, Fund 12-B and Fund 12-C. The consolidated complaint generally
alleges that the General Partner breached its fiduciary duty to the plaintiffs
and to the other limited partners of the Partnership, Fund 12-B and Fund 12-C
and the Venture in connection with the Venture's sale of its Tampa, Florida
cable television system (the "Tampa System") to a subsidiary of the General
Partner and the subsequent trade to Time Warner. The consolidated complaint also
sets forth a claim for breach of contract and a claim for breach of the implied
covenant of good faith and fair dealing. Among other things, the plaintiffs
assert that the subsidiary of the General Partner that acquired the Tampa System
paid an inadequate price for the Tampa System. The price paid for the Tampa
System was determined by the average of three separate, independent appraisals
of the Tampa System's fair market value as required by the limited partnership
agreements of the Partnership, Fund 12-B and Fund 12-C. The plaintiffs have
challenged the adequacy and independence of the
11
<PAGE>
appraisals. The consolidated complaint seeks damages in an unspecified amount
and an award of attorneys' fees, and the complaint also seeks punitive damages
and certain equitable relief.
The General Partner has filed its answer to the consolidated complaint
and has generally denied the substantive allegations in the complaint and has
asserted a number of affirmative defenses. The General Partner intends to defend
this lawsuit vigorously.
On August 29, 1997, the General Partner moved for summary judgment in its
favor on the ground that plaintiffs did not make demand on the General Partner
for the relief they seek before commencing their lawsuits or show that such a
demand would have been futile. On January 8, 1998, the Court (1) held that
plaintiffs did not make demand before commencing their lawsuits or show that
such demand would have been futile, (2) stayed the consolidated case and vacated
the February 17, 1998 trial date, (3) ordered that plaintiffs make a demand on
the General Partner and that the General Partner appoint an independent counsel
to review, consider and report on that demand, (4) ordered that the independent
counsel be appointed at the March 1998 meeting of the General Partner's Board of
Directors and (5) ordered that the independent counsel will be subject to the
approval of the Court. The Court set a new trial date for October 26, 1998 in
the event that the case is not resolved through the independent counsel process
or otherwise.
Section 2.2 of the Partnership's limited partnership agreement (the
"Partnership Agreement") provides that the General Partner will not be liable to
the Partnership or to the limited partners for any act or omission performed or
omitted by it in good faith pursuant to the authority granted to the General
Partner by the Partnership Agreement. This provision further provides that the
General Partner will be liable to the Partnership and to the limited partners
only for fraud, bad faith or gross negligence in the performance of the cable
television activities of the Partnership or negligence in the management of the
internal affairs of the Partnership. Section 9.6 of the Partnership Agreement
provides that the Partnership "shall indemnify and save harmless the General
Partner and its affiliates and any agent or officer or director thereof, from
any loss or damage incurred by them, including legal fees and expenses and
amounts paid in settlement by reason of any action performed by the General
Partner or any agent, officer or director thereof on behalf of the Partnership
or in furtherance of its interest; provided, however, that the foregoing shall
not relieve the General Partner of its fiduciary duty to the limited partners or
liability for (nor shall the General Partner be indemnified for) its fraud, bad
faith or gross negligence in the performance of the cable television activities
of the Partnership or negligence in the management of the internal affairs of
the Partnership." In accordance with the foregoing provisions of the Partnership
Agreement, the Partnership, together with Fund 12-B and Fund 12-C, which have
identical partnership agreement provisions with respect to general partner
liability and indemnification, will be obligated to indemnify and save harmless
the General Partner from any loss incurred by it, including its legal fees and
expenses and amounts paid in settlement, in connection with the litigation
concerning the Tampa System sale unless the General Partner is found to have
breached its fiduciary duty to the limited partners in connection with the Tampa
System sale or is found to have committed fraud or to have acted in bad faith or
with gross negligence in connection with the Tampa System sale. Amounts
reimbursed to the General Partner by the three constituent limited partnerships
of the Venture would be in proportion to their ownership interests in the
Venture and such amounts may be significant, but the General Partner expects
that any such reimbursement will not have a material adverse effect on the
Partnership or the Venture.
Maxine Cohen, for herself and all others similarly situated v. Jones
--------------------------------------------------------------------
Intercable, Inc., a Colorado corporation for itself, its wholly owned
- ---------------------------------------------------------------------
subsidiaries, managed partnerships and other affiliated cable television
- ------------------------------------------------------------------------
entities (Bernalillo County, New Mexico District Court, Second Judicial
- --------
District, Case No. CV-97 09694). This class action Complaint for Declaratory
and Injunctive Relief and Restitution was filed on October 27, 1997 in the
Bernalillo County District Court, by Maxine Cohen for herself and all others
similarly situated. The Complaint basically alleges that the Defendant, Jones
Intercable, Inc., for itself, its wholly owned subsidiaries, managed
partnerships and other affiliated cable television entities, collected from its
cable television subscribers, illegal late payment penalties.
Belen Cordova, on behalf of herself and all others similarly situated v.
------------------------------------------------------------------------
Jones Intercable, Inc. (Bernalillo County, New Mexico District Court, Second
- ----------------------
Judicial District, Case No. CV-97 10957). This class action
12
<PAGE>
Complaint for Breach of Contract, Unconscionable Trade Practice and Restitution
was filed on December 2, 1997 in the Bernalillo County District Court by Belen
Cordova on behalf of herself and all others similarly situated. The Complaint
alleges that Jones Intercable, Inc. charges and collects from its cable
television subscribers in New Mexico unconscionable late payment penalties.
The plaintiffs in the Cohen and Cordova actions have not specified the
----- -------
requested relief in quantitative terms. The plaintiffs have requested that (i)
the court determine what is a reasonable late fee under applicable law, (ii) the
court order Jones Intercable, Inc. and its affiliates that own and operate cable
television systems to reduce their late payment penalties to such level going
forward and (iii) the court require Jones Intercable, Inc. and its affiliates
that own and operate cable television systems to refund all late fee payments in
excess of the "reasonable amount" paid by subscribers, subject to the applicable
statutes of limitations. The plaintiff in the Cordova case also seeks treble
damages for New Mexico subscribers based on alleged violations of the Deceptive
Practices Act. The General Partner currently is opposing plaintiff's motion to
certify a nationwide class in the Cohen case, and the General Partner does not
-----
expect a trial on the merits of the cases until sometime in 1999. Given the
preliminary status of these cases, the General Partner cannot predict whether
the Venture or the Partnership will have any material financial obligation to
the plaintiffs or whether this litigation will have an adverse effect on the
distributions to be made to the limited partners of the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------
None.
PART II.
--------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
-------------------------------------------------
AND RELATED SECURITY HOLDER MATTERS
-----------------------------------
While the Partnership is publicly held, there is no public market for the
limited partnership interests, and it is not expected that a market will develop
in the future. During 1997, limited partners of the Partnership conducted
"limited tender offers" for interests in the Partnership at prices ranging from
$316 to $410 per interest. As of January 16, 1998, the Partnership had 237,339
limited partnership interests outstanding held by 16,557 persons.
13
<PAGE>
Item 6. Selected Financial Data
- -------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------------------------------------------------
Cable TV Fund 12-D, Ltd./(a)/ 1997 1996 1995 1994 1993
- ----------------------------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Revenues $ 82,675,018 $ 82,363,752 $101,399,697 $ 92,823,076 $ 89,131,530
Depreciation and Amortization 21,837,251 22,142,809 26,666,735 24,809,654 25,772,299
Operating Income 6,129,688 1,880,308 4,127,622 289,904 779,887
Minority Interest in Consolidated
(Income) Loss 1,173,555 (15,248,079) 2,720,847 3,149,271 2,833,316
Net Income (Loss) (3,624,693) 47,090,757/(b)/ (8,403,720) (9,726,971) (8,751,100)
Net Income (Loss) per Limited
Partnership Unit (15.12) 193.47/(b)/ (35.05) (40.57) (36.50)
Weighted Average Number of Limited
Partnership Units Outstanding 237,339 237,339 237,339 237,339 237,339
General Partner's Deficit (108,581) (72,334) (1,244,562) (1,160,525) (1,063,255)
Limited Partners' Deficit (20,175,212) (16,586,766) (20,958,295) (12,638,612) (3,008,911)
Total Assets 124,269,504 120,899,336 163,486,029 170,675,914 169,670,552
Debt 144,308,462 138,345,878 180,770,267 180,402,748 167,698,697
General Partner Advances - - 4,198,739 616,810 188,430
</TABLE>
(a) The above financial information represents the consolidated operations of
Cable TV Fund 12-BCD Venture, in which Cable TV Fund 12-D, Ltd. has a 76
percent equity interest.
(b) Net income resulted primarily from the sale of the Tampa System by Cable TV
Fund 12-BCD Venture in February 1996.
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
- -------------------------------------------------------------------------
Results of Operations
- ---------------------
The following discussion of the financial condition and results of
operations of Cable TV Fund 12-D, Ltd. (the "Partnership") and Cable TV Fund
12-BCD Venture (the "Venture") 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 Partnership's and Venture's
actual results may differ significantly from the results predicted in such
forward-looking statements.
FINANCIAL CONDITION
- -------------------
Cable TV Fund 12-D, Ltd. -
- ------------------------
The Partnership's investment in the Venture has decreased by $3,624,693
when compared to the December 31, 1996 balance representing a deficit of
$20,283,793. This deficit is due to the Partnership's share of Venture losses,
which are principally the result of depreciation and amortization charges being
greater than equity invested. These losses are expected to be recovered upon
liquidation of the Venture.
Cable TV Fund 12-BCD Venture -
- ----------------------------
It is the General Partner's publicly announced policy that it intends to
liquidate its managed partnerships, including the partnerships that comprise the
Venture, as opportunities for sales of partnership cable television systems
arise in the marketplace over the next several years. In accordance with the
General Partner's policy, the Venture has sold the Tampa System and has entered
into a purchase and sale agreement to sell the Albuquerque System. The General
Partner expects that the Palmdale System will be sold in 1998.
On July 28, 1997, the Venture entered into a purchase and sale agreement to
sell the Albuquerque System to the General Partner for a sales price of
$222,963,267, which price represents the average of three separate independent
appraisals of the fair market value of the Albuquerque System. The closing of
this sale is subject to a number of conditions, including the approval of the
holders of a majority of the limited partnership interests in each of the three
partnerships that comprise the Venture and necessary governmental and other
third party consents. Closing is expected to occur in the second quarter of
1998. Upon the consummation of the proposed sale of the Albuquerque System, the
Venture will repay its then outstanding Senior Notes balance of $41,544,890,
plus a make whole premium that, based on current market interest rates, is
estimated to total $2,016,985 plus accrued interest, and, then pursuant to an
amendment to the Venture's credit facility, the Venture will distribute
$125,000,000 to the three constituent partnerships of the Venture in proportion
to their ownership interests in the Venture. The remaining proceeds will be
used to repay a portion of the outstanding balance and accrued interest on its
credit facility. The Partnership will receive $94,428,308, or 76 percent of the
$125,000,000 distribution, which the Partnership will distribute to its partners
of record as of the closing date of the sale of the Albuquerque System. As a
result of the Albuquerque System's sale, the limited partners of the
Partnership, as a group, will receive $90,101,856 and the General Partner will
receive $4,326,452. Such distribution represents $380 for each $500 limited
partnership interest, or $759 for each $1,000 invested in the Partnership. Once
the Partnership has completed the distribution, limited partners of the
Partnership will have received a total of $555 for each $500 limited partnership
interest, or $1,109 for each $1,000 invested in the Partnership, taking into
account the prior distribution to limited partners made in 1996 from the net
proceeds of the sale of the Tampa System.
For the year ended December 31, 1997, the Venture generated net cash from
operating activities totaling $14,131,916, which was available to fund capital
expenditures and non-operating costs. Capital expenditures for the Venture
totaled approximately $19,866,800 during 1997. Capital expenditures in the
Albuquerque System totaled $13,076,679. Of the Albuquerque System's capital
expenditures, approximately 39 percent was for service drops to subscribers'
homes, approximately 38 percent was for cable plant extensions and the remainder
was for other capital expenditures to maintain the value of the Albuquerque
System. Capital expenditures in the Palmdale System totaled $6,790,121. Of the
Palmdale System's capital expenditures, approximately 31 percent was for service
drops to subscribers' homes, approximately 18 percent was for cable plant
extensions, approximately 16 percent was for premium service converters and the
remainder was for other capital expenditures to maintain the value of the
Palmdale System. These capital expenditures were funded primarily from cash on
hand, cash generated from operations and borrowings from the Venture's credit
facility. Budgeted capital expenditures for 1998 are approximately $12,682,500.
