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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the year ended December 31, 1998
Commission file number: 1-9953
JONES INTERCABLE, INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-0613514
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(State of Organization) (IRS Employer
Identification No.)
P.O. Box 3309, Englewood, Colorado 80155-3309 (303) 792-3111
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(Address of principal executive office and Zip Code) (Registrant's telephone
no. including area code)
Securities registered pursuant to Section 12(g) of the Act:
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Common Stock, $.01 par value
Class A Common Stock, $.01 par value
Indicate by check mark whether the registrant, (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No ____
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Aggregate market value as of February 3, 1999 of the voting stock held by
non-affiliates:
Common Stock $83,491,335 Class A Common Stock $828,862,117
Shares outstanding of each of the registrant's classes of common stock as of
February 3, 1999:
Common Stock: 5,113,021 Class A Common Stock: 36,226,476
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. _________
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JONES INTERCABLE, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
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Page No.
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PART I 1
ITEM 1. BUSINESS 1
The Company 1
Current Principal Shareholders of the Company 1
Comcast Corporation's Planned Acquisition of the Control Shares of the 2
Company
The Cable Television Industry 3
System Operations 4
Programming 4
System Revenues 5
The Company's Cable Television Business 5
The Company's Other Businesses and Investments 8
Acquisitions of Cable Television Systems in 1998 and 1999 8
Proposed Acquisitions of Cable Television Systems in 1999 9
Sale of Contract Manufacturing Business 10
Sale of Interest in Jones Customer Service Management, LLC 10
Distribution Agreement with @Home Corporation 10
Sale of 7 5/8% Senior Notes 10
The Company's Credit Facilities 10
Cable Television Franchises 11
Competition 12
Broadcast Television 12
Overbuilds 12
DBS 13
Private Cable 13
MMDS 13
Regulation and Legislation 14
Cable Rate Regulation 14
Cable Entry Into Telecommunications 15
Telephone Company Entry Into Cable Television 16
Electric Utility Entry Into Telecommunications/Cable Television 16
Additional Ownership Restrictions 16
Must Carry/Retransmission Consent 17
Access Channels 17
Access to Programming 17
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Inside Wiring 18
Other FCC Regulations 18
Internet Access 18
Copyright 19
State and Local Regulation 19
Risk Factors 20
ITEM 2. PROPERTIES 20
ITEM 3. LEGAL PROCEEDINGS 25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY 28
HOLDERS
PART II 29
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND 29
RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA 32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 33
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY 42
DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH 73
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
PART III 73
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE 73
REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION 79
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL 82
OWNERS, DIRECTORS AND MANAGEMENT
ITEM 13. CERTAIN TRANSACTIONS 86
PART IV 90
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K 90
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Certain information contained in this Form 10-K Report contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. All statements, other than statements of historical facts, included in
this Form 10-K Report that address activities, events or developments that Jones
Intercable, Inc. (the "Company") expects, believes or anticipates will or may
occur in the future, including such matters as changes in the cable television
industry, the Company's acquisition and clustering strategies, capital
expenditures, the Company's operating strategies, the liquidation of the
Company's managed partnerships, the development of new services and
technologies, particularly those in the telecommunications area, the effects of
competition, governmental regulation policies, the Company's expansion plans and
other such matters, are forward-looking statements. These forward-looking
statements are based upon certain assumptions and are subject to a number of
risks and uncertainties. Actual events or results may differ materially from
those discussed in the forward-looking statements as a result of various
factors. As discussed in Item 1, Comcast Corporation's Planned Acquisition of
the Control Shares of the Company, it is anticipated that Comcast Corporation
("Comcast") will acquire a controlling interest in the Company during March
1999. As a result of this transaction, it is expected that the current
management of the Company and a majority of the Board of Directors of the
Company will be replaced by Comcast. Because all of the forward-looking
statements in this Form 10-K Report are made by the Company's current management
and its current Board of Directors, they are qualified in their entirety by
reference to the pending change in control and by changes in the Company's
business plans and strategies that may be effected by new management and the new
Board of Directors after the change in control.
PART I
ITEM 1. BUSINESS
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THE COMPANY
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The Company is a Colorado corporation organized in 1970. The Company is
primarily engaged in the cable television business. The majority of the
Company's cable television systems are owned indirectly by the Company through
the Company's wholly owned subsidiaries, Jones Cable Holdings, Inc. ("JCH") and
Jones Cable Holdings II, Inc. ("JCH II"). The Company also has a subsidiary
that has been engaged in the cable television system brokerage business and a
subsidiary that manufacturers and markets data encryption products. The Company
also has a minority equity interest in an affiliated company that provides
educational programming. See Item 1, The Company's Other Businesses and
Investments.
At December 31, 1998, the Company had a total of approximately 3,060
employees. The executive offices of the Company currently are located at 9697 E.
Mineral Avenue, Englewood, Colorado 80112, and its telephone number is (303)
792-3111.
CURRENT PRINCIPAL SHAREHOLDERS OF THE COMPANY
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Jones International, Ltd. ("International") beneficially owns approximately
48% of the Common Stock of the Company and approximately 4% of the Class A
Common Stock of the
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Company. Glenn R. Jones, the Chairman of the Board of Directors and Chief
Executive Officer of the Company, personally owns approximately 9% of the
Company's Common Stock and approximately 3% of the Company's Class A Common
Stock. Because of his 100% ownership of International, Mr. Jones is deemed to be
the beneficial owner of all shares of the Company owned by International, and
his direct and indirect stock ownership gives him voting power over
approximately 37% of votes to be cast by all shareholders of the Company on
matters not requiring a class vote. BCI Telecom Holdings Inc. ("BTH") owns
approximately 36% of the Company's Class A Common Stock and, through such
ownership, BTH has an approximate 31% economic interest in the Company. Mr.
Jones currently has the right to designate seven members of the Board of
Directors, BTH currently has the right to designate three members of the Board
of Directors and three members of the Board of Directors currently are jointly
designated by Mr. Jones and BTH. See Item 5, Market for Registrant's Common
Equity and Related Stockholder Matters, Item 10, Directors and Executive
Officers of the Registrant and Item 12, Security Ownership of Certain Beneficial
Owners, Directors and Management. In addition, BTH holds options to purchase
2,878,151 shares of Common Stock of the Company (the "Control Shares") from
International, Glenn R. Jones and certain of their affiliates which, if and when
exercised, would enable BTH to elect a majority of the members of the Board of
Directors of the Company. Pursuant to various agreements all dated August 12,
1998 among Mr. Jones, International and certain of its affiliates, BTH and
Comcast, Comcast acquired the right to purchase all of the Control Shares. As
described below, the Company anticipates that Comcast will acquire a controlling
interest in the Company before the end of March 1999.
COMCAST CORPORATION'S PLANNED ACQUISITION OF THE CONTROL SHARES OF THE COMPANY
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In May 1998, BTH announced its intention to sell approximately half of its
shares of the Company's Class A Common Stock to Comcast. At that time, BTH also
announced its intention to grant to Comcast the right to acquire the Control
Shares if and when BTH exercises its option to purchase such shares and to sell
to Comcast at the time that the option is exercised BTH's remaining holdings of
the Company's Class A Common Stock.
In August 1998, the Company, International, BTH and Comcast announced that
agreements had been entered into that will accelerate the exercise of the option
for the Control Shares by Comcast, and allowed for the early closing of the
transaction between Comcast and BTH. In connection with the early exercise of
the option, Comcast will pay to International and certain of its affiliates
$200,000,000 for the Control Shares held by them. In addition, the Company has
agreed to make certain payments to International and its affiliates in
connection with the termination, effective as of the closing of the option
exercise, of certain related party agreements between the Company, International
and its affiliates, including the termination of Mr. Jones' employment agreement
with the Company and the termination of certain programming rights held by
International pursuant to the Shareholders Agreement between the Company,
International, Mr. Jones and BTH entered into in 1994. Also, in connection with
the closing of the option exercise, and conditioned upon such closing occurring,
the pending litigation between BTH, International, Mr. Jones and the Company
will be dismissed and International and certain of its affiliates will dismiss
the appeal which is pending of the order entered against them in such
litigation.
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To facilitate an orderly change in control to Comcast, the Company has
initiated a retention and severance program for those corporate associates who
may be terminated due to the change in control. The program provides incentives
to corporate associates to remain with the Company until the change in control
and through the subsequent 90-day transition period. The program provides for
cash severance payments to associates that are terminated due to the change in
control. Total costs associated with this program are approximately $30,000,000.
The Company anticipates incurring $40,600,000 in restructuring costs, which will
be recognized upon closing. Such costs include the cost of terminating Mr.
Jones' employment agreement, severance payments to corporate personnel, salaries
during the 90-day transition period following the change in control and certain
professional fees.
The closing of the exercise of the option for the Control Shares is
expected to occur in March 1999. All necessary regulatory filings associated
with this transaction have been made. Following such closing, Comcast would own
approximately 12.8 million shares of Class A Common Stock, and approximately 2.9
million shares of Common Stock of the Company, representing approximately 37% of
the economic and 47% of the voting interest in the Company. In addition, the
Common Stock held by Comcast will allow it to elect 75% of the Board of
Directors of the Company, and Comcast is expected to replace a majority of the
current Board of Directors with nominees of its choice effective as of the
closing of the option exercise. It is also expected that current management of
the Company, including all of the senior executive officers of the Company, will
be replaced by the new Board of Directors by the end of the 90-day transition
period following the change in control.
THE CABLE TELEVISION INDUSTRY
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The cable television industry, which started as a technical solution to the
problem of delivering television signals to remote areas of rural America, has
now become an entertainment staple in a majority of American homes. It is a
dynamic, evolving and ever more complex industry. Cable penetration, or the
percentage of U.S. television households that subscribe to cable television, now
stands at approximately 67%.
A cable television system is a facility that receives satellite, broadcast
and FM radio signals by means of high antennas, a microwave relay service or
earth stations. It then amplifies the signals and distributes them by coaxial
and/or fiber-optic cable to the premises of its subscribers, who pay a fee for
the service. A cable television system may also originate its own programming
for distribution through its cable plant.
The physical plant of a cable television system consists of four principal
operating components. The first, known as the "headend" facility, receives
television and radio signals with microwave relay systems, special antennas and
satellite earth stations. The second component, the distribution network,
originating at the headend and extending throughout the system, consists of
coaxial and/or fiber-optic cables placed on poles or buried underground, and
associated electronic equipment. The third component of the system is a "drop
cable" that extends from the distribution network into the subscriber's home and
connects to the subscriber's television set. The fourth component, a converter,
is the home terminal device often necessary to expand channel capacity and to
deliver pay-per-view and other premium services.
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The cable television industry is undergoing significant change. The cable
television business is evolving from a traditional coaxial network delivering
only video entertainment to a more sophisticated, digital platform environment
where cable systems may deliver traditional programming as well as other
services, including data, telephone and expanded educational and entertainment
services on an interactive basis. See Item 1, The Company's Cable Television
Business.
System Operations. The operation of cable television systems is generally
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conducted pursuant to the terms of a franchise or similar license granted by the
local governing body for the area to be served or by a state agency. Franchises
generally are granted on a non-exclusive basis for a period of 5 to 15 years.
Joint use or pole rental agreements are normally entered into with electric
and/or telephone utilities serving a cable television system's area and annual
rentals generally range from $5 to $15 for each pole used. These rates may
increase in the future. See Item 1, Cable Television Franchises; Item 1,
Competition; and Item 1, Regulation and Legislation.
PROGRAMMING. Cable television systems generally offer various types of
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programming, which include basic service, tier service, premium services, pay-
per-view programs and packages including several of these services at combined
rates.
Basic cable television service usually consists of signals of all national
television networks broadcast by their local affiliates, various independent and
educational television stations (both VHF and UHF) and certain signals received
from satellites, and also usually includes programs originated locally by the
system, which may consist of music, news, weather reports, stock market and
financial information and live or videotaped programs of a public service or
entertainment nature. FM radio signals are also frequently distributed to
subscribers as part of the basic service. The Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act") contains signal
carriage requirements. Rules promulgated under the 1992 Cable Act allow each
commercial television broadcast station to elect every three years whether to
require the cable systems in its area to carry its signal or to require the
cable systems to negotiate with the station for "retransmission consent" to
carry the station. If a local commercial broadcast television station requires
a cable system to negotiate with the station for retransmission consent, and the
cable system is unable to obtain retransmission consent, the cable system is not
permitted to continue carriage of such station. See Item 1, Regulation and
Legislation. To date, no broadcast stations that elected retransmission consent
in areas served by any of the Company's cable television systems have withheld
consent to the retransmission of their signals by a Company-owned cable
television system.
In most systems, tier services are also offered on an optional basis to
subscribers. These channels generally include most of the cable networks such
as Entertainment and Sports Programming Network (ESPN), Cable News Network
(CNN), Turner Network Television (TNT), The Family Channel, The Discovery
Channel and others. Systems also offer a package that includes the basic
service channels and the tier services.
Cable television systems offer premium services to their subscribers,
which consist of feature films, sporting events and other special features that
are presented without commercial interruption. The cable television operator
buys premium programming from suppliers such as HBO, Showtime, Cinemax, Encore
and others at a cost based on the number of subscribers served by the cable
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operator. The per service cost of premium service programming usually is
significantly more expensive for the system operator than the basic service or
tier service programming, and consequently the system operator prices premium
service separately when sold to subscribers.
Cable television systems also offer to subscribers pay-per-view
programming. Pay-per-view is a service that allows subscribers to receive single
programs, frequently consisting of recently released motion pictures and major
sporting events, and to pay for such service on a program-by-program basis.
System Revenues. Monthly service fees for basic, tier and premium services
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constitute the major source of revenue for cable television systems. A
subscriber to a cable television system generally pays an initial connection
charge and a fixed monthly fee for the cable programming services received. The
amount of the monthly service fee varies from one area to another, and
historically has been a function, in part, of the number of channels and
services included in the service package and the cost of such services to the
cable television system operator. In most instances, a separate monthly fee for
each premium service and certain other specific programming is charged to
subscribers, with discounts generally available to subscribers receiving
multiple premium services.
Cable television operators have been able to generate additional revenue
through the sale of commercial spots and channel space to advertisers. As with
other forms of advertising, the cable television operator receives a fee from
the advertisers that is based on the programming service on which the
advertisements appear, the volume of advertising and the time of the day at
which it is broadcast. Advertising, as well as fees generated by home shopping
and pay-per-view, represent additional sources of revenue for cable television
systems. These services are not regulated under the 1992 Cable Act.
The 1992 Cable Act mandated a greater degree of regulation of the cable
television industry, including rate regulation. Under the 1992 Cable Act's
definition of "effective competition," nearly all cable systems in the United
States, including almost all of those owned and managed by the Company, are
subject to rate regulation with respect to basic cable services. In addition,
the FCC is permitted to regulate rates for non-basic service tiers other than
premium services in response to local complaints. Rate regulations adopted by
the FCC provide for a benchmark and price cap system that is used to regulate
basic and non-basic service rates, and cost-of-service showings are available to
cable operators to allow them to justify rates above benchmark levels. The 1996
Telecommunications Act (the "1996 Telecom Act") eliminated rate regulation for
small cable operators. The 1996 Telecom Act sunsets FCC rate regulation of
cable programming service tiers for all cable television systems regardless of
size on March 31, 1999. See Item 1, Regulation and Legislation.
THE COMPANY'S CABLE TELEVISION BUSINESS
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The Company is engaged primarily in the cable television business,
operating cable systems for itself and for its managed partnerships. The Company
owns and manages cable television systems that served approximately 1,200,000
basic subscribers as of December 31, 1998. As of December 31, 1998, on a pro
forma basis for all pending acquisitions of cable television systems by the
Company
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and pending sales of cable television systems owned by managed partnerships, the
Company served approximately 1,015,000 basic subscribers.
The following table shows the cable television systems owned or managed by
the Company as of December 31, 1998:
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CABLE SYSTEMS OWNED
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CABLE SYSTEMS OWNED BY THE COMPANY BY MANAGED PARTNERSHIPS
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Albuquerque NM Oxnard CA Barrington IL (1)
Alexandria VA Palmdale CA Buffalo MN (1)
Augusta GA Panama City Beach FL Calvert County MD (2)
Celebration FL Pima County AZ Littlerock CA (3)
Chesapeake Bay Group MD Prince Georges County MD Myrtle Creek OR (1)
Hinesville GA Prince William County VA Naperville IL (1)
Independence MO Savannah GA So. Suburban IL (1)
Manitowoc WI Wheaton IL (1)
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(1) Systems scheduled to be sold to unaffiliated cable operators in February or
March 1999
(2) Sale of system to the Company pending as of February 1999
(3) System sold to the Company in January 1999
As part of the Company's announced plans to simplify its corporate
structure, 19 of the 27 cable television systems owned by the Company's managed
partnerships were sold during 1998. During the first quarter of 1999, an
additional 7 cable television systems owned by the Company's managed
partnerships have been or will be sold. The sale of the Calvert County, Maryland
system, the only remaining cable television system expected to be owned by a
managed partnership beyond the first quarter of 1999, is pending, and the
Company anticipates that it will be sold to the Company in April 1999. With
respect to certain of the remaining managed partnerships, the only remaining
asset of each partnership is a cash amount deposited into an indemnity escrow as
security to the buyer regarding certain representations and warranties made
under the asset purchase agreements by the partnerships regarding the cable
television systems. Provided that there are no pending disputes, these
partnerships will be liquidated and dissolved following the expiration of the
indemnity escrow periods. With respect to 4 managed partnerships, the
partnerships will not be dissolved and liquidated until the resolution and
termination of litigation involving the partnerships.
Over the last several years, the Company has taken significant steps to
simplify its corporate structure. This process has included the above-
referenced sales of cable television systems owned by certain managed
partnerships either to the Company or to unaffiliated entities and the
divestiture of certain of the Company's non-strategic assets. As a result of
this strategy, on a pro forma basis for the cable system acquisitions by the
Company and cable system sales by the managed partnerships pending as of
February 1999, 100% of total subscribers served by the Company would have been
owned by the Company as of December 31, 1998, compared to 23% in June 1995. See
Item 1, Proposed Acquisitions of Cable Television Systems in 1999.
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During this process of simplifying its corporate structure, the Company has
clustered its owned subscribers in two primary groups of cable systems. The
Company's Virginia/Maryland cluster is based primarily on geography. The
Company's suburban cluster is based on similar market and operating
characteristics, rather than geography. These clusters represent approximately
95% of Company-owned subscribers. The Company believes that its clustering
strategy should allow it to obtain both economies of scale and operating
efficiencies.
The Virginia/Maryland cluster is comprised of cable systems serving
approximately 414,600 basic subscribers in communities in Maryland and Virginia
surrounding Washington, D.C. On a pro forma basis for the Company's pending
acquisition of the Calvert County, Maryland system, the Company's
Virginia/Maryland cluster is comprised of cable systems serving approximately
433,400 basic subscribers. The Company's suburban cluster includes the
Savannah, Hinesville and Augusta, Georgia systems, the Pima County, Arizona
system, the Independence, Missouri system, the Albuquerque, New Mexico system,
and the Palmdale and Littlerock, California systems serving approximately
522,300 basic subscribers. See Item 1, Acquisitions of Cable Television Systems
in 1998 and 1999 and Item 1, Proposed Acquisitions of Cable Television Systems
in 1999.
With respect to the systems owned by the Company and its subsidiaries, the
Company earns revenues through monthly service rates and related charges to
cable television subscribers. The Company's subscribers have the option to
choose a limited basic service consisting generally of broadcast stations and a
few cable networks ("basic" service) or a package of services consisting of
basic service and tier services ("basic plus" service). The basic plus service
generally consists of most of the cable networks, including ESPN, USA Network,
CNN, Discovery, Lifetime and others. See Item 1, The Cable Television Industry,
Programming.
Monthly service rates include fees for basic service, basic plus service
and premium services. At December 31, 1998, monthly basic service rates ranged
from $6.95 to $16.54 for residential subscribers, monthly basic plus service
rates ranged from $20.05 to $32.24 for residential subscribers, and monthly
premium services ranged from $5.99 to $11.95 per premium service. In addition,
the Company earns revenues from pay-per-view programs and advertising fees.
Pay-per-view programs, which usually are either unique sporting events or
recently released movies, are available on many of the Company's cable
television systems. Subscribers are permitted to choose individual movies for a
set fee ranging from $3.95 to $10.95 per movie and individual special events for
a set fee ranging from $3.95 to $129.95 per event. Related charges may include
a nonrecurring installation fee that ranges from $4.95 to $49.95; however, from
time to time the Company has followed the common industry practice of reducing
the installation fee during promotional periods. Commercial subscribers such as
hotels, motels and hospitals are charged a nonrecurring connection fee that
usually covers the cost of installation. Except under the terms of certain
contracts with commercial subscribers and residential apartment and condominium
complexes, subscribers are free to discontinue the service at any time without
penalty, and most terminations occur because a subscriber moves to another home
or to another city. For the year ended December 31, 1998, of the total
subscriber fees received by Company-owned systems, basic and basic plus service
fees accounted for approximately 69% of total revenues, premium service fees
accounted for approximately 17% of total revenues, pay-per-view fees were
approximately 2% of total revenues, advertising fees were approximately 7% of
total revenues
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and the remaining 5% of total revenues came primarily from equipment rentals,
installation fees, telephony services and program guide charges. The Company is
dependent upon timely receipt of service fees to provide for maintenance and
replacement of plant and equipment, current operating expenses and other costs.
As the general partner of its managed partnerships, the Company
historically has earned management fees that are equal to 5% of the gross
revenues of the partnerships, not including revenues from the sale of cable
television systems or franchises. The Company also received reimbursement from
its managed partnerships for certain allocated overhead and administrative
expenses incurred by the Company in its management activities. These management
fees and reimbursements have been significantly reduced and will be eliminated
after the first quarter of 1999 as the Company completes the planned liquidation
of its managed partnerships.
The Company's business consists of providing cable television services to
a large number of customers, the loss of any one or more of which would have no
material effect on the Company's business. Each of the cable television systems
owned or operated by the Company has had some subscribers who later terminated
the service. Terminations occur primarily because people move to another home
or to another city. In other cases, people terminate on a seasonal basis or
because they no longer can afford or are dissatisfied with the service. The
amount of past due accounts in systems owned or operated by the Company is not
significant. The Company's policy with regard to these accounts is basically
one of disconnecting service before a past due account becomes material.
The Company does not depend to any material extent on the availability of
raw materials, it carries no significant amounts of inventory and it has no
material backlog of customer orders. The Company has engaged in research and
development activities relating to the provision of new services. Compliance
with Federal, state and local provisions that have been enacted or adopted
regulating the discharge of materials into the environment or otherwise relating
to the protection of the environment has had no material effect upon the capital
expenditures, earnings or competitive position of the Company.
THE COMPANY'S OTHER BUSINESSES AND INVESTMENTS
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The Intercable Group, Ltd., f/k/a The Jones Group, Ltd., a wholly owned
subsidiary of the Company, is a cable television brokerage firm that has earned
fees from certain of the Company's managed partnerships when such partnerships
have sold cable systems. It is anticipated that this subsidiary will not
generate revenues after the partnerships' cable systems are sold. Jones
Futurex, Inc., also a wholly owned subsidiary of the Company, manufactures and
markets data encryption products. The Company owns an approximate 32% equity
interest in Knowledge TV, Inc, which provides educational programming.
ACQUISITIONS OF CABLE TELEVISION SYSTEMS IN 1998 AND 1999
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Albuquerque System. In June 1998, the Company purchased from Cable TV Fund
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12-BCD Venture (the "Venture"), a venture comprised of three managed
partnerships, the cable television system serving areas in and around
Albuquerque, New Mexico (the "Albuquerque System") for
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$222,963,267, subject to customary closing adjustments. The purchase price
represented the average of three independent appraisals of the fair market value
of the Albuquerque System. Upon closing, the Company received, from the three
partnerships that comprise the Venture, general partner distributions totaling
approximately $8,100,000.
Hinesville System. In December 1998, the Company purchased the cable
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television system serving communities in and around Hinesville, Georgia (the
"Hinesville System") from an unaffiliated party for a purchase price of
$48,000,000, subject to customary closing adjustments. The Hinesville System is
contiguous to the Company's Savanna, Georgia cable television system. The
Company paid Jones Financial Group, Ltd. ("Financial Group"), a subsidiary of
International, a fee of $756,000 for acting as the Company's financial advisor
in connection with this transaction.
Palmdale System. In December 1998, the Company purchased from the Venture
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the cable system serving areas in and around Palmdale and Lancaster, California
(the "Palmdale System") for a purchase price of $138,205,200, subject to
customary closing adjustments. The purchase price represented the average of
three separate independent appraisals of the fair market value of the Palmdale
System. Upon closing, the Company received, from the three partnerships that
comprise the Venture, general partner distributions totaling approximately
$22,275,000. See Item 3, Legal Proceedings for a description of a lawsuit
brought by a limited partner of two of the partnerships that are partners in the
Venture challenging the terms of the sale of the Palmdale System to the Company.
Grants System and Socorro System. In December 1998, the Company purchased
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from Spacelink Fund 3, Ltd., a managed partnership, the cable television systems
serving areas in and around Socorro, New Mexico (the "Socorro System") and
Grants, New Mexico (the "Grants System"), for purchase prices of $3,638,791 and
$6,420,806, respectively. The purchase prices represented the average of three
independent appraisals of the fair market values of the Socorro System and the
Grants System, respectively.
Littlerock System. In January 1999, the Company purchased from Cable TV
-----------------
Fund 14-B, Ltd., a managed partnership, the cable television system serving
areas in and around Littlerock, California for a purchase price of $10,720,400,
subject to customary closing adjustments. The Littlerock System is contiguous
to the Palmdale System. The purchase price represented the average of three
separate independent appraisals of the fair market value of the Littlerock
System. See Item 3, Legal Proceedings for a description of a lawsuit brought by
a limited partner of Cable TV Fund 14-B, Ltd. challenging the terms of the sale
of the Littlerock System to the Company.
PROPOSED ACQUISITIONS OF CABLE TELEVISION SYSTEMS IN 1999
- ---------------------------------------------------------
Calvert County System. In June 1998, the Company entered into an agreement
---------------------
with Cable TV Fund 14-A, Ltd., a managed partnership, to purchase the cable
television system serving areas in and around Calvert County, Maryland (the
"Calvert County System") for a purchase price of $39,388,667, subject to
customary closing adjustments. The purchase price represents the average of
three independent appraisals of the fair market value of the Calvert County
System. The Calvert County System is contiguous to the Company's
Virginia/Maryland cluster of cable television systems. The closing of this
transaction, which is expected to occur in April 1999, is subject to a number of
9
<PAGE>
conditions including the approval of the transaction by the holders of a
majority of the limited partnership interests of Fund 14-A, the expiration or
termination of all waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 applicable to the agreement or the transactions
contemplated thereby, and the receipt of consents of governmental authorities
and other third parties.
SALE OF CONTRACT MANUFACTURING BUSINESS
- ---------------------------------------
In May 1998, the Company sold the contract manufacturing business owned by
Jones Futurex, Inc. ("Futurex") to a third party for $350,000 in cash. In
addition, the buyer entered into a sublease arrangement for certain facilities
leased by Futurex. Payments under the sublease agreement total approximately
$1.8 million over the next four years. The Company continues to own and operate
Futurex's encryption business.
SALE OF INTEREST IN JONES CUSTOMER SERVICE MANAGEMENT, LLC
- ----------------------------------------------------------
In August 1998, the Company sold its 75% interest in Jones Customer
Service Management, LLC to Jones Cyber Solutions, Ltd., an affiliated company,
for $3,150,000. The purchase price was paid $2,000,000 in cash and $1,150,000
in a note receivable. The note receivable bears interest at prime + 2%, and is
payable in 36 months or upon a change in control of the Company.
DISTRIBUTION AGREEMENT WITH @HOME CORPORATION
- ---------------------------------------------
In June 1998, the Company entered into a Distribution Agreement with At
Home Corporation ("@Home"), which provides for the distribution of high speed
internet services to the Company's cable television systems. Deployment began
in December 1998. In conjunction with this agreement, the Company and @Home
entered into a Warrant Purchase Agreement providing for the Company's purchase
of up to a maximum of 2,046,100 shares of Series A Common Stock of @Home for
$10.50 per share. The Warrant becomes exercisable after March 31, 1999 as the
Company launches @Home services in its cable television systems in the future.
SALE OF 7 5/8% SENIOR NOTES
- ---------------------------
In April 1998, the Company issued and sold $200,000,000 of its 7 5/8%
Senior Notes due April 15, 2008. Proceeds from the sale of the Senior Notes
were used to repay a portion of the amounts outstanding under the revolving
credit facilities of the Company's subsidiaries.
THE COMPANY'S CREDIT FACILITIES
- -------------------------------
The Company's credit facilities consist of two revolving credit facilities,
one for JCH and one for JCH II. Each revolving credit facility has maximum
available borrowings of $600,000,000.
The $600,000,000 JCH revolving credit facility is a reducing revolving
credit facility. The entire $600,000,000 commitment is available through March
31, 1999, at which time the commitment will be reduced quarterly with a final
maturity date of December 31, 2004. The balance outstanding
10
<PAGE>
on JCH's revolving credit facility at December 31, 1998 was $340,000,000. The
maximum amount available will be reduced to $555,000,000 at December 31, 1999.
The $600,000,000 JCH II revolving credit facility consists of a
$300,000,000 reducing revolving credit facility and a $300,000,000 term loan.
The reducing revolving credit facility allows for borrowings through the final
maturity date of December 31, 2005. The maximum amount available reduces
quarterly beginning March 31, 2000 through the final maturity date of December
31, 2005. The term loan is payable in semi-annual installments commencing June
30, 2001 with a final maturity date of December 31, 2005. The balance
outstanding on the JCH II revolving credit facility at December 31, 1998 was
$370,000,000. Of this amount, $300,000,000 was borrowed under the term loan
portion of the facility and $70,000,000 was borrowed under the reducing
revolving portion of the facility.
CABLE TELEVISION FRANCHISES
- ---------------------------
The cable television systems owned or managed by the Company are
constructed and operated under fixed-term franchises or other types of operating
authorities (referred to collectively herein as "franchises") that are generally
non-exclusive and are granted by state and/or local governmental authorities.
These franchises typically contain many conditions, such as time limitations on
commencement and completion of construction, conditions of service, including
the number of channels, types of programming and the provision of free service
to schools and certain other public institutions, and the maintenance of
insurance and indemnity bonds. The provisions of local franchises are subject
to federal regulation.
The Company holds approximately 175 franchises. These franchises provide
for the payment of fees to the issuing authorities and range from 3% to 5% of
gross revenues. The 1984 Cable Act prohibits franchising authorities from
imposing annual franchise fees in excess of 5% of gross revenues and also
permits the cable television system operator to seek renegotiation and
modification of franchise requirements if warranted by changed circumstances.
The Company has never had a franchise revoked. The Company's franchises
initially had terms of approximately 10 to 15 years. The duration of the
Company's outstanding franchises presently varies from a period of months to an
indefinite period of time. The Company is currently negotiating the renewal of
16 franchises that are either operating under extensions or will expire prior to
December 31, 1999, and also is negotiating the renewal of 22 franchises awarded
by communities located in Prince Georges County, Maryland that are either
operating under extensions or will expire prior to December 31, 1999. The
Prince Georges County communities have joined together with the Prince Georges
County Cable Commission for the renewal negotiations. The Company has
experienced lengthy negotiations with some franchising authorities for the
granting of franchise renewals. Some of the issues involved in recent renewal
negotiations include rate regulation, customer service standards, cable plant
upgrade or replacement and shorter terms of franchise agreements. The Company
expects that the franchises operating under extensions or expiring prior to
December 31, 1999 will be renewed in due course.
11
<PAGE>
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.
Overbuilds. Cable television franchises are not exclusive, so that more
----------
than one cable television system may be built in the same area (known as an
"overbuild"), with potential loss of revenues to the operator of the original
cable television system. The Company has experienced overbuilds in connection
with certain systems that it has owned or managed for limited partnerships, and
currently there are overbuilds in both owned and managed systems. Constructing
and developing a cable television system is a capital intensive process, and it
is often difficult for a new cable system operator to create a marketing edge
over the existing system. Generally, an overbuilder would be required to obtain
franchises from the local governmental authorities, although in some instances,
the overbuilder could be the local government itself. In any case, an
overbuilder would be required to obtain programming contracts from entertainment
programmers and, in most cases, would have to build a complete cable system,
including headends, trunk lines and drops to individual subscribers homes,
throughout the franchise areas. The Company anticipates competition in the
Augusta franchise area from an unaffiliated cable operator that has been awarded
a franchise by Augusta and has commenced service in the franchise area. The
Company's Panama City Beach system has lost basic subscribers and commercial
units to an overbuilder. This overbuild continues to provide significant
competition. A portion of the Company's Chesapeake Bay Group serving Anne
Arundel County, Maryland is overbuilt by a competing cable television system.
Federal cross-ownership restrictions historically limited entry by local
telephone companies into the cable television business. The 1996 Telecom Act
eliminated this cross-ownership restriction, making it possible for companies
with considerable resources to overbuild existing cable operators and enter the
business. Several telephone companies have begun seeking cable television
franchises from local governmental authorities and constructing cable television
systems. GTE, a local exchange carrier, which provides telephone service in a
multi-state region, including California, has obtained a franchise from the City
of Oxnard, California and is providing video programming in Oxnard in
competition with the Company's Oxnard cable system. In addition, Ameritech, one
of the regional Bell Operating Companies ("BOCs"), which provides telephone
service in a multi-state region including Illinois, has been the most active BOC
in seeking local cable franchises within its service area. It has already begun
cable service in competition with partnership-owned cable systems in Elgin, Glen
Ellyn and Naperville, Illinois. The Company cannot predict at this time the
extent of telephone company competition that will emerge in areas served by the
Company's cable television systems. The entry of telephone companies as direct
competitors, however, is likely to continue over
12
<PAGE>
the next several years and could adversely affect the profitability and market
value of the Company's systems. The entry of electric utility companies into the
cable television business, as now authorized by the 1996 Telecom Act, could have
a similar adverse effect. Several utilities around the country have announced
multichannel video ventures, and the local electric utility in the Washington,
D.C. area is participating with RCN to provide video competition.
DBS. High-powered direct-to-home satellites have made possible the
---
wide-scale delivery of programming to individuals throughout the United States
using small roof-top or wall-mounted antennas. Several companies began offering
direct broadcast satellite ("DBS") service over the last few years, and recently
announced mergers should strengthen the surviving companies. 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. At least one DBS provider, however,
is now attempting to do so, and the FCC and Congress are considering proposals
that would enhance the ability of DBS companies to provide broadcast
programming, including broadcast network programming. In addition to emerging
high-powered DBS competition, cable television systems face competition from
several low-powered providers, whose service requires use of much larger home
satellite dishes. Not all subscribers terminate cable television service upon
acquiring a DBS system. The Company has observed that there are DBS subscribers
that also elect to subscribe to cable television service in order to obtain the
greatest variety of programming on multiple television sets, including local
programming not available through DBS service. The ability of DBS service
providers to compete successfully with the cable television industry will depend
on, among other factors, the availability of equipment at reasonable prices, and
the relative attractiveness of the programming options offered by the cable
television industry and DBS competitors.
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 Company has been
unable to provide cable television service to buildings in which private
operators have secured exclusive contracts to provide video and telephony
services. The Company is interested in providing these same services, but
expects that the market to install and provide these services in multi-unit
buildings will continue to be highly competitive. In late 1995, the Company
launched a competitive telephone service in selected apartments and condominium
units in its Alexandria, Virginia System, and began providing such service in
the first half of 1997 in Maryland as well. The Company has been granted
Competitive Local Exchange Carrier status in the states of Maryland and
Virginia. The Company faces considerable competition in providing telephony
service from incumbent local exchange carriers and a host of alternative
carriers.
MMDS. Cable television systems also compete with wireless program
----
distribution services such as multichannel, multipoint distribution service
("MMDS") systems, commonly called wireless
13
<PAGE>
cable, which are licensed to serve specific areas. MMDS uses low-power microwave
frequencies to transmit television programming over-the-air to paying
subscribers. The MMDS industry is less capital intensive than the cable
television industry, and it is therefore more practical to construct MMDS
systems in areas of lower subscriber penetration. Wireless cable systems are now
in direct competition with cable television systems in several areas of the
country, including the Company's system in Pima County, Arizona. To date, the
Company has not lost a significant number of subscribers, nor a significant
amount of revenue, to MMDS operators competing with the Company's cable
television systems.
Cable television systems are also in competition, in various degrees with
other communications and entertainment media, including motion pictures, home
video cassette recorders, internet data delivery and internet video delivery.
REGULATION AND LEGISLATION
- --------------------------
The operation of cable television systems is extensively regulated by the
FCC, some state governments and most local governments. The Telecommunications
Act of 1996 ("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 Company'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 Company's cable systems and does not purport to describe all present,
proposed, or possible laws and regulations affecting the Company.
Cable Rate Regulation. The 1992 Cable Act imposed an extensive rate
---------------------
regulation regime on the cable television industry. Under that regime, all
cable systems are subject to rate regulation, unless they face "effective
competition" in their local franchise area. Federal law now defines "effective
competition" on a community-specific basis as requiring either low penetration
(less than 30%) by the incumbent cable operator, appreciable penetration (more
than 15%) by competing multichannel video providers ("MVPs"), or the presence of
a competing MVP affiliated with a local telephone company. The FCC has
officially recognized that the Anne Arundel System and the Panama City Beach
System face "effective competition," and a similar petition is now pending at
the FCC concerning portions of the Pima County, Arizona system.
Although the FCC rules control, local government units (commonly referred
to as local franchising authorities or "LFAs") are primarily responsible for
administering the regulation of the lowest level of cable -- the basic service
tier ("BST"), which typically contains local broadcast stations and public,
educational, and government ("PEG") access channels. Before an LFA begins BST
rate regulation, it must certify to the FCC that it will follow applicable
federal rules, and many LFAs have voluntarily declined to exercise this
authority. LFAs also have primary responsibility for regulating
14
<PAGE>
cable equipment rates. Under federal law, charges for various types of cable
equipment must be unbundled from each other and from monthly charges for
programming services. The 1996 Telecom Act allows operators to aggregate costs
for broad categories of equipment across geographic and functional lines. This
change should facilitate the introduction of new technology.
The FCC itself directly administers rate regulation of any cable
programming service tiers ("CPST"), which typically contain satellite-delivered
programming. Under the 1996 Telecom Act, the FCC can regulate CPST rates only if
an LFA first receives at least two rate complaints from local subscribers and
then files a formal complaint with the FCC. When new CPST rate complaints are
filed, the FCC now considers only whether the incremental increase is justified
and will not reduce the previously established CPST rate.
Under the FCC's rate regulations, most cable systems were required to
reduce their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price cap scheme that allows for the
recovery of inflation and certain increased costs, as well as providing some
incentive for expanding channel carriage. The FCC has modified its rate
adjustment regulations to allow for annual rate increases and to minimize
previous problems associated with regulatory lag. Operators also have the
opportunity of bypassing this "benchmark" regulatory scheme in favor of
traditional "cost-of-service" regulation in cases where the latter methodology
appears favorable. Premium cable services offered on a per-channel or per-
program basis remain unregulated, as do affirmatively marketed packages
consisting entirely of new programming product. Federal law requires that the
BST be offered to all cable subscribers, but limits the ability of operators to
require purchase of any CPST before purchasing premium services offered on a
per-channel or per-program basis.
The 1996 Telecom Act sunsets FCC regulation of CPST rates for all systems
(regardless of size) on March 31, 1999. Certain critics of the cable television
industry, however, have called for a delay in the regulatory sunset and some
have even urged more rigorous rate regulation, including limits on operators
passing through to their customers increased programming costs and bundling
together multiple programming services. The 1996 Telecom Act also relaxes
existing uniform rate requirements by specifying that uniform rate requirements
do not apply where the operator faces "effective competition," and by exempting
bulk discounts to multiple dwelling units, although 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.
15
<PAGE>
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, but that decision was reversed by the U.S. Supreme Court
in January 1999. The Company has already secured authorization to provide local
exchange service in Maryland and portions of Virginia and has begun offering
some telecommunications services to customers in both jurisdictions.
Telephone Company Entry Into Cable Television. The 1996 Telecom Act
---------------------------------------------
allows telephone companies to compete directly with cable operators by repealing
the historic telephone company/cable cross-ownership ban. Local exchange
carriers ("LECs"), including the BOCs, can now compete with cable operators both
inside and outside their telephone service areas. Because of their resources,
LECs could be formidable competitors to traditional cable operators, and certain
LECs have begun offering cable service. As described above, the Company is now
witnessing the beginning of LEC competition in a few of its cable communities.
Under the 1996 Telecom Act, a LEC providing video programming to
subscribers will be regulated as a traditional cable operator (subject to local
franchising and federal regulatory requirements), unless the LEC elects to
provide its programming via an "open video system" ("OVS"). To qualify for OVS
status, the LEC must reserve two-thirds of the system's activated channels for
unaffiliated entities. RCN and affiliates of local power companies recently have
been certified to provide OVS service in areas encompassing the Company's cable
systems in suburban Maryland and Virginia. This potential OVS competition is not
yet operational. The Fifth Circuit Court of Appeals recently reversed certain of
the FCC's OVS rules, including the FCC's preemption of local franchising.
Although LECs and cable operators can now expand their offerings across
traditional service boundaries, the general prohibition remains on LEC buyouts
(i.e., any ownership interest exceeding 10 percent) of co-located cable systems,
cable operator buyouts of co-located LEC systems, and joint ventures between
cable operators and LECs in the same market. The 1996 Telecom Act provides a
few limited exceptions to this buyout prohibition, including a carefully
circumscribed "rural exemption." The 1996 Telecom Act also provides the FCC
with the limited authority to grant waivers of the buyout prohibition (subject
to LFA approval).
Electric Utility Entry Into Telecommunications/Cable Television. The 1996
---------------------------------------------------------------
Telecom Act provides that registered utility holding companies and subsidiaries
may provide telecommunications services (including cable television)
notwithstanding the Public Utilities Holding Company Act. Electric utilities
must establish separate subsidiaries, known as "exempt telecommunications
companies" and must apply to the FCC for operating authority. Again, because of
their resources, electric utilities could be formidable competitors to
traditional cable systems.
Additional Ownership Restrictions. The 1996 Telecom Act eliminates
---------------------------------
statutory restrictions on broadcast/cable cross-ownership (including broadcast
network/cable restrictions), but leaves in place existing FCC regulations
prohibiting local cross-ownership between co-located television stations and
16
<PAGE>
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.
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 Company's business.
Additionally, cable systems are required to obtain retransmission consent for
all "distant" commercial television stations (except for satellite-delivered
independent "superstations" such as 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 analog and digital broadcasts in their entirety. A rulemaking is
now pending at the FCC regarding the imposition of dual digital and analog must
carry.
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 more attractive to third party programmers. The D.C. Court of
Appeals recently rejected a challenge to the revised rules by dissatisfied
leased access programmers.
Access to Programming. To spur the development of independent cable
---------------------
programmers and competition to incumbent cable operators, the 1992 Cable Act
imposed restrictions on the dealings
17
<PAGE>
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 In addition, some cable critics have argued that vertically
integrated, non-satellite programming (such as certain regional sports networks)
which is now exempt from the ban on exclusive programming, should be subjected
to this prohibition.
Inside Wiring. The FCC 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 an 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 operators.
In a separate proceeding, the FCC has preempted restrictions on the deployment
of private antennas on rental property within the exclusive use a tenant (such
as balconies and patios).
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. New federal
requirements governing Emergency Alert Systems and Closed Captioning adopted in
1997 will impose additional costs on the operation of cable systems. The FCC
recently stated that cable customers must be allowed to purchase cable
converters from third party vendors, and established a multi-year phase-in
during which security functions (which would remain in the operator's exclusive
control) would be unbundled from basic converter functions (which could then be
satisfied by third party vendors). Details regarding this phase-in are still
under FCC review. 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. The FCC recently
declined requests to impose common-carrier type regulation on cable operators
that would have
18
<PAGE>
required an "unbundling" of broadband facilities. The FCC indicated,
nevertheless, that it would continue to monitor broadband deployment.
Copyright. Cable television systems are subject to federal copyright
---------
licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
revenues to a federal copyright royalty pool (that varies depending on the size
of the system and the number of distant broadcast television signals carried),
cable operators can obtain blanket permission to retransmit copyrighted material
on broadcast signals. The possible modification or elimination of this
compulsory copyright license is the subject of continuing legislative review and
could adversely affect the Company's ability to obtain desired broadcast
programming. In addition, the cable industry pays music licensing fees to BMI
and is negotiating a similar arrangement with ASCAP. Copyright clearances for
nonbroadcast programming services are arranged through private negotiations.
State and Local Regulation. Cable television systems generally are
--------------------------
operated pursuant to nonexclusive franchises granted by a municipality or other
state or local government entity in order to cross public rights-of-way.
Federal law now prohibits franchise authorities from granting exclusive
franchises or from unreasonably refusing to award additional franchises. Cable
franchises generally are granted for fixed terms and in many cases include
monetary penalties for non-compliance and may be terminable if the franchisee
fails to comply with material provisions.
The terms and conditions of franchises vary materially from jurisdiction to
jurisdiction. Each franchise generally contains provisions governing cable
operations, service rates, franchise fees, system construction and maintenance
obligations, system channel capacity, design and technical performance, customer
service standards, and indemnification protections. A number of states subject
cable television systems to the jurisdiction of centralized state governmental
agencies, some of which impose regulation of a character similar to that of a
public utility. Although LFAs have considerable discretion in establishing
franchise terms, there are certain federal limitations. For example, LFAs cannot
insist on franchise fees exceeding 5% of the system's gross revenues, cannot
dictate the particular technology used by the system, and cannot specify video
programming other than identifying broad categories of programming.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the franchise authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal. Similarly, if a franchise
authority's consent is required for the purchase or sale of a cable system or
franchise, such authority may attempt to impose more burdensome or onerous
franchise requirements in connection with a request for consent. Historically,
franchises have been renewed for cable operators that have provided satisfactory
services and have complied with the terms of their franchises.
19
<PAGE>
RISK FACTORS
- ------------
Shares of the Company's Class A Common Stock and Common Stock are available
for purchase in the market. The purchase of shares of the Company's Class A
Common Stock and Common Stock involves certain risks. Prospective purchasers of
the Company's securities should consider carefully the risks related to: (i) the
Company's history of net losses, (ii) its substantial leverage, (iii) the
probability that most of the Company's remaining managed partnerships will not
make distributions to their limited partners in amounts sufficient to provide
the returns on investment originally anticipated by the limited partners and, in
some cases, will not provide the limited partners with a return of all of their
initial capital contributions, (iv) the fact that the Company engages in certain
transactions with its affiliates, (v) the significant governmental regulation of
the cable television industry, (vi) current and threatened competition from
various sources, (viii) the planned change in control of the Company from its
founder, Glenn R. Jones, to Comcast in March 1999 and (ix) other information
about the Company set forth in this Form 10-K Report.
ITEM 2. PROPERTIES
-------------------
The Company leases a portion of its executive offices from Jones
Properties, Inc., a subsidiary of International. The offices consist of a
101,500 square foot office building located at 9697 East Mineral Avenue,
Englewood, Colorado. The lease has a 15-year term expiring in July 2000 with
three 5-year renewal options at market rates existing at the beginning of the
option period. The annual rent is currently $24.00 per square foot, plus
operating expenses, and will not, by the terms of the lease, exceed such amount
during the remainder of the term. The Company subleases approximately 44% of
the building to International and certain other affiliates on the same terms and
conditions as the primary lease.
The Company, through Jones Panorama Properties, Inc., a wholly owned
subsidiary of the Company, owns a 60,000 square foot office building (the
"Panorama Falls Building") located at 9085 E. Mineral Avenue, Englewood,
Colorado. The Company leases a portion of the Panorama Falls Building from its
subsidiary for a lease price of $12.00 per square foot. The Panorama Falls
Building houses additional executive offices of the Company. The Company has
subleased approximately 45% of the Panorama Falls Building to International and
others on the same terms and conditions as the primary lease.
Given the pending change of control of the Company from Mr. Jones to
Comcast, it is anticipated that the above-described lease arrangements will be
renegotiated and/or terminated during 1999.
CABLE TELEVISION SYSTEMS OWNED BY THE COMPANY
- ---------------------------------------------
A majority of the Company's cable television systems are owned by the
Company's wholly owed subsidiaries JCH and JCH II. JCH owns and operates cable
television systems located in Maryland and Virginia (the "Virginia/Maryland
Systems"). The Virginia/Maryland Systems are comprised of the Chesapeake Bay
Group of cable systems that serve customers in communities in and
20
<PAGE>
around Anne Arundel County and Charles County, Maryland, including the City of
Annapolis; the Prince Georges County, Maryland system that services all of
Prince Georges County, Maryland; the Alexandria, Virginia system; and the Prince
William County system that serves the communities of Dale City, Manassas and
Reston, Virginia. JCH II owns and operates the Company's suburban cable systems
serving areas in and around Augusta, Hinesville and Savannah, Georgia, Pima
County, Arizona, Independence, Missouri, Albuquerque, Grants and Socorro, New
Mexico, Palmdale and Littlerock, California. The Company directly owns and
operates the cable television systems serving Manitowoc, Wisconsin, Oxnard,
California and Panama City Beach and Celebration, Florida.
The following table sets forth (i) the monthly basic plus service rates
charged to subscribers and (ii) the number of basic subscribers and pay units
for the cable television systems owned by the Company. The monthly basic plus
service rates set forth herein represent, with respect to systems with multiple
headends, the basic plus service rate charged to the majority of the subscribers
within the system. In cable television systems, basic subscribers can subscribe
to more than one pay TV service. Thus, the total number of pay services
subscribed to by basic subscribers are called pay units. As of December 31,
1998, cable television systems owned by the Company passed approximately
1,596,000 homes, representing an approximate 62% penetration rate. The figures
in the following table are compiled from the Company's records and may be
subject to adjustments.
SYSTEMS OWNED BY JONES CABLE HOLDINGS, INC.
- -------------------------------------------
<TABLE>
<CAPTION>
CHESAPEAKE BAY GROUP, MARYLAND * At 12/31
- ------------------------------ ----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $ 27.27 $ 24.96 $ 24.15
Basic subscribers 104,506 102,209 74,252
Pay units 108,695 108,335 80,339
</TABLE>
* The Chesapeake Bay Group includes the Anne Arundel County system, the
Charles County system and the Annapolis system. The Annapolis system was
acquired in April 1997.
<TABLE>
<CAPTION>
PRINCE GEORGES COUNTY, MARYLAND * At 12/31
- ------------------------------- ----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $ 31.57 $ 29.13 $ 25.89
Basic subscribers 168,388 165,846 73,852
Pay units 235,718 216,708 134,975
</TABLE>
* The Prince Georges County, Maryland system includes the South Prince
Georges County system (acquired in February 1996) and the North Prince
Georges County system (acquired in January 1997).
21
<PAGE>
<TABLE>
<CAPTION>
ALEXANDRIA, VIRGINIA At 12/31
- -------------------- ---------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $ 30.88 $ 27.93 $ 24.98
Basic subscribers 43,097 41,137 40,525
Pay units 34,299 31,926 33,387
</TABLE>
<TABLE>
<CAPTION>
PRINCE WILLIAM COUNTY, VIRGINIA * At 12/31
- ------------------------------- ---------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $ 30.97 $ 28.17 $ 25.57
Basic subscribers 98,651 95,725 92,951
Pay units 101,730 97,042 91,007
</TABLE>
* The Prince William County, Virginia system includes the Dale City system
(acquired in November 1995), the Manassas system (acquired in January 1996)
and the Reston system (acquired in February 1996).
SYSTEMS OWNED BY JONES CABLE HOLDINGS II, INC.
- ----------------------------------------------
<TABLE>
<CAPTION>
PIMA COUNTY, ARIZONA At 12/31
- -------------------- -------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $ 27.25 $ 26.45 $ 25.80
Basic subscribers 64,641 62,364 59,434
Pay units 31,919 35,532* 38,898*
</TABLE>
* The Pima County system had a successful promotion of pay channels in late
1996, resulting in a significant increase in pay units in 1996. The
promotion was discontinued in 1997, and the system was unable to maintain
the increase experienced in 1996.
<TABLE>
<CAPTION>
PALMDALE, CALIFORNIA* At 12/31
- --------------------- --------
1998
----
<S> <C>
Monthly basic plus service rate $ 19.00
Basic subscribers 65,465
Pay units 56,640
</TABLE>
* The Palmdale System was acquired in December 1998.
22
<PAGE>
<TABLE>
<CAPTION>
AUGUSTA, GEORGIA At 12/31
- ---------------- ----------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $ 29.63 $ 27.68 $ 25.73
Basic subscribers 91,557 89,170 85,816
Pay units 74,867 73,307 70,619
</TABLE>
<TABLE>
<CAPTION>
HINESVILLE, GEORGIA* At 12/31
- -------------------- --------
1998
----
<S> <C>
Monthly basic plus service rate $ 28.31
Basic subscribers 22,964
Pay units 13,145
</TABLE>
* The Hinesville System was acquired in December 1998.
<TABLE>
<CAPTION>
SAVANNAH, GEORGIA* At 12/31
- ------------------ --------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $ 26.29 $ 24.17 $ 23.94
Basic subscribers 66,999 66,184 62,780
Pay units 42,818 40,428 36,629
</TABLE>
* The Savannah System was acquired in April 1996.
<TABLE>
<CAPTION>
INDEPENDENCE, MISSOURI* At 12/31
- ----------------------- -------------------------
1998 1997
---- ----
<S> <C> <C>
Monthly basic plus service rate $ 26.92 $ 25.92
Basic subscribers 90,623 87,070
Pay units 70,420 63,481
</TABLE>
* The Independence System was acquired in August 1997.
<TABLE>
<CAPTION>
ALBUQUERQUE, NEW MEXICO* At 12/31
- ------------------------ --------
1998
----
<S> <C>
Monthly basic plus service rate $ 28.98
Basic subscribers 113,751
Pay units 60,885
</TABLE>
* The Albuquerque System was acquired in June 1998.
23
<PAGE>
<TABLE>
<CAPTION>
GRANTS, NEW MEXICO* At 12/31
- ------------------- --------
1998
----
<S> <C>
Monthly basic plus service rate $28.02
Basic subscribers 3,921
Pay units 1,376
</TABLE>
* The Grants System was acquired in December 1998.
<TABLE>
<CAPTION>
SOCORRO, NEW MEXICO* At 12/31
- -------------------- --------
1998
----
<S> <C>
Monthly basic plus service rate $22.95
Basic subscribers 2,342
Pay units 1,256
</TABLE>
* The Socorro System was acquired in December 1998.
SYSTEMS OWNED BY JONES INTERCABLE, INC.
- -----------------------------------------
<TABLE>
<CAPTION>
OXNARD, CALIFORNIA* At 12/31
- ------------------- -------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $ 25.45 $ 23.40 $ 21.15
Basic subscribers* 32,449 35,985 40,134
Pay units* 18,135 24,234 28,701
</TABLE>
* The reduction in the number of basic subscribers and pay units is due to an
ongoing overbuild of the system.
<TABLE>
<CAPTION>
CELEBRATION, FLORIDA* At 12/31
- --------------------- ------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $22.44 $20.94 $20.94
Basic subscribers 709 428 186
Pay units 417 281 108
</TABLE>
* The system is being constructed concurrently with the construction of the
community.
24
<PAGE>
<TABLE>
<CAPTION>
PANAMA CITY BEACH, FLORIDA At 12/31
- -------------------------- -----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $23.10 $23.10 $21.10
Basic subscribers* 7,119 7,072 7,248
Pay units* 6,853 7,076 7,251
</TABLE>
* The reduction in the number of basic subscribers and pay units is due to an
ongoing overbuild of the system.
<TABLE>
<CAPTION>
MANITOWOC, WISCONSIN* At 12/31
- --------------------- --------
1998 1997
---- ----
<S> <C> <C>
Monthly basic plus service rate $ 24.40 $ 22.61
Basic subscribers 12,094 11,954
Pay units 6,680 7,151
</TABLE>
* The Manitowoc system was acquired in June 1997.
ITEM 3. LEGAL PROCEEDINGS
--------------------------
Tampa Litigation
- ----------------
The Company is a defendant in a now-consolidated civil action filed by
limited partners of Cable TV Fund 12-D, Ltd., one of the Company's managed
partnerships. The case, styled David Hirsch, Marty, Inc. Pension Plan (by its
----------------------------------------------
trustee and beneficiary, Martin Ury) and Jonathan 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., plaintiffs v. Jones Intercable, Inc., defendant, and
- ------------------------------------------------------------------------------
Cable TV Fund 12-BCD Venture, Cable TV Fund 12-B, Ltd., Cable TV Fund 12-C, Ltd.
- --------------------------------------------------------------------------------
and Cable TV Fund 12-D, Ltd., nominal defendants (District Court, Arapahoe
- ------------------------------------------------
County, State of Colorado, Case No. 95-CV-1800, Division 3), is a derivative
action filed on behalf of Cable TV Fund 12-B, Ltd. ("Fund 12-B"), Cable TV Fund
12-C, Ltd. ("Fund 12-C") and Cable TV Fund 12-D, Ltd. ("Fund 12-D"). The
consolidated complaint generally alleges that the Company breached its fiduciary
duty to the plaintiffs and to the other limited partners of Fund 12-B, Fund 12-C
and Fund 12-D and the Cable TV Fund 12-BCD Venture (the "Venture") in connection
with the Venture's sale of the Tampa, Florida cable television system (the
"Tampa System") to a subsidiary of the Company and the subsequent trade of the
Tampa System 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. 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 Company 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
25
<PAGE>
partnership agreements of Fund 12-B, Fund 12-C and Fund 12-D. The plaintiffs
have challenged the adequacy and independence of the appraisals. The
consolidated complaint seeks damages in an unspecified amount and an award of
attorneys' fees, and the complaint also seeks punitive damages and certain
equitable relief.
The Company 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 Company intends to defend this lawsuit
vigorously.
In August 1997, the Company moved for summary judgment in its favor on the
ground that plaintiffs did not make demand on the Company for the relief they
seek before commencing their lawsuits or show that such a demand would have been
futile. In January 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 1998 trial
date, (3) ordered that plaintiffs make a demand on the Company and that the
Company 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 Company's Board of Directors and (5) ordered that the independent
counsel be subject to the approval of the court. The court set a new trial date
for October 1998 in the event that the case was not resolved through the
independent counsel process or otherwise. In March 1998, the Company's Board of
Directors appointed an independent counsel. The plaintiffs did not object to
the Company's choice, and the Court approved the Company's choice of independent
counsel. During the period March through May 1998, the independent counsel met
several times with the attorneys representing the plaintiffs and the Company,
and he also reviewed a great quantity of written materials. The independent
counsel issued his report on August 3, 1998, which concluded that the
plaintiffs' claims are not meritorious and are not supported by a preponderance
of the evidence. The independent counsel further determined that the Company
"did not breach a fiduciary duty" owed to the plaintiffs or to the partnerships
and the Venture and that the Company "did not commit any impropriety in
connection with" the Venture's sale of the Tampa System. The independent
counsel specifically found that the three appraisals of the Tampa System were
independent and objective and met the requirements of the partnership
agreements. He further noted that the Company had met its fiduciary duties of
fairness and full disclosure to the partnerships and the Venture. On August 5,
1998, the Company moved to dismiss or for summary judgment in its favor based on
the report of independent counsel, a motion the plaintiffs opposed. On
September 11, 1998, the Court denied the Company's motion to dismiss or for
summary judgment based on the report of independent counsel. The Court then set
a new trial date for May 3, 1999. The Company subsequently submitted a motion
for reconsideration of the Court's denial of the Company's motion to dismiss or
for summary judgment based on the report of the independent counsel. The Court
has denied such motion. The Company then filed an interlocutory appeal of the
Court's rulings to the Colorado Supreme Court. On February 1, 1999, the
Colorado Supreme Court issued an Order requiring the plaintiffs to show cause
why the Company's request for dismissal or summary judgment should not be
granted, and staying all proceedings in the trial court until the Company's
appeal is resolved.
26
<PAGE>
Palmdale Litigation
- -------------------
In December 1998, City Partnership Co. ("Plaintiff"), a limited partner of
Fund 12-C and Fund 12-D, filed a class action complaint in the District Court,
Arapahoe County, State of Colorado (Case No. 98-CV-4493) naming the Company as
defendant. Plaintiff, on its behalf and on behalf of all other persons who are
limited partners of Fund 12-B, Fund 12-C and Fund 12-D, is challenging the terms
of sale of the cable television system serving the communities in and around
Palmdale and Lancaster, California (the "Palmdale System") to an affiliate of
the Company. This case is in a very preliminary stage, but the Company believes
that the terms of the sale were in accordance with the requirements of relevant
limited partnership agreement provisions. The Company intends to defend this
lawsuit vigorously.
Littlerock Litigation
- ---------------------
In January 1999, City Partnership Co. ("Plaintiff"), a limited partner of
Cable TV Fund 14-B, Ltd., filed a class action complaint in the District Court,
Arapahoe County, State of Colorado (Case No. 99-CV-0150) naming the Company as
defendant. Plaintiff, on its behalf and on behalf of all other persons who are
limited partners of Cable TV Fund 14-B, Ltd., is challenging the terms of sale
of the cable television system serving Littlerock, California (the "Littlerock
System") to an affiliate of the Company. This case is in a very preliminary
stage, but the Company believes that the terms of the sale were in accordance
with the requirements of relevant limited partnership agreement provisions. The
Company intends to defend this lawsuit vigorously.
Shareholder Litigation
- ----------------------
In February 1998, BTH, the Company's largest shareholder, filed a lawsuit
in the United States District Court for the District of Colorado against the
Company, Jones International, Ltd. ("International"), Jones Internet Channel,
Inc. ("JICI") and Glenn R. Jones. BCI Telecom Holding, Inc., plaintiff v. Jones
---------------------------------------------
Intercable, Inc., Jones International, Ltd., Jones Internet Channel, Inc. and
- -----------------------------------------------------------------------------
Glenn R. Jones, defendants (U.S. District Court for the District of Colorado,
- --------------------------
Civil Action No. 98-M-224). Mr. Jones is the Company's Chairman and Chief
Executive Officer. International is owned by Mr. Jones, and it also is one of
the Company's largest shareholders. JICI is a wholly owned subsidiary of
International. BTH, the Company, International and Mr. Jones are parties to a
Shareholders Agreement dated as of December 20, 1994 (the "Shareholders
Agreement").