Budgeted capital expenditures in the Albuquerque System are approximately
$7,777,800, of which approximately 31 percent is for service drops to customers'
homes, approximately 32 percent is for cable plant extensions and the remainder
relates to other capital expenditures to maintain the value of the Albuquerque
System. Budgeted capital expenditures in the Palmdale System are approximately
$4,904,700, of which 48 percent is for service drops to subscribers' homes,
approximately 20 percent is for cable plant extensions and the remainder is for
other
15
<PAGE>
capital expenditures to maintain the value of the Palmdale System. Depending
upon the timing of the closing of the sale of the Venture's systems, the Venture
will make only the portion of the budgeted capital expenditures scheduled to be
made during the Venture's continued ownership of its systems. Funding for these
expenditures is expected to be provided by cash on hand, cash generated from
operations and borrowings from the Venture's credit facility.
The Venture's debt arrangements at December 31, 1997 consisted of
$47,479,874 of Senior Notes placed with a group of institutional lenders and a
$120,000,000 credit facility with a group of commercial bank lenders. The
Senior Notes and the credit facility are equal in standing with the other, and
both are equally secured by the assets of the Venture. The Senior Notes and the
credit facility contain certain financial covenants. The most restrictive of
these covenants is that the ratio of debt to annualized cash flow will not
exceed 4.5 to 1. The Venture was in compliance with all covenants at December
31, 1997.
The Senior Notes have a fixed interest rate of 8.64 percent and a final
maturity date of March 31, 2000. The Senior Notes require payments of interest
and accelerating principal through maturity, payable semi-annually in March and
September. Semi-annual principal payments of $3,956,656 were made in March and
September 1997, respectively. These payments were funded from cash on hand,
cash generated from operations and borrowings from the Venture's credit
facility. Upon the sale of the Albuquerque System, the Senior Notes will be
repaid in full together with a make whole premium.
The balance outstanding on the Venture's $120,000,000 credit facility at
December 31, 1997 was $95,630,620, leaving $24,369,380 available for future
needs. Upon the sale of the Albuquerque System and pursuant to an amendment to
the Venture's credit facility, the Venture anticipates repaying a portion of the
then outstanding balance of the credit facility and that the commitment will be
reduced to $55,000,000. At the Venture's option, the credit facility will be
payable in full on December 31, 1999 or will convert to a term loan that matures
on December 31, 2004 payable in consecutive quarterly amounts. Interest on the
credit facility is at the Venture's option of the London Interbank Offered Rate
plus .875 percent, the Prime Rate or the Certificate of Deposit Rate plus 1
percent. The effective interest rates on amounts outstanding on the Venture's
credit facility as of December 31, 1997 and 1996 were 6.91 percent and 6.90
percent, respectively.
The Venture has sufficient sources of capital available through its ability
to generate cash from operations and borrowings under its credit facility to
meet its presently anticipated needs until its systems are sold.
RESULTS OF OPERATIONS
- ---------------------
Cable TV Fund 12-D, Ltd. -
- ------------------------
All of the Partnership's operations are represented by its 76 percent
interest in the Venture. Thus, Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Venture should be consulted
for pertinent comments regarding the Partnership's performance.
16
<PAGE>
Cable TV Fund 12-BCD Venture -
- ----------------------------
As a result of the sale of the Tampa System in February 1996, the following
discussion of the Venture's results of operations, through operating income,
pertains only to the results of operations of the Albuquerque System and the
Palmdale System for the periods discussed. Results of operations of each system
for 1997 and 1996 are summarized below:
<TABLE>
<CAPTION>
Albuquerque System
---------------------------------------------------------
1997 1996 Inc(Dec) % Inc/(Dec)
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues $52,784,567 $49,487,923 $ 3,296,644 7%
Costs and expenses
Operating expenses 29,842,290 28,754,334 1,087,956 4%
----------- ----------- -----------
Operating cash flow 22,942,277 20,733,589 2,208,688 11%
Management fees and allocated
overhead from Jones Intercable, Inc. 5,583,053 5,804,631 (221,578) (4%)
Depreciation and amortization 15,440,702 12,922,479 2,518,223 19%
----------- ----------- -----------
Operating income $ 1,918,522 $ 2,006,479 $ (87,957) (4%)
=========== =========== ===========
<CAPTION>
Palmdale System
---------------------------------------------------------
1997 1996 Inc(Dec) % Inc/(Dec)
----------- ----------- ----------- ------------
<S> <C> <C> <C>
Revenues $29,890,451 $27,990,637 $ 1,899,814 7%
Costs and expenses
Operating expenses 16,116,197 15,524,050 592,147 4%
----------- ----------- -----------
Operating cash flow 13,774,254 12,466,587 1,307,667 10%
Management fees and allocated
overhead from Jones Intercable, Inc. 3,166,539 3,227,757 (61,218) (2%)
Depreciation and amortization 6,396,549 8,228,592 (1,832,043) (22%)
----------- ----------- -----------
Operating income $ 4,211,166 $ 1,010,238 $ 3,200,928 317%
=========== =========== ===========
<CAPTION>
Total
---------------------------------------------------------
1997 1996 Inc(Dec) % Inc/(Dec)
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues $82,675,018 $77,478,560 $ 5,196,458 7%
Costs and expenses
Operating expenses 45,958,487 44,278,384 1,680,103 4%
----------- ----------- -----------
Operating cash flow 36,716,531 33,200,176 3,516,355 11%
Management fees and allocated
overhead from Jones Intercable, Inc. 8,749,592 9,032,388 (282,796) (3%)
Depreciation and amortization 21,837,251 21,151,071 686,180 3%
----------- ----------- -----------
Operating income $ 6,129,688 $ 3,016,717 $ 3,112,971 103%
=========== =========== ===========
</TABLE>
17
<PAGE>
1997 compared to 1996
---------------------
Revenues in the Albuquerque System and the Palmdale System increased
$5,196,458, or approximately 7 percent, to $82,675,018 in 1997 from $77,478,560
in 1996. This increase in revenues was primarily due to basic service rate
increases implemented in the Venture's systems and an increase in the number of
basic service subscribers. Basic service rate increases implemented in the
Venture's systems accounted for approximately 52 percent of the increase in
revenues in 1997. An increase in the number of basic service subscribers in the
Albuquerque System and the Palmdale System accounted for approximately 21
percent of the increase in revenues for 1997. The number of basic service
subscribers increased by 2,426 subscribers, or approximately 1 percent, to
178,074 subscribers in 1997 from 175,648 subscribers in 1996. An increase in
advertising activity accounted for approximately 11 percent of the increase in
revenues for 1997. No other factor was significant to the increase in revenues.
Operating expenses consist primarily of costs associated with the operation
and administration of the Venture's cable television systems. The principal
cost components are salaries paid to system personnel, programming expenses,
professional fees, subscriber billing costs, rent for leased facilities, cable
system maintenance expenses and marketing expenses.
Operating expenses in the Albuquerque System and the Palmdale System
increased $1,680,103, or approximately 4 percent, to $45,958,487 in 1997 from
$44,278,384 in 1996. Operating expenses represented 56 percent and 57 percent,
respectively, of revenues for 1997 and 1996. An increase in programming fees
primarily accounted for the increase in operating expenses. No other factor was
significant to the increase in operating expenses.
The cable television industry generally measures the financial performance
of a cable television system in terms of operating cash flow (revenues less
operating expenses). This measure is not intended to be a substitute or
improvement upon the items disclosed on the financial statements, rather it is
included because it is an industry standard. Operating cash flow increased
$3,516,355, or approximately 11 percent, to $36,716,531 in 1997 from $33,200,176
in 1996. This increase was due to the increase in revenues exceeding the
increase in operating expenses.
Management fees and allocated overhead from Jones Intercable, Inc.
decreased $282,796, or approximately 3 percent, to $8,749,592 in 1997 from
$9,032,388 in 1996. This decrease was primarily due to a decrease in allocated
overhead from the General Partner which was partially offset by an increase in
management fees.
Depreciation and amortization expense increased $686,180, or approximately
3 percent, to $21,837,251 in 1997 from $21,151,071 in 1996. This increase was
due to capital additions in 1997.
Operating income increased $3,112,971 to $6,129,688 in 1997 from $3,016,717
in 1996. This increase was due to the increase in operating cash flow and
decrease in management fees and allocated overhead from Jones Intercable, Inc.
exceeding the increase in depreciation and amortization expense.
Interest expense decreased $284,385, or approximately 3 percent, to
$10,934,909 in 1997 from $11,219,294 in 1996. This decrease was primarily due
to lower outstanding balances on the Venture's interest bearing obligations.
The Venture recognized a gain of $71,914,391 related to the sale of the
Tampa System in February 1996. No similar gain was recognized in 1997.
The Venture recognized a net loss of $4,798,248 compared to a net income of
$62,338,836 in 1996. This change was primarily due to the gain on the sale of
the Tampa System.
1996 compared to 1995
---------------------
Revenues in the Albuquerque System and the Palmdale System increased
$4,778,991, or approximately 7 percent, to $77,478,560 in 1996 from $72,699,569
in 1995. This increase in revenues was primarily due to basic service rate
increases implemented in the Venture's systems and an increase in the number of
basic service subscribers. Basic service rate increases implemented in the
Venture's systems accounted for approximately 39 percent of the increase in
revenues in 1996. An increase in the number of basic service subscribers in the
Albuquerque System and the Palmdale System
18
<PAGE>
accounted for approximately 31 percent of the increase in revenues for 1996. The
number of basic service subscribers increased by 3,744 subscribers, or
approximately 2 percent, to 175,648 subscribers in 1996 from 171,904 subscribers
in 1995. No other factor was significant to the increase in revenues.
Operating expenses in the Albuquerque System and the Palmdale System
increased $3,608,831, or approximately 9 percent, to $44,278,384 in 1996 from
$40,669,553 in 1995. Operating expenses represented 57 percent and 56 percent,
respectively, of revenues for 1996 and 1995. An increase in programming fees
primarily accounted for the increases in operating expenses. No other factor
was significant to the increase in operating expenses.
Operating cash flow increased $1,170,160, or approximately 4 percent, to
$33,200,176 in 1996 from $32,030,016 in 1995. This increase was due to the
increase in revenues exceeding the increase in operating expenses.
Management fees and allocated overhead from Jones Intercable, Inc.
increased $230,923, or approximately 3 percent, to $9,032,388 in 1996 from
$8,801,465 in 1995. This increase was due to the increase in revenues, upon
which such management fees are based.
Depreciation and amortization expense increased $959,513, or approximately
5 percent, to $21,151,071 in 1996 from $20,191,558 in 1995. This increase was
due to capital additions in 1996.
Operating income increased $20,276, or approximately 1 percent, to
$3,016,717 in 1996 from $3,036,993 in 1995. This increase was due to the
increase in operating cash flow exceeding the increases in management fees and
allocated overhead from Jones Intercable, Inc. and depreciation and amortization
expense.
Interest expense decreased $4,127,956, or approximately 27 percent, to
$11,219,294 in 1996 from $15,347,250 in 1995. This decrease in interest expense
was primarily due to the lower outstanding balance and lower effective interest
rates on the Venture's interest bearing obligations. A portion of the proceeds
from the sale of the Tampa System was used to repay a portion of the Venture's
debt.
The Venture recognized a gain of $71,914,391 related to the sale of the
Tampa System in February 1996. No similar gain was recognized in 1995.
The Venture recognized net income of $62,338,836 in 1996 compared to a net
loss of $11,124,567 in 1995. This change was primarily due to the gain on the
sale of the Tampa System.
19
<PAGE>
Item 8. Financial Statements
- -----------------------------
20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Partners of Cable TV Fund 12-D, Ltd.:
We have audited the accompanying consolidated balance sheets of CABLE TV
FUND 12-D, LTD. (a Colorado limited partnership) and subsidiary as of December
31, 1997 and 1996, and the related consolidated statements of operations,
partners' deficit and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
General Partner's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cable TV Fund 12-D, Ltd. and
subsidiary as of December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
February 27, 1998.
21
<PAGE>
CABLE TV FUND 12-D, LTD.
------------------------
(A Limited Partnership)
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
December 31,
--------------------------------
ASSETS 1997 1996
------ ------------- ------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 1,742,444 $ 1,514,773
RECEIVABLES:
Trade receivables, less allowance for doubtful receivables of
$404,821 and $417,017 at December 31, 1997 and 1996,
respectively 4,456,904 2,676,246
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 218,189,145 198,322,316
Less- accumulated depreciation (113,368,132) (95,040,023)
------------- ------------
104,821,013 103,282,293
Franchise costs and other intangible assets, net of accumulated
amortization of $63,250,092 and $60,652,010 at
December 31, 1997 and 1996, respectively 7,791,062 10,389,144
------------- ------------
Total investment in cable television properties 112,612,075 113,671,437
DEPOSITS, PREPAID EXPENSES AND DEFERRED
CHARGES 5,458,081 3,036,880
------------- ------------
Total assets $ 124,269,504 $120,899,336
============= ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
22
<PAGE>
CABLE TV FUND 12-D, LTD.
------------------------
(A Limited Partnership)
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
December 31,
--------------------------------
LIABILITIES AND PARTNERS' DEFICIT 1997 1996
--------------------------------- ------------- ------------
<S> <C> <C>
LIABILITIES:
Debt $144,308,462 $138,345,878
Trade accounts payable and accrued liabilities 6,726,286 4,499,549
Subscriber prepayments 424,486 445,391
------------ ------------
Total liabilities 151,459,234 143,290,818
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
MINORITY INTEREST IN JOINT VENTURE (6,905,937) (5,732,382)
------------ ------------
PARTNERS' DEFICIT:
General Partner-
Contributed capital 1,000 1,000
Accumulated deficit (109,581) (73,334)
------------ ------------
(108,581) (72,334)
------------ ------------
Limited Partners-
Net contributed capital (237,339 units outstanding
at December 31, 1997 and 1996) 102,198,175 102,198,175
Accumulated deficit (80,826,387) (77,237,941)
Distributions (41,547,000) (41,547,000)
------------ ------------
(20,175,212) (16,586,766)
------------ ------------
Total liabilities and partners' deficit $124,269,504 $120,899,336
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
23
<PAGE>
CABLE TV FUND 12-D, LTD.
------------------------
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES $ 82,675,018 $ 82,363,752 $101,399,697
COSTS AND EXPENSES:
Operating expenses 45,958,487 48,731,182 58,351,692
Management fees and allocated overhead from
Jones Intercable, Inc. 8,749,592 9,609,453 12,253,648
Depreciation and amortization 21,837,251 22,142,809 26,666,735
------------ ------------ ------------
OPERATING INCOME 6,129,688 1,880,308 4,127,622
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (10,934,909) (11,219,294) (15,347,250)
Gain on sale of cable television system - 71,914,391 -
Other, net 6,973 (236,569) 95,061
------------ ------------ ------------
Total other income (expense), net (10,927,936) 60,458,528 (15,252,189)
------------ ------------ ------------
CONSOLIDATED NET INCOME (LOSS) (4,798,248) 62,338,836 (11,124,567)
MINORITY INTEREST IN CONSOLIDATED NET
(INCOME) LOSS 1,173,555 (15,248,079) 2,720,847
------------ ------------ ------------
NET INCOME (LOSS) $ (3,624,693) $ 47,090,757 $ (8,403,720)
============ ============ ============
ALLOCATION OF NET INCOME (LOSS):
General Partner $ (36,247) $ 1,172,228 $ (84,037)
============ ============ ============
Limited Partners $ (3,588,446) $ 45,918,529 $ (8,319,683)
============ ============ ============
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $(15.12) $193.47 $(35.05)
============ ============ ============
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 237,339 237,339 237,339
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
24
<PAGE>
CABLE TV FUND 12-D, LTD.
------------------------
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
--------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
GENERAL PARTNER:
Balance, beginning of year $ (72,334) $ (1,244,562) $ (1,160,525)
Net income (loss) for year (36,247) 1,172,228 (84,037)
------------ ------------ ------------
Balance, end of year $ (108,581) $ (72,334) $ (1,244,562)
============ ============ ============
LIMITED PARTNERS:
Balance, beginning of year $(16,586,766) $(20,958,295) $(12,638,612)
Net income (loss) for year (3,588,446) 45,918,529 (8,319,683)
Distributions - (41,547,000) -
------------ ------------ ------------
Balance, end of year $(20,175,212) $(16,586,766) $(20,958,295)
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
25
<PAGE>
CABLE TV FUND 12-D, LTD.
------------------------
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------------------
1997 1996 1995
------------- -------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (3,624,693) $ 47,090,757 $ (8,403,720)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 21,837,251 22,142,809 26,666,735
Gain on sale of cable television system - (71,914,391) -
Minority interest in consolidated income (loss) (1,173,555) 15,248,079 (2,720,847)
Decrease (increase) in trade receivables (1,780,658) 1,788,527 (657,502)
Increase in deposits, prepaid expenses and
deferred charges (3,332,261) (2,221,806) (351,579)
Increase (decrease) in trade accounts payable and
accrued liabilities and subscriber prepayments 2,205,832 (3,302,401) (14,766)
Increase (decrease) in advances from Jones Intercable, Inc. - (4,198,739) 3,581,929
------------ ------------- ------------
Net cash provided by operating activities 14,131,916 4,632,835 18,100,250
------------ ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (19,866,829) (17,474,134) (21,474,577)
Proceeds from sale of cable television system - 110,395,667 -
------------ ------------- ------------
Net cash provided by (used in)
investing activities (19,866,829) 92,921,533 (21,474,577)
------------ ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 15,551,159 72,365,824 882,431
Repayment of debt (9,588,575) (114,790,213) (514,912)
Distributions to Limited Partners - (41,547,000) -
Distributions to Joint Venture Partners - (13,453,000) -
------------ ------------- ------------
Net cash provided by (used in)
financing activities 5,962,584 (97,424,389) 367,519
------------ ------------- ------------
Increase (decrease) in cash and cash equivalents 227,671 129,979 (3,006,808)
Cash and cash equivalents, beginning of year 1,514,773 1,384,794 4,391,602
------------ ------------- ------------
Cash and cash equivalents, end of year $ 1,742,444 $ 1,514,773 $ 1,384,794
============ ============= ============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 10,776,074 $ 12,370,892 $ 15,331,071
============ ============= ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
26
<PAGE>
CABLE TV FUND 12-D, LTD.
------------------------
(A Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(1) ORGANIZATION AND PARTNERS' INTERESTS
------------------------------------
Formation and Business
----------------------
Cable TV Fund 12-D, Ltd. ("Fund 12-D"), a Colorado limited partnership, was
formed on February 5, 1986, under a public program sponsored by Jones
Intercable, Inc. Fund 12-D was formed to acquire, construct, develop and
operate cable television systems. Jones Intercable, Inc. ("Intercable"), is the
"General Partner" and manager of Fund 12-D. The General Partner and its
subsidiaries also own and operate cable television systems. In addition, the
General Partner manages cable television systems for other limited partnerships
for which it is general partner and, also, for affiliated entities.
Contributed Capital
-------------------
The capitalization of Fund 12-D is set forth in the accompanying
consolidated statements of partners' deficit. No limited partner is obligated
to make any additional contributions to partnership capital. The General
Partner purchased its interest in Fund 12-D by contributing $1,000 to
partnership capital.
All profits and losses of Fund 12-D are allocated 99 percent to the limited
partners and 1 percent to the General Partner, except for income or gain from
the sale or disposition of cable television properties, which will be allocated
to the partners based upon the formula set forth in the Partnership Agreement,
and interest income earned prior to the first acquisition by Fund 12-D of a
cable television system, which was allocated 100 percent to the limited
partners.
Formation of Joint Venture and Venture Sale of Cable Television Systems
-----------------------------------------------------------------------
On March 17, 1986, Cable TV Fund 12-B, Ltd. ("Fund 12-B"), Cable TV Fund
12-C, Ltd. ("Fund 12-C") and Fund 12-D formed Cable TV Fund 12-BCD Venture (the
"Venture"). The Venture was formed for the purpose of acquiring certain cable
television systems. At December 31, 1997, the Venture owned and operated the
cable television systems serving certain areas in and around Albuquerque, New
Mexico (the "Albuquerque System") and Palmdale, California (the "Palmdale
System").
On February 28, 1996, the Venture sold the cable television system serving
the areas in and around Tampa, Florida (the "Tampa System") to a wholly owned
subsidiary of the General Partner. The sales price of the Tampa System was
$110,395,667, subject to normal working capital closing adjustments. This price
represented the average of three separate, independent appraisals of the fair
market value of the Tampa System. In February 1996, the Venture's debt
arrangements were amended to permit a $55,000,000 distribution to the Venture's
partners from the sale proceeds, and the balance of the sale proceeds were used
to reduce Venture indebtedness. Of this total distribution, Fund 12-B received
$5,049,000, Fund 12-C received $8,404,000 and Fund 12-D received $41,547,000.
Because the limited partners of Fund 12-D had not yet received distributions in
an amount equal to 100 percent of the capital initially contributed to Fund 12-D
by them, the entire portion of Fund 12-D's distribution was distributed to the
limited partners in March 1996. This distribution has given Fund 12-D's limited
partners an approximate return of $350 for each $1,000 invested in Fund 12-D.
Because the Tampa System did not constitute all or substantially all of the
Venture's assets, no vote of the limited partners of the Partnership was
required in connection with this transaction.
On July 28, 1997, the Venture entered into a purchase and sale agreement to
sell the Albuquerque System to the General Partner for a sales price of
$222,963,267, which price represents the average of three separate independent
appraisals of the fair market value of the Albuquerque System. The closing of
this sale is subject to a number of conditions, including the approval of the
holders of a majority of the limited partnership interests in each of the three
partnerships that comprise the Venture and necessary governmental and other
third party consents. Closing is expected to occur in the second quarter of
1998. Upon the consummation of the proposed sale of the Albuquerque System, the
Venture will repay its then outstanding Senior Notes balance of $41,544,890,
plus a make whole premium that, based on current market interest rates, is
estimated to total $2,016,985 plus accrued interest, and, then pursuant to an
amendment to
27
<PAGE>
the Venture's credit facility, the Venture will distribute $125,000,000 to the
three constituent partnerships of the Venture in proportion to their ownership
interests in the Venture. The remaining proceeds will be used to repay a portion
of the outstanding balance and accrued interest on its credit facility. The
Partnership will receive $94,428,308, or 76 percent of the $125,000,000
distribution, which the Partnership will distribute to its partners of record as
of the closing date of the sale of the Albuquerque System. As a result of the
Albuquerque System's sale, the limited partners of the Partnership, as a group,
will receive $90,101,856 and the General Partner will receive $4,326,452. Such
distribution represents $380 for each $500 limited partnership interest, or $759
for each $1,000 invested in the Partnership. Once the Partnership has completed
the distribution, limited partners of the Partnership will have received a total
of $555 for each $500 limited partnership interest, or $1,109 for each $1,000
invested in the Partnership, taking into account the prior distribution to
limited partners made in 1996 from the net proceeds of the sale of the Tampa
System.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Accounting Records
------------------
The accompanying consolidated financial statements have been prepared on
the accrual basis of accounting in accordance with generally accepted accounting
principles. Fund 12-D's tax returns are also prepared on the accrual basis.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partner's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include 100 percent of
the accounts of Fund 12-D and those of the Venture reduced by the approximate 24
percent minority interest in the Venture. All inter-partnership accounts and
transactions have been eliminated.
Property, Plant and Equipment
-----------------------------
Depreciation is provided using the straight-line method over the following
estimated service lives:
Cable distribution systems 5 - 15 years
Equipment and tools 3 - 5 years
Office furniture and equipment 3 - 5 years
Buildings 30 years
Vehicles 3 - 4 years
Replacements, renewals and improvements are capitalized and maintenance and
repairs are charged to expense as incurred.
Property, plant and equipment and the corresponding accumulated
depreciation are written off as certain assets become fully depreciated and are
no longer in service.
Intangible Assets
-----------------
Costs assigned to franchises and costs in excess of interests in net assets
purchased are amortized using the straight-line method over the following
remaining estimated useful lives:
Franchise costs 1 - 3 years
Costs in excess of interests in net assets purchased 28 - 29 years
Revenue Recognition
-------------------
Subscriber prepayments are initially deferred and recognized as revenue
when earned.
28
<PAGE>
Cash and Cash Equivalents
-------------------------
For purposes of the Statements of Cash Flows, the Venture considers all
highly liquid investments purchased with an original maturity of three months or
less to be cash equivalents.
Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform with the 1997
presentation.
(3) TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
----------------------------------------------------
Management Fees, Distribution Ratios and Reimbursements
-------------------------------------------------------
The General Partner manages Fund 12-D and the Venture and receives a fee
for its services equal to 5 percent of the gross revenues of the Venture,
excluding revenues from the sale of cable television systems or franchises.
Management fees paid to the General Partner by the Venture were $4,133,751,
$4,118,188 and $5,069,985 during 1997, 1996 and 1995, respectively.
Any partnership distributions made from cash flow (defined as cash receipts
derived from routine operations, less debt principal and interest payments and
cash expenses) are allocated 99 percent to the limited partners and 1 percent to
the General Partner. Any distributions other than interest income on limited
partnership subscriptions earned prior to the acquisition of Fund 12-D's first
cable television system or from cash flow, such as from the sale or refinancing
of a system or upon dissolution of the Partnership, will be made as follows:
first, to the limited partners in an amount which, together with all prior
distributions, will equal the amount initially contributed by the limited
partners; the balance, 75 percent to the limited partners and 25 percent to the
General Partner.
The Venture reimburses the General Partner for certain allocated overhead
and administrative expenses. These expenses represent the salaries and related
benefits paid for corporate personnel, rent, data processing services and other
corporate facilities costs. Such personnel provide engineering, marketing,
administrative, accounting, legal and investor relations services to the
Venture. Such services, and their related costs, are necessary to the operation
of the Venture and would have been incurred by the Venture if it was a stand
alone entity. Allocations of personnel costs are based primarily on actual time
spent by employees of the General Partner with respect to each entity managed.