In its complaint, BTH alleged that the defendants violated the Shareholders
Agreement and certain duties allegedly owed to BTH, and conspired with each
other to do so. More specifically, BTH claimed that under the Shareholders
Agreement, the offering of the service known as the "Internet Channel" to the
Company's subscribers, and any affiliation agreement between the Company and
JICI for the provision of the Internet Channel service, could not proceed
without approval of a specific group of directors of the Company, including the
three directors designated by BTH. BTH also maintained, in connection with the
relationship and proposed affiliate agreement between the Company and JICI, that
the defendants breached a provision of the Shareholders Agreement defining the
"core business" of the Company. In addition to damages, BTH sought an
injunction prohibiting the Company from making the Internet Channel available to
additional subscribers and from entering
27
<PAGE>
into an affiliate agreement with JICI for the Internet Channel, as well as other
equitable relief. On May 5, 1998, the Court permanently enjoined the Company and
the other defendants in this civil action from proceeding further with any
expansion of the Internet Channel, or any similar internet service provider
business, without the approval of the unrelated directors of the Company. All
defendants except the Company appealed the decision to the U.S. Tenth Circuit
Court of Appeals.
In connection with the agreements entered into among the Company,
International, BTH and Comcast relating to the acquisition and exercise by
Comcast of BTH's option to acquire 2.9 million shares of the Company's Common
Stock, the parties have agreed to dismiss the pending litigation between BTH,
International, Mr. Jones and the Company, and International and certain of its
affiliates have agreed to dismiss the appeal which is pending of the Order
entered against them in such litigation.
In March 1998, Leslie Susser, a minority shareholder of the Company, filed
a shareholder derivative action in the United States District Court for the
District of Colorado against Glenn R. Jones and seven other directors of the
Company. Leslie Susser, plaintiff v. Glenn R. Jones, James J. Krejci, James B.
--------------------------------------------------------------------
O'Brien, Howard O. Thrall, Raphael M. Solot, Robert E. Cole, Sanford Zisman and
- -------------------------------------------------------------------------------
Donald L. Jacobs, defendants and Jones Intercable, Inc., nominal defendant (U.S.
- --------------------------------------------------------------------------
District Court for the District of Colorado, Civil Action No. 98-M-616). In its
complaint, the plaintiff alleges that the defendants have violated certain
fiduciary and other duties allegedly owed to the Company and its shareholders in
connection with the Company's offering of the Internet Channel service. The
allegations raised in this complaint are similar to those raised by BTH in its
complaint. The plaintiff seeks certain equitable relief and damages.
In connection with this litigation, the Company has determined, based on
the opinion of outside legal counsel, that all of the statutory requirements for
the advancement of reasonable legal fees and expenses to the defendants have
been met. Notice of such determination was previously given to all shareholders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
The annual meeting of the shareholders of the Company was held on October
20, 1998. Proxies for the meeting were solicited pursuant to Regulation 14A
under the Exchange Act. As of the close of business on September 15, 1998, the
record date for the determination of stockholders to vote at the meeting, the
total number of shares of the Company's Common Stock issued and outstanding and
entitled to vote at the meeting was 5,113,021, and the total number of shares of
the Company's Class A Common Stock issued and outstanding and entitled to vote
at the meeting was 35,985,642.
Proposal 1. Election of Directors
- ----------------------------------
There was no solicitation in opposition to the nominees for director listed
in the proxy statement and all of such nominees were elected at the meeting.
Each share of Common Stock and Class A Common Stock had one vote in the election
of the directors to be elected by that class. Following is a tabulation of the
vote with respect to each nominee to the office:
28
<PAGE>
Class A Directors
- -----------------
Nominee Votes For Votes Against
- ------- --------- -------------
William E. Frenzel 29,647,350 379,963
Donald L. Jacobs 29,647,555 379,758
Robert Kearney 29,647,603 379,710
Robert B. Zoellick 29,647,455 379,858
Common Directors
- ----------------
Nominee Votes For Votes Against
- ------- --------- -------------
Glenn R. Jones 4,307,232 146,085
Josef J. Fridman 4,307,932 145,385
Robert E. Cole 4,307,632 145,685
James J. Krejci 4,307,632 145,685
James B. O'Brien 4,307,632 145,685
Raphael M. Solot 4,307,632 145,685
Howard O. Thrall 4,307,592 145,785
Siim A. Vanaselja 4,307,932 145,385
Sanford Zisman 4,307,632 145,685
Proposal 2. Ratification of the Selection of Auditors
- ------------------------------------------------------
Holders of Common Stock and holders of Class A Common Stock voted as a single
class; the holders of Common Stock had one vote for each share and the holders
of Class A Common Stock had one-tenth of a vote for each share held. Following
is a tabulation of the vote:
Votes For Votes Against Abstentions
- --------- ------------- -----------
7,350,827 4,857 2,236
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
----------------------------------------------------------
STOCKHOLDER MATTERS
-------------------
The Company's Common Stock and Class A Common Stock are traded in the
over-the-counter market and authorized for quotation on the National Market
System operated by the National Association of Securities Dealers, Inc. (NASDAQ)
under the following symbols:
Common Stock - JOIN
Class A Common Stock - JOINA
The following table shows the high and low prices as quoted on the NASDAQ
National Market
29
<PAGE>
System for each quarterly period of the years ended December 31, 1997 and 1998
for each class of the Company's stock:
<TABLE>
<CAPTION>
Common Stock Class A Common Stock
------------ --------------------
Year Ended 12/31/97 High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter 10 7/8 9 1/2 11 9 1/8
Second Quarter 13 7/8 9 1/4 13 3/8 8 1/4
Third Quarter 13 1/2 10 3/4 13 11/16 10 1/2
Fourth Quarter 17 1/2 12 1/8 18 1/8 12 3/8
</TABLE>
<TABLE>
<CAPTION>
Common Stock Class A Common Stock
------------ --------------------
Year Ended 12/31/98 High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter 17 3/4 13 7/8 18 1/4 14 3/8
Second Quarter 26 3/8 17 1/8 26 7/8 17 1/8
Third Quarter 31 1/8 22 31 1/4 21 1/8
Fourth Quarter 35 7/16 22 1/4 35 7/8 21 7/8
</TABLE>
At December 31, 1998, the Common Stock and Class A Common Stock of the
Company were held of record by 590 and 1,251 shareholders, respectively.
The Company has never paid a cash dividend with respect to its shares of
Common Stock or Class A Common Stock, and it has no present intention to pay
cash dividends in the foreseeable future. The current policy of the Company's
Board of Directors is to retain earnings to provide funds for the operation and
expansion of its business. Future dividends, if any, will be determined by the
Board of Directors in light of the circumstances then existing, including the
Company's earnings and financial requirements and general business conditions.
If cash dividends are paid in the future, the holders of the Class A Common
Stock will be paid $.005 per share per quarter in addition to the amount payable
per share of Common Stock. Such additional dividends on the Class A Common
Stock are not cumulative but would be adjusted appropriately if cash dividends
are declared with respect to a period other than a quarterly period. Certain of
the Company's debt arrangements restrict the right of the Company to declare and
pay cash dividends.
Holders of Class A Common Stock have limited voting rights compared to the
holders of Common Stock. In all circumstances where the shareholders vote
together as a single class, the holders of Class A Common Stock are entitled to
one-tenth of a vote per share and the holders of Common Stock are entitled to
one vote per share. In addition, the Company's Articles of Incorporation
provide that the holders of Class A Common Stock, voting as a separate class,
are entitled to elect 25% of the membership of the Board of Directors, and that
the holders of Common Stock, voting as a separate class, are entitled to elect
75% of the membership of the Board of Directors. Glenn R. Jones, the Chairman
and Chief Executive Officer of the Company, beneficially owns 57% of the voting
power of the outstanding Common Stock and 37% of the total voting power of the
outstanding Class A Common Stock and Common Stock combined. Thus, Mr. Jones has
the power to elect the majority of the members of the Company's Board of
Directors and to otherwise effectively control all matters requiring shareholder
approval. In addition, BTH beneficially owns
30
<PAGE>
36% of the voting power of the outstanding Class A Common Stock and 15% of the
voting power of the Class A Common Stock and Common Stock combined. Also, BTH
holds options to purchase the Control Shares from Mr. Jones and certain of his
affiliates, which, if and when exercised, would afford BTH effective control of
the Company. Pursuant to various agreements all dated August 12, 1998 among Mr.
Jones, International and certain of its affiliates, BTH and Comcast, Comcast
acquired the right to purchase the Control Shares. See Item 1, Comcast
Corporation's Planned Acquisition of the Control Shares of the Company.
31
<PAGE>
Item 6. Selected Financial Data
- --------------------------------
The following table sets forth selected financial data regarding the
Company's financial position and operating results. This data should be read in
conjunction with the Company's consolidated financial statements and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing in Item 7.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------- ----------- ------------ ----------- -----------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
REVENUES:
Cable Television Revenue
Subscriber service fees $ 401,371 $ 333,826 $ 248,626 $ 135,350 $ 103,335
Management fees 12,284 17,253 19,104 21,462 17,952
Distributions and Brokerage Fees 41,780 2,768 15,483 - -
Non-cable Revenue 5,294 8,741 28,497 32,026 10,602
----------- ----------- ------------ ----------- -----------
TOTAL REVENUES 460,729 362,588 311,710 188,838 131,889
----------- ----------- ------------ ----------- -----------
COSTS AND EXPENSES:
Cable Television Expenses
Operating expenses 200,739 174,967 131,529 77,638 55,196
General and administrative 25,843 19,642 16,586 8,284 8,120
Non-cable operating, general and
administrative 6,009 9,297 28,410 32,382 11,810
Depreciation and amortization 204,746 175,839 131,186 55,805 45,585
----------- ----------- ------------ ----------- -----------
OPERATING INCOME (LOSS) $ 23,392 $ (17,157) $ 3,999 $ 14,729 $ 11,178
=========== =========== ============ =========== ===========
LOSS BEFORE INCOME TAXES
AND EXTRAORDINARY ITEMS $ (80,418) $ (41,764) $ (62,660) $ (21,024) $ (8,691)
INCOME TAX BENEFIT - 3,275 - - -
----------- ----------- ------------ ----------- -----------
LOSS BEFORE
EXTRAORDINARY ITEMS (80,418) (38,489) (62,660) (21,024) (8,691)
Extraordinary items- Loss on early
extinguishment of debt, net of tax - (13,459) - (692) -
----------- ----------- ------------ ----------- -----------
NET LOSS $ (80,418) $ (51,948) $ (62,660) $ (21,716) $ (8,691)
=========== =========== ============ =========== ===========
LOSS PER SHARE:
Loss before extraordinary items $ (1.96) $ (1.11) $ (2.00) $ (.67) $ (.45)
Extraordinary items - (.39) - (.02) -
----------- ----------- ------------ ----------- -----------
$ (1.96) $ (1.50) $ (2.00) $ (.69) $ (.45)
=========== =========== ============ =========== ===========
LOSS PER SHARE - assuming dilution
Loss before extraordinary items $ (1.96) $ (1.11) $ (2.00) $ (.67) $ (.45)
Extraordinary items - (.39) - (.02) -
----------- ----------- ------------ ----------- -----------
$ (1.96) $ (1.50) $ (2.00) $ (.69) $ (.45)
=========== =========== ============ =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 40,933 34,610 31,372 31,270 19,517
=========== =========== ============ =========== ===========
TOTAL ASSETS $ 1,731,093 $ 1,371,371 $ 1,134,129 $ 860,499 $ 608,289
=========== =========== ============ =========== ===========
TOTAL DEBT $ 1,462,707 $ 1,024,732 $ 806,147 $ 492,714 $ 281,578
=========== =========== ============ =========== ===========
SHAREHOLDERS' INVESTMENT $ 155,605 $ 228,518 $ 235,307 $ 292,795 $ 271,284
=========== =========== ============ =========== ===========
</TABLE>
32
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
FINANCIAL CONDITION
The Company is engaged primarily in the cable television business,
operating cable systems for itself and for its managed partnerships. The
Company owns and manages cable television systems totaling approximately
1,200,000 basic subscribers. As of December 31, 1998, on a pro forma basis for
all pending acquisitions of cable television systems by the Company and pending
sales of cable television systems owned by managed partnerships, the Company
served approximately 1,015,000 basic subscribers. The pending sales and
acquisitions are expected to be completed by April 1999. Key elements of the
Company's operating strategy include increasing the number of owned subscribers
clustered in attractive demographic areas and increasing penetration and
revenues per subscriber by targeted marketing, superior customer service and the
maintenance of high technical standards.
Over the last several years, the Company has taken significant steps to
simplify its corporate structure. This process has included the sale of cable
television systems owned by certain managed partnerships to either the Company
or to third parties and the divestiture of certain of the Company's non-
strategic assets. As a result of this strategy, on a pro forma basis for all
pending cable television system acquisitions and sales, 100% of total
subscribers would have been owned by the Company as of December 31, 1998,
compared to 23% in June 1995. During this process, the Company has also made
significant progress in clustering its owned subscribers in two primary groups
of cable systems. The Company's Virginia/Maryland cluster, owned by JCH, is
based primarily on geography. The Company's suburban cluster, owned by JCH II,
is based on similar market and operating characteristics, rather than geography.
These clusters represent approximately 95% of Company-owned subscribers. The
Company believes that its clustering strategy should allow it to obtain both
economies of scale and operating efficiencies, for example in areas such as
marketing, administrative and capital expenditures.
The Company is in the final stages of liquidating its managed partnerships
as such partnerships have achieved their investment objectives and as
opportunities for sales of partnership cable television systems have arisen in
the marketplace. In accordance with this strategy, nineteen partnership-owned
cable television systems serving approximately 494,000 subscribers were sold
during 1998 (including the Albuquerque System, the Palmdale System, the Socorro
System and the Grants System, which in total serve approximately 185,000
subscribers, that were purchased by the Company). In addition, all remaining
partnership-owned cable television systems serving approximately 206,000
subscribers (including the Littlerock System which was purchased by the Company
in January 1999 and the Calvert County System which is to be purchased by the
Company in April 1999) are currently under contract to be sold. The Company
expects to complete its transformation from a management company to an operating
company in April 1999.
The Company also intends to maintain and enhance the value of its current
cable television systems through capital expenditures. Such expenditures will
include, among others, cable television plant extensions and the upgrade and
rebuild of certain systems. The Company also intends to institute new services
as they are developed and become economically viable.
In implementing the Company's acquisition strategy, the Company acquired
the Albuquerque System in June 1998 for $214,863,267, which was funded from
borrowings under JCH II's credit facility. The Albuquerque System's operating
characteristics are similar to the other systems owned by JCH II. The Company
acquired the Palmdale System in December 1998 for $115,929,950, which was funded
by borrowings under JCH II's credit facility. The Palmdale System's operating
characteristics are similar to the other systems owned by JCH II. The Company
acquired the Hinesville System in December 1998 for $48,000,000, which was
funded by borrowings under JCH II's credit facility, because it is contiguous to
the Company's Savannah System. Also in December 1998, the Company acquired the
Grants System and the Socorro System for a total of $8,344,097, because they are
in relatively close proximity to the Albuquerque System. The purchase of the
Grants System
33
<PAGE>
and the Socorro System was funded by borrowings under JCH II's credit facility.
In January 1999, the Company acquired the Littlerock System for $10,720,400
because it is contiguous to the Palmdale System. The purchase of the Littlerock
System was funded by borrowings under JCH II's credit facility. In addition, the
Company has entered into an agreement to purchase the Calvert County System for
$39,388,667 because it is contiguous to the Company's Virginia/Maryland Cluster.
This transaction is expected to close in April 1999. Funding for this
acquisition is expected to be provided by borrowings under the JCH's credit
facility. These acquisitions are described in detail in Note 2 of the Notes to
Consolidated Financial Statements.
The Company purchased property, plant and equipment totaling approximately
$174,099,000 during 1998. Of the capital expenditures, $160,577,000 is
principally for the upgrade and rebuild of the cable plant in the Company's
cable television systems in Virginia/Maryland; Savannah, Georgia; Independence,
Missouri and Oxnard, California and new extension projects, drop materials,
converters and various maintenance projects in all of the Company's cable
television systems. Approximately $13,522,000 of the expenditures was for the
deployment of telephone service in the Virginia/Maryland Cluster. Funding for
these capital expenditures was provided by cash generated from operations and
borrowings available under the Company's credit facilities. Estimated capital
expenditures for 1999 are approximately $200,000,000. Funding for such
expenditures is expected to be provided by cash generated from operations and
borrowings available under the Company's credit facilities, as discussed below.
Sources of Funds
----------------
The Company's main sources of capital consist of cash generated from
operations and borrowings available under two revolving credit facilities, one
for JCH and one for JCH II. Each revolving credit facility has maximum
available borrowings of $600 million. In addition, the Company has an effective
registration statement which allows the Company to access the public debt and
equity markets at its discretion.
The $600 million JCH revolving credit facility is a reducing revolving
credit facility. The entire $600 million commitment is available through March
31, 1999, at which time the commitment will be reduced quarterly with a final
maturity date of December 31, 2004. The maximum amount available will be
reduced to $555,000,000 at December 31, 1999. The balance outstanding on JCH's
revolving credit facility at December 31, 1998 was $340,000,000.
The $600 million JCH II Revolving Credit Facility consists of a $300
million reducing revolving credit facility and a $300 million term loan. The
reducing revolving credit facility allows for borrowings through the final
maturity date of December 31, 2005. The maximum amount available reduces
quarterly beginning March 31, 2000 through the final maturity date of December
31, 2005. The term loan is payable in semi-annual installments commencing June
30, 2001 with a final maturity date of December 31, 2005. The balance
outstanding on the JCH II Revolving Credit Facility at December 31, 1998 was
$370,000,000. Of this amount $300,000,000 was borrowed under the term loan
portion of the facility and $70,000,000 was borrowed under the reducing
revolving portion of the facility.
In April 1998, the Company issued and sold $200,000,000 of its 7 5/8%
Senior Notes due April 15, 2008. Proceeds from the sale of the Senior Notes
were used to repay amounts then outstanding under the revolving credit
facilities of the Company's subsidiaries.
The Company, in its capacity as the general partner of its managed
partnerships, may from time to time receive general partner distributions upon
the sale of cable television systems owned by such partnerships. The Company
received general partner distributions totaling $8,100,000 from Cable TV Funds
12-B, 12-C and 12-D related to the sale of the Cable TV Fund 12-BCD Venture's
Albuquerque System in June 1998. In July 1998, the Company received a general
partner distribution of $13,713,600 from Cable TV Fund 12-A related to the sale
of the Fort Myers System by Cable TV Fund 12-A. In September 1998, the Company
received a general partner distribution of $1,976,400 from Jones Cable Income
Fund 1-A related to the sale of the Owatonna, Minnesota
34
<PAGE>
system by Jones Cable Income Fund 1-A. In December 1998, the Company received
general partner distributions of $22,275,250 from Cable TV Funds 12-B, 12-C and
12-D related to the sale of the Cable TV Fund 12-BCD Venture's Palmdale System,
$15,931,000 from Cable TV Fund 12-A relating to the sale of the Orland Park and
Park Forest, Illinois cable television systems, $1,005,000 for IDS/Jones Growth
Partners 87-A relating to the sale of the Roseville, California cable television
system and $1,715,500 from Spacelink Fund 3 relating to the sale of the Socorro
and Grants, New Mexico cable television systems. In addition, the Company,
through The Intercable Group, Ltd., f/k/a The Jones Group, Ltd., a wholly owned
subsidiary, has earned brokerage fees upon the sale of the managed partnerships'
cable television systems to third parties. During 1998, the Company earned
brokerage fees, net of expenses, of $9,154,000.
The Company has sufficient sources of capital available, consisting of cash
generated from operations and available borrowings from its credit facilities,
to fund its committed acquisition requirements and to meet its operational
needs.
Anticipated Change In Control
-----------------------------
On August 12, 1998, the Company, International, BTH and Comcast announced
that agreements have been entered into that will accelerate the exercise of the
option to purchase controlling interest in the Company by Comcast. Details of
these agreements and costs associated with the change in control are described
in Note 1 of the Notes to Consolidated Financial Statements. The closing of the
exercise of the option is expected to occur in March 1999.
Impact of the Year 2000 Issue
-----------------------------
The Year 2000 issue is the result of many computer programs being written
such that they will malfunction when reading a year of "00". This problem could
cause system failure or miscalculations causing disruptions of business
processes.
The Company is undertaking an assessment of its computer applications to
determine the extent of the problem. Based on this assessment, the Company has
determined that the majority of its computer applications supporting business
processes, including accounting and billing, are designed to handle the Year
2000 appropriately.
The Company is currently focusing its efforts on the impact of the Year
2000 issue on service delivery. The Company has established an internal team to
address this issue. The Company is identifying and testing all date-sensitive
equipment involved in delivering service to its customers. In addition, the
Company will assess its options regarding repair or replacement of affected
equipment during this testing. The Company believes that the financial impact
from the Year 2000 issue will be less than $3,000,000.
35
<PAGE>
RESULTS OF OPERATIONS
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
---------------------------------------------------------------------
Revenues
The Company derives its revenues from four sources: subscriber service fees
from Company-owned cable television systems, management fees from managed
partnerships, fees and distributions paid upon the sale of certain cable
television properties owned by managed partnerships and revenues from non-cable
television subsidiaries.
Total revenues for the year ended December 31, 1998 totaled $460,729,000,
an increase of $98,141,000, or 27%, over the total of $362,588,000 for the year
ended December 31, 1997. This increase reflects the Company's acquisition of the
following cable television systems: the North Prince Georges County System on
January 31, 1997; the Annapolis System on April 15, 1997; the Manitowoc System
on June 30, 1997; the Independence System on August 31, 1997 and the Albuquerque
System on June 30, 1998 (the "Acquired Systems") as well as an increase in
general partner distributions and brokerage fees relating to the sale of
partnership-owned cable television systems. The increase in revenues would have
been greater but for the following: (i) the reduction in 1998 non-cable revenue
due to the sale of a non-cable subsidiary in 1998; (ii) a decrease in management
fees due to the sales of certain cable television systems owned by managed
partnerships; and (iii) the sale of the Walnut Valley System in August 1997.
Adjusting for the effect of the Acquired Systems, the general partner
distributions and brokerage fees, the sale of the non-cable subsidiary, the
decrease in management fees and the sale of the Walnut Valley System (the "Pro
Forma Adjustments"), total revenues would have increased $23,832,000, or 6%.
The Company's subscriber service fees for the year ended December 31, 1998
totaled $401,371,000, an increase of $67,545,000, or 20%, over the total of
$333,826,000 for the year ended December 31, 1997. The acquisition of the
Acquired Systems accounted for $44,286,000, or 66%, of the increase in
subscriber service fees. With the Pro Forma Adjustments, subscriber service fees
would have increased $23,259,000, or 6%. This increase was due primarily to an
increase in the number of basic subscribers and basic service rate adjustments
in the cable television systems owned by the Company. Disregarding the effect of
acquisitions made by the Company during 1998, basic subscribers increased
14,500, an increase of 1.9%.
The Company receives management fees generally equal to 5% of the gross
operating revenues of its managed limited partnerships. Management fees totaled
$12,284,000 in 1998, a decrease of $4,969,000, or 29%, over the total of
$17,253,000 reported in 1997. The sale of certain systems owned by managed
partnerships during 1998 and 1997 caused this decrease. When the Company
completes the liquidation of its managed partnerships in April 1999, management
fees will no longer be a source of revenue for the Company. On a pro forma
basis, management fees would have increased $520,000, or 4%. This increase was
due to the revenue growth from basic rate adjustments and increases in the
subscriber base of the remaining systems owned by managed partnerships. This
source of revenue will be eliminated after the sale of all systems owned by
managed partnerships.
In its capacity as the general partner of its managed partnerships, the
Company may receive general partner distributions upon the sale of certain cable
television properties owned by such partnerships. The Company received general
partner distributions totaling $32,626,000 upon the sales of cable television
systems by Cable TV Fund 12-A, Jones Cable Income Fund 1-A and IDS/Jones Growth
Partners 87-A. In addition, the Company received general partner distributions
totaling $32,090,000 in 1998 relating to systems purchased by the Company from
Cable TV Fund 12-BCD Venture and Spacelink Fund 3 which reduced the Company's
basis in the assets acquired. No such revenue was received in 1997. In addition,
The Intercable Group, Ltd., has earned brokerage fees upon the sale of certain
managed cable television systems to third parties. The Company earned brokerage
fees, net of expenses, of $9,154,000 during 1998. Brokerage fees, net of
expenses, of
36
<PAGE>
$2,768,000 were earned in 1997. Both of these sources of revenue will be
eliminated after the liquidation of the managed partnerships is complete.
The Company also operates Jones Futurex, Inc. ("Futurex"), a manufacturer
of various electronic components. Futurex revenues totaled $5,294,000 in 1998, a
decrease of $3,447,000, or 39%, over the $8,741,000 recognized in 1997. This
decrease was primarily due to the sale of the contract manufacturing division of
Futurex in May 1998.
Costs and Expenses
Operating, general and administrative expenses consist primarily of costs
associated with the operation and administration of Company-owned cable
television systems, the administration of managed partnerships and the operation
and administration of Futurex. The Company is reimbursed by its managed
partnerships for costs associated with the administration of the partnerships.
The principal administrative cost components are salaries paid to corporate and
system personnel, programming expenses, consumer marketing expenses,
professional fees, subscriber billing costs, data processing costs, rent for
leased facilities and cable system maintenance expenses.
Cable operating expenses totaled $200,739,000 for the year ended December
31, 1998, an increase of $25,772,000, or 15%, over the total of $174,967,00 for
the year ended December 31, 1997. The acquisition of the Acquired Systems
accounted for $25,395,000, or 99%, of this increase. With the Pro Forma
Adjustments, cable operating expenses would have increased $377,000, or less
than 1%, for 1998 compared to 1997. This increase was due primarily to increases
in basic and tier programming costs which was offset, in part, by reductions in
expenses due to operating efficiencies.
Cable general and administrative expenses totaled $25,843,000 for the year
ended December 31, 1998, an increase of $6,201,000, or 32%, over the total of
$19,642,000 for the year ended December 31, 1997. This increase was due to the
effect of the Acquired Systems. With the Pro Forma Adjustments, cable general
and administrative expenses would have increased $3,587,000, or 16%, for 1998.
As the Company has acquired cable television systems for its own account and has
sold cable television systems owned by managed partnerships, and thereby has
transitioned from a management company to an operating company, the Company's
proportionate percentage of total general and administrative expenses has
increased.
Non-cable operating, general and administrative expenses totaled $6,009,000
for the year ended December 31, 1998, a decrease of $3,288,000, or 35%, over the
total of $9,297,000 for the year ended December 31, 1997. This decrease was
primarily due to the sale of Futurex's contract manufacturing business.
Depreciation and amortization expense totaled $204,746,000 for the year
ended December 31, 1998, an increase of $28,907,000, or 16%, over the total of
$175,839,000 for the year ended December 31, 1997. Depreciation and
amortization relating to the Acquired Systems was primarily responsible for this
increase.
Operating Income
The Company recognized operating income of $23,392,000 for the year ended
December 31, 1998 compared to an operating loss of $17,157,000 for the year
ended December 31, 1997. This change was due primarily to the increase in
general partner distributions in 1998 as compared to 1997.
The cable television industry generally measures the performance of a cable
television company in terms of cash flow or operating income before depreciation
and amortization. The value of a cable television company is often expressed
using multiples of cable television system cash flow. This measure is not
intended to be a substitute or improvement upon the items disclosed on the
financial statements, rather it is included because it is
37
<PAGE>
an industry standard. Operating income before depreciation and amortization
totaled $228,138,000 for the year ended December 31, 1998, an increase of
$69,456,000, or 44%, over the total of $158,682,000 for the year ended December
31, 1997. The effect of the Acquired Systems as well as the general partner
distributions were primarily responsible for this increase.
Other Income (Expense)
Interest expense totaled $94,865,000 for the year ended December 31, 1998,
an increase of $8,101,000, or 9%, over the total of $86,764,000 for the year
ended December 31, 1997. This increase was due to higher outstanding balances
on the Company's interest bearing obligations. Borrowings were used to fund the
acquisition of the Acquired Systems.
Interest income totaled $2,424,000 for the year ended December 31, 1998, an
increase of $973,000, or 67%, over the total of $1,451,000 for the year ended
December 31, 1997. This increase was due to interest received on a note from
one of the Company's managed partnerships.
Equity in income of affiliated entities totaled $1,372,000 for the year
ended December 31, 1998. Equity in losses of affiliated entities totaled
$3,804,000 for the year ended December 31, 1997. This change was due primarily
to the recognition of income of the managed partnerships, due to the sale of
certain managed systems.
The Company recognized losses on the sale of assets totaling $3,616,000 for
the year ended December 31, 1998 related to the sale of the contract
manufacturing division of Futurex. The Company recognized gains totaling
$70,232,000 in 1997, including the $44,563,000 gain on the sale of its Cable &
Wireless Communications plc ("CWC") shares, the $2,979,000 gain on the
redemption of Jones Global Group shares, the $1,854,000 gain from insurance and
sale proceeds relating to the Company's aircraft and the $20,836,000 gain from
the sale of the Walnut Valley System.
The Company recognized a loss on the early extinguishment of debt totaling
$13,459,000 in 1997 related to the redemption of its 11.5% Debentures. No
similar losses were recorded in 1998.
Net loss totaled $80,418,000 for the year ended December 31, 1998, an
increase of $28,470,000, or 55%, over the total loss of $51,948,000 for the year
ended December 31, 1997. This increase was due to the gains on the sale of
assets recognized in 1997.
The Company anticipates the continued recognition of operating income prior
to depreciation and amortization charges, but net losses resulting from
depreciation, amortization and interest expenses are expected to occur in the
future.
38
<PAGE>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
---------------------------------------------------------------------
Revenues
Total revenues for the year ended December 31, 1997 totaled $362,588,000,
an increase of $50,878,000, or 16%, over the total of $311,710,000 for the year
ended December 31, 1996. This increase reflects the Company's acquisition of
the following cable television systems: the Manassas System on January 10,
1996; the South Prince Georges County System on February 29, 1996; the Reston
System on February 29, 1996; the Savannah System on April 12, 1996; the North
Prince Georges County System, on January 31, 1997; the Annapolis System on April
15, 1997; the Manitowoc System on June 30, 1997 and the Independence System on
August 31, 1997 (the "Acquired Systems"). The increase in revenues would have
been greater but for the following: (i) the receipt of a general partner
distribution and brokerage fee totaling $15,483,000 in 1996 compared to
brokerage fees of $2,768,000 in 1997; (ii) the reduction in 1997 non-cable
revenue due to the sale of two non-cable subsidiaries in 1996; (iii) a decrease
in management fees due to the sale of certain cable television systems owned by
managed partnerships; and (iv) the sale of the Walnut Valley System in August,
1997. Adjusting for the effect of the Acquired Systems, the second quarter
1996 general partner distribution and brokerage fee, the sale of the non-cable
subsidiaries, the decrease in management fees and the sale of the Walnut Valley
System (the "Pro Forma Adjustments"), total revenues would have increased
$25,185,000, or 8%.
The Company's subscriber service fees for the year ended December 31, 1997
totaled $333,826,000, an increase of $85,200,000 or 34%, over the total of
$248,626,000 for the year ended December 31, 1996. The acquisition of the
Acquired Systems accounted for $61,397,000, or 72%, of the increase in
subscriber service fees. With the Pro Forma Adjustments, subscriber service
fees would have increased $23,803,000, or 8%. This increase was due primarily
to an increase in the number of basic subscribers and basic service rate
adjustments in the cable television systems owned by the Company. Disregarding
the effect of acquisitions during 1997, basic subscribers increased 15,116, an
increase of 3.1%.
The Company receives management fees generally equal to 5% of the gross
operating revenues of its managed limited partnerships. Management fees totaled
$17,253,000 in 1997, a decrease of $1,851,000, or 10%, over the total of
$19,104,000 reported in 1996. The sale of certain systems owned by managed
partnerships during 1997 and 1996 caused this decrease. As the Company
liquidates its managed partnerships, management fees will continue to decrease.
On a pro forma basis, management fees would have increased $1,076,000, or 7%.
This increase was due to the revenue growth from basic rate adjustments and
increases in the subscriber base of the remaining systems owned by managed
partnerships.
In its capacity as the general partner of its managed partnerships, the
Company may receive general partner distributions upon the sale of certain cable
television properties owned by such partnerships. The Company received a
distribution of $14,000,000 upon the sale of Cable TV Fund 11-B, Ltd.'s
Lancaster, New York System in April 1996. No such revenue was received in 1997.
In addition, The Jones Group, Ltd., a wholly owned subsidiary of the Company,
may earn brokerage fees upon the sale of certain managed cable television
systems to third parties. The Company earned brokerage fees of $3,695,000 less
expenses of $927,000 during 1997. A brokerage fee of $2,100,000, less
expenses of $617,000, was earned in 1996.
The Company operates Jones Futurex, Inc. ("Futurex"), a manufacturer of
various electronic components. In addition, the Company owned and operated
Jones Galactic Radio, Inc. ("Galactic Radio"), until its sale on June 14, 1996
and Jones Satellite Programming, Inc. ("JSP"), a distributor of satellite
programming to satellite dish owners, until the sale of its assets on July 31,
1996. Non-cable revenues totaled $8,741,000 in 1997, a decrease of $19,756,000,
or 69%, over the $28,497,000 recognized in 1996. This decrease was primarily
due to the sales of Galactic Radio and JSP.
39
<PAGE>
Costs and Expenses
Cable operating expenses totaled $174,967,00 for the year ended December
31, 1997, an increase of $43,438,000, or 33%, over the total of $131,529,000 for
the year ended December 31, 1996. The acquisition of the Acquired Systems
accounted for $33,024,000, or 76%, of this increase. With the Pro Forma
Adjustments, cable operating expenses would have increased $10,414,000, or 6%,
for 1997 compared to 1996. This increase was due primarily to increases in
basic and tier programming costs.
Cable general and administrative expenses totaled $19,642,000 for the year
ended December 31, 1997, an increase of $3,056,000, or 18%, over the total of
$16,586,000 for the year ended December 31, 1996. This increase was due to the
effect of the Acquired Systems. As the Company acquires cable television
systems for its own account and sells cable television systems owned by managed
partnerships, and thereby transitions from a management company to an operating
company, the Company's proportionate percentage of total general and
administrative expenses will increase. With the Pro Forma Adjustments, cable
general and administrative expenses would have decreased $1,491,000, or 7%, for
1997. This decrease was due to effective cost controls relating to general and
administrative expenses.
Non-cable operating, general and administrative expenses totaled $9,297,000
for the year ended December 31, 1997, a decrease of $19,113,000, or 67%, over
the total of $28,410,000 for the year ended December 31, 1996. This decrease
was primarily due to the sales of Galactic Radio and JSP during 1996.
Depreciation and amortization expense totaled $175,839,000 for the year
ended December 31, 1997, an increase of $44,653,000, or 34%, over the total of
$131,186,000 for the year ended December 31, 1996. Depreciation and
amortization relating to the Acquired Systems and the $14,228,000 write-off of
costs associated with the development of a billing system by an affiliate were
primarily responsible for this increase.
Operating Income
The Company recognized an operating loss of $17,157,000 for the year ended
December 31, 1997 compared to operating income of $3,999,000 for the year ended
December 31, 1996. This change was due to the increase in depreciation and
amortization expense.
The cable television industry generally measures the performance of a cable
television company in terms of cash flow or operating income before depreciation
and amortization. The value of a cable television company is often expressed
using multiples of cable television system cash flow. This measure is not
intended to be a substitute or improvement upon the items disclosed on the
financial statements, rather it is included because it is an industry standard.
Operating income before depreciation and amortization totaled $158,682,000 for
the year ended December 31, 1997, an increase of $23,497,000, or 17%, over the
total of $135,185,000 for the year ended December 31, 1996. The effect of the
Acquired Systems, which was offset, in part, by the general partner distribution
received in 1996, was primarily responsible for this increase.
Other Income (Expense)
Interest expense totaled $86,764,000 for the year ended December 31, 1997,
an increase of $18,982,000, or 28%, over the total of $67,782,000 for the year
ended December 31, 1996. This increase was due to higher outstanding balances
on the Company's interest bearing obligations. Borrowings were used to fund the
acquisition of the Acquired Systems.
Interest income totaled $1,451,000 for the year ended December 31, 1997, a
decrease of $2,307,000, or 61%, over the total of $3,758,000 for the year ended
December 31, 1996. This decrease was due to lower average balances of
receivables from managed partnerships and lower effective interest rates.
40
<PAGE>
Equity in losses of affiliated entities totaled $3,804,000 for the year
ended December 31, 1997 an increase of $331,000, or 10%, over the total of
$3,473,000 for the year ended December 31, 1996. This increase was due
primarily to an increase in the recognition of losses of the managed
partnerships.
The Company recognized gains on the sale of assets in 1997 totaling
$70,232,000, including the $44,563,000 gain on the sale of its CWC shares, the
$2,979,000 gain on the redemption of Global Group Shares, the $1,854,000 gain
from insurance and sale proceeds from the Company aircraft and the $20,836,000
gain from the sale of the Walnut Valley System. The Company recognized gains on
the sales of assets of $5,262,000 during 1996 from the sale of JSP's assets and
the Company's sale of certain marketable securities of an unaffiliated company.
Net loss totaled $51,948,000 for the year ended December 31, 1997, a
decrease of $10,712,000, or 17%, over the total loss of $62,660,000 for the year
ended December 31, 1996. This decrease was due primarily to the gains on the
sale of assets recognized in 1997.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
Interest Rate Risk
The Company uses fixed and variable rate long term debt to partially
finance capital expenditures. These debt arrangements expose the Company to
market risk related to changes in interest rates. The Company manages this risk
by issuing fixed rate debt when business conditions and market conditions are
favorable. In addition, the Company enters into interest rate swap agreements
in order to fix the interest rate for the duration of the contract as a hedge
against interest rate volatility. As of December 31, 1998, the Company had
interest rate swap agreements covering notional principal of $400,000,000 that
expire between January 2000 and March 2008 that fix the interest rate between
5.3% and 7.64%. The Company believes that such swap agreements have no
significant fair value at December 31, 1998. The table below provides
information on the Company's long term debt.
<TABLE>
<CAPTION>
Expected Maturity
------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total Fair Value
------ ------ ------- -------- -------- ---------- -------- ----------
(stated in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed rate $2,237 $2,217 $ 2,217 $200,739 $ - $545,297 $752,707 $807,548
Weighted average interest rate 8.9% 8.9% 8.9% 9.6% 8.7% 8.9%
Variable Rate $ - $ - 30,000 160,000 180,000 340,000 $710,000 $710,000
Weighted average interest rate 6.1% 6.1% 6.1% 6.1% 6.1%
</TABLE>
41
<PAGE>
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Public Accountants 43
Consolidated Balance Sheets 44
Consolidated Statements of Operations 46
Consolidated Statements of Shareholders' Investment 47
Consolidated Statements of Cash Flows 48
Notes to Consolidated Financial Statements 49
</TABLE>
42
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO JONES INTERCABLE, INC.:
We have audited the accompanying consolidated balance sheets of JONES
INTERCABLE, INC. (a Colorado corporation) and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of operations,
shareholders' investment and cash flows for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Jones Intercable, Inc. and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Denver, Colorado
February 17, 1999 ARTHUR ANDERSEN LLP
43
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED
BALANCE SHEETS Jones Intercable, Inc.
As of December 31, 1998 and 1997 and Subsidiaries
- ---------------------------------------------------------------------------------------------------
ASSETS 1998 1997
(Stated in Thousands)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH AND CASH EQUIVALENTS $ 2,586 $ 3,595
RECEIVABLES:
Trade receivables, net of allowance for
doubtful accounts of $2,822,000 in 1998
and $1,692,000 in 1997 26,884 28,686
Affiliated entities 5,568 7,783
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 1,005,080 745,115
Less - Accumulated depreciation (311,655) (224,893)
---------- ---------
693,425 520,222
Franchise costs and other intangible assets,
net of accumulated amortization of $376,339,000 in 1998
and $285,212,000 in 1997 913,853 721,336
Investments in affiliates and domestic cable
television partnerships 19,724 24,568
---------- ---------
TOTAL INVESTMENT IN CABLE TELEVISION PROPERTIES 1,627,002 1,266,126
---------- ---------
DEFERRED TAX ASSET, net of valuation
allowance of $88,436,000 in 1998 and
$84,473,000 in 1997 7,137 7,137
DEPOSITS, PREPAID EXPENSES AND OTHER ASSETS 61,916 58,044
---------- ---------
TOTAL ASSETS $1,731,093 $1,371,371
========== ==========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
44
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED
BALANCE SHEETS Jones Intercable, Inc.
As of December 31, 1998 and 1997 and Subsidiaries
- -----------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' INVESTMENT 1998 1997
(Stated in Thousands)
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES:
Accounts payable and accrued liabilities $ 109,599 $ 115,189
Subscriber prepayments and deposits 3,182 2,932
Subordinated debentures and other debt 752,707 553,732
Credit facilities 710,000 471,000
--------- ---------
TOTAL LIABILITIES 1,575,488 1,142,853
--------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 2, 4 and 11)
SHAREHOLDERS' INVESTMENT:
Class A Common Stock, $.01 par value, 60,000,000
shares authorized; 36,143,054 and 35,554,223
shares issued at December 31, 1998 and 1997, respectively 361 356
Common Stock, $.01 par value, 5,550,000 shares
Authorized; 5,113,021 shares issued at December 31,
1998 and 1997 51 51
Additional paid-in capital 495,116 487,616
Accumulated deficit (339,923) (259,505)
--------- ---------
TOTAL SHAREHOLDERS' INVESTMENT 155,605 228,518
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 1,731,093 $ 1,371,371
========= =========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
45
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS Jones Intercable, Inc.
For the years ended December 31, 1998, 1997 and 1996 and Subsidiaries
- ------------------------------------------------------------------------------------------------------
1998 1997 1996
(In Thousands Except Per Share Data)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES FROM OPERATIONS:
Cable Television Revenue
Subscriber service fees $ 401,371 $ 333,826 $ 248,626
Management fees 12,284 17,253 19,104
Distributions and Brokerage Fees 41,780 2,768 15,483
Non-cable Revenue 5,294 8,741 28,497
------- ------- -------
TOTAL REVENUES 460,729 362,588 311,710
COSTS AND EXPENSES:
Cable Television Expenses
Operating expenses 200,739 174,967 131,529
General and administrative expenses (including
approximately $6,646,000, $4,925,000 and $4,309,000
of related party expenses during the years ended
December 31, 1998, 1997 and 1996, respectively) 25,843 19,642 16,586
Non-cable operating, general and administrative 6,009 9,297 28,410
Depreciation and amortization 204,746 175,839 131,186
------- ------- -------
OPERATING INCOME (LOSS) 23,392 (17,157) 3,999
OTHER INCOME (EXPENSE):
Interest expense (94,865) (86,764) (67,782)
Interest income 2,424 1,451 3,758
Equity in income (loss) of affiliated entities 1,372 (3,804) (3,473)
Gain (Loss) on sale of assets (3,616) 70,232 5,262
Other, net (9,125) (5,722) (4,424)
------- ------- -------
LOSS BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (80,418) (41,764) (62,660)
Income tax benefit - 3,275 -
------- ------- -------
LOSS BEFORE EXTRAORDINARY ITEM (80,418) (38,489) (62,660)
EXTRAORDINARY ITEM:
Loss on early extinguishment of debt,
net of related income taxes - (13,459) -
------- ------- -------
NET LOSS $ (80,418) $ (51,948) $ (62,660)
======= ======= =======
Changes to arrive at Comprehensive Loss - (47,272) 4,768
------- ------- -------
COMPREHENSIVE LOSS $ (80,418) $ (99,220) $ (57,892)
======= ======= =======
LOSS PER SHARE:
LOSS BEFORE EXTRAORDINARY ITEM $ (1.96) $ (1.11) $ (2.00)
EXTRAORDINARY ITEM - (.39) -
------- ------- -------
NET LOSS $ (1.96) $ (1.50) $ (2.00)
======= ======= =======
LOSS PER SHARE-ASSUMING DILUTION
LOSS BEFORE EXTRAORDINARY ITEM $ (1.96) $ (1.11) $ (2.00)
EXTRAORDINARY ITEM - (.39) -
------- ------- -------
NET LOSS $ (1.96) $ (1.50) $ (2.00)
======= ======= =======
WEIGHTED AVERAGE NUMBER OF CLASS A COMMON
AND COMMON SHARES OUTSTANDING 40,933 34,610 31,372
======= ======= =======
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
46
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' INVESTMENT Jones Intercable, Inc.
For the years ended December 31, 1998, 1997 and 1996 and Subsidiaries
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized
Holding
Class A Common Stock Common Stock Additional Gain on
-------------------- -------------------- Paid-In Marketable Accumulated
Shares Amount Shares Amount Capital Securities Deficit
(Stated in Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1995 26,212 $ 262 5,113 $ 51 $ 394,875 $ 42,504 $ (144,897)
Proceeds from stock options
exercised 52 1 - - 142 - -
Class A Common Stock Grants - - - - 261 - -
Unrealized holding gain on
marketable securities - - - - - 4,768 -
Net loss - - - - - - (62,660)
------- ------- ------- ------ ---------- -------- ------------
BALANCES, December 31, 1996 26,264 263 5,113 51 395,278 47,272 (207,557)
Proceeds from stock options
exercised 90 1 - - 567 - -
Proceeds from Class A stock
offering 9,200 92 - - 91,510 - -
Class A Common Stock Grants - - - - 261 - -
Gain realized on marketable
securities - - - - - (47,272) -
Net loss - - - - - - (51,948)
------- ------- ------- ------ ---------- -------- ------------
BALANCES, December 31, 1997 35,554 356 5,113 51 487,616 - (259,505)
Proceeds from stock options
exercised 589 5 - - 7,283 - -
Class A Stock Option Grants - - - - 217 - -
Net loss - - - - - - (80,418)
------- ------- ------- ------ ---------- -------- ------------
BALANCES, December 31, 1998 36,143 $ 361 5,113 $ 51 $ 495,116 $ - $ (339,923)
======= ======= ======= ====== ========== ======== ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
47
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF
CASH FLOWS Jones Intercable, Inc.
For the years ended December 31, 1998, 1997 and 1996 and Subsidiaries
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
(Stated in Thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (80,418) $ (51,948) $ (62,660)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Extraordinary loss on early extinguishment
of debentures, net of related income taxes - 13,459 -
Class A Common Stock option expense 218 261 261
Loss (Gain) on sale of assets 3,616 (70,232) (5,262)
Deferred income tax benefit - (3,275) -
Depreciation and amortization 204,746 175,839 131,186
Equity in (income) losses of affiliated entities (1,372) 3,804 3,473
Decrease (Increase) in restricted cash - 1,016 5,341
Decrease (Increase) in trade receivables 1,802 (10,941) 1,418
Increase in receivables, deposits, prepaid expenses
and other assets (13,832) (4,107) (18,529)
Increase (Decrease) in accounts payable, accrued
liabilities and subscriber prepayments and deposits (6,340) 25,446 17,672
-------- -------- --------
Net cash provided by operating activities 108,420 79,322 72,900
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of cable television systems (387,646) (379,393) (298,929)
Deposit on cable television systems - - (12,000)
Proceeds from sale of assets 350 142,991 5,262
Purchase of property and equipment (174,099) (133,598) (95,900)
Other, net 4,489 932 4,133
-------- -------- --------
Net cash used in investing activities (556,906) (369,068) (397,434)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 793,000 570,500 506,000
Repayment of debt (554,000) (442,500) (193,000)
Proceeds from issuance of Class A Common Stock - 91,602 -
Proceeds from Senior Note Offering, net 196,346 244,102 -
Proceeds from Class A Common Stock options 7,287 568 143
Decrease (increase) in accounts receivable from affiliated entities 2,215 (3,787) 10,315
Redemption of debentures - (170,800) -
Other, net 2,629 1,985 433
-------- -------- --------
Net cash provided by financing activities 447,477 291,670 323,891
-------- -------- --------
Increase (decrease) In Cash and Cash Equivalents (1,009) 1,924 (643)
Cash and Cash Equivalents, beginning of year 3,595 1,671 2,314
-------- -------- --------
Cash and Cash Equivalents, end of year $ 2,586 $ 3,595 $ 1,671
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
48
<PAGE>
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Jones Intercable, Inc. was formed in 1970 to own, operate and manage cable
television systems. Jones Intercable, Inc. and its subsidiaries are referred to
herein as the "Company." As of December 31, 1998, through a total of 23 owned
and managed cable television systems, the Company served approximately 1.2
million subscribers in the United States. A majority of the Company's cable
television systems are owned by the Company's wholly owned subsidiaries Jones
Cable Holdings, Inc. ("JCH") and Jones Cable Holdings II, Inc. ("JCH II"). JCH
owns and operates the cable television systems that comprise the Company's
Virginia/Maryland cluster. The Virginia/Maryland cluster is comprised of: the
Chesapeake Bay Group of cable systems that serve customers in communities in and
around Anne Arundel County and Charles County, Maryland, including the City of
Annapolis; the Prince Georges County, Maryland system that services all of
Prince Georges County, Maryland; the Alexandria, Virginia system; and the Prince
William County system that serves the communities of Dale City, Manassas and
Reston, Virginia. JCH II owns and operates the Company's suburban cluster of
cable systems serving areas in and around Augusta, Savannah and Hinesville,
Georgia, Pima County, Arizona, Independence, Missouri, Albuquerque, New Mexico
and Palmdale and Littlerock, California. The Company directly owns and operates
the cable television systems serving Manitowoc, Wisconsin, Oxnard, California
and Panama City Beach and Celebration, Florida.
Glenn R. Jones, the Chairman of the Board of Directors and Chief Executive
Officer of the Company, beneficially owns approximately 57% of the Common Stock
of the Company. Through this ownership of the Company's supervoting Common
Stock, Mr. Jones is entitled to elect a majority of the members of the Company's
Board of Directors and he otherwise controls the Company. The Company's current
other major shareholder is BCI Telecom Holding Inc. ("BTH"). BTH owns an
approximate 31% economic interest in the Company through its ownership of
approximately 36% of the Class A Common Stock of the Company. Through rights
granted to it under a shareholders agreement among Mr. Jones and his affiliates,
BTH and the Company, BTH has the ability to nominate several persons to the
Company's Board of Directors. In addition, BTH holds an option to purchase Mr.
Jones' Common Stock of the Company.
In May 1998, BTH announced its intention to sell approximately half of its
shares of the Company's Class A Common Stock to Comcast Corporation ("Comcast").
Comcast ranks among the top five multiple system cable television operators in
the United States serving approximately 4 million basic subscribers. BTH also
announced its intention to grant to Comcast the right to acquire all of the
Common Stock held by Jones International, Ltd. and its affiliates
("International") from BTH if and when BTH exercises its option to purchase such
shares. BTH also announced its intention to sell to Comcast at the time that
the option is exercised its remaining holdings of the Company's Class A Common
Stock.
On August 12, 1998, the Company, International, BTH and Comcast announced
that agreements had been entered into that will accelerate the exercise of the
option by Comcast, and allow for the early closing of the transaction between
Comcast and BTH. In connection with the early exercise of the option, Comcast
will pay to International and certain of its affiliates $200,000,000 for the
approximately 2.9 million shares of Common Stock of the Company held by them.
In addition, the Company has agreed to make certain payments to International
and its affiliates in connection with the termination, effective as of the
closing of the option exercise, of certain related party agreements between the
Company, International, and its affiliates, including the termination of Mr.
Jones' employment agreement with the Company and the termination of certain
programming rights held by International pursuant to the Shareholders Agreement
between the Company, International, Mr. Jones and BTH entered into in 1994.
Also, in connection with the closing of the option exercise, and conditioned
upon such closing occurring, the pending litigation between BTH, International,
Mr. Jones and the Company will be
49
<PAGE>
dismissed and International and certain of its affiliates will dismiss the
appeal which is pending of the order entered against them in such litigation.
To facilitate an orderly change in control to Comcast, the Company has
initiated a retention and severance program for its corporate associates who may
be terminated due to change in control. The program provides incentives to
corporate associates to remain with the Company until the change in control and
through the subsequent 90-day transition period. The program provides for cash
severance payments to associates that are terminated due to the change in
control. Total costs associated with this program are expected to be
approximately $30,000,000.
The Company anticipates incurring $40,600,000 in restructuring costs, which
will be recognized upon closing. Such costs include the cost of terminating Mr.
Jones' employment contract, severance payments to corporate personnel, salaries
during the 90-day transition period following the change in control and certain
professional fees.
The closing of the exercise of the option is expected to occur in March
1999. All necessary regulatory filings associated with this transaction have
been made. Following such closing, Comcast would own approximately 12.8 million
shares of Class A Common Stock, and approximately 2.9 million shares of Common
Stock of the Company, representing approximately 37% of the economic and 47% of
the voting interest in the Company. In addition, the Common Stock held by
Comcast will allow it to elect 75% of the Board of Directors of the Company, and
Comcast is expected to replace a majority of the existing Board of Directors
with nominees of its choice effective as of the closing of the option exercise.
Effective Registration Statement
The Company has an effective registration statement relating to the sale of
$500 million of senior debt securities, senior subordinated debt securities,
subordinated debt securities and Class A Common Stock. The Company, from time
to time, may issue securities not to exceed $500 million pursuant to this
registration statement. In April 1998 the Company issued and sold $200,000,000
of its 7 5/8% Senior Notes due April 15, 2008 pursuant to this registration
statement.
Summary of Significant Accounting Policies
Basis of Presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. The Company's investments in affiliates and
domestic cable television partnerships (Note 4) are carried at cost plus equity
in profits and losses. All significant intercompany transactions have been
eliminated in consolidation.
50
<PAGE>
Statements of Cash Flows
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. Income taxes and
interest paid during the periods presented are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1998 1997 1996
----------------------------------------------
<S> <C> <C> <C>
(Stated in Thousands)
Income taxes $ - $ - $ -
======== ======== ========
Interest $ 90,820 $ 86,584 $ 67,441
======== ======== ========
</TABLE>
Non-cash transactions:
As described in Note 4, on April 25, 1997, the Company tendered its Bell
Cablemedia plc ("Bell Cablemedia") shares in exchange for shares of Cable &
Wireless Communications plc ("CWC"). As described in Note 4, on December 23,
1996, the Company redeemed 225 shares of Jones Global Group, Inc. ("Global
Group") in exchange for a $8,950,188 note receivable. As described in Note 2,
on June 14, 1996, the Company sold Jones Galactic Radio, Inc. ("Galactic Radio")
to Global Group. The sales price of $17.2 million was paid in the form of
984,968 American Depositary Shares ("ADSs") of Bell Cablemedia. During 1998,
1997 and 1996, the Company recorded $217,000, $261,000 and $261,000,
respectively, of Additional Paid-in Capital related to Class A Common Stock
option grants as discussed in Note 9.
Property, Plant and Equipment
Depreciation of property, plant and equipment is provided using the
straight-line method over the following estimated service lives:
Distribution systems including capitalized
interest and operating expenses 5-15 years
Buildings 10-30 years
Equipment and tools 3-5 years
Premium service equipment 5 years
Earth receive stations 5-15 years
Vehicles 3-4 years
Other property, plant and equipment 3-5 years
Franchise Costs
Costs incurred in obtaining cable television franchises and other operating
authorities are initially deferred and amortized over the lives of the
franchises. Franchise rights acquired through purchase of cable television
systems are stated at estimated fair value at the date of acquisition and
amortized over the remaining terms of the franchises. Amortization is
determined using the straight-line method over lives of one to 15 years.
Cost in Excess of Interests in Net Assets Purchased
The cost of acquisitions in excess of the fair values of net assets
acquired is being amortized using the straight-line method over a 40-year life.
The Company assesses the realizability of these assets through periodic
independent appraisals. Any impairments are recognized as an expense in the
Company's Consolidated Statements of Operations.
51
<PAGE>
Deferred Financing Costs
Costs incurred in connection with the issuance of notes and debentures and
the execution of revolving credit agreements are deferred and amortized using
the effective interest method over the life of such issues and agreements.
Distributions from Managed Partnerships
Distributions earned by the Company as general partner of its managed
partnerships from cable television properties sold by such partnerships to
unaffiliated parties are recorded as revenues when received. Distributions
earned by the Company as general partner of its managed partnerships from cable
television properties sold by such partnerships to the Company are treated as a
reduction of the purchase price of the cable television systems. Distributions
earned by the Company as general partner of its managed partnerships from cable
television properties sold by such partnerships to entities in which the Company
has a continuing equity interest are treated as a reduction in the basis of the
investment in the cable television system.
Comprehensive Income
The Company has adopted Statement of Financial Accounting Standards No. 130
("SFAS 130") "Reporting Comprehensive Income" in 1998. SFAS 130 establishes
standards for the reporting and display of comprehensive income and its
components. An unaudited reconciliation of the Company's net loss and
comprehensive loss follows:
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------------
(stated in thousands)
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net loss, as reported $ (80,418) $ (51,948) $ (62,660)
Adjustments to arrive at comprehensive
net loss
Change in unrealized holding gain on
marketable securities - - 4,768
Reclassification of comprehensive loss - (47,272) -
------- ------- -------
Comprehensive loss $ (80,418) $ (99,220) $ (57,892)
======= ======= =======
</TABLE>
Earnings Per Share of Class A Common Stock and Common Stock
Net loss per share of Class A Common Stock and Common Stock is based on
the weighted average number of shares outstanding during the periods presented.
Approximately 400,000, 71,000 and 95,000 common stock equivalents, respectively,
were not included in the computation of loss per share - assuming dilution for
the years ended December 31, 1998, 1997 and 1996, because the effect of such
common stock equivalents was antidilutive.
Treasury Stock
Shares held in treasury have been retired and classified as authorized but
unissued shares in accordance with the Colorado Business Corporation Act.
SFAS 133
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 established accounting and
reporting standards that require derivative instruments to be recorded as assets
or liabilities in the balance sheet. SFAS 133 is effective for fiscal years
beginning after June 15, 1999. The Company has not yet quantified the impacts of
adopting SFAS 133 and has not yet determined the timing or method of adopting
SFAS 133.
52
<PAGE>
2. ACQUISITIONS, EXCHANGES AND SALES
Acquisitions by the Company
---------------------------
In January 1999, the Company, through JCH II, purchased from Cable TV Fund
14-B, Ltd. ("Fund 14-B"), a managed partnership, the cable television system
serving areas in and around Littlerock, California (the "Littlerock System") for
a purchase price of $10,720,400. The Littlerock System is contiguous to the
Palmdale System. The purchase price represented the average of three separate
independent appraisals of the fair market value of the Littlerock System.
Funding for this transaction was provided by borrowings under JCH II's credit
facility. See Note 11 for a description of pending litigation related to this
transaction.
In December 1998, the Company, through JCH II, purchased from Cable TV Fund
12BCD Venture (the "Venture"), a venture comprised of three managed
partnerships, the cable television systems serving areas in and around Palmdale
and Lancaster, California (the "Palmdale System") for a purchase price of
$138,205,200. The purchase price represented the average of three separate
independent appraisals of the fair market value of the Palmdale System. The
Company received, from the three partnerships that comprise the Venture, general
partner distributions totaling $22,275,250, which reduced the Company's basis in
the assets of the Palmdale System. Funding of the net purchase price of
$115,929,950 was provided by borrowings under JCH II's credit facility. See
Note 11 for a description of pending litigation relating to this transaction.
In December 1998, the Company, through JCH II, purchased from an
unaffiliated party the cable television system serving areas in and around
Hinesville, Georgia (the "Hinesville System") for $48,000,000. The Hinesville
System is contiguous to the Company's Savannah, Georgia system. The Company
paid Jones Financial Group, Ltd. ("Financial Group"), a subsidiary of Jones
International, Ltd., a fee of $756,000 upon closing of this transaction for
acting as the Company's financial advisor in connection with this transaction.
All fees paid to Financial Group by the Company are based upon 90% of the
estimated commercial rate charged by unaffiliated financial advisors. Funding
for this transaction was provided by borrowings available under JCH II's credit
facility.
In December 1998, the Company, through JCH II, purchased from Spacelink
Fund 3, Ltd., a managed partnership, the cable television systems serving areas
in and around Socorro, New Mexico (the "Socorro System") and Grants, New Mexico
(the "Grants System"), for purchase prices of $3,638,791 and $6,420,806,
respectively. The purchase prices represented the average of three separate
independent appraisals of the fair market values of the Socorro System and the
Grants System, respectively. The Company received general partner distributions
totaling approximately $1,715,500 related to this transaction, which reduced the
Company's basis in the assets of the Socorro System and the Grants System. The
Socorro System and the Grants System are in relatively close proximity to the
Company's Albuquerque System. Funding for the net purchase price of $8,344,054
was provided by borrowings under JCH II's credit facility.
In June 1998, the Company, through JCH II, purchased from the Venture the
cable television system serving areas in and around Albuquerque, New Mexico (the
"Albuquerque System") for $222,963,267. The purchase price represented the
average of three separate independent appraisals of the fair market value of the
Albuquerque System. Upon closing, the Company received, from the three
partnerships that comprise the Venture, general partner distributions totaling
approximately $8,100,000, which reduced the Company's basis in the assets of the
Albuquerque System. Funding for the net purchase price of $214,863,267 was
provided by borrowings from JCH II's credit facility.
In August 1997, the Company, through JCH II, purchased from Jones
Intercable Investors, L.P. (the "Partnership"), a managed partnership, the cable
television system serving communities in and around Independence, Missouri (the
"Independence System") for a purchase price of $171,213,667, which represented
the average of three independent appraisals of the fair market value of the
Independence System. The Company received a limited partner distribution
totaling $25,721,000 from the sale by the Partnership of the Independence
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System because of the Company's equity interest in the Partnership, which
reduced the Company's basis in the assets of the Independence System. The
Partnership paid The Intercable Group, Ltd., a wholly owned subsidiary of the
Company, a $4,280,000 brokerage fee in connection with this transaction, which
reduced the Company's basis in the assets of the Independence System. Funding of
the net purchase price of approximately $141,200,000 for the Independence System
was provided by all of the net proceeds from the Company's August 1997 Class A
Common Stock offering and borrowings from JCH II's credit facility.