Remaining expenses are allocated based on the pro rata relationship of the
Venture's revenues to the total revenues of all systems owned or managed by the
General Partner and certain of its subsidiaries. Systems owned by the General
Partner and all other systems owned by partnerships for which Intercable is the
general partner are also allocated a proportionate share of these expenses. The
General Partner believes that the methodology used in allocating overhead and
administrative expenses is reasonable. Overhead and administrative expenses
allocated to the Venture by the General Partner were $4,615,841, $5,491,265 and
$7,183,663 in 1997, 1996 and 1995, respectively.
The Venture is charged interest at a rate which approximates the General
Partner's weighted average cost of borrowing on any amounts due the General
Partner. No interest was charged to the Venture by the General Partner in 1997
and 1996. Total interest charged to the Venture by the General Partner was
$220,743 in 1995.
Payments to/from Affiliates for Programming Services
----------------------------------------------------
The Venture receives programming from Superaudio, Knowledge TV, Inc., Jones
Computer Network, Ltd., Great American Country, Inc. and Product Information
Network, all of which are affiliates of the General Partner.
Payments to Superaudio totaled $118,032, $116,710 and $135,861 in 1997,
1996 and 1995, respectively. Payments to Knowledge TV, Inc. totaled $131,277,
$126,665 and $145,598 in 1997, 1996 and 1995, respectively. Payments to Jones
Computer Network, Ltd., whose service was discontinued in April 1997, totaled
$85,543, $248,044 and $283,339 in 1997, 1996 and 1995, respectively. Payments
to Great American Country, Inc., which initiated service in 1996, totaled
$131,863 and $141,753 in 1997 and 1996, respectively.
The programming fees paid by the Venture to Superaudio, Knowledge TV, Inc.,
Jones Computer Network, Ltd. and Great American Country (collectively, the
"affiliated programming providers") are governed by the terms of the various
master programming agreements entered into by and between the General Partner
and each of the
29
<PAGE>
affiliated programming providers. Generally, with respect to most video
programming services, cable operators pay to programmers a monthly license fee
per subscriber that is based on a number of factors, including the perceived
value of the programming, the size of the cable operator and the level of
distribution of the programming service within the cable operator's systems and
the other terms and conditions under which the programming is provided. The
General Partner negotiates master programming agreements with each programming
network distributed on any of its owned or managed cable systems. The Venture
pays the same per subscriber rate for all of its programming, including the
programming provided by affiliates of the General Partner, as the General
Partner pays for the programming it provides on cable television systems that it
owns itself, i.e., the General Partner does not receive any markup for
programming provided to the Venture under its master programming agreements. The
master programming agreements entered into by and between the General Partner
and the affiliated programming providers were negotiated by officers of the
General Partner with representatives of the affiliated programming providers.
(4) PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment as of December 31, 1997 and 1996, consisted
of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1997 1996
------------- ------------
<S> <C> <C>
Cable distribution system $ 199,967,191 $182,058,124
Equipment and tools 5,483,657 4,853,010
Office furniture and equipment 2,842,973 2,189,497
Buildings 5,925,072 5,925,072
Vehicles 3,019,282 2,345,643
Land 950,970 950,970
------------- ------------
218,189,145 198,322,316
Less-accumulated depreciation (113,368,132) (95,040,023)
------------- ------------
$ 104,821,013 $103,282,293
============= ============
</TABLE>
(5) DEBT
----
Debt consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996
------------- ------------
<S> <C> <C>
Lending institutions-
Revolving credit and term loan $ 95,630,620 $ 82,130,620
Senior secured notes 47,479,874 55,393,187
Capital lease obligations 1,197,968 822,071
------------- ------------
$ 144,308,462 $138,345,878
============= ============
</TABLE>
The Venture's debt arrangements at December 31, 1997 consisted of
$47,479,874 of Senior Notes placed with a group of institutional lenders and a
$120,000,000 credit facility with a group of commercial bank lenders. The
Senior Notes and credit facility are equal in standing with the other, and both
are equally secured by the assets of the Venture.
The Senior Notes have a fixed interest rate of 8.64 percent and a final
maturity date of March 31, 2000. The Senior Notes require payments of interest
and accelerating principal through maturity, payable semi-annually in March and
September. Semi-annual principal payments of $3,956,656 were made in March and
September 1997, respectively. These payments were funded from cash on hand,
cash generated from operations and borrowings from the Venture's credit
facility. A scheduled principal payment of $5,934,984 will be made on March 31,
1998 and a similar payment is due
30
<PAGE>
September 30, 1998. However, upon the sale of the Albuquerque System, the Senior
Notes will be repaid in full together with a make whole premium plus accrued
interest.
The balance outstanding on the Venture's $120,000,000 credit facility at
December 31, 1997 was $95,630,620, leaving $24,369,380 available for future
needs. Upon the sale of the Albuquerque System, pursuant to an amendment to the
Venture's credit facility, the Venture will repay a portion of the then
outstanding balance of the credit facility and reduce the commitment to
$55,000,000. At the Venture's option, the credit facility will be payable in
full on December 31, 1999 or will convert to a term loan that matures on
December 31, 2004 payable in consecutive quarterly amounts. Interest on the
credit facility is at the Venture's option of the London Interbank Offered Rate
plus .875 percent, the Prime Rate or the Certificate of Deposit Rate plus 1
percent. The effective interest rates on amounts outstanding on the Venture's
credit facility as of December 31, 1997 and 1996 were 6.91 percent and 6.90
percent, respectively.
During 1996, the Venture incurred costs associated with renegotiating its
debt arrangements. These costs were capitalized and are being amortized using
the straight-line method over the life of the debt agreements.
At December 31, 1997, the carrying amount of the Venture's long-term debt
did not differ significantly from the estimated fair value of the financial
instruments. The fair value of the Venture's long-term debt is estimated based
on the discounted amount of future debt service payments using rates of
borrowing for a liability of similar risk.
(6) INCOME TAXES
------------
Income taxes have not been recorded in the accompanying consolidated
financial statements because they accrue directly to the partners. The federal
and state income tax returns of Fund 12-D are prepared and filed by the General
Partner.
Fund 12-D's tax returns, the qualification of the Partnership as such for
tax purposes, and the amount of distributable income or loss are subject to
examination by federal and state taxing authorities. If such examinations
result in changes with respect to Fund 12-D's qualification as such, or in
changes with respect to Fund 12-D's recorded income or loss, the tax liability
of the general and limited partners would likely be changed accordingly.
Taxable losses reported to the partners is different from that reported in
the consolidated statements of operations due to the difference in depreciation
allowed under generally accepted accounting principles and the expense allowed
for tax purposes under the Modified Accelerated Cost Recovery System (MACRS).
There are no other significant differences between taxable income or losses and
the losses reported in the consolidated statements of operations.
(7) COMMITMENTS AND CONTINGENCIES
-----------------------------
The General Partner is a defendant in a now consolidated civil action filed
by limited partners of Fund 12-D derivatively on behalf of the Partnership, Fund
12-B and Fund 12-C. The consolidated complaint generally alleges that the
General Partner breached its fiduciary duty to the plaintiffs and to the other
limited partners of the Partnership, Fund 12-B and Fund 12-C and the Venture in
connection with the Venture's sale of its Tampa System to a wholly owned
subsidiary of the General Partner and its subsequent trade to an unaffiliated
third party. The consolidated complaint also sets forth a claim for breach of
contract and a claim for breach of the implied covenant of good faith and fair
dealing. Among other things, the plaintiffs assert that the subsidiary of the
General Partner that acquired the Tampa System paid an inadequate price for the
Tampa System. The price paid for the Tampa System was determined by the average
of three separate, independent appraisals of the Tampa System's fair market
value as required by the limited partnership agreements of the Partnership, Fund
12-B and Fund 12-C. The plaintiffs have challenged the adequacy and
independence of the appraisals. The consolidated complaint seeks damages in an
unspecified amount and an award of attorneys' fees, and the complaint also seeks
punitive damages and certain equitable relief.
The General Partner has filed its answer to the consolidated complaint and
has generally denied the substantive allegations in the complaint and has
asserted a number of affirmative defenses. The General Partner intends to
defend this lawsuit vigorously.
On August 29, 1997, the General Partner moved for summary judgment in its
favor on the ground that plaintiffs did not make demand on the General Partner
for the relief they seek before commencing their lawsuits or show that such a
demand would have been futile. On January 8, 1998, the Court (1) held that
plaintiffs did not make demand before
31
<PAGE>
commencing their lawsuits or show that such demand would have been futile, (2)
stayed the consolidated case and vacated the February 17, 1998 trial date, (3)
ordered that plaintiffs make a demand on the General Partner and that the
General Partner appoint an independent counsel to review, consider and report on
that demand, (4) ordered that the independent counsel be appointed at the March
1998 meeting of the General Partner's Board of Directors and (5) ordered that
the independent counsel will be subject to the approval of the Court. The Court
set a new trial date for October 26, 1998 in the event that the case is not
resolved through the independent counsel process or otherwise.
Section 2.2 of the Partnership's limited partnership agreement (the
"Partnership Agreement") provides that the General Partner will not be liable to
the Partnership or to the limited partners for any act or omission performed or
omitted by it in good faith pursuant to the authority granted to the General
Partner by the Partnership Agreement. This provision further provides that the
General Partner will be liable to the Partnership and to the limited partners
only for fraud, bad faith or gross negligence in the performance of the cable
television activities of the Partnership or negligence in the management of the
internal affairs of the Partnership. Section 9.6 of the Partnership Agreement
provides that the Partnership "shall indemnify and save harmless the General
Partner and its affiliates and any agent or officer or director thereof, from
any loss or damage incurred by them, including legal fees and expenses and
amounts paid in settlement by reason of any action performed by the General
Partner or any agent, officer or director thereof on behalf of the Partnership
or in furtherance of its interest; provided, however, that the foregoing shall
not relieve the General Partner of its fiduciary duty to the limited partners or
liability for (nor shall the General Partner be indemnified for) its fraud, bad
faith or gross negligence in the performance of the cable television activities
of the Partnership or negligence in the management of the internal affairs of
the Partnership." In accordance with the foregoing provisions of the
Partnership Agreement, the Partnership, together with Fund 12-B and Fund 12-C,
which have identical partnership agreement provisions with respect to general
partner liability and indemnification, will be obligated to indemnify and save
harmless the General Partner from any loss incurred by it, including its legal
fees and expenses and amounts paid in settlement, in connection with the
litigation concerning the Tampa System sale unless the General Partner is found
to have breached its fiduciary duty to the limited partners in connection with
the Tampa System sale or is found to have committed fraud or to have acted in
bad faith or with gross negligence in connection with the Tampa System sale.
Amounts reimbursed to the General Partner by the three constituent limited
partnerships of the Venture would be in proportion to their ownership interests
in the Venture and such amounts may be significant, but the General Partner
expects that any such reimbursement will not have a material adverse effect on
the Partnership or the Venture.
Maxine Cohen, for herself and all others similarly situated v. Jones
--------------------------------------------------------------------
Intercable, Inc., a Colorado corporation for itself, its wholly owned
- ---------------------------------------------------------------------
subsidiaries, managed partnerships and other affiliated cable television
- ------------------------------------------------------------------------
entities (Bernalillo County, New Mexico District Court, Second Judicial
- --------
District, Case No. CV-97 09694). This class action Complaint for Declaratory
and Injunctive Relief and Restitution was filed on October 27, 1997 in the
Bernalillo County District Court, by Maxine Cohen for herself and all others
similarly situated. The Complaint basically alleges that the Defendant, Jones
Intercable, Inc., for itself, its wholly owned subsidiaries, managed
partnerships and other affiliated cable television entities, collected from its
cable television subscribers, illegal late payment penalties.
Belen Cordova, on behalf of herself and all others similarly situated v.
------------------------------------------------------------------------
Jones Intercable, Inc. (Bernalillo County, New Mexico District Court, Second
- ----------------------
Judicial District, Case No. CV-97 10957). This class action Complaint for
Breach of Contract, Unconscionable Trade Practice and Restitution was filed on
December 2, 1997 in the Bernalillo County District Court by Belen Cordova on
behalf of herself and all others similarly situated. The Complaint alleges that
Jones Intercable, Inc. charges and collects from its cable television
subscribers in New Mexico unconscionable late payment penalties.
The plaintiffs in the Cohen and Cordova actions have not specified the
----- -------
requested relief in quantitative terms. The plaintiffs have requested that (i)
the court determine what is a reasonable late fee under applicable law, (ii) the
court order Jones Intercable, Inc. and its affiliates that own and operate cable
television systems to reduce their late payment penalties to such level going
forward and (iii) the court require Jones Intercable, Inc. and its affiliates
that own and operate cable television systems to refund all late fee payments in
excess of the "reasonable amount" paid by subscribers, subject to the applicable
statutes of limitations. The plaintiff in the Cordova case also seeks treble
damages for New Mexico subscribers based on alleged violations of the Deceptive
Practices Act. The General Partner currently is opposing plaintiff's motion to
certify a nationwide class in the Cohen case, and the General Partner does not
-----
expect a trial on the merits of the cases until sometime in 1999. Given the
preliminary status of these cases, the General Partner cannot predict whether
the Venture or the Partnership will have any material financial obligation to
the plaintiffs or whether this litigation will have an adverse effect on the
distributions to be made to the limited partners of the Partnership.