In June 1997, the Company purchased from Cable TV Joint Fund 11 ("Joint
Fund 11"), a venture comprised of four managed partnerships, the cable
television system serving the City of Manitowoc, Wisconsin (the "Manitowoc
System"). The purchase price for the Manitowoc System was $16,122,333. The
purchase price represented the average of three separate independent appraisals
of the fair market value of the Manitowoc System. The Company received, from
the four managed partnerships that comprised Joint Fund 11, general partner
distributions totaling approximately $4,556,000 upon the closing of the sale of
the Manitowoc System. Funding of the net purchase price of approximately
$11,566,000 was provided by borrowings under the Company's credit facilities.
In January 1997, the Company, through JCH, purchased from Maryland Cable
Partners, L.P., an unaffiliated party, the cable television system serving the
communities of Berwyn Heights, Bladensburg, Bowie, Brentwood, Cheverly, College
Park, Colmar Manor, Cottage City, Edmonston, Glenarden, Greenbelt, Hyattsville,
Landover Hills, Laurel, Mt. Rainer, New Carrollton, North Brentwood, Riverdale,
Takoma Park, University Park and unincorporated portions of northern Prince
Georges County, all in the State of Maryland (the "North Prince Georges County
System"). The purchase price was $231,367,000 and was funded by borrowings
under JCH's revolving credit facility. The Company paid Financial Group a fee
of $2,082,000 upon closing of this transaction for acting as the Company's
financial advisor in connection with this transaction. All fees paid to
Financial Group by the Company are based upon 90% of the estimated commercial
rate charged by unaffiliated financial advisors. The North Prince Georges County
System was contiguous to the South Prince Georges County System which was
already owned by the Company. The Company has combined the North Prince Georges
County System and the South Prince Georges County System and thus the Company
now serves all of Prince Georges County, Maryland in the northern suburbs of
Washington, D.C. The Prince Georges County System is operated as part of the
Virginia/Maryland Cluster.
In April 1996, the Company purchased from Jones Spacelink Income/Growth
Fund 1-A, Ltd., a Colorado limited partnership managed by the Company, the
cable television system serving the areas in and around Lake Geneva, Wisconsin
(the "Lake Geneva System"). The purchase price was $6,345,667, which was the
average of three separate independent appraisals of the fair market value of the
Lake Geneva System. The purchase of the Lake Geneva System was funded by
borrowings available under JCH's revolving credit facility.
In April 1996, the Company purchased from Jones Spacelink Income/Growth
Fund 1-A, Ltd., a Colorado limited partnership managed by the Company, the cable
television system serving the areas in and around Ripon, Wisconsin (the "Ripon
System"). The purchase price was $3,712,667, which was the average of three
separate independent appraisals of the fair market value of the Ripon System.
The purchase of the Ripon System was funded by borrowings available under JCH's
revolving credit facility.
In April 1996, the Company purchased from Jones Spacelink Income Partners
87-1, L.P., a Colorado limited partnership managed by the Company, the cable
television systems serving the communities of Lodi, Burbank, Lafayette Township,
New London, Bailey Lakes, Savannah, Shreve, Jeromesville, West Lafayette,
Loudonville, Perrysville, Creston, Gloria Glens, Sterling, Seville, Westfield
Center, Chippewa, Lake Area, Rittman, West Salem, Bloomville, Spencer, Polk and
Congress, all in the State of Ohio (the "Lodi System"). The purchase price was
$25,706,000, which was the average of three separate independent appraisals of
the fair market value of the Lodi System. The purchase of the Lodi System was
funded by borrowings available under JCH's revolving credit facility.
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<PAGE>
In February 1996, the Company purchased from IDS/Jones Growth Partners 87-
A, Ltd., a Colorado limited partnership managed by the Company, the cable
television system serving areas in and around Carmel, Indiana (the "Carmel
System"). The purchase price was $44,235,333, which was the average of three
separate independent appraisals of the fair market value of the Carmel System.
The purchase of the Carmel System was funded by borrowings available under JCH's
revolving credit facility.
In February 1996, the Company purchased from Jones Cable Income Fund 1-B,
Ltd., a Colorado limited partnership managed by the Company, the cable
television system serving areas in and around Orangeburg, South Carolina (the
"Orangeburg System"). The purchase price was $18,347,667, which was the average
of three separate independent appraisals of the fair market value of the
Orangeburg System. The purchase of the Orangeburg System was funded by
borrowings available under JCH's revolving credit facility.
In February 1996, the Company purchased from Cable TV Fund 12-BCD Venture
(the "Venture"), a joint venture of three of the Company's managed limited
partnerships, the cable television system serving areas in and around Tampa,
Florida (the "Tampa System"). The purchase price was $110,395,667, which was
the average of three separate independent appraisals of the fair market value of
the Tampa System. The purchase of the Tampa System was funded by borrowings
available under JCH's revolving credit facility. See Note 11 for a description
of pending litigation relating to this transaction.
In January 1996, the Company purchased the cable television systems serving
Manassas, Manassas Park, Haymarket and portions of unincorporated Prince William
County, all in the State of Virginia (the "Manassas System") from an
unaffiliated party. The purchase price of the Manassas System was $71,100,000.
The purchase was funded by borrowings available under JCH's revolving credit
facility. The Company paid Financial Group a fee of $896,000 upon closing of
this transaction for acting as the Company's financial advisor in connection
with this transaction. All fees paid to Financial Group by the Company are
based upon 90% of the estimated commercial rate charged by unaffiliated
financial advisors. The Manassas System is now operated as part of the Prince
William County System in the Virginia/Maryland Cluster.
Exchanges
---------
In April 1997, the Company, through JCH, conveyed to an affiliate of Tele-
Communications, Inc. the cable television systems serving areas in and around
Evergreen, Idaho Springs and portions of Jefferson County, Colorado in exchange
for the cable television system serving areas in and around Annapolis, Maryland
(the "Annapolis System") and cash in the amount of $2,500,000. The Company paid
Financial Group a $695,250 fee upon completion of this exchange as compensation
to it for acting as the Company's financial advisor in connection with this
transaction. All fees paid to Financial Group by the Company are based upon 90%
of the estimated commercial rate charged by unaffiliated financial advisors.
The Annapolis System is now operated as part of the Company's Chesapeake Bay
Group in the Virginia/Maryland cluster.
In April 1996, the Company, pursuant to an asset exchange agreement (the
"Time Warner Exchange Agreement") with Time Warner Entertainment Company, L.P.
("Time Warner"), an unaffiliated cable television operator, conveyed to Time
Warner the cable television systems serving Hilo, Hawaii (the "Hilo System") and
Kenosha, Wisconsin (the "Kenosha System") as well as the Lodi System, the Ripon
System, the Lake Geneva System and cash in the amount of $11,735,667. In
return, the Company received from Time Warner the cable television systems
serving the communities in and around Savannah, Georgia (the "Savannah System").
This transaction was considered a non-monetary exchange of similar productive
assets for accounting purposes and the Savannah System was recorded at the
historical cost of the assets given up plus the $11,735,667 cash consideration,
which was funded by borrowings available under JCH's revolving credit facility.
The Company paid Financial Group a $1,286,000 fee upon the completion of this
transaction as compensation to it for acting as
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the Company's financial advisor. All fees paid to Financial Group by the Company
are based upon 90% of the estimated commercial rate charged by unaffiliated
financial advisors.
In February 1996, the Company, pursuant to an asset exchange agreement (the
"TWEAN Exchange Agreement") with Time Warner Entertainment-Advance/Newhouse
Partnership ("TWEAN"), an unaffiliated cable television system operator,
conveyed to TWEAN the Carmel System, the Orangeburg System and the Tampa System
and cash in the amount of $3,500,000. In return, the Company received from
TWEAN the cable television systems serving Andrews Air Force Base, Capitol
Heights, Cheltenham, District Heights, Fairmount Heights, Forest Heights,
Morningside, Seat Pleasant, Upper Marlboro, and portions of Prince Georges
County, all in Maryland (the "South Prince Georges County System"), and portions
of Fairfax County, Virginia (the "Reston System"). See Note 11 for a
description of pending litigation relating to this transaction. This
transaction was considered a non-monetary exchange of similar productive assets
for accounting purposes and the South Prince Georges County System and the
Reston System were recorded at the historical cost of the assets given up plus
the $3,500,000 cash consideration, which was funded by borrowings available
under JCH's revolving credit facility. The Company paid Financial Group a
$1,668,000 fee upon the completion of this transaction as compensation to it for
acting as the Company's financial advisor. All fees paid to Financial Group by
the Company are based upon 90% of the estimated commercial rate charged by
unaffiliated financial advisors. The South Prince Georges County System is now
operated as part of the Prince Georges County System in the Virginia/Maryland
Cluster. The Reston System is now operated as part of the Chesapeake Bay Group
in the Virginia /Maryland Cluster.
Sales
-----
In May 1998, the Company sold the contract manufacturing business owned by
Jones Futurex, Inc. ("Futurex") to a third party for $350,000 in cash. In
addition, the buyer entered into a sublease arrangement for certain facilities
leased by Futurex. Payments under the sublease agreement total approximately
$1.8 million over the next 4 years. In connection with this transaction, the
Company recognized a loss of approximately $3,616,000. The Company continues to
own and operate Futurex's encryption business.
In August 1998, the Company sold its 75% interest in Jones Customer Service
Management, LLC to Jones Cyber Solutions, Ltd., an affiliated company, for
$3,150,000. The purchase price was paid $2,000,000 in cash and $1,150,000 in a
note receivable. The note receivable bears interest at prime +2%, and is
payable in 36 months or upon a change in control of the Company. The proceeds
from this transaction were used to offset the remaining assets related to the
Company's customer billing venture.
In October 1997, the Company sold the cable television system serving areas
in and around Walnut Valley, California (the "Walnut Valley System") for
$32,493,000 to Century Communications Corp., an unaffiliated party. The sales
price represented the contract price of $33,493,000, less a purchase price
adjustment of $1,000,000. The Company recognized a pre-tax gain of
approximately $20,836,000 related to this sale in the fourth quarter of 1997.
Proceeds from the sale were used to reduce outstanding indebtedness under the
Company's credit facilities. The Company paid Financial Group a fee of $678,000
upon completion of the sale for acting as the Company's financial advisor in
connection with this transaction. All fees paid to Financial Group by the
Company are based upon 90% of the estimated commercial rate charged by
unaffiliated financial advisors.
In April 1997, the Company tendered all of its shares of Bell Cablemedia
plc to Cable & Wireless Communications plc ("CWC") in exchange for 25,017,385
shares of CWC. During April and May 1997, the Company sold all of its shares of
CWC for an aggregate sales price of $109,276,000. The Company recognized a pre-
tax gain on this transaction of $44,563,000. Proceeds from the sale were used
to reduce outstanding indebtedness under the Company's credit facilities.
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<PAGE>
In July 1996, the Company sold the assets of Jones Satellite Programming,
Inc. ("JSP"), a wholly owned subsidiary, to an unaffiliated party for
$2,873,871. The Company recorded a gain of approximately $2,873,000 upon the
closing of this sale. JSP provided satellite programming to satellite dish
owners.
In June 1996, the Company completed the sale of Galactic Radio to Global
Group for $17.2 million. Global Group subsequently sold Galactic Radio to
another affiliate of International. The Company's Board of Directors requested
and received a fairness opinion related to this sale from an unaffiliated
investment banking firm. The sales price was paid in the form of 984,968 ADSs
of Bell Cablemedia. The number of ADSs represented the purchase price of $17.2
million divided by the 30-day average closing price of an ADS for the 30-day
period immediately preceding the closing date. Due to the related party nature
of this transaction, no gain was reflected in the accompanying financial
statements.
The pro forma effect of the above-described acquisitions, exchanges and
sales of cable television properties and the sales of non-strategic subsidiaries
on the Company's results of operations for the years ended December 31, 1998 and
1997 as if the transactions occurred on January 1 of the years presented in the
following unaudited tabulation:
<TABLE>
<CAPTION>
For the year ended December 31, 1998:
----------------------------------------------
(In Thousands)
As Reported Acquisitions Pro Forma
----------- ------------ ---------
<S> <C> <C> <C>
Revenues $ 460,729 $ 67,726 $ 528,455
======= ======= ========
Operating Income (Loss) $ 23,392 $ (3,181) $ 20,211
======= ======= ========
Net Loss $ (80,418) $ (22,028) $ (102,446)
======= ======= ========
Loss Per Share $ (1.96) $ (2.50)
======= ========
</TABLE>
<TABLE>
<CAPTION>
For the year ended December 31, 1997:
--------------------------------------------------
(In Thousands)
Acquisitions/
As Reported Exchanges Sales Pro Forma
----------- ------------- ----- ---------
<S> <C> <C> <C> <C>
Revenues $ 362,588 $ 113,000 $ (7,408) $ 468,180
======= ======= ======= =========
Operating Income (Loss) $ (17,157) $ (8,126) $ (1,416) $ (26,699)
======= ======= ======= =========
Net Loss $ (51,948) $ (41,544) $ (64,865) $ (158,357)
======= ======= ======= =========
Loss Per Share $ (1.50) $ (4.58)
======= =========
</TABLE>
In June 1998, the Company entered into an agreement with Cable TV Fund 14-
A, Ltd. ("Fund 14-A"), a managed partnership, to purchase the cable television
system serving areas in and around Calvert County, Maryland (the "Calvert County
System") for a purchase price of $39,388,667, subject to customary closing
adjustments. The purchase price represents the average of three independent
appraisals of the fair market value of the Calvert County System. The Calvert
County System is contiguous to the Company's Virginia/Maryland
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<PAGE>
cluster of cable television systems. Funding for this transaction is expected to
be provided by borrowings available under JCH's credit facility. The closing of
this transaction, which is expected to occur in April 1999, is subject to a
number of conditions including the approval of the transaction by the holders of
a majority of the limited partnership interests of Fund 14-A; the expiration or
termination of all waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 applicable to the agreement or the transactions
contemplated thereby; and the receipt of consents of governmental authorities
and other third parties.
3. TRANSACTIONS WITH RELATED PARTIES
The Company and the managed partnerships for which the Company is general
partner (see Note 5) have had, and will continue to have, certain transactions
with International and its other subsidiaries. The Company may continue to have
certain transactions with International and its other subsidiaries in the
future. Principal recurring transactions are as follows:
Costs Shared by the Company and Managed Partnerships
Jones Interactive, Inc. ("Jones Interactive"), a wholly owned subsidiary of
International, provides information management and data processing services for
operating companies affiliated with International. Charges to the various
operating companies are based on usage of computer time by each entity. Amounts
charged to the Company and its managed partnerships for the years ended December
31, 1998, 1997 and 1996 totaled $6,089,000, $5,454,000, and $5,784,000,
respectively.
The Company is party to a lease with Jones Properties, Inc., a wholly owned
subsidiary of International, under which the Company has leased a 101,500 square
foot office building in Englewood, Colorado. The lease agreement, as amended,
has a 15-year term, expiring July 2000, with three 5-year renewal options. The
annual rent is not to exceed $24.00 per square foot plus operating expenses.
The Company has subleased approximately 44% of the building to International and
certain affiliates of International on the same terms and conditions as the
above described lease. Rent payments to Jones Properties, Inc., net of
subleasing reimbursements, for the three years ended December 31, 1998, 1997 and
1996 were $1,390,000, $1,345,000 and $1,467,000, respectively.
Upon the closing of BTH's investment in the Company in December 1994, the
Company entered into a Secondment Agreement with BTH. Pursuant to the
Secondment Agreement, BTH provided a total of 8 secondees during 1998. These
secondees worked for the Company and its managed partnerships. The Company
reimbursed BTH for the full employment costs of such individuals. The Company
reimbursed BTH $719,000, $1,180,000 and $1,138,000 during the years ended
December 31, 1998, 1997 and 1996, respectively.
The Company paid approximately 63%, 47% and 40% of the above-described data
processing, rental and secondment expenses during the years ended December 31,
1998, 1997 and 1996, respectively. The remainder of the expenses were allocated
to and paid by the managed partnerships.
Costs Borne and Payments Received by the Company
The Company receives satellite programming from Knowledge TV, an affiliate
of International in which the Company also has a significant ownership interest.
See Note 4. Payments made to Knowledge TV for programming provided to the
Company's owned cable television systems for the years ended December 31, 1998,
1997 and 1996 totaled approximately $622,800, $411,200 and $302,600,
respectively.
The Company received satellite programming from Jones Computer Network,
Ltd., an affiliate of International, through April 1997. See Note 4. Payments
made to Jones Computer Network, Ltd. for programming provided to the Company's
owned cable television systems for the years ended December 31, 1998, 1997 and
1996 totaled approximately $-0-, $222,800 and $515,400, respectively.
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<PAGE>
The Company receives satellite programming from Great American Country,
Inc., an affiliate of International. Payments made to Great American Country,
Inc. for programming provided to the Company's owned cable television systems
for the years ended December 31, 1998, 1997 and 1996 totaled approximately
$517,000, $313,000 and $281,000, respectively.
The Company also receives satellite programming from Superaudio, an
affiliate of Galactic Radio. The Company sold Galactic Radio to an affiliate of
International on June 14, 1996. See Note 2. Payments made to Galactic Radio
for programming provided to the Company's owned cable television systems for the
year ended December 31, 1998, 1997 and for the period from June 15, 1996 to
December 31, 1996 totaled approximately $348,000, $244,000 and $119,000,
respectively.
The Product Information Network Venture ("PIN") is an affiliate of
International that provides a satellite programming service. PIN airs product
infomercials 24 hours a day, seven days a week. A portion of the revenues
generated by PIN are paid to the cable television systems that carry PIN's
programming. Most of the Company's owned cable television systems carry PIN for
all or part of each day. Aggregate payments received by the Company from PIN
relating to the Company's owned cable television systems totaled approximately
$1,008,000, $705,000 and $466,000 for the years ended December 31, 1998, 1997
and 1996, respectively.
Effective upon the closing of BTH's investment in the Company in December
1994, the Company entered into a Supply and Services Agreement with BTH.
Pursuant to the Supply and Services Agreement, BTH provides the Company with
access to the expert advice of personnel from BTH and its affiliates for the
equivalent of three man-years on an annual basis. The Company pays an annual
fee of $2,000,000 to BTH during the term of the agreement. Payments to BTH
under the Supply and Services Agreement during the years ended December 31,
1998, 1997 and 1996 totaled $2,000,000, $2,000,000 and $2,000,000, respectively.
Financial Group performs services for the Company as its agent in
connection with negotiations regarding various financial arrangements of the
Company. In December 1994, the Company entered into a Financial Services
Agreement for eight years with Financial Group pursuant to which Financial Group
has agreed to render financial advisory and related services to the Company for
a fee equal to 90% of the fees that would be charged to the Company by
unaffiliated third parties for the same or comparable services. The Company
will pay Financial Group an annual $1,000,000 retainer as an advance against
payments due pursuant to this agreement and will reimburse Financial Group for
its reasonable out-of-pocket expenses. The Company paid fees totaling $756,000
in 1998 relating to the purchase of the Hinesville System. The Company paid
fees totaling $3,456,000 in 1997 related to the acquisition of the North Prince
Georges County System, the acquisition of the Annapolis System and the sale of
the Walnut Valley System. The Company paid fees totaling $3,850,000 in 1996
related to the acquisition of the Manassas System, the South Prince Georges
County System, the Reston System and the Savannah System.
4. INVESTMENTS
@Home Corporation
In June 1998, the Company entered into a Distribution Agreement with At
Home Corporation ("@Home"), which provides for the distribution of high speed
internet services to the Company's cable television systems. Deployment began
in December 1998. In conjunction with this agreement, the Company and @Home
entered into a Warrant Purchase Agreement providing for the Company's purchase
of up to a maximum of 2,046,100 shares of Series A Common Stock of @Home at
$10.50 per share. The Warrant becomes exercisable after March 31 each year,
beginning in 1999, as the Company launches @Home services in its cable
television systems.
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<PAGE>
Jones Global Group, Inc.
On December 23, 1996, the Company redeemed 225 of its 380 shares of Global
Group in exchange for a $8,950,188 note receivable from Global Group. The note
was repaid in the first quarter of 1997. As a result of this transaction, the
Company recognized a gain of $2,979,000 and now owns a 20% interest in Global
Group. The Company accounts for its investment in Global Group using the equity
method.
Knowledge TV, Inc.
During 1992, the Company invested $10,000,000 in Knowledge TV, an affiliate
of International that provides educational programming, for 25% of the stock of
Knowledge TV, which also received certain advertising avails and administrative
and marketing considerations from the Company. The number of shares of Class A
Common Stock of Knowledge TV issued to the Company was based on the average of
two separate independent appraisals of Knowledge TV. Through its acquisition of
the assets of Jones Spacelink, Ltd., the Company obtained an additional 13%
interest in Knowledge TV in December 1994. Spacelink had acquired such interest
for $3,135,000. In 1996, additional issuances of Knowledge TV's Class A Common
Stock reduced the Company's investment in Knowledge TV to 26%. The Company
accounts for this investment using the equity method and, as of December 31,
1998, had recognized equity losses equal to its investment of $13,135,000. As
described below, in January 1999 the Company acquired an additional 6% interest
in Knowledge TV.
Jones Education Company
On April 11, 1995, the Company converted $20,000,000 in advances to
Knowledge TV into shares of Class A Common Stock of Jones Education Company
("JEC"), the parent company of Knowledge TV, for an approximate 17% equity
interest in JEC. In 1996, subsequent issuances of JEC's Class A Common Stock
reduced the Company's investment in JEC to 16%. The Company has accounted for
this investment using the equity method. The net investment as of December 31,
1998 was $12,789,000. In January 1999, the Board of Directors of the Company
approved the exchange of the Company's shares of JEC for additional shares of
Knowledge TV. Such exchange increases the Company's ownership percentage in
Knowledge TV to approximately 32%. The Company's Board of Directors obtained an
independent opinion regarding the fairness of this transaction.
Bell Cablemedia plc
On April 25, 1997, the Company tendered all of its shares of Bell
Cablemedia to CWC in exchange for 25,017,385 shares of CWC. During April and
May 1997, the Company sold all of its shares of CWC for an aggregate sales price
of $109,276,000. The Company recognized a pre-tax gain on this transaction of
$44,563,000. Proceeds from the sale were used to reduce outstanding
indebtedness under the Company's credit facilities. The Company now owns no
shares of Bell Cablemedia or CWC.
Jones Intercable Investors, L.P.
The Company was the General Partner and a 19% limited partner of Jones
Intercable Investors, L.P., a managed partnership. Jones Intercable Investors,
L.P. owned the Independence System until it was purchased by the Company on
August 31, 1997. See Note 2. The Company received a limited partner
distribution of $25,721,000 as a result of the sale of the Independence System,
which reduced the Company's basis in the Independence System. Subsequent to the
sale of the Independence System and the distribution of the net sales proceeds,
Jones Intercable Investors, L.P. was liquidated and dissolved.
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Jones Customer Service Management, L.L.C.
In 1995, the Company and Jones Cyber Solutions, Ltd. ("JCS"), an indirect
subsidiary of International, formed a venture known as Jones Customer Service
Management, LLC for the purpose of developing a subscriber billing and
management system. As of December 31, 1998, the Company had invested $5,200,000
in the venture. The Company accounts for this investment using the equity
method and, as of December 31, 1998, had recognized equity losses equal to its
investment of $5,200,000. In August 1998, the Company sold its 75% interest in
Jones Customer Service Management, LLC to JCS for $3,150,000. The purchase
price was paid $2,000,000 in cash and $1,150,000 in a note receivable. The note
receivable bears interest at prime +2%, and is payable in 36 months or upon a
change in control of the Company. The proceeds from this transaction were used
to offset the remaining assets related to the Company's customer billing
venture.
JCS performed the basic system development work for the venture and was
paid periodically beginning in 1995 on a time and materials basis, plus 10% of
the amount charged, for its own service. The venture's subscriber billing and
management system was trialed in one of the Company's cable systems during 1997.
The Company determined, in late 1997, not to pursue the implementation of the
subscriber billing and management system. As a result of this decision, the
Company incurred a write-off of $14,228,000 in the fourth quarter of 1997
related to the write-off of costs associated with the planned implementation of
the billing system in Company-owned cable systems. Such write-off was included
in 1997 depreciation and amortization expense.
5. MANAGED PARTNERSHIPS
Organization
The Company is general partner for 17 Colorado limited partnerships formed
to acquire, construct, develop and operate cable television systems.
Partnership capital was raised principally through a series of public offerings
of limited partnership interests. The Company generally made a capital
contribution of $1,000 to each partnership and is allocated 1% of all
partnership profits and losses. The Company also purchased limited partner
interests in certain of the partnerships and generally participates with respect
to such interests on the same basis as other limited partners.
Management Fees
As general partner, the Company manages the managed partnerships and
receives a fee for its services generally equal to 5% of the gross revenues of
the managed partnerships, excluding revenues from the sale of cable television
systems or franchises.
Distributions
For the managed partnerships formed by the Company, any partnership
distributions made from cash flow, as defined, are generally allocated 99% to
the limited partners and 1% to the general partner. The general partner is also
entitled to partnership distributions other than from cash flow, such as from
the sale or refinancing of cable television systems or upon dissolution of the
partnership, generally equal to 25% of the net remaining assets of the
partnership after payment of the partnership's debts and after investors have
received an amount equal to their original capital contributions plus, in many
cases, a preferential return on their investments.
The Company received distributions from managed partnerships totaling
$64,716,000, $4,556,000 and $14,000,000 for the years ended December 31, 1998,
1997 and 1996, respectively. Distributions totaling $32,090,000 received during
1998 were recorded as reductions in the Company's cost basis of cable systems
61
<PAGE>
acquired from managed partnerships. The $4,556,000 distribution received during
1997 was recorded as a reduction in the Company's cost basis in the assets of
the Manitowoc System.
Allocations
The Company's managed limited partnerships reimburse the Company for
certain allocated overhead and administrative expenses. These expenses
generally consist of salaries and related benefits paid to corporate personnel
(including secondees of BTH), rent, data processing services and other corporate
facilities costs. The Company provides engineering, marketing, administrative,
accounting, information management, legal, investor relations and other services
to the partnerships. Allocations of personnel costs have been based primarily
on actual time spent by Company employees with respect to each partnership
managed. Remaining overhead costs are allocated based on the pro rata
relationship of the partnership's revenues to the total revenues of all systems
owned or managed by the Company. Company-owned systems are also allocated a
proportionate share of these expenses under the allocation formulas described
above. The Company believes that such allocation methods are reasonable.
Amounts charged to managed partnerships and other affiliated companies have
directly offset the Company's general and administrative expenses by
approximately $15,226,000, $21,091,000 and $25,322,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
Advances
The Company has made advances to certain of the managed partnerships
primarily to accommodate expansion and other financing needs of the
partnerships. Such advances bear interest at rates equal to the Company's
weighted average cost of borrowing which, for the year ended December 31, 1998
was 7.19%. Interest charged to the limited partnerships for the years ended
December 31, 1998, 1997 and 1996 was $212,000, $363,000 and $1,713,000
respectively.
Certain condensed financial information regarding managed partnerships, on
a combined basis, is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1998 1997 1996
-------- -------- --------
(Stated in Thousands)
<S> <C> <C> <C>
Total assets $250,211 $521,554 $ 651,053
Debt 172,126 476,849 591,564
Amounts due general partner 5,568 7,783 3,996
Partners' capital
(Net of accumulated deficit) 72,426 19,649 24,172
Revenues 244,357 343,655 380,865
Depreciation and amortization 70,532 106,130 128,095
Operating income (loss) 4,447 7,261 (11,896)
Net income (loss) 666,897 190,227 123,263
</TABLE>
The fair market values of the partnerships' assets, as determined by
independent appraisals, exceed the combined amounts due the Company and other
outstanding indebtedness for each individual partnership.
The amount reported as combined net income (loss) for all managed limited
partnerships for the years ended December 31, 1998, 1997 and 1996 included gains
on sales and liquidations recognized by certain partnerships which totaled
approximately $689,466,000, $228,918,000 and $181,632,000, respectively.
62
<PAGE>
6. NOTES RECEIVABLE FROM AFFILIATES
In August 1998, the Company received a promissory note from JCS in
conjunction with the sale of the Company's interest in Jones Customer Service
Management, LLC to JCS. The principal sum is $1,150,000. Interest on the
principal is at the prime rate +2. The note matures in 36 months or upon a
change in control of the Company.
Pursuant to a tax sharing agreement with International, Spacelink was
allocated tax benefits based on its pro rata share of taxable loss generated as
part of the consolidated group. The tax sharing agreement was terminated
effective June 1, 1993. The allocated benefits are to be paid no later than
five years from the date they were created. The benefits accrue interest at the
prime rate in effect at the time they were created. The Company, through its
acquisition of Spacelink's assets, acquired a receivable from International
relating to this tax sharing agreement. The balance of this receivable at
December 31, 1998 was $380,000.
On December 19, 1994, Spacelink received a promissory note from Jones Earth
Segment, Inc. ("Earth Segment"), then an affiliate of Spacelink, in conjunction
with the transfer of Earth Segment to International. The Company acquired this
note as part of the acquisition of Spacelink's assets. The principal sum was
$6,554,500. Interest on the principal was at the prime rate plus one percent.
The note was repaid in March 1998.
7. DEBT
<TABLE>
<CAPTION>
Debt consists of the following: December 31,
---------------------------
1998 1997
------------ -----------
(Stated in Thousands)
<S> <C> <C>
LENDING INSTITUTIONS:
JCH Revolving Credit Facility $ 340,000 $ 343,000
JCH II Credit Facility 370,000 128,000
SENIOR NOTES:
Senior Notes due April 15, 2008, interest payable
semi-annually at 7 5/8% 196,533 -
Senior Notes due April 1, 2007, interest payable
at 8 7/8%, net of unamortized discount of $1,333,000 248,766 248,667
Senior Notes due March 15, 2002, interest payable
semi-annually at 9 5/8% 200,000 200,000
SUBORDINATED DEBENTURES:
Debentures due March 1, 2008, interest payable
semi-annually at 10.5%, redeemable at the Company's
option on or after March 1, 2000 at 105.25% of
par, declining to par by March 1, 2005 100,000 100,000
OTHER:
Capitalized equipment lease
obligations due in installments through 2002 and other debt 7,408 5,065
--------- ---------
Total debt $ 1,462,707 $ 1,024,732
========= =========
</TABLE>
63
<PAGE>
On October 31, 1995, the Company, through JCH, a wholly owned subsidiary,
entered into a $500 million reducing revolving credit facility with a group of
commercial banks (the "JCH Credit Facility"). On September 17, 1996, JCH
amended this revolving credit facility to allow for borrowings up to $600
million and to reduce by 1/8% the rates of interest charged on any amounts
outstanding. This credit facility required the transfer of certain of the
Company's cable television properties to JCH. The entire $600 million
commitment is available through March 31, 1999, at which time the commitment
will be reduced quarterly with a final maturity of December 31, 2004. As of
December 31, 1998, $340,000,000 was outstanding under this agreement. Interest
on outstanding obligations ranges from Base Rate (which generally approximates
the prime rate) to Base Rate plus 1/8% or LIBOR plus 1/2% to LIBOR plus 1% based
on certain leverage covenants. In addition, a commitment fee of 3/16% to 3/8%
on the unused commitment is also required. The effective interest rate on
amounts outstanding at December 31, 1998 was 6.4%.
On October 29, 1996, the Company, through JCH II, a wholly owned
subsidiary, entered into an additional $600 million credit facility. The credit
facility consists of a $300 million reducing revolving credit facility and a
$300 million 364 day term loan (the "JCH II Credit Facility"). The reducing
revolving credit facility allows for borrowing through the final maturity date
of December 31, 2005. The maximum amount available reduces quarterly beginning
March 31, 2000 through the final maturity date of December 31, 2005. The term
loan facility allowed for borrowings through October 1998, at which time any
outstanding borrowings automatically converted to a term loan payable in semi-
annual installments commencing June 30, 2001 with final maturity date of
December 31, 2005. As of December 31, 1998, $370,000,000 was outstanding under
this agreement, of which $300,000,000 was borrowed under the term loan portion
and $70,000,000 was borrowed under the reducing revolving credit facility.
Interest on amounts outstanding varies from the Base Rate (which generally
approximates the prime rate) to Base Rate plus 1/4% or LIBOR plus 1/2% to 1
1/4%, depending on certain financial covenants. A commitment fee of 1/8% to
3/8% per year on available, but unborrowed, amounts is also required. The
effective interest rate on amounts outstanding at December 31, 1998 was 5.9%.
The Company has entered into various interest rate swap agreements in order
to manage interest costs on its outstanding debt. The Company has entered into
such agreements in order to fix the interest rate for the duration of the
contract as a hedge against volatility in interest rates. Any amounts paid or
received due to the swap arrangements are recorded as an adjustment to interest
expense. As of December 31, 1998, the Company had entered into interest rate
swap agreements with notional principal totaling $300,000,000 that fixed the
interest rate in a range of 5.3% to 6.5% and mature between July 2000 and
January 2003. The Company believes there is no significant fair value associated
with these swap agreements.
In addition to the swap agreements described above, the Company has entered
into a series of interest rate swaps that effectively fixes the rate on the
Company's $100,000,000 of 10.5% Debentures at 7.64% through their maturity in
March 2008. The swap agreements are accounted for consistent with the Company's
policy described above. The Company believes there is no significant fair value
associated with these swap agreements.
On April 1, 1998, the Company issued and sold $200,000,000 of its 7 5/8%
Senior Notes due April 15, 2008 at 98.173% of par value. The Senior Notes bear
interest at 7 5/8% per annum payable at April 15 and October 15 of each year.
The Notes mature on April 15, 2008 and are not redeemable prior to maturity.
The discount to par will be amortized over the live of the votes. The Company
paid fees of approximately $87,000 related to this transaction. Such fees will
be amortized over the lives of the loan. Proceeds from the sale of the Senior
Notes were used to repay amounts then outstanding under the revolving credit
facilities of the Company's subsidiaries.
On March 18, 1997, the Company issued and sold $250,000,000 of its 8 7/8%
Senior Notes due April 1, 2007 at 99.44% of par value. The Senior Notes bear
interest at 8 7/8% per annum payable at April 1 and October 1 of each year. The
notes are redeemable on or after April 1, 2004 at the option of the Company at
101% of par declining to par on April 1, 2005. The discount to par will be
amortized over the life of the notes. The Company paid fees of $4,498,000
relating to this transaction. Such fees will be amortized over the life of the
notes.
64
<PAGE>
On March 23, 1995, the Company sold $200 million of 9 5/8% Senior Notes due
March 15, 2002. The Senior Notes bear interest from the date of issuance at the
rate of 9 5/8% per annum, payable semi-annually on March 15 and September 15 of
each year. The Senior Notes are not redeemable prior to maturity and are not
subject to any sinking fund. The Company paid fees of $3,500,000 relating to
this transaction. Such fees will be amortized over the life of the notes.
There are no sinking fund requirements related to the 10.5% Senior
Subordinated Debentures due March 1, 2008.
On July 15, 1997, the Company redeemed its $160 million 11.5% Subordinated
Debentures (the "11.5% Debentures") due 2004 at 106.75% of par value, plus
accrued interest. The Company recognized an extraordinary loss of $13,459,000
related to this redemption. The 11.5% Debentures were redeemed using proceeds
from the $250,000,000 Senior Notes issued and sold on March 18, 1997.
The Company has never paid a cash dividend with respect to its shares of
Common Stock or Class A Common Stock, and it has no present intention to pay
cash dividends in the foreseeable future. The current policy of the Company's
Board of Directors is to retain earnings to provide funds for the operation and
expansion of its business. Certain of the Company's debt arrangements restrict
the right of the Company to declare and pay cash dividends without the consent
of the holders of the debt.
At December 31, 1998, the carrying amount of the Company's debt was
$1,462,707,000 and the estimated fair value was $1,517,548,000. The fair value
of the Company's debt is estimated based on the quoted market prices for the
same issues.
Installments due on debt principal for each of the five years in the period
ending December 31, 2003 and thereafter are: $2,237,000, $2,217,000,
$32,217,000, $360,739,000, $180,000,000 and $885,297,000, respectively.
8. INCOME TAXES
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. Deferred tax expense or benefit is the result of changes
in the liability or asset recorded for deferred tax purposes.
During 1998, 1997, and 1996, changes in the Company's temporary differences
and losses from operations, which result primarily from depreciation and
amortization, resulted in deferred tax benefits which were offset, in part, by a
valuation allowance. A deferred income tax benefit of $3,275,000 was recognized
for the year ended December 31, 1997. No current or deferred federal income tax
expense or benefit was recorded from continuing operations during the years
ended December 31, 1998 and 1996.
65
<PAGE>
Income tax expense attributable to income or loss from continuing
operations differs from the amounts computed by applying the Federal income tax
rate of 35% in 1998, 1997, and 1996 as a result of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1998 1997 1996
-----------------------------------------
(Stated in Thousands)
<S> <C> <C> <C>
Computed "expected" tax benefit $ (28,146) $ (13,471) $ (21,931)
State and local taxes, net of federal income
tax benefit (2,614) (1,688) (2,036)
Dividends excluded for income tax purposes (138) (102) (89)
Amortization not deductible for tax purposes 942 876 752
Adjustment to book/tax difference
of intangible assets 25,836 - -
Other 157 116 (449)
------- ------- -------
Total income tax benefit from operations (3,963) (14,269) (23,753)
Tax effect of extraordinary operations - (4,711) -
Valuation allowance 3,963 15,705 23,753
------- ------- -------
Total income tax benefit $ - $ 3,275 $ -
======= ======= =======
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1998, and 1997 are presented below:
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
------------ ---------
(Stated in Thousands)
<S> <C> <C>
Deferred Tax Assets
Net operating loss carryforwards $ 96,522 $ 76,543
Investment tax credit carryforwards 1,013 1,024
Alternative minimum tax credit carryforwards 1,116 1,116
Investment in affiliates and domestic television
partnerships 11,464 9,597
Future deductible amounts associated with other
assets and liabilities 5,027 4,331
-------- --------
Total gross deferred tax assets 115,142 92,611
Valuation allowance on deferred tax assets (88,436) (84,473)
Deferred Tax Liabilities
Property and equipment, due to differences
in depreciation methods for financial statement
and tax purposes (19,569) (1,001)
-------- --------
Net Deferred Tax Asset $ 7,137 $ 7,137
======== ========
</TABLE>
At December 31, 1998, the Company had net operating loss carryforwards for
income tax purposes aggregating approximately $106,388,000 for alternative
minimum tax ("AMT") and $252,344,000 for regular tax which expire $43,126,000 in
2005, $26,203,000 in 2007, $40,809,000 in 2008, $30,216,000 in 2009, $14,732,000
in 2010, $12,689,000 in 2011, $26,859,000 in 2012 and $57,710,000 in 2013. The
Company also had investment tax credit carryforwards of $1,013,000 expiring in
1999 through 2005.
66
<PAGE>
The Company entered into transactions during 1994 which resulted in a
change in greater than 50% of the ownership interests of the Company shares.
Tax statutes limit the utilization of existing tax NOLs when this occurs to a
specified amount each year plus the amount of existing built-in gain in
corporate assets at the ownership change. Management believes that the
application of the limitation will not likely cause taxable income to occur in a
future period due to unavailability of limited NOLs.
Management has established a valuation allowance for all net operating
losses and for all investment tax credits and alternative minimum tax credit
carryforwards.
9. STOCK OPTIONS
The Company has a stock option plan, the 1992 stock option plan (the "1992
Plan"). The Company accounts for this plan under APB Opinion No. 25, under
which no compensation cost has been recognized for option grants that equal
market price at time of grant. The Company has adopted Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS
123) for disclosure purposes. In accordance with SFAS 123, the fair value of
each option grant has been estimated as of the date of grant using the Black-
Scholes option pricing model using the following weighted-average assumptions
for the years ended December 31, 1997 and 1996: risk-free interest rates of
5.68% to 7.58%; expected dividend yield of 0%; expected lives of 7 years; and
expected volatility of 45.06%. There were no stock-options granted during the
year end December 31, 1998. Had compensation cost for this plan been determined
consistent with SFAS 123, the Company's net loss and net loss per share would
have been increased to the following pro forma amounts:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1998 1997 1996
----------- --------- --------
(Stated in Thousands)
<S> <C> <C> <C> <C>
Net loss: As Reported $(80,418) $(51,948) $ (62,660)
Pro Forma $(83,908) $(53,820) $ (64,092)
Loss Per Share: As Reported $ (1.96) $ (1.50) $ (2.00)
Pro Forma $ (2.05) $ (1.57) $ (2.06)
</TABLE>
Because the method of accounting required by SFAS 123 has not been applied
to options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
The 1992 Plan was approved by the Company's shareholders in August 1992.
Under the terms of the 1992 Plan, as amended in 1997, a maximum of 2,583,455
shares of Class A Common Stock and 200,000 shares of Common Stock are available
for grant. All employees of the Company, its parent or any participating
subsidiary, including directors of the Company who are also employees, are
eligible to participate in the 1992 Plan. Options generally become exercisable
in equal installments over a four-year period commencing on the first
anniversary of the date of grant. In August 1998, the Board of Directors, in
conjunction with the anticipated change in control from Mr. Jones to Comcast and
consistent with the terms of the 1992 Plan, voted to accelerate the vesting of
all options granted under the 1992 Plan to September 1998. The average life of
the outstanding options is 6.8 years, however the average life could be shorter
given the anticipated change in control to Comcast. The options expire, to the
extent not exercised, on the tenth anniversary of the date of grant, or upon the
recipient's earlier termination of employment with the Company. Options can be
incentive stock options or non-statutory stock options. The exercise price may
not be less than 100% of the fair market value for incentive stock options, but
may be less than fair market value for non-statutory options. Stock appreciation
rights may be granted in tandem with the grant of stock options. The Board of
Directors may, in its discretion, establish provisions for the exercise of
options different from those described above. In 1998, 1997, and 1996, the
Company recognized approximately $217,000, $261,000 and $261,000, respectively,
of non-cash compensation expense related to stock options granted on November 9,
1993 under the 1992 Plan. As of
67
<PAGE>
December 31, 1998, options to purchase 1,839,980 shares of Class A Common Stock
had been granted, of which options to purchase 679,916 shares had been exercised
and 358,523 shares had been terminated or forfeited upon resignation of the
holders. As of December 31, 1998, all 200,000 of the Common Stock options
authorized by the 1992 Plan had been granted and exercised.
Information concerning Class A Common Stock options is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------------------
1998 1997 1996
---------------------------- ---------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
------ -------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 1,449,848 $12.08 1,329,162 $12.19 1,508,362 $11.93
Granted - - 365,433 9.27 3,540 13.25
Exercised (602,881) 12.30 (89,700) 6.34 (52,468) 2.85
Canceled (45,426) 10.79 (155,047) 11.88 (130,272) 12.98
----------- ----------- ------------
Outstanding at end of year 801,541 $11.99 1,449,848 $12.08 1,329,162 $12.19
=========== =========== ============
Exercisable at end of year 801,541 820,290 676,414
Range of exercise prices $9.00-13.81 $9.25-13.81 $5.625-13.81
Weighted-average fair
value of options granted
during the year $ - $ 5.26 $ 7.56
</TABLE>
10. CLASS A COMMON STOCK
The Class A Common Stock has certain preferential rights with respect to
cash dividends and upon liquidation of the Company. In the case of cash
dividends, the holders of the Class A Common Stock will be paid one-half cent
per share per quarter in addition to any amount payable per share for each share
of Common Stock. In the event of liquidation, holders of the Class A Common
Stock are entitled to a preference of $1 per share. After such amount is paid,
holders of the Common Stock are entitled to receive $1 per share for each share
of Common Stock outstanding. Any remaining amount would be distributed to the
holders of the Class A Common Stock and the Common Stock on a pro rata basis.
In general, with respect to the election of directors, the holders of Class
A Common Stock, voting as a separate class, are entitled to elect that number of
directors which constitutes 25% of the total membership of the Board of
Directors. Holders of common stock, voting as a separate class, are entitled to
elect the remaining directors. Pursuant to the terms of the Shareholders
Agreement dated as of December 20, 1994 among Glenn R. Jones, International, BTH
and the Company (the "Shareholders Agreement"), the Company's Board of Directors
consists of 13 Directors. The parties to the Shareholders Agreement have agreed
that of the four Class A Directors, BTH will be entitled, but not required, to
designate one Director and the remaining three directors, which shall be
Independent Directors (as such term is defined in the Shareholders Agreement),
will be jointly designated by Glenn R. Jones and BTH. The parties to the
Shareholders Agreement also have agreed that Mr. Jones will be entitled, but not
required, to designate seven of the nine Common Directors and that BTH will be
entitled, but not required, to designate two of the Common Directors. In all
other matters not requiring a class vote, the holders of the Common Stock and
the holders of Class A Common Stock vote as a single class provided that holders
of Class A Common Stock have one-tenth of a vote for each share held and the
holders of the Common Stock have one vote for each share held.
68
<PAGE>
11. COMMITMENTS AND CONTINGENCIES
The Company rents office facilities and equipment under various long-term
lease arrangements. Minimum commitments under noncancelable operating leases
for the five years ending December 31, 2003 and thereafter are as follows:
<TABLE>
<CAPTION>
Building Facilities Equipment
Lease Leases Leases Total
----- ------ ------ -----
(Stated in Thousands)
<S> <C> <C> <C> <C>
1999 1,365 4,718 654 6,737
2000 797 3,710 365 4,872
2001 - 3,044 185 3,229
2002 - 2,252 55 2,307
2003 - 1,578 11 1,589
Thereafter - 6,267 - 6,267
----- ------ ------ ------
Total commitments $ 2,162 $ 21,569 $ 1,270 $ 25,001
===== ====== ====== ======
</TABLE>
Rent, net of sublease reimbursements, paid during the years ended December
31, 1998, 1997 and 1996, totaled $5,623,000, $4,452,000 and $4,195,000,
respectively.
Certain amounts included in lease commitments will be allocated to managed
limited partnerships using the method discussed in Note 5.
Litigation
Tampa Litigation
- ----------------
The Company is a defendant in a now-consolidated civil action filed by
limited partners of Cable TV Fund 12-D, Ltd., one of the Company's managed
partnerships. The case, styled David Hirsch, Marty, Inc. Pension Plan (by its
----------------------------------------------
trustee and beneficiary, Martin Ury) and Jonathan 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., plaintiffs v. Jones Intercable, Inc., defendant, and
- ------------------------------------------------------------------------------
Cable TV Fund 12-BCD Venture, Cable TV Fund 12-B, Ltd., Cable TV Fund 12-C, Ltd.
- --------------------------------------------------------------------------------
and Cable TV Fund 12-D, Ltd., nominal defendants (District Court, Arapahoe
- ------------------------------------------------
County, State of Colorado, Case No. 95-CV-1800, Division 3), is a derivative
action filed on behalf of Cable TV Fund 12-B, Ltd. ("Fund 12-B"), Cable TV Fund
12-C, Ltd. ("Fund 12-C") and Cable TV Fund 12-D, Ltd. ("Fund 12-D"). The
consolidated complaint generally alleges that the Company breached its fiduciary
duty to the plaintiffs and to the other limited partners of Fund 12-B, Fund 12-C
and Fund 12-D and the Cable TV Fund 12-BCD Venture (the "Venture") in connection
with the Venture's sale of the Tampa, Florida cable television system (the
"Tampa System") to a subsidiary of the Company and the subsequent trade of the
Tampa System 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. 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 Company 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
Fund 12-B, Fund 12-C and Fund 12-D. The plaintiffs have challenged the adequacy
and independence of the appraisals. The consolidated complaint seeks damages in
an unspecified amount and an award of attorneys' fees, and the complaint also
seeks punitive damages and certain equitable relief.
69
<PAGE>
The Company 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 Company intends to defend this lawsuit
vigorously.
In August 1997, the Company moved for summary judgment in its favor on the
ground that plaintiffs did not make demand on the Company for the relief they
seek before commencing their lawsuits or show that such a demand would have been
futile. In January 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 1998 trial
date, (3) ordered that plaintiffs make a demand on the Company and that the
Company 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 Company's Board of Directors and (5) ordered that the independent
counsel be subject to the approval of the court. The court set a new trial date
for October 1998 in the event that the case was not resolved through the
independent counsel process or otherwise. In March 1998, the Company's Board of
Directors appointed an independent counsel. The plaintiffs did not object to
the Company's choice, and the Court approved the Company's choice of independent
counsel. During the period March through May 1998, the independent counsel met
several times with the attorneys representing the plaintiffs and the Company,
and he also reviewed a great quantity of written materials. The independent
counsel issued his report on August 3, 1998, which concluded that the
plaintiffs' claims are not meritorious and are not supported by a preponderance
of the evidence. The independent counsel further determined that the Company
"did not breach a fiduciary duty" owed to the plaintiffs or to the partnerships
and the Venture and that the Company "did not commit any impropriety in
connection with" the Venture's sale of the Tampa System. The independent
counsel specifically found that the three appraisals of the Tampa System were
independent and objective and met the requirements of the partnership
agreements. He further noted that the Company had met its fiduciary duties of
fairness and full disclosure to the partnerships and the Venture. On August 5,
1998, the Company moved to dismiss or for summary judgment in its favor based on
the report of independent counsel, a motion the plaintiffs opposed. On
September 11, 1998, the Court denied the Company's motion to dismiss or for
summary judgment based on the report of independent counsel. The Court then set
a new trial date for May 3, 1999. The Company subsequently submitted a motion
for reconsideration of the Court's denial of the Company's motion to dismiss or
for summary judgment based on the report of the independent counsel. The Court
denied such motion. The Company then filed an interlocutory appeal of the
Court's rulings to the Colorado Supreme Court. On February 1, 1999, the
Colorado Supreme Court issued an order requiring the plaintiffs to show cause
why the Company's request for dismissal or summary judgment should not be
granted, and staying all proceedings in the trial court until the Company's
appeal is resolved.
Palmdale Litigation
- -------------------
In December 1998, City Partnership Co. ("Plaintiff"), a limited partner of
Fund 12-C and Fund 12-D, filed a class action complaint in the District Court,
Arapahoe County, State of Colorado (Case No. 98-CV-4493) naming the Company as
defendant. Plaintiff, on its behalf and on behalf of all other persons who are
limited partners of Fund 12-B, Fund 12-C and Fund 12-D, is challenging the terms
of sale of the cable television system serving the communities in and around
Palmdale and Lancaster, California (the "Palmdale System") to an affiliate of
the Company. This case is in a very preliminary stage, but the Company believes
that the terms of the sale were in accordance with the requirements of relevant
limited partnership agreement provisions. The Company intends to defend this
lawsuit vigorously.
70
<PAGE>
Littlerock Litigation
- ---------------------
In January 1999, City Partnership Co. ("Plaintiff"), a limited partner of
Cable TV Fund 14-B, Ltd., filed a class action complaint in the District Court,
Arapahoe County, State of Colorado (Case No. 99-CV-0150) naming the Company as
defendant. Plaintiff, on its behalf and on behalf of all other persons who are
limited partners of Cable TV Fund 14-B, Ltd., is challenging the terms of sale
of the cable television system serving Littlerock, California (the "Littlerock
System") to an affiliate of the Company. This case is in a very preliminary
stage, but the Company believes that the terms of the sale were in accordance
with the requirements of relevant limited partnership agreement provisions. The
Company intends to defend this lawsuit vigorously.
Shareholder Litigation
- ----------------------
In February 1998, BTH, the Company's largest shareholder, filed a lawsuit
in the United States District Court for the District of Colorado against the
Company, Jones International, Ltd. ("International"), Jones Internet Channel,
Inc. ("JICI") and Glenn R. Jones. BCI Telecom Holding, Inc., plaintiff v. Jones
---------------------------------------------
Intercable, Inc., Jones International, Ltd., Jones Internet Channel, Inc. and
- -----------------------------------------------------------------------------
Glenn R. Jones, defendants (U.S. District Court for the District of Colorado,
- --------------------------
Civil Action No. 98-M-224). Mr. Jones is the Company's Chairman and Chief
Executive Officer. International is owned by Mr. Jones, and it also is one of
the Company's largest shareholders. JICI is a wholly owned subsidiary of
International. BTH, the Company, International and Mr. Jones are parties to a
Shareholders Agreement dated as of December 20, 1994 (the "Shareholders
Agreement").
In its complaint, BTH alleged that the defendants violated the Shareholders
Agreement and certain duties allegedly owed to BTH, and conspired with each
other to do so. More specifically, BTH claimed that under the Shareholders
Agreement, the offering of the service known as the "Internet Channel" to the
Company's subscribers, and any affiliation agreement between the Company and
JICI for the provision of the Internet Channel service, could not proceed
without approval of a specific group of directors of the Company, including the
three directors designated by BTH. BTH also maintained, in connection with the
relationship and proposed affiliate agreement between the Company and JICI, that
the defendants breached a provision of the Shareholders Agreement defining the
"core business" of the Company. In addition to damages, BTH sought an
injunction prohibiting the Company from making the Internet Channel available to
additional subscribers and from entering into an affiliate agreement with JICI
for the Internet Channel, as well as other equitable relief. On May 5, 1998,
the Court permanently enjoined the Company and the other defendants in this
civil action from proceeding further with any expansion of the Internet Channel,
or any similar internet service provider business, without the approval of the
unrelated directors of the Company. All the defendants except the Company
appealed the decision to the U.S. Tenth Circuit Court of Appeals.
In connection with the agreements entered into among the Company,
International, BTH and Comcast relating to the acquisition and exercise by
Comcast of BTH's option to acquire 2.9 million shares of the Company's Common
Stock, the parties have agreed to dismiss the pending litigation between BTH,
International, Mr. Jones and the Company, and International and certain of its
affiliates have agreed to dismiss the appeal which is pending of the Order
entered against them in such litigation.
In March 1998, Leslie Susser, a minority shareholder of the Company, filed
a shareholder derivative action in the United States District Court for the
District of Colorado against Glenn R. Jones and seven other directors of the
Company. Leslie Susser, plaintiff v. Glenn R. Jones, James J. Krejci, James B.
---------------------------------------------------------------------
O'Brien, Howard O. Thrall, Raphael M. Solot, Robert E. Cole, Sanford Zisman and
- -------------------------------------------------------------------------------
Donald L. Jacobs, defendants and Jones Intercable, Inc., nominal defendant (U.S.
- --------------------------------------------------------------------------
District Court for the District of Colorado, Civil Action No. 98-M-616). In its
complaint, the plaintiff alleges that the defendants have violated certain
fiduciary and other duties allegedly owed to the Company and its shareholders in
connection with the Company's offering of the Internet Channel service. The
allegations raised in this complaint are similar to those raised by BTH in its
complaint. The plaintiff seeks certain equitable relief and damages.
71
<PAGE>
In connection with this litigation, the Company has determined, based on
the opinion of outside legal counsel, that all of the statutory requirements for
the advancement of reasonable legal fees and expenses to the defendants have
been met. Notice of such determination was previously given to all
shareholders.
12. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1998 and 1997, consisted
of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
Distribution systems $ 800,130 $ 579,544
Buildings 19,768 18,331
Land 5,521 4,762
Equipment and tools 12,922 12,322
Premium service equipment 69,831 54,790
Earth receive stations 3,820 3,701
Vehicles 6,113 4,160
Leasehold improvements and office furniture 26,634 21,466
Other 60,341 46,039
--------- --------
1,005,080 745,115
Accumulated depreciation (311,655) (224,893)
--------- --------
$ 693,425 $ 520,222
========= ========
</TABLE>
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1998
-----------------------------------------------------------
Three Months Ended
-----------------------------------------------------------
March 31 June 30 September 30 December 31
--------- ------- ------------ -----------
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
Revenues $ 101,330 $ 98,848 $ 129,573 $ 130,978
Depreciation and
amortization 44,755 47,085 52,310 60,596
Operating income (loss) 1,405 (3,009) 16,074 8,922
Net income (loss) (20,747) (32,644) (14,404) (12,623)
Net income (loss) per share $ (.51) $ (.80) $ (.35) $ (.31)
</TABLE>
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------
Three Months Ended
-----------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
Revenues $ 83,502 $ 90,934 $ 91,945 $ 96,207
Depreciation and
amortization 35,532 34,901 36,147 69,259
Operating income (loss) 2,384 4,096 4,110 (27,747)
Net income (loss) (15,481) 22,554 (30,755) (27,906)
Net income (loss) per share $ (.50) $ .72 $ (.88) $ (.69)
</TABLE>
72
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
------------------------------------------------------
ON ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------
None.
PART III
ITEM 10. DIRECTORS AND Executive Officers of the Registrant
------------------------------------------------------------
The Company's Articles of Incorporation provide that, with respect to the
election of Directors, the holders of Class A Common Stock, voting as a separate
class, are entitled to elect that number of Directors constituting 25% of the
total membership of the Board of Directors. If such 25% is not a whole number,
holders of Class A Common Stock are entitled to elect the nearest higher whole
number of Directors constituting 25% of the membership of the Board of
Directors. Holders of Common Stock, voting as a separate class, are entitled to
elect the remaining Directors. Directors of the Company serve until the next
annual meeting of the Company and until their successors shall be elected and
qualified.
Pursuant to the terms of the Shareholders Agreement dated as of December
20, 1994 among Glenn R. Jones, Jones International, Ltd., BCI Telecom Holding
Inc. and the Company (the "Shareholders Agreement"), the Company's Board of
Directors consists of thirteen members. Four members of the Board of Directors
are to be elected by holders of Class A Common Stock, and nine members of the
Board of Directors are to be elected by holders of Common Stock. The parties to
the Shareholders Agreement have agreed that, of the four Class A Directors, BTH
will be entitled, but not required, to designate one Director and the remaining
three Directors, which shall be Independent Directors (as such term is defined
in the Shareholders Agreement), will be jointly designated by Glenn R. Jones and
BTH. The parties to the Shareholders Agreement also have agreed that Mr. Jones
will be entitled, but not required, to designate seven of the nine Common
Directors and that BTH will be entitled, but not required, to designate two of
the nine Common Directors.
Of the thirteen persons serving as members of the Company's Board of
Directors, William E. Frenzel, Donald L. Jacobs, Robert Kearney and Robert B.
Zoellick are serving as the Class A Directors. Mr. Kearney was designated by
BTH. Messrs. Frenzel, Jacobs and Zoellick were jointly designated by Glenn R.
Jones and BTH, and they serve as Independent Directors. Glenn R. Jones, Robert
E. Cole, Josef J. Fridman, James J. Krejci, James B. O'Brien, Raphael M. Solot,
Howard O. Thrall, Siim A. Vanaselja and Sanford Zisman are serving as the Common
Directors. Messrs. Jones, Cole, Krejci, O'Brien, Solot, Thrall and Zisman have
been designated by Mr. Jones. Messrs. Fridman and Vanaselja have been
designated by BTH.
As a result of Comcast's agreement in August 1998 to acquire all of the
shares of the Company's Class A Common Stock owned by BTH and to purchase the
Control Shares, the Company anticipates that Comcast will acquire a controlling
interest in the Company before the end of March 1999. See Item 1, Current
Principal Shareholders of the Company and Comcast Corporation's
73
<PAGE>
Planned Acquisition of the Control Shares of the Company. Following Comcast's
acquisition of BTH's Class A Common Stock and the Control Shares, Comcast will
own approximately 38% of the economic interest and approximately 48% of the
voting interest in the Company. In addition, the Common Stock to be held by
Comcast would allow it to elect approximately 75% of the Board of Directors of
the Company. Pursuant to the terms of related agreements executed in August
1998, upon the closing of the sale of the Control Shares to Comcast, the
Directors of the Company, other than the three Independent Directors jointly
designed by Mr. Jones and BTH (Messrs. Frenzel, Jacobs and Zoellick), will
resign seriatim from the Board of Directors of the Company and will be replaced
by individuals designated by Comcast.
Certain information concerning the directors and executive officers of the
Company is set forth below.
Glenn R. Jones 68 Chairman of the Board and Chief Executive Officer
James B. O'Brien 49 President and Director
Ruth E. Warren 49 Group Vice President/Operations
Kevin P. Coyle 47 Group Vice President/Finance
Cynthia A. Winning 47 Group Vice President/Marketing
Elizabeth M. Steele 47 Vice President/General Counsel/Secretary
Wayne H. Davis 45 Vice President/Engineering
Larry W. Kaschinske 38 Vice President/Controller
Robert E. Cole 66 Director
William E. Frenzel 70 Director
Josef J. Fridman 53 Director
Donald L. Jacobs 60 Director
Robert Kearney 62 Director
James J. Krejci 57 Director
Raphael M. Solot 65 Director
Howard O. Thrall 51 Director
Siim A. Vanaselja 42 Director
Sanford Zisman 59 Director
Robert B. Zoellick 45 Director
Mr. Glenn R. Jones has served as Chairman of the Board of Directors and
Chief Executive Officer of the Company since its formation in 1970, and he was
President from June 1984 until April 1988. Mr. Jones is the sole shareholder,
President and Chairman of the Board of Directors of Jones International, Ltd. He
is also Chairman of the Board of Directors of the subsidiaries of the Company
and of certain other affiliates of the Company. Mr. Jones has been involved in
the cable television business in various capacities since 1961, 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
and 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
74
<PAGE>
Television Public Affairs Association in recognition of Jones International's
educational efforts through Mind Extension University (now Knowledge TV); the
Donald G. McGannon Award for the advancement of minorities and women in cable
from the United Church of Christ Office of Communications; the STAR Award from
American Women in Radio and Television, Inc. for exhibition of a commitment to
the issues and concerns of women in television and radio; the Cableforce 2000
Accolade awarded by Women in Cable in recognition of the Company's innovative
employee programs; the Most Outstanding Corporate Individual Achievement Award
from the International Distance Learning Conference for his contributions to
distance education; the Golden Plate Award from the American Academy of
Achievement for his advances in distance education; the Man of the Year named by
the Denver chapter of the Achievement Rewards for College Scientists; and in
1994 Mr. Jones was inducted into Broadcasting and Cable's Hall of Fame.
Mr. James B. O'Brien, the Company's President, joined the Company in
January 1982. Prior to being elected President and a director of the Company in
December 1989, Mr. O'Brien served as a division manager, director of operations
planning/assistant to the CEO, Fund Vice President and Group Vice
President/Operations. Mr. O'Brien was appointed to the Company's Executive
Committee in August 1993. As President, he is responsible for the day-to-day
operations of the cable television systems managed and owned by the Company. Mr.