32
<PAGE>
Office and other facilities are rented under various long-term lease
arrangements. Rent paid under such lease arrangements totaled $384,610,
$373,169 and $331,963, respectively, for the years ended December 31, 1997, 1996
and 1995. Minimum commitments under operating leases for the five years in the
period ending December 31, 2002 and thereafter are as follows:
<TABLE>
<S> <C>
1998 $ 534,693
1999 398,715
2000 345,765
2001 345,046
2002 341,700
Thereafter 569,500
--------
$2,535,419
=========
</TABLE>
(8) SUPPLEMENTARY PROFIT AND LOSS INFORMATION
-----------------------------------------
Supplementary profit and loss information is presented below:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Maintenance and repairs $ 734,011 $ 1,104,878 $ 1,182,963
=========== =========== ===========
Taxes, other than income
and payroll taxes $ 873,053 $ 895,669 $ 1,286,357
=========== =========== ===========
Advertising $ 1,288,316 $ 1,183,565 $ 1,298,497
=========== =========== ===========
Depreciation of property,
plant and equipment $18,824,685 $15,727,639 $20,285,166
=========== =========== ===========
Amortization of intangible
assets $ 3,012,566 $ 6,265,907 $ 6,381,569
=========== =========== ===========
</TABLE>
33
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
---------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
PART III.
---------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------
The Partnership itself has no officers or directors. Certain information
concerning the directors and executive officers of the General Partner is set
forth below. Directors of the General Partner serve until the next annual
meeting of the General Partner and until their successors shall be elected and
qualified.
<TABLE>
<S> <C> <C>
Glenn R. Jones 68 Chairman of the Board and Chief Executive Officer
James B. O'Brien 48 President and Director
Ruth E. Warren 48 Group Vice President/Operations
Kevin P. Coyle 46 Group Vice President/Finance
Christopher J. Bowick 42 Group Vice President/Technology
Cheryl M. Sprague 45 Group Vice President/Human Resources
Cynthia A. Winning 46 Group Vice President/Marketing
Elizabeth M. Steele 46 Vice President/General Counsel/Secretary
Larry W. Kaschinske 37 Vice President/Controller
Robert E. Cole 65 Director
William E. Frenzel 69 Director
Josef J. Fridman 52 Director
Donald L. Jacobs 59 Director
Robert Kearney 61 Director
James J. Krejci 56 Director
Raphael M. Solot 64 Director
Howard O. Thrall 50 Director
Siim A. Vanaselja 41 Director
Sanford Zisman 58 Director
Robert B. Zoellick 44 Director
</TABLE>
Mr. Glenn R. Jones has served as Chairman of the Board of Directors and
Chief Executive Officer of the General Partner since its formation in 1970, and
he was President from June 1984 until April 1988. Mr. Jones is the sole
shareholder, President and Chairman of the Board of Directors of Jones
International, Ltd. He is also Chairman of the Board of Directors of the
subsidiaries of the General Partner and of certain other affiliates of the
General Partner. Mr. Jones has been involved in the cable television business in
various capacities since 1961, and he is a member of the Board of Directors and
of the Executive Committee of the National Cable Television Association. In
addition, Mr. Jones is a member of the Board of Education Council of the
National Alliance of Business. Mr. Jones is also a founding member of the James
Madison Council of the Library of Congress. Mr. Jones has been the recipient of
several awards including: the Grand Tam Award in 1989, the highest award from
the Cable Television Administration and Marketing Society; the President's Award
from the Cable Television Public Affairs Association in recognition of Jones
International's educational efforts through Mind Extension University (now
Knowledge TV); the Donald G. McGannon Award for the advancement of minorities
and women in cable from the United Church of Christ Office of Communications;
the STAR Award from American Women in Radio and Television, Inc. for exhibition
of a commitment to the issues and concerns of women in television and radio; the
Cableforce 2000 Accolade awarded by Women in Cable in recognition of the General
Partner's innovative employee programs; the Most Outstanding Corporate
Individual Achievement Award from the International Distance Learning Conference
for his contributions to distance education; the Golden Plate Award from the
American Academy of Achievement for his advances in distance education; the Man
of the Year named by the Denver chapter of the Achievement Rewards for College
Scientists; and in 1994 Mr. Jones was inducted into Broadcasting and Cable's
Hall of Fame.
34
<PAGE>
Mr. James B. O'Brien, the General Partner's President, joined the General
Partner in January 1982. Prior to being elected President and a Director of the
General Partner in December 1989, Mr. O'Brien served as a division manager,
director of operations planning/assistant to the CEO, Fund Vice President and
Group Vice President/Operations. Mr. O'Brien was appointed to the General
Partner's Executive Committee in August 1993. As President, he is responsible
for the day-to-day operations of the cable television systems managed and owned
by the General Partner. Mr. O'Brien is a board member of Cable Labs, Inc., the
research arm of the U.S. cable television industry. He also serves as the
Chairman of the Board of Directors of the Cable Television Administration and
Marketing Association and as a director and a member of the Executive Committee
of the Walter Kaitz Foundation, a foundation that places people of ethnic
minority groups in positions with cable television systems, networks and vendor
companies.
Ms. Ruth E. Warren joined the General Partner in August 1980 and has served
in various operational capacities, including system marketing manager, director
of marketing, assistant division manager, regional vice president and Fund Vice
President, since then. Ms. Warren was elected Group Vice President/Operations of
the General Partner in September 1990.
Mr. Kevin P. Coyle joined The Jones Group, Ltd. in July 1981 as Vice
President/Financial Services. In September 1985, he was appointed Senior Vice
President/Financial Services. He was elected Treasurer of the General Partner
in August 1987, Vice President/Treasurer in April 1988 and Group Vice
President/Finance and Chief Financial Officer in October 1990.
Mr. Christopher J. Bowick joined the General Partner in September 1991 as
Group Vice President/Technology and Chief Technical Officer. Prior to joining
the General Partner, Mr. Bowick worked for Scientific Atlanta's Transmission
Systems Business Division in various technical management capacities since 1981,
and as Vice President of Engineering since 1989. Mr. Bowick also has served
since 1995 as President of Jones Futurex, Inc., a wholly owned subsidiary of the
General Partner that manufactures and markets data encryption products.
Ms. Cheryl M. Sprague joined the General Partner in November 1997 as Group
Vice President/Human Resources. Prior to November 1997 and since December 1995,
Ms. Sprague served as Director, Human Resources for Westmoreland Coal Company,
where she was responsible for human resources management for said company and
three of its subsidiaries. From October 1993 to December 1995, Ms. Sprague
served as President of Peak Executive Resources, where she provided consulting
services in organizational development and human resources to businesses
experiencing organizational transition. From April 1992 to October 1993, Ms.
Sprague was Vice President, Human Resources for Penrose-St. Francis Healthcare
System, where she was responsible for management of all human resources
activities. Mr. Sprague serves as an adjunct instructor at Regis University and
has earned the professional designation as a Senior Professional in Human
Resources from the Society for Human Resource Management and its affiliate, the
Human Resources Certification Board. Ms. Sprague is a past president of the
Colorado Human Resource Association and was named by that association as the
Colorado Human Resources Administrator of the Year in 1986. Ms. Sprague also
serves as a director on the Area VI Board for the Society for Human Resource
Management.
Ms. Cynthia A. Winning joined the General Partner as Group Vice
President/Marketing in December 1994. Previous to joining the General Partner,
Ms. Winning served since 1994 as the President of PRS Inc., 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.
35
<PAGE>
Ms. Elizabeth M. Steele joined the General Partner in August 1987 as Vice
President/General Counsel and Secretary. From August 1980 until joining the
General Partner, Ms. Steele was an associate and then a partner at the Denver
law firm of Davis, Graham & Stubbs, which serves as counsel to the General
Partner.
Mr. Larry Kaschinske joined the General Partner in 1984 as a staff
accountant in the General Partner's former Wisconsin Division, as promoted to
Assistant Controller in 1990, named Controller in August 1994 and was elected
Vice President/Controller in June 1996.
Mr. Robert E. Cole was appointed a Director of the General Partner in March
1996. Mr. Cole is currently self-employed as a partner of First Variable
Insurance Marketing and is responsible for marketing to National Association of
Securities Dealers, Inc. firms in northern California, Oregon, Washington and
Alaska. From 1993 to 1995, Mr. Cole was the Director of Marketing for Lamar Life
Insurance Company; from 1992 to 1993, Mr. Cole was Senior Vice President of PMI
Inc., a third party lender serving the special needs of Corporate Owned Life
Insurance (COLI) and from 1988 to 1992, Mr. Cole was the principal and co-
founder of a specialty investment banking firm that provided services to finance
the ownership and growth of emerging companies, productive assets and real
property. Mr. Cole is a Certified Financial Planner and a former United States
Naval Aviator.
Mr. William E. Frenzel was appointed a Director of the General Partner in
April 1995. Mr. Frenzel has been a Guest Scholar since 1991 with the Brookings
Institution, a research organization located in Washington D. C. Until his
retirement in January 1991, Mr. Frenzel served for twenty years in the United
States House of Representatives, representing the State of Minnesota, where he
was a member of the House Ways and Means Committee and its Trade Subcommittee,
the Congressional Representative to the General Agreement on Tariffs and Trade
(GATT), the Ranking Minority Member on the House Budget Committee and a member
of the National Economic Commission. Mr. Frenzel also served in the Minnesota
Legislature for eight years. He is a Distinguished Fellow of the Tax Foundation,
Vice Chairman of the Eurasia Foundation, a Board Member of the U.S.-Japan
Foundation, the Close-Up Foundation, Sit Mutual Funds and Chairman of the Japan-
America Society of Washington.
Mr. Josef J. Fridman was appointed a Director of the General Partner in
February 1998. Mr. Fridman is currently Senior Vice-President, Law and Corporate
Secretary of BCE Inc., Canada's largest telecommunications company. Mr. Fridman
joined Bell Canada, a wholly owned subsidiary of BCE Inc., in 1969 and has held
increasingly senior positions with Bell Canada and BCE Inc. since such time. In
March 1998, Mr. Fridman was named Chief Legal Officer of BCE Inc. and Bell
Canada. Mr. Fridman's directorships include Telesat Canada, TMI Communications,
Inc. Telebec Itee, BCI Telecom Holding Inc. and BCE Corporate Services Inc. He
is a member of the Quebec Bar Association, the Canadian, American and
International Bar Associations and the Lord Reading Law Society. Mr. Fridman is
a governor of the Quebec Bar.
Mr. Donald L. Jacobs was appointed a Director of the General Partner in
April 1995. Mr. Jacobs is a retired executive officer of TRW. Prior to his
retirement, he was Vice President and Deputy Manager of the Space and Defense
Sector; prior to that appointment, he was the Vice President and General Manager
of the Defense Systems Group and prior to his appointment as Group General
Manager, he was President of ESL, Inc., a wholly owned subsidiary of TRW. During
his career, Mr. Jacobs served on several corporate, professional and civic
boards.
Mr. Robert Kearney was appointed a director of the General Partner in July
1997. Mr. Kearney is a retired executive officer of Bell Canada. Prior to his
retirement in December 1993, Mr. Kearney was the President and Chief Executive
Officer of Bell Canada. He served as Chairman of BCE Canadian Telecom Group in
1994 and as Deputy Chairman of BCI Management Limited in 1995. During his
career, Mr. Kearney served in a variety of capacities in the Canadian, American
and International Standards organizations, and he has served on several
corporate, professional and civic boards.
Mr. James J. Krejci is President and CEO of Imagelink Technologies, Inc., a
privately financed company with leading technology in the desktop or personal
computer videoconferencing market. Prior to joining
36
<PAGE>
Imagelink Technologies in July 1996, Mr. Krejci was President of the
International Division of International Gaming Technology, the world's largest
gaming equipment manufacturer, with headquarters in Reno, Nevada. Prior to
joining IGT in May 1994, Mr. Krejci was Group Vice President of Jones
International, Ltd. and was Group Vice President of the General Partner. He also
served as an officer of subsidiaries of Jones International, Ltd. until leaving
the General Partner in May 1994. Mr. Krejci started his career as an electronics
research engineer with the Allen-Bradley Company, then moved to the 3M Company,
General Electric and Becton Dickinson until March 1985 when he joined Jones
International, Ltd. Mr. Krejci has been a director of the General Partner since
August 1987.
Mr. Raphael M. Solot was appointed a Director of the General Partner in
March 1996. Mr. Solot is an attorney and has practiced law for 34 years with an
emphasis on franchise, corporate and partnership law and complex litigation.
Mr. Howard O. Thrall was appointed a Director of the General Partner in
March 1996. Mr. Thrall had previously served as a Director of the General
Partner from December 1988 to December 1994. Mr. Thrall is a management and
international marketing consultant, having active assignments with First
National Net, Inc., LEP Technologies, Cheong Kang Associates (Korea), Aero
Investment Alliance, Inc. and Western Real Estate Partners, among others. From
September 1993 through July 1996, Mr. Thrall served as Vice President of Sales,
Asian Region, for World Airways, Inc. headquartered at the Washington Dulles
International Airport. From 1984 until August 1993, Mr. Thrall was with the
McDonnell Douglas Corporation, where he concluded as a Regional Vice President,
Commercial Marketing with the Douglas Aircraft Company subsidiary.
Mr. Siim A. Vanaselja was appointed a Director of the General Partner in
August 1996. He is the Chief Financial Officer of BCI Telecom Holding Inc. Mr.
Vanaselja joined BCE Inc., Canada's largest telecommunications company, in
February 1994 as Assistant Vice-President, International Taxation. In June 1994,
he was appointed Assistant Vice-President and Director of Taxation, and in
February 1995, Mr. Vanaselja was appointed Vice-President, Taxation. On August
1, 1996, Mr. Vanaselja was appointed the Chief Financial Officer of Bell Canada
International Inc., a subsidiary of BCE Inc. Prior to joining BCE Inc. and since
August 1989, Mr. Vanaselja was a partner in the Toronto office of KPMG Peat
Marwick Thorne. Mr. Vanaselja has been a member of the Institute of Chartered
Accountants of Ontario since 1982 and is a member of the Canadian Tax
Foundation, the Tax Executives Institute and the International Fiscal
Association.
Mr. Sanford Zisman was appointed a director of the General Partner in June
1996. Mr. Zisman is a principal in the law firm of Zisman & Ingraham, P.C. of
Denver, Colorado and he has practiced law for 32 years, specializing in the
areas of tax, business and estate planning and probate administration. Mr.
Zisman was a member of the Board of Directors of Saint Joseph Hospital, the
largest hospital in Colorado, serving at various times as Chairman of the Board,
Chairman of the Finance Committee and Chairman of the Strategic Planning
Committee. Since 1982, he has also served on the Board of Directors of Maxim
Series Fund, Inc., a subsidiary of Great-West Life Assurance Company.
Mr. Robert B. Zoellick was appointed a Director of the General Partner in
April 1995. Mr. Zoellick is the John M. Olin Professor at the U.S. Naval Academy
for the 1997-1998 term. From 1993 through 1997, he was an Executive Vice
President at 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 currently serves on the boards of Alliance Capital and Said Holdings.
37
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
--------------------------------
The Partnership has no employees; however, various personnel are required
to operate the Systems. Such personnel are employed by the General Partner and,
pursuant to the terms of the limited partnership agreement of the Partnership,
the cost of such employment is charged by the General Partner to the Partnership
as a direct reimbursement item. See Item 13.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
----------------------------------------------------------------------
As of January 16, 1998, no person or entity owned more than 5% of the
limited partnership interests of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
The General Partner and its affiliates engage in certain transactions with
the Venture. The General Partner believes that the terms of such transactions
are generally as favorable as could be obtained by the Venture from unaffiliated
parties. This determination has been made by the General Partner in good faith,
but none of the terms were or will be negotiated at arm's-length and there can
be no assurance that the terms of such transactions have been or will be as
favorable as those that could have been obtained by the Venture from
unaffiliated parties.
TRANSACTIONS WITH THE GENERAL PARTNER
The General Partner charges the Venture a 5% management fee, and the
General Partner is reimbursed for certain allocated overhead and administrative
expenses. These expenses represent the salaries and benefits paid to corporate
personnel, rent, data processing services and other corporate facilities costs.
Such personnel provide engineering, marketing, administrative, accounting, legal
and investor relations services to the Venture. Allocations of personnel costs
are based primarily on actual time spent by employees of the General Partner
with respect to each partnership managed. Remaining expenses are allocated based
on the pro rata relationship of the Venture's revenues to the total revenues of
all systems owned or managed by the General Partner and certain of its
subsidiaries. Systems owned by the General Partner and all other systems owned
by partnerships for which Jones Intercable, Inc. is the general partner are also
allocated a proportionate share of these expenses.
The General Partner from time to time also advances funds to the Venture
and charges interest on the balance payable. The interest rate charged
approximates the General Partner's weighted average cost of borrowing.
TRANSACTIONS WITH AFFILIATES
Knowledge TV, Inc., a company owned 67% by Jones Education Group, Ltd., 7%
by Mr. Jones and 26% by the General Partner, operates the television network JEC
Knowledge TV. JEC Knowledge TV provides programming related to computers and
technology; business, careers and finance; health and wellness; and global
culture and languages. Knowledge TV. Inc. sells its programming to the cable
television systems owned by the Venture.
Jones Computer Network, Ltd., a wholly owned subsidiary of Jones Education
Group, Ltd., a company owned 64% by Jones International, Ltd., 16% by the
General Partner, 12% by BCI and 8% by Mr. Jones, operated the television network
Jones Computer Network. This network provided programming focused primarily on
computers and technology. Jones Computer Network sold its programming to the
cable television systems owned by the Venture. Jones Computer Network, Ltd.
terminated its programming in April 1997.
The Great American Country network provides country music video programming
to the cable television systems owned by the Venture. This network, owned and
operated by Great American Country, Inc., a
38
<PAGE>
subsidiary of Jones International Networks, Ltd., an affiliate of the General
Partner, commenced service in 1996 in the cable television systems owned by the
Venture.
Jones Galactic Radio, Inc. is a subsidiary of Jones International Networks,
Ltd., an affiliate of the General Partner. Superaudio, a joint venture between
Jones Galactic Radio, Inc. and an unaffiliated entity, provides audio
programming to the cable television systems owned by the Venture.
The Product Information Network Venture (the "PIN Venture") is a venture
among a subsidiary of Jones International Networks, Ltd., an affiliate of the
General Partner, and two unaffiliated cable system operators. The PIN Venture
operates the Product Information Network ("PIN"), which is a 24-hour network
that airs long-form advertising generally known as "infomercials." The PIN
Venture generally makes incentive payments of approximately 60% of its net
advertising revenue to the cable systems that carry its programming. The
Venture's systems carry PIN for all or part of each day. Revenues received by
the Venture from the PIN Venture relating to the Venture's owned cable
television systems totaled approximately $199,997 for the year ended December
31, 1997.
The programming fees paid by the Venture to Knowledge TV, Inc., Jones
Computer Network, Ltd., Great American Country and Superaudio (collectively, the
"affiliated programming providers") are governed by the terms of the various
master programming agreements entered into by and between the General Partner
and each of the affiliated programming providers. Generally, with respect to
most video programming services, cable operators pay to programmers a monthly
license fee per subscriber that is based on a number of factors, including the
perceived value of the programming, the size of the cable operator and the level
of distribution of the programming service within the cable operator's systems
and the other terms and conditions under which the programming is provided. The
General Partner negotiates master programming agreements with each programming
network distributed on any of its owned or managed cable systems. The Venture
pays the same per subscriber rate for all of its programming, including the
programming provided by affiliates of the General Partner, as the General
Partner pays for the programming it provides on cable television systems that it
owns itself, i.e., the General Partner does not receive any markup for
programming provided to the Venture under its master programming agreements. The
master programming agreements entered into by and between the General Partner
and the affiliated programming providers were negotiated by officers of the
General Partner with representatives of the affiliated programming providers.
The charges to the Venture for related party transactions are as follows
for the periods indicated:
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------
Cable TV Fund 12-BCD 1997 1996 1995
- -------------------- ---- ---- ----
<S> <C> <C> <C>
Management fees $4,133,751 $4,118,188 $5,069,985
Allocation of expenses 4,615,841 5,491,265 7,183,663
Interest expense 0 0 220,743
Amount of advances outstanding 0 0 4,198,739
Highest amount of advances outstanding 0 0 4,574,572
Programming fees:
Knowledge TV, Inc. 131,277 126,665 145,598
Jones Computer Network, Ltd. 85,543 248,044 283,339
Great American Country 131,863 141,753 0
Superaudio 118,032 116,710 135,861
</TABLE>
39
<PAGE>
PART IV.
--------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
-------------------------------------------------------------------------
(a)1. See index to financial statements for list of
financial statements and exhibits thereto filed as a
part of this report.
3. The following exhibits are filed herewith.
4.1 Limited Partnership Agreement for Cable TV Fund 12-D. (1)
4.2 Joint Venture Agreement of Cable TV Fund 12-BCD Venture dated
as of March 17, 1986, among Cable TV Fund 12-B, Ltd., Cable TV
Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd. (2)
10.1.1 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for Edwards Air
Force Base, California (Fund 12-BCD). (3)
10.1.2 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of
Lancaster, California (Fund 12-BCD). (4)
10.1.3 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for
Unincorporated portions of Los Angeles County, California (Fund
12-BCD). (4)
10.1.4 Copy of Los Angeles County Code regarding cable tv system
franchises (Fund 12-BCD). (5)
10.1.5 Copy of Ordinance 90-0118F dated 10/29/90 granting a cable
television franchise to Fund 12-BCD (Fund 12-BCD). (5)
10.1.6 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the Green
Valley/Elizabeth Lake/Leona Valley unincorporated areas of Los
Angeles County, California (Fund 12-BCD). (2)
10.1.7 Ordinance 88-0166F dated 10/4/88 amending the franchise
described in 10.1.5 (Fund 12-BCD). (5)
10.1.8 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of
Palmdale, California (Fund 12-BCD). (5)
10.1.9 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of
Albuquerque, New Mexico (Fund 12-BCD). (4)
10.1.10 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the County of
Bernalillo, New Mexico (Fund 12-BCD). (4)
10.1.11 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the Town of
Bernalillo, New Mexico (Fund 12-BCD). (4)
40
<PAGE>
10.1.12 Resolution No. 12-14-87 dated 12/14/87 authorizing the
assignment of the franchise to Fund 12-BCD. (5)
10.1.13 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the Village
of Bosque Farms, New Mexico (Fund 12-BCD). (4)
10.1.14 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the Village
of Corrales, New Mexico (Fund 12-BCD). (4)
10.1.15 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the Kirtland
Air Force Base, New Mexico (Fund 12-BCD). (5)
10.1.16 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the Village
of Los Ranchos, New Mexico (Fund 12-BCD). (4)
10.1.17 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the County
of Sandoval, New Mexico (Fund 12-BCD). (4)
10.1.18 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the County
of Valencia, New Mexico (Fund 12-BCD). (4)
10.1.19 Resolution No. 88-23 dated 2/14/88 authorizing assignment of
the franchise to Fund 12-BCD. (5)
10.2.1 Note Purchase Agreement dated as of March 31, 1992 between
Cable TV Fund 12-BCD Venture and the Noteholders (6)
10.2.2 Amendment No. 1 dated as of March 31, 1994 to the Note
Purchase Agreement dated as of March 31, 1992 between Cable TV
Fund 12-BCD Venture and the Noteholders (6)
10.2.3 Amendment No. 2 dated as of September 30, 1994 to the Note
Purchase Agreement dated as of March 31, 1992 between Cable TV
Fund 12-BCD Venture and the Noteholders (6)
10.2.4 Amendment No. 3 dated as of February 12, 1996 to the Note
Purchase Agreement dated as of March 31, 1992 between Cable TV
Fund 12-BCD Venture and the Noteholders (6)
10.2.5 Second Amended and Restated Credit Agreement by and among
Cable TV Fund 12-BCD Venture, various banks, Corestates Bank,
N.A. and Societe Generale, as Managing Agents and Corestates
Bank, N.A., as Administrative Agent dated February 12, 1996.
(6)
10.3.1 Purchase and Sale Agreement (Albuquerque) dated as of July 28,
1997 between Jones Intercable, Inc. and Cable TV Fund 12-BCD
Venture. (7)
41
<PAGE>
27 Financial Data Schedule
__________
(1) Incorporated by reference from Registrant's Report on Form 10-K
for the fiscal year ended December 31, 1985 (Commission File Nos.
0-13193, 0-13807, 0-13964 and 0-14206).
(2) Incorporated by reference from Registrant's Report on Form 10-K
for the fiscal year ended December 31, 1987 (Commission File Nos.
0-13193, 0-13807, 0-13964 and 0-14206).
(3) Incorporated by reference from Registrant's Report on Form 10-K
for the fiscal year ended December 31, 1994 (Commission File No.
0-14206).
(4) Incorporated by reference from Registrant's Report on Form 10-K
for the fiscal year ended December 31, 1986 (Commission File Nos.
0-13193, 0-13807, 0-13964 and 0-14206).
(5) Incorporated by reference from Registrant's Report on Form 10-K
for the fiscal year ended December 31, 1992 (Commission File Nos.
0-13193, 0-13807, 0-13964 and 0-14206).
(6) Incorporated by reference from Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1995.