O'Brien is a board member of Cable Labs, Inc., the research arm of the U.S.
cable television industry. He also serves as Chairman of the Board of Directors
of CTAM: The Marketing Society for the Cable Telecommunications Industry and as
an executive director of the Walter Kaitz Foundation, a foundation that places
people of ethnic minority groups in positions with cable television systems,
networks and vendor companies. Mr. O'Brien's numerous industry recognitions
include a CTAM Tami Award for marketing excellence, a Women In Cable and
Telecommunications Accolade Award recognizing his leadership efforts on behalf
of women in the telecommunications industry, The President's Award for
Leadership from the Illinois Cable and Telecommunications Association and a
Lifetime Achievement Award from The National Association of Minorities in
Communications. Additionally, Mr. O'Brien is a member of The Society of UK Cable
Pioneers.
Ms. Ruth E. Warren joined the Company 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 Company in September 1990. Ms. Warren is a past president of Women in Cable
& Telecommunications and past Chairman of the Women in Cable Foundation. She
serves as the Vice Chair of Five Points Media Center Board and on the Corporate
Advisory Board of Planned Parenthood of the Rocky Mountains and the Advisory
Board for Girls Count. In 1995, Ms. Warren received the Corporate Business Woman
of the Year Award from the Colorado Women's Chamber of Commerce, and in 1998 Ms.
Warren received the Vanguard Award for Distinguished Leadership from the
National Cable Television Association.
Mr. Kevin P. Coyle joined The Jones Group, Ltd. in July 1981 as Vice
President/Financial Services. In September 1985, he was appointed Senior Vice
President/Financial Services. He was elected Treasurer of the Company in August
1987, Vice President/Treasurer in April 1988 and Group Vice President/Finance
and Chief Financial Officer in October 1990. From 1978 to 1981 Mr. Coyle
75
<PAGE>
was employed by American Television and Communications (now Time Warner Cable),
and from 1974 to 1978 he was an associate at Haskins & Sells (now Deloitte &
Touche LLP).
Ms. Cynthia A. Winning joined the Company as Group Vice President/Marketing
in December 1994. Previous to joining the Company, Ms. Winning served since 1994
as the President of PRS Inc., Denver, Colorado, a sports and event marketing
company. From 1979 to 1981 and from 1986 to 1994, Ms. Winning served as the Vice
President and Director of Marketing for Citicorp Retail Services, Inc., a
provider of private-label credit cards for ten national retail department store
chains. From 1981 to 1986, Ms. Winning was the Director of Marketing Services
for Daniels & Associates cable television operations, as well as the Western
Division Marketing Director for Capital Cities Cable.
Ms. Elizabeth M. Steele joined the Company in August 1987 as Vice
President/General Counsel and Secretary. From August 1980 until joining the
Company, Ms. Steele was an associate and then a partner at the Denver law firm
of Davis, Graham & Stubbs, which serves as counsel to the Company.
Mr. Wayne H. Davis joined the Company in August 1983 and has served in
various technical operations positions, including System Engineering Manager,
Fund Engineering Manager, Senior Director/Technical Operations, and Vice
President/Technical Operations since then. Mr. Davis was elected Vice
President/Engineering in June 1998. He is past Vice President of the Upstate New
York Chapter of the Society of Cable Telecommunications Engineers. Mr. Davis has
received certification from the Society of Cable Telecommunications Engineers,
Broadband Cable Telecommunications Engineering Program and the National Cable
Television Institute's Technology Program.
Mr. Larry Kaschinske joined the Company in 1984 as a staff accountant in
the Company's former Wisconsin Division, was promoted to Assistant Controller in
1990, named Controller in August 1994 and was elected Vice President/Controller
in June 1996.
Mr. Robert E. Cole was appointed a director of the Company in March 1996.
Mr. Cole is currently self-employed as a partner of First Variable Insurance
Marketing and is responsible for marketing to National Association of Securities
Dealers, Inc. firms in northern California, Oregon, Washington and Alaska. From
1993 to 1995, Mr. Cole was the Director of Marketing for Lamar Life Insurance
Company; from 1992 to 1993, Mr. Cole was Senior Vice President of PMI Inc., a
third party lender serving the special needs of Corporate Owned Life Insurance
(COLI) and from 1988 to 1992, Mr. Cole was the principal and co-founder of a
specialty investment banking firm that provided services to finance the
ownership and growth of emerging companies, productive assets and real property.
Mr. Cole is a Certified Financial Planner and a former United States Naval
Aviator.
Mr. William E. Frenzel was appointed a director of the Company in April
1995. Mr. Frenzel has been a Guest Scholar since 1991 with the Brookings
Institution, a research organization located in Washington D. C. Until his
retirement in January 1991, Mr. Frenzel served for twenty years in the United
States House of Representatives, representing the State of Minnesota, where he
was a member of the House Ways and Means Committee and its Trade Subcommittee,
the Congressional Representative to the General Agreement on Tariffs and Trade
(GATT), the Ranking Minority 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 Vice Chairman of the Eurasia Foundation, a
Board Member of the U.S.-Japan Foundation, the Close-Up Foundation, Sit Mutual
Funds, Logistics Management Institute and Chairman of the Japan-America Society
of Washington.
76
<PAGE>
Mr. Josef J. Fridman was appointed a director of the Company in February
1998. Mr. Fridman is currently Chief Legal Officer of Bell Canada and 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.
Mr. Fridman has held his current position since March 1998. Mr. Fridman's
directorships include Alouette Telecommunications Inc., 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 Foundation.
Mr. Donald L. Jacobs was appointed a director of the Company in April
1995. Mr. Jacobs is a retired executive officer of TRW. Prior to his
retirement, he was Vice President and Deputy Manager of the Space and Defense
Sector; prior to that appointment, he was the Vice President and General Manager
of the Defense Systems Group and prior to his appointment as Group General
Manager, he was President of ESL, Inc., a wholly owned subsidiary of TRW.
During his career, Mr. Jacobs served on several corporate, professional and
civic boards.
Mr. Robert Kearney was appointed a director and a member of the Executive
Committee of the Company 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. He currently serves as a Director of MPACT, a
Canadian electronic commerce company. 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 Comtect International, Inc., a
company in the specialized mobile radio services business, headquartered in
Denver, Colorado. Prior to joining Comtec International, Inc. in February 1998,
Mr. Krejci was President and CEO of Imagelink Technologies, Inc., headquartered
in Boulder, Colorado, from June 1996 to February 1998, and prior to that, he was
President of the International Division of International Gaming Technology, the
world's largest gaming equipment manufacturer, with headquarters in Reno, Nevada
from May 1994 to February 1995. Prior to joining IGT, Mr. Krejci was Group Vice
President of Jones International, Ltd. and was Group Vice President of the
Company. He also served as an officer of subsidiaries of Jones International,
Ltd. until leaving the Company in May 1994. Mr. Krejci has been a director of
the Company since August 1987.
Mr. Raphael M. Solot was appointed a director of the Company in March 1996
and he was elected Vice Chairman of the Board of Directors in November 1997.
Mr. Solot is an attorney and has
77
<PAGE>
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 Company in March 1996.
Mr. Thrall had previously served as a Director of the Company 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 Company 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 Executive Vice President and Chief
Financial Officer of Bell Canada International Inc., a subsidiary of BCE Inc.
Prior to joining BCE Inc. and since August 1989, Mr. Vanaselja was a partner in
the Toronto office of KPMG Peat Marwick Thorne. Mr. Vanaselja has been a member
of the Institute of Chartered Accountants of Ontario since 1982 and is a member
of the Canadian Tax Foundation, the Tax Executives Institute and the
International Fiscal Association.
Mr. Sanford Zisman was appointed a director of the Company in June 1996.
Mr. Zisman is a principal in the law firm of Zisman & Ingraham, P.C. of Denver,
Colorado and he has practiced law for 33 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, from 1991 to 1997, 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 Company in April
1995. Mr. Zoellick is the President and CEO of the Center for Strategic and
International Studies (CSIS), an independent, non-profit policy institution with
a staff of 180 people and a $17 million budget. He was the John M. Olin
Professor at the U.S. Naval Academy for the 1997-1998 term. From 1993 through
1997, he was 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 and the Advisory Council of Enron
Corp.
78
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
SUMMARY COMPENSATION TABLE
The following table sets forth certain information relating to the
compensation paid by the Company during the Company's fiscal years ended
December 31, 1998, 1997 and 1996, to those persons who were, at December 31,
1998, the Chief Executive Officer and the other four most highly compensated
executive officers of the Company.
<TABLE>
<CAPTION>
LONG TERM
---------
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
------------------- ------
NAME AND ALL OTHER
--------
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
------------------ ---- ------ ----- ------- ---------------
<S> <C> <C> <C> <C> <C>
Glenn R. Jones YE 12/31/98 $2,806,714 $ 0 0 $168,403
Chairman of the Board YE 12/31/97 2,714,425 0 110,937 (2) 162,865
and Chief Executive Officer YE 12/31/96 2,620,102 0 0 157,380
James B. O'Brien(3) YE 12/31/98 $ 275,028 $213,011 0 $ 38,407
President and Director YE 12/31/97 252,045 175,000 17,000 (2) 28,661
YE 12/31/96 240,961 163,366 0 25,978
Kevin P. Coyle (3) YE 12/31/98 $ 200,021 $127,005 0 $ 24,621
Group Vice President/ YE 12/31/97 191,552 100,000 10,000 (2) 17,493
Finance YE 12/31/96 184,185 72,750 0 15,558
Ruth E. Warren (3) YE 12/31/98 $ 195,007 $130,567 0 $ 22,082
Group Vice YE 12/31/97 177,273 70,906 10,000 (2) 12,764
President/Operations YE 12/31/96 170,454 77,327 0 12,558
Cynthia A. Winning YE 12/31/98 $ 180,010 $ 87,001 0 $ 16,035
Group Vice YE 12/31/97 167,101 76,838 10,000 (2) 12,469
President/Marketing YE 12/31/96 160,674 63,464 0 11,334
</TABLE>
_________________
(1) The Company's employees are entitled to participate in a 401(k) profit
sharing plan. Certain senior employees of the Company are also eligible to
participate in a deferred compensation plan. The amounts shown in the
column reflect the Company's contributions pursuant to these plans for the
benefit of the named person's account.
(2) Represents the number of shares of the Company's Class A Common Stock
underlying the options granted.
(3) During the first quarter of 1999, Mr. O'Brien, Mr. Coyle, Ms. Warren and
Ms. Winning will receive payments from the Company which will in no event
exceed $4,000,000, $3,250,000,
79
<PAGE>
$2,500,000 and $493,682, respectively. Such amounts will be paid in
recognition of the contributions of such persons over a number of years of
past service and in connection with services rendered and to be rendered
during the transition period leading to the anticipated acquisition of
control of the Company by Comcast. Other officers and employees of the
Company will also receive payments in recognition of such contributions and
services.
OPTION GRANTS IN 1998
No stock options were granted during 1998 to the Executive Officers named
in the Summary Compensation Table.
AGGREGATED OPTION EXERCISES IN 1998 AND OPTION VALUES AT DECEMBER 31, 1998
The following table sets forth information with respect to stock option
exercises during 1998 by the Executive Officers named in the Summary
Compensation Table. Note that because of action taken by the Company's Board of
Directors in September 1998, all unexercised options have fully vested, and
therefore all unexercised options were exercisable at December 31, 1998. All of
the unexercised options held by the persons named in the table will expire if
not exercised by such persons within ten days following the termination of their
employment with the Company. It is currently anticipated that each of the
persons named in the table will terminate their employment with the Company
during the first half of 1999 in connection with Comcast's acquisition of a
controlling interest in the Company in March 1999.
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF SECURITIES
CLASS A UNDERLYING
COMMON STOCK UNEXERCISED VALUE OF UNEXERCISED
SHARES ACQUIRED VALUE OPTIONS AT IN-THE-MONEY OPTIONS AT
NAME ON EXERCISE REALIZED 12/31/98 12/31/98
----- ----------- -------- -------- --------
<S> <C> <C> <C> <C>
Glenn R. Jones 300,000 $3,275,418 477,851 $11,200,780
James B. O'Brien 0 -- 60,694 $ 1,435,438
Kevin P. Coyle 0 -- 30,855 $ 735,964
Ruth E. Warren 8,000 $ 149,520 25,278 $ 613,551
Cynthia A. Winning 0 -- 19,500 $ 480,663
</TABLE>
Compensation of Directors
- -------------------------
In November 1998, the Board of Directors, pursuant to the recommendations
of an ad hoc committee of non-employee directors of the Company, and a report
from an independent
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compensation consultant, adopted new policies relating to the compensation of
non-employee directors of the Company effective as of January 1, 1998. In 1998,
non-employee directors of the Company were compensated as follows: (i) $10,000
for services rendered during 1998, (ii) $5,000 per quarter for services rendered
as a director of the Company, (iii) $1,250 for each meeting of the Board of
Directors attended in person and $750 for each meeting of the Board of Directors
attended via teleconference, (iv) for each director who serves on a standing
committee of the Board, $750 for each standing committee meeting of the Board of
Directors (currently being the Audit Committee, the Compensation Committee and
the Executive Committee) attended in person and $500 for each standing committee
meeting attended via teleconference; and (v) $1,000 for any meeting of a special
committee established by the Board of Directors, whether attended in person or
via teleconference. No compensation for director service is paid to directors
who are full-time employees of the Company or any of its affiliates.
Compensation for director service by employees of BTH is paid to BTH rather than
to the BTH-employee directors themselves.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Section 16(a) of the Exchange Act requires certain persons, including
directors and officers of the Company, to file reports of ownership and changes
in ownership of the Company's securities with the Securities and Exchange
Commission. The Company is required to disclose in this Form 10-K Report any
late or missed filings of those reports during 1998 by its officers (as such
term is defined in the rules promulgated under Section 16 of the Exchange Act),
directors and 10% shareholders. Based upon the Company's review of the
reporting forms received by it and representations from certain persons that no
Form 5 reports were required to be filed by those persons, the Company believes
that all filing requirements applicable to its officers, directors and 10%
shareholders were complied with during 1998 except that: (i) Christine J.
Marocco filed a report on Form 5 in February 1999 that reflected her sale of
20,000 shares of the Company's Class A Common Stock in January 1998; a Form 4
was not filed in February 1998 reflecting this sale; and (ii) Cynthia A. Winning
filed a report on Form 5 in February 1999 reflecting the acquisition of
beneficial ownership of 4 shares of the Company's Class A Common Stock in
January 1997; a Form 4 was not filed in February 1997 reflecting this
acquisition.
Employment Agreement
- --------------------
On December 20, 1994, the Company entered into an Employment Agreement with
Glenn R. Jones (the "Employment Agreement") pursuant to which the Company agreed
to employ Mr. Jones as Chief Executive Officer of the Company for a period of up
to eight years from December 20, 1994. Under the terms of the Employment
Agreement, Mr. Jones received a base salary of $2,500,000 in fiscal year 1995
(which approximated his fiscal year 1994 combined compensation from the Company
and Jones Spacelink, Ltd.), and in the years thereafter he has received an
annual cost of living index based salary adjustments. In addition, Mr. Jones is
entitled to participate in the Company's employee benefit plans at a level
generally commensurate with his participation prior to December 1994. No other
employee of the Company has an employment agreement with the Company.
On August 12, 1998, the Company and Mr. Jones agreed to terminate the
Employment Agreement effective on the closing of Comcast's acquisition of the
Control Shares of the Company.
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In connection with the termination of the Employment Agreement, the Company has
agreed to pay Mr. Jones an amount equal generally to the discounted value of the
payments that would be due him for the remaining term of the Employment
Agreement as of the date of the closing of Comcast's acquisition of the Control
Shares. If the closing of Comcast's acquisition of the Control Shares occurs on
March 31, 1999, Mr. Jones would receive a payment of approximately $8,300,000
pursuant to his agreement to terminate the Employment Agreement.
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
In January 1995, the Board of Directors established a Compensation
Committee to provide oversight review of all compensation plans and, in
accordance with those plans, provided guidance on certain executive compensation
matters. The members of the Compensation Committee during the first half of 1998
were Mr. Jones, Robert Kearney and Donald L. Jacobs. Robert E. Cole replaced Mr.
Jones as a member of the Compensation Committee effective June 16, 1998.
Robert E. Cole, Robert Kearney and Donald L. Jacobs, the current members of
the Compensation Committee, are non-employee directors of the Company. Glenn R.
Jones, James B. O'Brien and Elizabeth M. Steele, executive officers of the
Company, serve as officers and directors of certain of the Company's affiliates.
As individuals, these executive officers had no transactions with the Company
other than as disclosed herein with respect to executive compensation.
Companies that Mr. Jones controls have engaged in transactions with the Company.
See Item 13, Certain Transactions.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
---------------------------------------
BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT
-------------------------------------------
The following table sets forth certain information as of February 3, 1999,
regarding ownership of the Company's Common Stock or Class A Common Stock by
persons (including any group) known to the Company to be beneficial owners of
more than 5% of either class of stock, the individual directors of the Company,
each of the executive officers named in the Summary Compensation Table and the
executive officers and directors of the Company as a group. Under the rules of
the Securities and Exchange Commission, a person (or group of persons) is deemed
to be a "beneficial owner" of a security if he or she, directly or indirectly,
has or shares the power to vote or to direct the voting of such security, or the
power to dispose of or to direct the disposition of such security. Accordingly,
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more than one person may be deemed to be a beneficial owner of the same
security. A person is also deemed to be a beneficial owner of any security
which that person has the right to acquire within 60 days.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF OF BENEFICIAL
BENEFICIAL OWNER (1) TITLE OF CLASS OWNERSHIP (2) PERCENT OF CLASS
-------------------- -------------- ------------- ----------------
<S> <C> <C> <C>
Jones International, Ltd. Common Stock 2,441,751 (3)(4) 47.76
9697 East Mineral Avenue
Englewood, CO 80112 Class A 1,497,373 (3) 4.13
Common Stock
Glenn R. Jones Common Stock 2,916,151 (3)(5) 57.03
9697 East Mineral Avenue
Englewood, CO 80112 Class A 2,502,117 (3)(6) 6.82
Common Stock
Kevin P. Coyle Common Stock 345 (7) .01
9697 East Mineral Avenue
Englewood, CO 80112 Class A 30,924 (8) .09
Common Stock
William E. Frenzel Class A 1,000 (9) less than .01
1775 Massachusetts Ave., N.W. Common Stock
Washington, D.C. 20036
James B. O'Brien Class A 70,694 (10) .19
9697 East Mineral Avenue Common Stock
Englewood, CO 80112
Raphael M. Solot Common Stock 300 .01
501 South Cherry Street
Denver, CO 80222
Ruth E. Warren Common Stock 208 less than .01
9697 East Mineral Avenue
Englewood, CO 80112 Class A 32,042 .09
Common Stock
Cynthia W. Winning Class A 19,500 (11) .05
9697 East Mineral Avenue Common Stock
Englewood, CO 80112
Sanford Zisman Common Stock 500 (12) .01
3773 Cherry Creek North Drive
Denver, CO 80209
Robert B. Zoellick Class A 300 less than .01
627 Chain Bridge Road Common Stock
McLean, VA 22101
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
All executive officers and directors Common Stock 2,917,514 57.06
as a group
(19 persons) Class A 2,656,581 (13) 7.22
Common Stock
Christine Jones Marocco Common Stock 2,726,543 (14) 53.33
25 East End Avenue, #14F
New York NY 10288 Class A 55,083 (15) .15
Common Stock
BTH (Intercable) Limited Common Stock 2,878,151 (16)(17)(21) 56.29
(f/k/a Bell Canada International
BVI VI Limited)
Arawak Chamber
Road Town
Tortola, BVI
BTH (U.S. Cable) Limited Class A 12,782,500 (18)(19)(21) 35.28
(f/k/a Bell Canada International Common Stock
BVI III Limited)
Arawak Chamber
Road Town
Tortola, BVI
Capital Research and Management Class A 3,230,000 (20)(21) 8.92
Company Common Stock
333 South Hope Street
Los Angeles, CA 90071
</TABLE>
(1) Directors who are not listed in the table do not beneficially own any of
the Company's shares. Shares shown as subject to options means that such
options are exercisable within 60 days.
(2) Unless otherwise noted, all persons indicated in the table have full voting
and investment power with respect to the share ownership described.
(3) Glenn R. Jones, Chairman of the Board of Directors and Chief Executive
Officer of the Company, owns all of the outstanding shares of Jones
International, Ltd. ("International") and is deemed to be the beneficial
owner of all shares of the Company owned by International. By virtue of
this ownership, Mr. Jones controls approximately 36% of the total votes to
be cast by all shareholders of the Company's shares on matters not
requiring a class vote, because, with regard to such matters, a share of
Common Stock has one vote and a share of Class A Common Stock has 1/10th of
a vote. The holders of Class A Common Stock, as a class, are able to elect
the greater of 25% or the next highest whole number of the Company's Board
of Directors. Thus, holders of the Class A Common Stock, as a class, are
presently entitled to elect four directors, and the holders of the Common
Stock, as a class, are presently entitled to elect nine directors. Due to
his beneficial ownership of 57% of the Common Stock of the Company, Mr.
Jones controls the election of the nine directors to be elected by the
holders of the Common Stock.
(4) Includes 38,000 shares held by International; 2,239,416 shares held by the
Jones International Grantor Business Trust; 100,400 shares held by Jones
Entertainment Group, Ltd.; 35,707 shares held by Jones Space Segment, Inc.;
27,585 shares held by Jones Global Group, Inc.; and 643 shares held by
Jones Interdigital, Inc. International may be deemed to be the beneficial
owner of all shares of Common Stock owned by Jones Entertainment Group,
Ltd., Jones Space Segment, Inc., Jones Global Group, Inc. and Jones
Interdigital, Inc.
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(5) Includes 474,400 shares held by the Glenn Jones Grantor Business Trust;
38,000 shares held by International; 2,239,416 shares held by the Jones
International Grantor Business Trust; 100,400 shares held by Jones
Entertainment Group, Ltd.; 35,707 shares held by Jones Space Segment, Inc.;
27,585 shares held by Jones Global Group, Inc.; and 643 shares held by
Jones Interdigital, Inc.
(6) Includes 526,893 shares owned by Mr. Jones; 477,851 shares deemed to be
held by Mr. Jones pursuant to exercisable stock options; and 1,497,373
shares held by International.
(7) Includes 320 shares held by Mr. Coyle's wife.
(8) Includes 30,855 shares deemed to be held by Mr. Coyle pursuant to
exercisable stock options.
(9) Represents shares held by the William E. Frenzel Revocable Trust.
(10) Includes 60,694 shares deemed to be held by Mr. O'Brien pursuant to
exercisable stock options.
(11) Represents shares deemed to be held by Ms. Winning pursuant to exercisable
stock options.
(12) Represents shares held by the Sanford Zisman PC Profit Sharing Trust.
(13) Includes 588,900 shares deemed to be held by various executive officers and
directors pursuant to exercisable stock options.
(14) Includes 12,370 shares held by Mrs. Marocco; 357 shares held by the Joseph
Michael Marocco Irrevocable Trust; 2,239,416 shares held by the Jones
International Grantor Business Trust in which Mrs. Marocco has shared
voting power; and 474,400 shares held by the Glenn Jones Grantor Business
Trust in which Mrs. Marocco has shared voting power.
(15) Includes 44,113 shares held by Mrs. Marocco; 970 shares held by the Joseph
Michael Marocco Irrevocable Trust; and 10,000 shares held by Mrs. Marocco's
husband. Mrs. Marocco disclaims beneficial ownership of the shares held by
her husband. Mrs. Marocco's husband is a principal in a firm that may from
time to time invest in the Company's securities. Mrs. Marocco disclaims
beneficial ownership of any securities of the Company that said firm
purchases or in which Mr. Marocco may therefor have an interest.
(16) BCI Telecom Holding Inc. ("BTH"), the sole shareholder of BTH (Intercable)
Limited (f/k/a Bell Canada International BVI VI Limited), is deemed to have
beneficial ownership of the 2,878,151 shares of Common Stock covered by
Option Agreements dated December 20, 1994 among The Bank of New York,
acting as agent for BTH, and the Glenn Jones Grantor Business Trust, the
Jones International Grantor Business Trust, Jones Entertainment Group,
Ltd., Jones Space Segment, Inc., Jones Global Group, Inc. and Jones
Interdigital, Inc.
(17) Pursuant to various agreements all dated August 12, 1998 among Mr. Jones,
International and certain of its affiliates, BTH and Comcast Corporation
("Comcast"), Comcast has the right to purchase all of the shares of Common
Stock covered by the Option Agreements referred to in Note 16 above.
Comcast's address is 1500 Market Street, Philadelphia, PA 19102-2148.
(18) BTH is deemed to be the beneficial owner of the 12,782,500 shares of Class
A Common Stock owned by its wholly owned subsidiary, BTH (U.S. Cable)
Limited (f/k/a Bell Canada International BVI III Limited).
(19) Pursuant to various agreements all dated August 12, 1998 among Mr. Jones,
International and certain of its affiliates, BTH and Comcast, Comcast has
the right to purchase all of BTH's shares of Class A Common Stock referred
to in Note 18 above.
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<PAGE>
(20) Capital Research and Management Company has no sole or shared voting power
and has sole dispositive power over 3,230,000 shares.
(21) This information is based upon filings made by the shareholders with the
Securities and Exchange Commission, copies of which were provided to the
Company.
ITEM 13. CERTAIN TRANSACTIONS
------------------------------
The Company has engaged in certain transactions with its affiliates. These
transactions have involved affiliation agreements for the distribution of
programming owned by affiliated companies on cable television systems owned or
managed by the Company, lease agreements related to real estate, and lease
agreements and service agreements related to certain technical, computer,
financial and administrative services provided to the Company by affiliates. For
the year ended December 31, 1998, approximately $1,008,000, or less than 1%, of
the Company's total revenue and approximately $6,646,000, or 3.3%, of its total
operating, general and administrative expenses were a result of related party
transactions. Because certain officers and directors of the Company are also
officers and directors of affiliated companies, the terms of any agreements
between the Company and such affiliates generally are not the result of arm's
length negotiations. There can be no assurance that the terms of any
transactions between the Company and its affiliates have been or will be as
favorable as the Company could obtain from unrelated parties.
Set forth below is a description of the Company's transactions with Jones
International, Ltd. ("International"), certain of its subsidiaries and certain
other affiliates of the Company, including BTH, during the year ended December
31, 1998. In some instances the dollar amounts of transactions have been
rounded to the nearest thousand. Most of the transactions described below are
expected to continue during the current fiscal year.
JONES INTERNATIONAL, LTD.
Jones International, Ltd. and certain of its subsidiaries provide various
services to the Company and its managed limited partnerships, including
information and data processing services, office space and programming services,
as described below. The costs of these services are charged to the Company, and
the Company reimburses International accordingly. In some cases, a portion of
certain of these expenses are reallocated to the Company's managed partnerships
pursuant to the terms of the limited partnership agreements of such limited
partnerships.
JONES GALACTIC RADIO, INC.
Jones Galactic Radio, Inc. is a subsidiary of Jones International Networks,
Ltd., an affiliate of International. The Company's cable systems receive audio
programming from Superaudio, a joint venture between Jones Galactic Radio, Inc.
and an unaffiliated entity. Payments made by the Company to Jones Galactic
Radio, Inc. for programming provided to Company-owned cable systems for the year
ended December 31, 1998 totaled $348,800.
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<PAGE>
KNOWLEDGE TV, INC.
Knowledge TV, Inc., a company jointly owned by Mr. Jones, affiliates of
International, BTH and the Company, operates the television network Knowledge
TV. 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 certain cable television
systems owned by the Company. Payments made by the Company to Knowledge TV,
Inc. with respect to programming provided to cable television systems owned by
the Company for the year ended December 31, 1998 totaled $622,800.
JONES FINANCIAL GROUP, LTD.
Jones Financial Group, Ltd. ("Financial Group") performs services for the
Company as its agent in connection with negotiations regarding various financial
arrangements of the Company. Financial Group is owned 81% by International and
19% by Glenn R. Jones. In December 1994, the Company entered into a Financial
Services Agreement with Financial Group pursuant to which Financial Group has
agreed to render financial advisory and related services to the Company for a
fee equal to 90% of the fees that would be charged to the Company by
unaffiliated third parties for the same or comparable purposes. The Company
pays Financial Group an annual $1,000,000 retainer as an advance against
payments due pursuant to this agreement and reimburses Financial Group for its
reasonable out-of-pocket expenses. The term of the Financial Services Agreement
is for eight years from December 1994. Financial Group and BTH have entered
into a separate agreement pursuant to which BTH is entitled to receive one-half
of the net fees earned (gross fees less reasonable and customary operating
expenses) by Financial Group under the Financial Services Agreement. During the
year ended December 31, 1998, the Company paid Financial Group fees totaling
$756,000 for acting as the Company's financial advisor in connection with the
Company's acquisition of the Hinesville System in 1998.
JONES INTERACTIVE, INC.
Jones Interactive, Inc. ("Interactive"), a wholly owned subsidiary of
International, provides information management and data processing services for
operating companies affiliated with International. Charges to the various
operating companies are based on usage of computer time by each entity. The
amount charged to the Company and its managed partnerships by Interactive for
the year ended December 31, 1998 totaled $6,089,000. Approximately 63% of this
amount was paid by the Company, and the remainder was allocated to and paid by
the Company's managed partnerships.
JONES PROPERTIES, INC.
Jones Properties, Inc. is a wholly owned subsidiary of International. The
Company is a party to a lease with Jones Properties, Inc. under which the
Company has leased a 101,500 square foot office building in Englewood, Colorado.
The lease agreement, as amended, has a 15-year term expiring July 2000, with
three 5-year renewal options. The annual rent is not to exceed $24.00 per square
foot, plus operating expenses. The Company has subleased approximately 44% of
the building to International and certain other affiliates on the same terms and
conditions of the above-mentioned
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<PAGE>
lease. Rent payments to Jones Properties, Inc. by the Company, net of subleasing
reimbursements, for the year ended December 31, 1998 totaled $1,390,000.
Approximately 63% of this amount was paid by the Company, and the remainder was
allocated to and paid by the Company's managed partnerships.
PRODUCT INFORMATION NETWORK
The Product Information Network Venture (the "PIN Venture") is a venture
among a subsidiary of Jones International Networks, Ltd., an affiliate of
International, and two unaffiliated cable system operators. The PIN Venture
operates the Product Information Network ("PIN"), which is a 24-hour network
that airs long-form advertising generally known as "infomercials." PIN has an
affiliation agreement with the Company that expires on February 1, 2005. The
PIN Venture generally makes incentive payments equal to a percentage of its net
advertising revenue to the cable systems that carry its programming. Most of
the Company's owned cable television systems carry PIN for all or part of each
day. Aggregate payments received by the Company from the PIN Venture relating
to the Company's owned cable television systems totaled $1,008,000 for the year
ended December 31, 1998.
GREAT AMERICAN COUNTRY, INC.
The Great American Country network provides country music video programming
to certain of the Company's owned systems. This network is owned and operated by
Great American Country, Inc., a subsidiary of Jones International Networks,
Ltd., an affiliate of International. During the year ended December 31, 1998,
the Company paid Great American Country, Inc. a total of $517,000 for
programming provided by Great American Country to Company-owned cable television
systems.
SUPPLY AND SERVICES AGREEMENT WITH BTH
The Company entered into a Supply and Services Agreement with BTH in
December 1994. Pursuant to the Supply and Services Agreement, BTH provides the
Company with access to the expert advice of personnel from BTH and its
affiliates on an annual basis. The Company has agreed to pay an annual fee of
$2,000,000 to BTH during the term of the agreement. Payments made by the Company
under the Supply and Services Agreement during the year ended December 31, 1998
totaled $2,000,000.