(7) Incorporated by reference from the Preliminary Proxy Statement of
Cable TV Fund 12-D, Ltd. (Commission File No. 1-14206) filed with
the SEC on 10/2/97.
(b) Reports on Form 8-K.
None.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CABLE TV FUND 12-D, LTD.
a Colorado limited partnership
By: Jones Intercable, Inc.
By: /s/ Elizabeth M. Steele
--------------------------------
Elizabeth M. Steele
Dated: April 17, 1998 Vice President
43
<PAGE>
EXHIBIT 99(d)(3)
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1998
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
------------ ------------
Commission File Number 0-14206
Cable TV Fund 12-D, LTD.
- --------------------------------------------------------------------------------
Exact name of registrant as specified in charter
Colorado 84-1010423
- --------------------------------------------------------------------------------
State of organization I.R.S. employer I.D. #
9697 East Mineral Avenue, P.O. Box 3309, Englewood, Colorado 80155-3309
------------------------------------------------------------------------
Address of principal executive office
(303) 792-3111
-----------------------------
Registrant's telephone number
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- -------
<PAGE>
CABLE TV FUND 12-D, LTD.
------------------------
(A Limited Partnership)
UNAUDITED CONSOLIDATED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
------ ------------- -------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 2,636,162 $ 1,742,444
RECEIVABLES:
Trade receivables, less allowance for doubtful receivables of $530,024
and $404,821 at March 31, 1998 and December 31, 1997, respectively 4,106,106 4,456,904
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 223,916,612 218,189,145
Less- accumulated depreciation (118,327,699) (113,368,132)
------------- -------------
105,588,913 104,821,013
Franchise costs and other intangible assets, net of accumulated
amortization of $63,883,289 and $63,250,091 at
March 31, 1998 and December 31, 1997, respectively 7,157,864 7,791,062
------------- -------------
Total investment in cable television properties 112,746,777 112,612,075
DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 4,084,663 5,458,081
------------- -------------
Total assets $ 123,573,708 $ 124,269,504
============= =============
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these unaudited consolidated balance sheets.
2
<PAGE>
CABLE TV FUND 12-D, LTD.
------------------------
(A Limited Partnership)
UNAUDITED CONSOLIDATED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
LIABILITIES AND PARTNERS' DEFICIT 1998 1997
--------------------------------- ------------- -------------
<S> <C> <C>
LIABILITIES:
Debt $148,273,330 $144,308,462
Trade accounts payable and accrued liabilities 3,391,963 6,726,286
Subscriber prepayments 461,659 424,486
------------ ------------
Total liabilities 152,126,952 151,459,234
------------ ------------
MINORITY INTEREST IN JOINT VENTURE (7,239,425) (6,905,937)
------------ ------------
PARTNERS' DEFICIT:
General Partner-
Contributed capital 1,000 1,000
Accumulated deficit (119,881) (109,581)
------------ ------------
(118,881) (108,581)
------------ ------------
Limited Partners-
Net contributed capital (237,339 units outstanding
at March 31, 1998 and December 31, 1997) 102,198,175 102,198,175
Accumulated deficit (81,846,113) (80,826,387)
Distributions (41,547,000) (41,547,000)
------------ ------------
(21,194,938) (20,175,212)
------------ ------------
Total liabilities and partners' deficit $123,573,708 $124,269,504
============ ============
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these unaudited consolidated balance sheets.
3
<PAGE>
CABLE TV FUND 12-D, LTD.
------------------------
(A Limited Partnership)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
---------------------------
<S> <C> <C>
1998 1997
------------ ------------
REVENUES $20,912,442 $19,711,225
COSTS AND EXPENSES:
Operating expenses 11,508,297 10,953,865
Management fees and allocated overhead from
Jones Intercable, Inc. 2,183,929 2,316,066
Depreciation and amortization 5,858,534 4,798,547
----------- -----------
OPERATING INCOME 1,361,682 1,642,747
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (2,675,112) (2,691,262)
Other, net (50,084) 87,866
----------- -----------
Total other income (expense), net (2,725,196) (2,603,396)
----------- -----------
CONSOLIDATED NET LOSS (1,363,514) (960,649)
MINORITY INTEREST IN CONSOLIDATED NET LOSS 333,488 234,956
----------- -----------
NET LOSS $(1,030,026) $ (725,693)
=========== ===========
ALLOCATION OF NET LOSS:
General Partner $ (10,300) $ (7,257)
=========== ===========
Limited Partners $(1,019,726) $ (718,436)
=========== ===========
NET LOSS PER LIMITED PARTNERSHIP UNIT $ (4.30) $(3.03)
=========== ===========
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 237,339 237,339
=========== ===========
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these unaudited consolidated statements.
4
<PAGE>
CABLE TV FUND 12-D, LTD.
------------------------
(A Limited Partnership)
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,030,026) $ (725,693)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 5,858,534 4,798,547
Minority interest in consolidated loss (333,488) (234,956)
Decrease (increase) in trade receivables 350,798 (684,637)
Decrease (increase) in deposits, prepaid expenses and
deferred charges 1,107,649 (1,763,639)
Increase (decrease) in trade accounts payable and
accrued liabilities and subscriber prepayments (3,297,150) 1,230,164
----------- -----------
Net cash provided by operating activities 2,656,317 2,619,786
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (5,727,467) (5,009,883)
----------- -----------
Net cash used in investing activities (5,727,467) (5,009,883)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 10,000,000 6,420,666
Repayment of debt (6,035,132) (4,044,922)
----------- -----------
Net cash provided by financing activities 3,964,868 2,375,744
----------- -----------
Increase (decrease) in cash and cash equivalents 893,718 (14,353)
Cash and cash equivalents, beginning of period 1,742,444 1,514,773
----------- -----------
Cash and cash equivalents, end of period $ 2,636,162 $ 1,500,420
=========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 4,278,535 $ 1,481,270
=========== ===========
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these unaudited consolidated statements.
5
<PAGE>
CABLE TV FUND 12-D, LTD.
------------------------
(A Limited Partnership)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(1) This Form 10-Q is being filed in conformity with the SEC requirements for
unaudited financial statements and does not contain all of the necessary
footnote disclosures required for a complete presentation of the Balance Sheets
and Statements of Operations and Cash Flows in conformity with generally
accepted accounting principles. However, in the opinion of management, this data
includes all adjustments, consisting only of normal recurring accruals,
necessary to present fairly the financial position of Cable TV Fund 12-D, Ltd.
(the "Partnership") at March 31, 1998 and December 31, 1997 and its Statements
of Operations and Cash Flows for the three month periods ended March 31, 1998
and March 31, 1997. Results of operations for these periods are not necessarily
indicative of results to be expected for the full year.
The accompanying consolidated financial statements include 100 percent of
the accounts of the Partnership and those of Cable TV Fund 12-BCD Venture (the
"Venture") reduced by the 24 percent minority interest in the Venture. All
interpartnership accounts and transactions have been eliminated. The Venture
owns and operates the cable television systems serving the areas in and around
Albuquerque, New Mexico (the "Albuquerque System") and Palmdale, California (the
"Palmdale System").
(2) Jones Intercable, Inc. (the "General Partner"), a publicly held Colorado
corporation, manages the Partnership and the Venture and receives a fee for its
services equal to 5 percent of the gross revenues of the Venture, excluding
revenues from the sale of cable television systems or franchises. Management
fees paid to the General Partner for the three month periods ended March 31,
1998 and 1997 were $1,045,622 and $985,561, respectively.
The Venture reimburses the General Partner for certain allocated overhead
and administrative expenses. These expenses represent the salaries and related
benefits paid for corporate personnel, rent, data processing services, and other
corporate facilities costs. Such personnel provide engineering, marketing,
administrative, accounting, legal and investor relations services to the
Venture. Such services, and their related costs, are necessary to the operation
of the Venture and would have been incurred by the Venture if it was a stand
alone entity. Allocations of personnel costs are based upon actual time spent
by employees of the General Partner with respect to each entity managed.
Remaining expenses are allocated based on the pro rata relationship of the
Venture's revenues to the total revenues of all systems owned or managed by the
General Partner and certain of its subsidiaries. Systems owned by the General
Partner and all other systems owned by partnerships for which Jones Intercable,
Inc. is the general partner are also allocated a proportionate share of these
expenses. The General Partner believes that the methodology used in allocating
overhead and administrative expenses is reasonable. Allocated overhead and
administrative expenses allocated to the Venture by the General Partner for the
three month periods ended March 31, 1998 and 1997 were $1,138,307 and
$1,330,505, respectively.
(3) In July 1997, the Venture entered into a purchase and sale agreement to
sell the Albuquerque System to the General Partner for a sales price of
$222,963,267, which price represents the average of three separate independent
appraisals of the fair market value of the Albuquerque System. The closing of
this sale is subject to a number of conditions, including the approval of the
holders of a majority of the limited partnership interests in each of the three
partnerships that comprise the Venture and necessary governmental and other
third party consents. The General Partner currently is conducting a vote of the
limited partners on the sale of the Albuquerque System. This vote is expected to
be concluded no later than June 15, 1998. Closing is expected to occur by June
30, 1998.
Upon the consummation of the proposed sale of the Albuquerque System, the
Venture will repay its then outstanding Senior Notes balance of $41,544,890 plus
accrued interest, plus a make whole premium that, based on current market
interest rates, is estimated to total $1,342,455 and, pursuant to an amendment
to the Venture's credit facility, the Venture will distribute $125,000,000 to
the three constituent partnerships of the Venture in proportion to their
ownership interests in the Venture. The remaining proceeds will be used to
repay a portion of the outstanding balance and accrued interest on its credit
facility. The Partnership will receive $94,428,308, or 76 percent of the
$125,000,000 distribution, which the Partnership will distribute to its partners
of record as of the closing date of the sale of the Albuquerque System. This
distribution is expected to be made in July 1998. The limited partners of the
Partnership, as a group, will receive $90,101,856 and the General Partner will
receive $4,326,452. Such distribution represents $380 for each $500 limited
partnership interest, or $760 for each $1,000 invested in the Partnership.
6
<PAGE>
In March 1998, the Venture entered into a purchase and sale agreement to
sell the Palmdale System to the General Partner for a sales price of
$138,205,200, subject to customary closing adjustments. This sales price
represents the average of three separate independent appraisals of the fair
market value of the Palmdale System. The closing of this sale is subject to a
number of conditions, including the approval of the holders of a majority of the
limited partnership interests in each of the three partnerships that comprise
the Venture and necessary governmental and other third party consents. The
General Partner expects to conduct a vote of the limited partners on the sale of
the Palmdale System in the third quarter of 1998. Closing is expected to occur
in the fourth quarter of 1998.
Upon consummation of the proposed sale of the Palmdale System, the Venture
will pay all of its remaining indebtedness, which is estimated to total
approximately $48,200,000, and then the Venture will distribute the remaining
sale proceeds of approximately $91,642,700 to the three constituent partnerships
of the Venture in proportion to their ownership interests in the Venture. The
Partnership will receive approximately $69,229,300, or 76 percent of the
$91,642,700 distribution, which the Partnership will distribute to its partners
of record as of the closing date of the sale of the Palmdale System. This
distribution is expected to be made before year end 1998. Because the limited
partners will have already received distributions in an amount in excess of the
capital initially contributed to the Partnership by the limited partners, taking
into account the anticipated distribution to the limited partners from the sale
of the Albuquerque System, the net proceeds from the Palmdale System's sale will
be distributed 75 percent to the limited partners ($51,921,975) and 25 percent
to the General Partner ($17,307,325). Limited partners will receive $219 for
each $500 limited partnership interest, or $438 for each $1,000 invested in the
Partnership, from the Partnership's portion of the net proceeds of the Palmdale
System's sale. Since the Palmdale System will represent the only remaining
asset of the Venture, the Venture and the Partnership will be liquidated and
dissolved after the sale of the Palmdale System.
Taking into account the anticipated distributions from the proposed sales
of the Albuquerque System and the Palmdale System, together with all prior
distributions, the General Partner expects that the Partnership's limited
partners will receive $774 for each $500 limited partnership interest, or $1,548
for each $1,000 invested in the Partnership, at the time the Partnership is
liquidated and dissolved.
7
<PAGE>
CABLE TV FUND 12-D, LTD.
------------------------
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
In July 1997, the Venture entered into a purchase and sale agreement to
sell the Albuquerque System to the General Partner for a sales price of
$222,963,267, which price represents the average of three separate independent
appraisals of the fair market value of the Albuquerque System. The closing of
this sale is subject to a number of conditions, including the approval of the
holders of a majority of the limited partnership interests in each of the three
partnerships that comprise the Venture and necessary governmental and other
third party consents. The General Partner currently is conducting a vote of the
limited partners on the sale of the Albuquerque System. This vote is expected
to be concluded no later than June 15, 1998. Closing is expected to occur by
June 30, 1998.
Upon the consummation of the proposed sale of the Albuquerque System, the
Venture will repay its then outstanding Senior Notes balance of $41,544,890 plus
accrued interest, plus a make whole premium that, based on current market
interest rates, is estimated to total $1,342,455 and, pursuant to an amendment
to the Venture's credit facility, the Venture will distribute $125,000,000 to
the three constituent partnerships of the Venture in proportion to their
ownership interests in the Venture. The remaining proceeds will be used to
repay a portion of the outstanding balance and accrued interest on its credit
facility. The Partnership will receive $94,428,308, or 76 percent of the
$125,000,000 distribution, which the Partnership will distribute to its partners
of record as of the closing date of the sale of the Albuquerque System. This
distribution is expected to be made in July 1998. The limited partners of the
Partnership, as a group, will receive $90,101,856 and the General Partner will
receive $4,326,452. Such distribution represents $380 for each $500 limited
partnership interest, or $760 for each $1,000 invested in the Partnership.
In March 1998, the Venture entered into a purchase and sale agreement to
sell the Palmdale System to the General Partner for a sales price of
$138,205,200, subject to customary closing adjustments. This sales price
represents the average of three separate independent appraisals of the fair
market value of the Palmdale System. The closing of this sale is subject to a
number of conditions, including the approval of the holders of a majority of the
limited partnership interests in each of the three partnerships that comprise
the Venture and necessary governmental and other third party consents. The
General Partner expects to conduct a vote of the limited partners on the sale of
the Palmdale System in the third quarter of 1998. Closing is expected to occur
in the fourth quarter of 1998.
Upon consummation of the proposed sale of the Palmdale System, the Venture
will pay all of its remaining indebtedness, which is estimated to total
approximately $48,200,000, and then the Venture will distribute the remaining
sale proceeds of approximately $91,642,700 to the three constituent partnerships
of the Venture in proportion to their ownership interests in the Venture. The
Partnership will receive approximately $69,229,300, or 76 percent of the
$91,642,700 distribution, which the Partnership will distribute to its partners
of record as of the closing date of the sale of the Palmdale System. This
distribution is expected to be made before year end 1998. Because the limited
partners will have already received distributions in an amount in excess of the
capital initially contributed to the Partnership by the limited partners, taking
into account the anticipated distribution to the limited partners from the sale
of the Albuquerque System, the net proceeds from the Palmdale System's sale will
be distributed 75 percent to the limited partners ($51,921,975) and 25 percent
to the General Partner ($17,307,325). Limited partners will receive $219 for
each $500 limited partnership interest, or $438 for each $1,000 invested in the
Partnership, from the Partnership's portion of the net proceeds of the Palmdale
System's sale. Since the Palmdale System will represent the only remaining
asset of the Venture, the Venture and the Partnership will be liquidated and
dissolved after the sale of the Palmdale System.
Taking into account the anticipated distributions from the proposed sales
of the Albuquerque System and the Palmdale System, together with all prior
distributions, the General Partner expects that the Partnership's limited
partners will receive $774 for each $500 limited partnership interest, or $1,548
for each $1,000 invested in the Partnership, at the time the Partnership is
liquidated and dissolved.
For the three months ended March 31, 1998, the Venture generated net cash
from operating activities totaling $2,656,317, which was available to fund
capital expenditures and non-operating costs. Capital expenditures for the
8
<PAGE>
Venture totaled $5,727,467 for the three months ended March 31, 1998. Capital
expenditures in the Albuquerque System totaled $3,939,916. Of the Albuquerque
System's capital expenditures, approximately 53 percent was for service drops to
subscribers' homes, approximately 24 percent was for cable plant extensions
related to new homes passed and the remainder was for other capital expenditures
to maintain the value of the Albuquerque System until it is sold. Capital
expenditures in the Palmdale System totaled $1,787,551. Of the Palmdale
System's capital expenditures, approximately 53 percent was for service drops to
subscribers' homes, approximately 16 percent was for cable plant extensions
related to new homes passed and the remainder was for other capital expenditures
to maintain the value of the Palmdale System until it is sold. These capital
expenditures were funded primarily from cash generated from operations and
borrowings from the Venture's credit facility. Budgeted capital expenditures
for the remainder of 1998 are approximately $6,955,000. Budgeted capital
expenditures in the Albuquerque System for the second quarter are approximately
$3,837,900, of which approximately 36 percent is for service drops to customers'
homes, approximately 20 percent is for cable plant extensions related to new
homes passed and the remainder relates to other capital expenditures to maintain
the value of the Albuquerque System. Budgeted capital expenditures for the
remainder of 1998 in the Palmdale System are approximately $3,117,100, of which
approximately 29 percent is for cable plant extensions related to new homes
passed, approximately 25 percent is for service drops to subscribers' homes and
the remainder is for other capital expenditures to maintain the value of the
Palmdale System. Depending upon the timing of the closing of the sale of the
Venture's systems, the Venture will make only the portion of the 1998 budgeted
capital expenditures scheduled to be made during the Venture's continued
ownership of its systems. Funding for these expenditures is expected to be
provided by cash on hand, cash generated from operations and borrowings from the
Venture's credit facility.
The Venture's debt arrangements at March 31, 1998 consisted of $41,544,890
of Senior Notes placed with a group of institutional lenders and a $120,000,000
credit facility with a group of commercial bank lenders. The Senior Notes and
the credit facility are equal in standing with the other, and both are equally
secured by the assets of the Venture. The Senior Notes and the credit facility
contain certain financial covenants. The most restrictive of these covenants is
that the ratio of debt to annualized cash flow will not exceed 4.5 to 1. The
Venture was in compliance with all of such financial covenants at March 31,
1998.
The Senior Notes have a fixed interest rate of 8.64 percent and a final
maturity date of March 31, 2000. The Senior Notes require payments of interest
and accelerating principal through maturity, payable semi-annually in March and
September. A principal payment of $5,934,984 was made in March 1998. A
principal payment of approximately $5,934,984 is due in September 1998; however,
upon the sale of the Albuquerque System, which is expected to occur no later
than June 30, 1998, the Senior Notes will be repaid in full together with an
approximate $1,342,000 make whole premium.
The balance outstanding on the Venture's $120,000,000 credit facility at
March 31, 1998 was $105,630,620, leaving $14,369,380 available for future needs.
Upon the sale of the Albuquerque System and pursuant to an amendment to the
Venture's credit facility, the Venture anticipates repaying a portion of the
then outstanding balance of the credit facility and that the commitment will be
reduced to $55,000,000. At the Venture's option, the credit facility will be
payable in full on December 31, 1999 or will convert to a term loan that matures
on December 31, 2004 payable in consecutive quarterly amounts. Upon the sale of
the Palmdale System, the Venture will repay the then outstanding balance of the
credit facility. Interest on the credit facility is at the Venture's option of
the London Interbank Offered Rate plus .875 percent, the Prime Rate or the
Certificate of Deposit Rate plus 1 percent. The effective interest rates on
amounts outstanding on the Venture's credit facility as of March 31, 1998 and
1997 were 6.69 percent and 7.09 percent, respectively.
The Venture has sufficient sources of capital available through its ability
to generate cash from operations and borrowings under its credit facility to
meet its presently anticipated needs.
9
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
As a result of the sale of the Venture's cable television system serving
areas in and around Tampa, Florida, in February 1996, the following discussion
of the Venture's results of operations, through operating income, pertains only
to the results of operations of the Albuquerque System and the Palmdale System
for the periods discussed. Results of operations of each system for the three
months ended March 31, 1998 and 1997, respectively, are summarized below:
<TABLE>
<CAPTION>
Albuquerque System
---------------------------------------------------
1998 1997 Inc(Dec) % Inc/(Dec)
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues $13,480,069 $12,748,434 $ 731,635 6%
Operating expenses 7,404,123 6,956,707 447,416 6%
----------- ----------- ----------
Operating cash flow 6,075,946 5,791,727 284,219 5%
Management fees and allocated
overhead from Jones Intercable, Inc. 1,408,460 1,495,844 (87,384) (6%)
Depreciation and amortization 4,198,392 3,425,328 773,064 23%
----------- ----------- ----------
Operating income $ 469,094 $ 870,555 $ (401,461) (46%)
=========== =========== ==========
Palmdale System
-------------------------------------------------
1998 1997 Inc(Dec) % Inc/(Dec)
----------- ----------- ---------- ----------
Revenues $ 7,432,373 $ 6,962,791 $ 469,582 7%
Operating expenses 4,104,174 3,997,158 107,016 3%
----------- ----------- ----------
Operating cash flow 3,328,199 2,965,633 362,566 12%
Management fees and allocated
overhead from Jones Intercable, Inc. 775,469 820,222 (44,753) (5%)
Depreciation and amortization 1,660,142 1,373,219 286,923 21%
----------- ----------- ----------
Operating income $ 892,588 $ 772,192 $ 120,396 16%
=========== =========== ==========
Total
-------------------------------------------------
1998 1997 Inc(Dec) % Inc/(Dec)
----------- ----------- ---------- ----------
Revenues $20,912,442 $19,711,225 $1,201,217 6%
Operating expenses 11,508,297 10,953,865 554,432 5%
----------- ----------- ----------
Operating cash flow 9,404,145 8,757,360 646,785 7%
Management fees and allocated
overhead from Jones Intercable, Inc. 2,183,929 2,316,066 (132,137) (6%)
Depreciation and amortization 5,858,534 4,798,547 1,059,987 22%
----------- ----------- ----------
Operating income $ 1,361,682 $ 1,642,747 $ (281,065) (17%)
=========== =========== ==========
</TABLE>
Revenues in the Albuquerque System and the Palmdale System increased
$1,201,217, or approximately 6 percent, to $20,912,442 for the three months
ended March 31, 1998 from $19,711,225 for the similar period in 1997. The
increase in
10
<PAGE>
revenue was primarily due to basic service rate increases implemented in the
Venture's systems and an increase in advertising sales revenues. Basic service
rate increases implemented in the Venture's systems accounted for approximately
71 percent of the increase in revenues for the three months ended March 31,
1998. Increases in advertising sales revenues accounted for approximately 16
percent of the increase in revenues for the three months ended March 31, 1998.
No other factor was significant to the increase in revenues.
Operating expenses consist primarily of costs associated with the operation
and administration of the Venture's cable television systems. The principal
cost components are salaries paid to system personnel, programming expenses,
professional fees, subscriber billing costs, rent for leased facilities, cable
system maintenance expenses and marketing expenses.
Operating expenses in the Albuquerque System and the Palmdale System
increased $554,432, or approximately 5 percent, to $11,508,297 for the three
months ended March 31, 1998 from $10,953,865 for the similar period in 1997.
The increase in operating expenses was primarily due to increases in programming
costs. No other factor was significant to the increase in operating expenses.
Operating expenses represented 55 percent and 56 percent, respectively, of
revenues for the three months ended March 31, 1998 and 1997.
The cable television industry generally measures the financial performance
of a cable television system in terms of operating cash flow (revenues less
operating expenses). This measure is not intended to be a substitute or
improvement upon the items disclosed on the financial statements, rather it is
included because it is an industry standard. Operating cash flow increased
$646,785, or approximately 7 percent, to $9,404,145 for the three months ended
March 31, 1998 from $8,757,360 for the similar period in 1997. This increase
was due to the increase in revenues exceeding the increase in operating
expenses.
Management fees and allocated overhead from Jones Intercable, Inc.
decreased $132,137, or approximately 6 percent, to $2,183,929 for the three
months ended March 31, 1998 from $2,316,066 for the similar period in 1997.
This decrease was primarily due to decreases in allocated overhead from the
General Partner, which was partially offset by an increase in management fees.
Depreciation and amortization expense increased $1,059,987, or
approximately 22 percent, to $5,858,534 for the three months ended March 31,
1998 from $4,798,547 for the similar period in 1997. This increase was
primarily due to a change in the estimated useful lives of certain assets.
Operating income decreased $281,065, or approximately 17 percent, to
$1,361,682 for the three month period ended March 31, 1998 from $1,642,747 for
the similar period in 1997. This decrease was due to the increase in
depreciation and amortization expense exceeding the increase in operating cash
flow.
Interest expense decreased $16,150, or approximately 1 percent, to
$2,675,112 for the three months ended March 31, 1998 from $2,691,262 for the
similar period in 1997. This decrease in interest expense was primarily due to
lower effective interest rates and lower outstanding balances on the Venture's
interest bearing obligations.
Net loss increased $304,333, or approximately 42 percent, to $1,030,026 for
the three months ended March 31, 1998 from $725,693 for the similar period in
1997. This increase is due to the factors discussed above.
11
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27) Financial Data Schedule
b) Reports on Form 8-K
Report on Form 8-K dated March 10, 1998 reported that on March
10, 1998, the Venture entered into a purchase and sale agreement with the
General Partner to sell the Venture's Palmdale System.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CABLE TV FUND 12-D, LTD.
BY: JONES INTERCABLE, INC.
General Partner
By: /S/ Kevin P. Coyle
----------------------------------
Kevin P. Coyle
Group Vice President/Finance
(Principal Financial Officer)
Dated: May 13, 1998
13