SECONDMENT AGREEMENT WITH BTH
The Company entered into a Secondment Agreement with BTH in December 1994.
Pursuant to the Secondment Agreement, BTH provided a total of 8 secondees during
1998. These secondees worked for the Company and its managed partnerships. The
Company reimbursed BTH for the full employment costs of such individuals. The
Company reimbursed BTH $719,000 during the year ended December 31, 1998.
Approximately 63% of this amount was paid by the Company, and the remainder was
allocated to and paid by the Company's managed partnerships.
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<PAGE>
SALE OF INVESTMENT IN JONES CUSTOMER SERVICE MANAGEMENT, L.L.C.
In 1995, the Company and Jones Cyber Solutions, Ltd. ("JCS"), an indirect
subsidiary of International, formed a venture, known as Jones Customer Service
Management, L.L.C., for the purpose of developing a subscriber billing and
management system. As of December 31, 1998, the Company had invested $5,200,000
in the venture. The Company accounts for this investment using the equity
method and, as of December 31, 1998, had recognized equity losses equal to its
investment of $5,200,000. In August 1998, the Company sold its 75% interest in
Jones Customer Service Management, L.L.C. to JCS for $3,150,000. The purchase
price was paid $2,000,000 in cash and $1,150,000 in a note receivable. This
note receivable bears interest at prime +2%, and is payable in 36 months or upon
a change in control of the Company. The proceeds from this transaction were
used to offset the remaining assets related to the Company's customer billing
venture.
JCS performed the basic system development work for the venture and was
paid periodically on a time and materials basis, plus 10% of the amount charged,
for its own service. The venture's subscriber billing and management system was
trialed in one of the Company's cable systems during 1997. The Company
determined, in late 1997, not to pursue the implementation of the subscriber
billing and management system. As a result of this decision, the Company
incurred a write-off of $14,228,000 in the fourth quarter of 1997 related to the
write-off of costs associated with the planned implementation of the billing
system in Company-owned cable systems.
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PART IV
ITEM 14. EXHIBITS AND REPORTS ON FROM 8-K
-------------------------------------------
(A)(1) FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS.
(A)(2) SCHEDULES.
(A)(3) EXHIBITS.
The following exhibits, which are numbered in accordance with Item 601
of Regulation S-K, are filed herewith or, as noted, incorporated by
reference herein:
2.1 Stock Purchase Agreement dated as of May 31, 1994, between Bell Canada
International Inc. and the Company. (1)
2.2 Transaction Agreement dated as of May 31, 1994, among Glenn R. Jones,
Jones International, Ltd., Bell Canada International Inc. and Jones
Spacelink, Ltd. (1)
2.3 Purchase and Sale Agreement (Albuquerque) dated as of July 28, 1997
between the Company and Cable TV Fund 12-BCD Venture. (17)
2.3 Purchase and Sale Agreement (Palmdale) dated as of February 25, 1998,
between the Company and Cable TV Fund 12-BCD Venture. (18)
2.4 Purchase and Sale Agreement (Littlerock) dated as of February 25, 1998,
between the Company and Cable TV Fund 14-B, Ltd. (18)
2.5 Asset Purchase Agreement (Hinesville) dated August 24, 1998 between
Jones Communications of Georgia/South Carolina, Inc. and Bresnan
Communications Company, L.P.
2.6 Purchase and Sale Agreement (Grants) dated June 16, 1998 between
Spacelink Fund 3, Ltd. and Jones Communications of New Mexico, Inc.
2.7 Purchase and Sale Agreement (Socorro) dated June 16, 1998 between
Spacelink Fund 3, Ltd. and Jones Communications of New Mexico, Inc.
3.1 Articles of Incorporation and amendments thereto of the Company. (4)
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3.2 Amendment to Articles of Incorporation of Company filed July 24, 1995.
(2)
3.3 Amendment to Articles of Incorporation of Company filed September 18,
1996. (15)
3.4 Bylaws of the Company. (2)
4.1 Indenture, dated as of July 15, 1992, between the Company and First
Trust National Association. (5)
4.2 Second Supplemental Indenture, dated as of March 1, 1993, between the
Company and First Trust National Association. (6)
4.3 Indenture dated March 23, 1995 with respect to the Senior Notes, between
the Company and U.S. Trust Company of California, N.A. (7)
4.4 First Supplemental Indenture dated as of March 23, 1995 with respect to
$200,000,000 aggregate principal amount of the Company's 9 5/8% Senior
Notes due 2002, between the Company and U.S. Trust Company of
California, N.A. (7)
4.5 Second Supplemental Indenture dated as of March 21, 1997 with respect to
$250,000,000 aggregate principal amount of the Company's 8 7/8% Senior
Notes due 2007, between the Company and U.S. Trust Company of
California, N.A. (16)
4.6 Third Supplemental Indenture dated as of April 6, 1998 with respect to
$200,000,000 aggregate principal amount of the Company's 7 5/8% Senior
Notes due 2008, between the Company and U.S. Trust Company of
California, N.A. (19)
4.6 Form of Shareholders Agreement among Glenn R. Jones, Jones
International, Ltd., Bell Canada International Inc. and the Company. (1)
4.7 Agreement and Amendment No. 1 to Shareholders Agreement dated as of
August 12, 1998, amending the Shareholders Agreement. (20)
10.1.1 Form of Financial Services Agreement between Jones Financial Group, Ltd.
and the Company. (1)
10.1.2 Form of Employment Agreement between Glenn R. Jones and the Company. (1)
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10.1.3 Termination Agreement dated as of August 12, 1998, between the Company
and Mr. Jones. (20)
10.1.4 Form of Supply and Services Agreement between Bell Canada International
Inc. and the Company. (1)
10.1.5 Form of Secondment Agreement between Bell Canada International Inc. and
the Company. (1)
10.1.6 Form of Option Agreement for Glenn R. Jones and Jones International,
Ltd. between Bell Canada International Inc. and Newco. (1)
10.1.7 Amendment to Option Agreements dated as of August 12, 1998, between The
Bank of New York, as successor agent to Morgan Guaranty Trust Company
of New York (as agent for BTH and Comcast) and the Jones Entities. (20)
10.1.8 Agreement dated as of August 12, 1998, among the Jones Entities and
Comcast. (20)
10.1.6 Affiliate Agreement dated August 1, 1994 between the Company and Jones
Infomercial Networks, Inc. (2)
10.2.1 1992 Stock Option Plan. (8)
10.2.2 Form of Basic Incentive Stock Option Agreement. (8)
10.2.3 Form of Basic Non-Qualified Stock Option Agreement. (8)
10.3.1 Office Lease, dated June 8, 1984, between the Company and Jones
Properties, Inc., regarding office space at 9697 East Mineral Avenue,
Englewood, Colorado. (9)
10.3.2 Office Building Lease dated December 9, 1994 between Jones Panorama
Properties, Inc. and the Company regarding Lot 4, Panorama Office Park.
(2)
10.4.1 Partnership Agreement for Cable TV Fund 12. (9)
10.4.2 Partnership Agreement for Cable TV Fund 14. (10)
10.4.3 Partnership Agreement for Jones Cable Income Fund 1. (11)
10.4.4 Partnership Agreement for IDS/Jones Growth Partners. (12)
10.4.5 Partnership Agreement for Cable TV Fund 15. (13)
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10.4.6 Partnership Agreement for IDS/Jones Growth Partners II, L.P. (14)
10.5.1 Credit Agreement dated October 31, 1995 among Jones Cable Holdings,
Inc. and NationsBank of Texas, N.A. and The Bank of Nova Scotia, as
lenders and as managing agents and various other lenders. (3)
10.5.2 First Amendment dated as of September 17, 1996 to Credit Agreement
dated October 31, 1995 among Jones Cable Holdings, Inc. and NationsBank
of Texas, N.A., individually and as agent for various other lenders.
(15)
10.5.3 Credit Agreement dated as of October 29, 1996 among Jones Cable
Holdings II, Inc. and The Bank of Nova Scotia, NationsBank of Texas,
N.A. and Societe Generale, as managing agents for various lenders. (15)
21 List of Subsidiaries of the Company.
23 Consent of Arthur Andersen & LLP, independent public accountants, to
the incorporation by reference of its report into the Company's Form
S-8 and Form S-3 Registration Statements.
27 Financial Data Schedule
___________
(1) Incorporated by reference from the Company's Current Report on Form
8-K, filed on June 6, 1994.
(2) Incorporated by reference from the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1995.
(3) Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
(4) Incorporated by reference from the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1988.
(5) Incorporated by reference from the Company's Registration Statement No.
33-47030 on Form S-3, filed on April 8, 1992, and Amendment Nos. 1 and
2 thereof, filed on April 24, 1992 and June 4, 1992, respectively, and
Post-Effective Amendment No. 1 thereof, filed on July 15, 1992.
(6) Incorporated by reference from the Company's Current Report on Form
8-K, filed on March 1, 1993.
93
<PAGE>
(7) Incorporated by reference from the Company's Current Report on form 8-K
dated March 23, 1995.
(8) Incorporated by reference from the Company's Registration No. 33-54596
on Form S-8, filed on November 16, 1992.
(9) Incorporated by reference from the Company's Registration Statement No.
2-94127.
(10) Incorporated by reference from the Company's Registration Statement No.
33-6976, filed on July 3, 1986, and Amendment No. 1 thereto, filed on
November 17, 1986.
(11) Incorporated by reference from the Company's Registration Statement No.
33-00968 on Form S-1, filed on October 18, 1985.
(12) Incorporated by reference from the Company's Registration Statement No.
33-12473.
(13) Incorporated by reference from the Company's Registration Statement No.
33-24358.
(14) Incorporated by reference from the Company's Registration Statement on
Form 8-A No. 0-18133, dated November 16, 1989.
(15) Incorporated by reference from the Company's Annual Report on Form 10-K
for year ended December 31, 1996.
(16) Incorporated by reference from the Company's Current Report on Form 8-K
dated March 21, 1997
(17) Incorporated by reference from the Company's Current Report on Form 8-K
dated August 1, 1997.
(18) Incorporated by reference from the Company's Annual Report on Form 10-K
for year ended December 31, 1997.
(19) Incorporated by reference from the Company's Current Report on Form 8-K
dated April 6, 1998.
94
<PAGE>
(20) Incorporated by reference from Mr. Jones' and International's Amendment
No. 2 to Schedule 13D, electronically filed on August 14, 1998, and
identified as Exhibits 3 through 6, respectively, to said Schedule 13D.
(b) Reports on Form 8-K
None.
95
<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.
JONES INTERCABLE, INC.
By: /s/ Glenn R. Jones
--------------------------------
Glenn R. Jones
Chairman of the Board and
Dated: February 17, 1999 Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Glenn R. Jones
--------------------------------
Glenn R. Jones
Chairman of the Board and
Chief Executive Officer
Dated: February 17, 1999 (Principal Executive Officer)
By: /s/ Kevin P. Coyle
--------------------------------
Kevin P. Coyle
Group Vice President/Finance
Dated: February 17, 1999 Principal Financial Officer)
By: /s/ Larry W. Kaschinske
--------------------------------
Larry W. Kaschinske
Controller
Dated: February 17, 1999 (Principal Accounting Officer)
By: /s/ James B. O'Brien
--------------------------------
James B. O'Brien
Dated: February 17, 1999 President and Director
96
<PAGE>
By: /s/ Robert E. Cole
--------------------------------
Robert E. Cole
Dated: February 17, 1999 Director
By: /s/ William E. Frenzel
--------------------------------
William E. Frenzel
Dated: February 17, 1999 Director
By: ________________________________
Josef J. Fridman
Dated: Director
By: ________________________________
Donald L. Jacobs
Dated: Director
By: /s/ Robert Kearney
--------------------------------
Robert Kearney
Dated: February 17, 1999 Director
By: /s/ James J. Krejci
--------------------------------
James J. Krejci
Dated: February 17, 1999 Director
By: /s/ Raphael M. Solot
--------------------------------
Raphael M. Solot
Dated: February 17, 1999 Director
By: /s/ Howard O. Thrall
--------------------------------
Howard O. Thrall
Dated: February 17, 1999 Director
By: ________________________________
Siim A. Vanaselja
Dated: Director
97
<PAGE>
By: /s/ Sanford Zisman
--------------------------------
Sanford Zisman
Dated: February 17, 1999 Director
By: /s/ Robert B. Zoellick
--------------------------------
Robert B. Zoellick
Dated: February 17, 1999 Director
98
<PAGE>
EXHIBIT 2.5
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
BRESNAN COMMUNICATIONS COMPANY, L.P.
AND
JONES COMMUNICATIONS
OF GEORGIA/SOUTH CAROLINA, INC.
DATED AS OF
AUGUST 24, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C> <C>
Section 1. Definitions.............................................................. 1
1.1 Affiliate........................................................ 1
1.2 Assets........................................................... 1
1.3 Basic Service.................................................... 1
1.4 Business......................................................... 1
1.5 Business Day..................................................... 1
1.6 Closing.......................................................... 2
1.7 Encumbrance...................................................... 2
1.8 Environmental Law................................................ 2
1.9 Equipment........................................................ 2
1.10 Equivalent Basic Subscribers (or EBSs)........................... 2
1.11 Expanded Basic Service........................................... 3
1.12 GAAP............................................................. 3
1.13 Governmental Authority........................................... 3
1.14 Governmental Permits............................................. 3
1.15 Hazardous Substances............................................. 3
1.16 Intangibles...................................................... 4
1.17 Knowledge........................................................ 4
1.18 Legal Requirement................................................ 4
1.19 Losses........................................................... 4
1.20 Pay TV........................................................... 4
1.21 Permitted Encumbrances........................................... 4
1.22 Person........................................................... 4
1.23 Real Property.................................................... 4
1.24 Required Consents................................................ 4
1.25 Seller Contracts................................................. 5
1.26 Service Area..................................................... 5
1.27 System........................................................... 5
1.28 Taxes............................................................ 5
1.29 Other Definitions................................................ 5
SECTION 2. SALE OF ASSETS........................................................... 6
SECTION 3. CONSIDERATION............................................................ 6
3.1 Deposit.......................................................... 6
3.2 Base Purchase Price.............................................. 6
3.3 Adjustments to Base Purchase Price............................... 7
3.4 Determination of Adjustments..................................... 8
3.5 Allocation of Consideration...................................... 9
</TABLE>
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<S> <C> <C>
SECTION 4. ASSUMED LIABILITIES AND EXCLUDED ASSETS............................... 9
4.1 Assignment and Assumption........................................ 9
4.2 Excluded Assets.................................................. 9
SECTION 5. REPRESENTATIONS AND WARRANTIES OF SELLER.............................. 10
5.1 Organization and Qualification................................... 10
5.2 Authority and Validity........................................... 10
5.3 No Conflict; Required Consents................................... 10
5.4 Assets........................................................... 11
5.5 Governmental Permits............................................. 11
5.6 Seller Contracts................................................. 11
5.7 Real Property.................................................... 12
5.8 Environmental Matters............................................ 12
5.9 Compliance with Legal Requirements............................... 13
5.10 Patents, Trademarks and Copyrights............................... 15
5.11 Financial Statements............................................. 15
5.12 Absence of Certain Changes....................................... 15
5.13 Legal Proceedings................................................ 15
5.14 Tax Returns; Other Reports....................................... 16
5.15 Employment Matters............................................... 16
5.16 Systems Information.............................................. 17
5.17 Bonds............................................................ 17
5.18 Finders and Brokers.............................................. 18
Section 6. Buyer's Representations and Warranties................................ 18
6.1 Organization and Qualification................................... 18
6.2 Authority and Validity........................................... 18
6.3 No Conflicts; Required Consents.................................. 18
6.4 Finders and Brokers.............................................. 19
6.5 Legal Proceedings................................................ 19
Section 7. Additional Covenants.................................................. 19
7.1 Access to Premises and Records................................... 19
7.2 Continuity and Maintenance of Operations; Financial Statements... 19
7.3 Employee Matters................................................. 21
7.4 Leased Vehicles; Other Capital Leases............................ 22
7.5 Required Consents; Estoppel Certificates......................... 22
7.6 [Intentionally Omitted].......................................... 23
7.7 Title Commitments and Surveys.................................... 23
7.8 HSR Notification................................................. 24
7.9 No Shopping...................................................... 24
</TABLE>
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<CAPTION>
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<S> <C> <C> <C>
7.10 Lien and Judgment Searches....................................... 24
7.11 Transfer Taxes................................................... 25
7.12 Distant Broadcast Signals........................................ 25
7.13 Letter to Programmers............................................ 25
7.14 Updated Schedules................................................ 25
7.15 Use of Names and Logos........................................... 25
7.16 Subscriber Billing Services...................................... 25
7.17 Satisfaction of Conditions....................................... 26
7.18 Confidentiality and Publicity.................................... 26
7.19 Bulk Transfers................................................... 26
7.20 Environmental Reports............................................ 26
SECTION 8. CONDITIONS PRECEDENT.................................................... 26
8.1 Conditions to the Obligations of Buyer and Seller................ 26
8.2 Conditions to the Obligations of Buyer........................... 27
8.3 Conditions to Obligations of Seller.............................. 28
8.4 Waiver of Conditions............................................. 28
SECTION 9. CLOSING................................................................. 29
9.1 The Closing; Time and Place...................................... 29
9.2 Seller's Delivery Obligations.................................... 29
9.3 Buyer's Delivery Obligations..................................... 30
Section 10. Termination............................................................. 30
10.1 Termination Events............................................... 30
10.2 Effect of Termination............................................ 31
SECTION 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION............. 31
11.1 Survival of Representations and Warranties....................... 31
11.2 Indemnification by Seller........................................ 32
11.3 Indemnification by Buyer......................................... 33
11.4 Third Party Claims............................................... 33
11.5 Limitations on Indemnification -- Seller......................... 34
11.6 Limitations on Indemnification -- Buyer.......................... 34
SECTION 12. MISCELLANEOUS........................................................... 34
12.1 Parties Obligated and Benefited.................................. 34
12.2 Notices.......................................................... 35
12.3 Attorneys' Fees.................................................. 36
12.4 Waiver........................................................... 36
12.5 Captions......................................................... 36
12.6 Choice of Law.................................................... 36
</TABLE>
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<TABLE>
<CAPTION>
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<S> <C> <C>
12.7 Terms............................................................ 36
12.8 Rights Cumulative................................................ 36
12.9 Further Actions.................................................. 36
12.10 Time............................................................. 36
12.11 Late Payments.................................................... 37
12.12 Counterparts..................................................... 37
12.13 Entire Agreement................................................. 37
12.14 Severability..................................................... 37
12.15 Construction..................................................... 37
12.16 Expenses......................................................... 37
12.17 Risk of Loss; Condemnation....................................... 37
</TABLE>
-iv-
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
- --------
A - Indemnity Escrow Agreement
B - Bill of Sale
C - Assignment and Assumption of Contracts
D - Assignment of Leases
E - Letter to Programmers
F - FIRPTA Affidavit
G - Opinion of Seller's Counsel
H - Opinion of Buyer's Counsel
SCHEDULES
- ---------
1.9 - Owned Equipment and Vehicles
4.2 - Excluded Assets
5.3 - Required Consents
5.4 - Encumbrances to Be Discharged Prior to Closing
5.5 - Governmental Permits
5.6 - Seller Contracts
5.7 - Real Property
5.8 - Environmental Matters
5.9 - Cost of Service Filings
5.11 - Financial Statements
5.13 - Proceedings and Judgments
5.14 - Tax Matters
5.15 - Employee Matters
5.16 - The Business/Systems Information (including Rate Schedule)
5.17 - Bonds
-v-
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
This Asset Purchase Agreement ("Agreement") is made as of August 24, 1998,
by and between Bresnan Communications Company, L.P., a Michigan limited
partnership ("Seller") and Jones Communications of Georgia/South Carolina, Inc.,
a Colorado corporation ("Buyer").
RECITALS
--------
Seller is engaged in the business of providing cable television service to
subscribers in and around the Service Area. Buyer desires to purchase and
Seller desires to sell substantially all the assets of Seller used or useful in
connection with that business.
AGREEMENT
---------
In consideration of the above recitals and the mutual agreements stated in
this Agreement, the parties agree as follows:
Section 1. Definitions.
In addition to terms defined elsewhere in this Agreement, the following
capitalized terms, when used in this Agreement, will have the meanings set forth
below:
1.1 Affiliate. With respect to any Person, any other Person controlling,
---------
controlled by or under common control with such Person, with "control" for such
purpose meaning the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities or voting interests, by contract or
otherwise.
1.2 Assets. All properties, privileges, rights, interests and claims,
------
real and personal, tangible and intangible, of every type and description that
are owned, leased, held, used or useful in the Business in which Seller has any
right, title or interest or in which Seller acquires any right, title or
interest on or before the Closing Date, including Governmental Permits,
Intangibles, Seller Contracts, Equipment, Real Property and deposits relating to
the Business that are held by third parties for the account of Seller or for
security for Seller's performance of its obligations, but excluding any Excluded
Assets.
1.3 Basic Service. The lowest tier of service offered to subscribers of a
-------------
System.
1.4 Business. The cable television business conducted by Seller on the
--------
date of this Agreement through one or more Systems, as described on SCHEDULE
5.16.
1.5 Business Day. Any day other than Saturday, Sunday or a day on which
------------
banking institutions in Denver, Colorado are required or authorized to be
closed.
<PAGE>
1.6 Closing. The consummation of the transactions contemplated by this
-------
Agreement, as described in SECTION 9, the date of which is referred to as the
Closing Date.
1.7 Encumbrance. Any security interest, security agreement, financing
-----------
statement filed with any Governmental Authority, conditional sale or other title
retention agreement, any lease, consignment or bailment given for purposes of
security, any mortgage, lien, indenture, pledge, option, encumbrance, adverse
interest, constructive trust or other trust, claim, attachment, exception to or
defect in title or other ownership interest (including but not limited to
reservations, rights of entry, possibilities of reverter, encroachments,
easements, rights-of-way, restrictive covenants, leases and licenses) of any
kind, which constitutes an interest in or claim against property, whether
arising pursuant to any Legal Requirement, Governmental Permit, Seller Contract
or otherwise.
1.8 Environmental Law. Any Legal Requirement relating to pollution or
-----------------
protection of public health, safety or welfare or the environment, including
those relating to emissions, discharges, releases or threatened releases of
Hazardous Substances into the environment (including ambient air, surface water,
ground water or land), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Substances.
1.9 Equipment. All electronic devices, trunk and distribution coaxial and
---------
optical fiber cable, amplifiers, power supplies, conduit, vaults and pedestals,
grounding and pole hardware, subscriber's devices (including converters,
encoders, transformers behind television sets and fittings), headend hardware
(including origination, earth stations, transmission and distribution system),
test equipment, vehicles and other tangible personal property owned, leased,
used or held for use in the Business, the principal items of which are described
on SCHEDULE 1.9 (and, with respect to leased Equipment, on SCHEDULE 5.6).
1.10 Equivalent Basic Subscribers (or EBSs). An active customer for Basic
--------------------------------------
Service either in a single household, a commercial establishment or in a multi-
unit dwelling (including a hotel unit); provided, however, that the number of
customers in a multi-unit dwelling or commercial establishment that obtain
service on a "bulk-rate" basis will be determined on a System by System basis by
dividing the gross bulk-rate billings for Basic Service and Expanded Basic
Service (but not billings from a la carte tiers or premium services,
installation or other non-recurring charges, converter rental or from any outlet
or connection other than the first outlet or connection or from any pass-through
charge for sales taxes, line-itemized franchise fees, fees charged by the FCC
and the like), attributable to such multi-unit dwelling or commercial
establishment during the most recent billing period ended prior to the date of
calculation (but excluding billings in excess of a single month's charge) by the
rate charged at the time of determination to individual households for the
highest level of Basic Service and Expanded Basic Service offered by such
System, such rate not to be less than the rate for such System set forth on
SCHEDULE 5.16 (excluding a la carte tiers or premium services, installation or
other non-recurring charges, converter rental, pass-through charges for sales
taxes, line-itemized franchise fees charged by the FCC and the like). For
purposes of this definition, an "active customer" will mean any person,
commercial establishment or multi-unit dwelling at any given time that is paying
for and receiving Basic Service from the System who has
-2-
<PAGE>
an account that is not more than 60 days past due (except for past due amounts
of $5 or less, provided such account is otherwise current). For purposes of this
definition, an "active customer" does not include any person, commercial
establishment or multi-unit dwelling that as of the date of calculation has not
paid in full the charges for at least one month of the services ordered or any
subscriber whose service is pending disconnection for any reason. For purposes
of this definition, the number of days past due of a customer account will be
determined from the first day of the period for which the applicable billing
relates.
1.11 Expanded Basic Service. Any video programming provided over a cable
----------------------
television system, regardless of service tier other than (a) Basic Service, (b)
any new product tier and (c) video programming offered on a per channel or per
program basis.
1.12 GAAP. Generally accepted accounting principles as in effect from
----
time to time in the United States of America.
1.13 Governmental Authority. The United States of America, any state,
----------------------
commonwealth, territory or possession of the United States of America and any
political subdivision or quasi-governmental authority of any of the same,
including any court, tribunal, department, commission, board, bureau, agency,
county, municipality, province, parish or other instrumentality of any of the
foregoing.
1.14 Governmental Permits. All franchises (the "Franchises"), approvals,
--------------------
authorizations, permits, licenses, easements, registrations, qualifications,
leases, variances and similar rights obtained with respect to the Business or
Assets from any Governmental Authority, including those set forth on SCHEDULE
5.5.
1.15 Hazardous Substances. Any pollutant, contaminant, chemical,
--------------------
industrial, toxic, hazardous or noxious substance or waste which is regulated by
any Governmental Authority, including (a) any petroleum or petroleum compounds
(refined or crude), flammable substances, explosives, radioactive materials or
any other materials or pollutants which pose a hazard or potential hazard to the
Real Property or to Persons in or about the Real Property or cause the Real
Property to be in violation of any laws, regulations or ordinances of federal,
state or applicable local governments, (b) asbestos or any asbestos-containing
material of any kind or character, (c) polychlorinated biphenyls ("PCBs"), as
regulated by the Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq., (d)
-- ----
any materials or substances designated as "hazardous substances" pursuant to the
Clean Water Act, 33 U.S.C. (S) 1251 et seq., (e) "economic poison," as defined
-- ----
in the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. (S) 135 et
--
seq., (f) "chemical substance," "new chemical substance" or "hazardous chemical
- ---
substance or mixture" pursuant to the Toxic Substances Control Act, 15 U.S.C.
(S) 2601 et seq., (g) "hazardous substances" pursuant to the Comprehensive
-- ----
Environmental Response, Compensation, and Liability Act, 42 U.S.C. (S) 9601 et
--
seq. and (h) "hazardous waste" pursuant to the Resource Conservation and
- ----
Recovery Act, 42 U.S.C. (S) 6901 et seq.
-------
-3-
<PAGE>
1.16 Intangibles. All intangible assets, including subscriber lists,
-----------
accounts receivable, claims (excluding any claims relating to Excluded Assets),
patents, copyrights and goodwill, if any, owned, used or held for use in the
Business.
1.17 Knowledge. The actual collective knowledge of a particular matter
---------
of one or more of the executive officers of a Person or the general manager or
one or more of the managers of such Person's Systems.
1.18 Legal Requirement. Applicable common law and any statute, ordinance,
-----------------
code, or other law, rule, regulation, order, technical or other written standard
or procedure enacted, adopted or applied by any Governmental Authority,
including judicial decisions applying common law or interpreting any other Legal
Requirement.
1.19 Losses. Any claims, losses, liabilities, damages, penalties, costs
------
and expenses, including interest that may be imposed in connection therewith,
expenses of investigation, reasonable fees and disbursements of counsel and
other experts, and the cost to any Person making a claim or seeking
indemnification under this Agreement with respect to funds expended by such
Person by reason of the occurrence of any event with respect to which
indemnification is sought.
1.20 Pay TV. Premium programming services selected by and sold to
------
subscribers on a per channel or per program basis.
1.21 Permitted Encumbrances. The following Encumbrances: (a) liens
----------------------
securing Taxes, assessments and governmental charges not yet due and payable,
(b) any zoning law or ordinance or any similar Legal Requirement, (c) any right
reserved to any Governmental Authority to regulate the affected property and (d)
as to Real Property interests, any Encumbrance reflected in the public records
and that does not individually or in the aggregate interfere with the right or
ability to own, use or operate the Real Property or to convey good, marketable
and indefeasible fee simple title to such Real Property, provided that
"Permitted Encumbrances" will not include any Encumbrance which could prevent or
inhibit in any way the conduct of the business of the affected System and
provided further that classification of any Encumbrance as a "Permitted
Encumbrance" will not affect any liability Seller may have for such Encumbrance,
including pursuant to any indemnity obligation under this Agreement.
1.22 Person. Any natural person, corporation, partnership, trust,
------
unincorporated organization, association, limited liability company,
Governmental Authority or other entity.
1.23 Real Property. All assets held by Seller related to the Business
-------------
consisting of realty, including appurtenances, improvements and fixtures located
on such realty, and any other interests in real property, including fee
interests, leasehold interests and easements, wire crossing permits and rights
of entry (except agreements related to multiple dwelling units) described on
SCHEDULE 5.7.
1.24 Required Consents. All franchises, licenses, authorizations,
-----------------
approvals and consents required under Governmental Permits, Seller Contracts or
otherwise for (a) Seller to transfer the
-4-
<PAGE>
Assets and the Business to Buyer, (b) Buyer to conduct the Business and to own,
lease, use and operate the Assets at the places and in the manner in which the
Business is conducted as of the date of this Agreement and on the Closing Date
and (c) Buyer to assume and perform the Governmental Permits, Seller Contracts
and the other Assumed Liabilities.
1.25 Seller Contracts. All contracts and agreements, other than
----------------
Governmental Permits and those relating to Real Property, pertaining to the
ownership, operation and maintenance of the Assets or the Business or used or
held for use in the Business, as described on SCHEDULE 5.6 or, in the case of
contracts and agreements relating to Real Property, on SCHEDULE 5.7.
1.26 Service Area. The area in which Seller operates the Business,
------------
specifically in the communities of Riceboro, City of Jesup, Brantley County,
Liberty County, McIntosh County, Camden County, City of Screven, City of Odum,
Bryan County, City of Flemington, City of Gum Branch, Fort Stewart, City of
Woodbine, City of Hinesville, City of Richmond Hill, City of Walthourville, City
of Midway, Long County, Town of Allenhurst, Charlton County, and Wayne County,
all in the State of Georgia.
1.27 System. A complete cable television reception and distribution system
------
operated in the conduct of the Business, consisting of one or more headends,
subscriber drops and associated electronic and other equipment, and which is, or
is capable of being without modification, operated as an independent system
without interconnections to other systems. Any systems which are interconnected
or which are served in total or in part by a common headend will be considered a
single System.
1.28 Taxes. All levies and assessments of any kind or nature imposed by
-----
any Governmental Authority, including all income, sales, use, ad valorem, value
added, franchise, severance, net or gross proceeds, withholding, payroll,
employment, excise or property taxes and levies or assessments related to
unclaimed property, together with any interest thereon and any penalties,
additions to tax or additional amounts applicable thereto.
1.29 Other Definitions. The following terms are defined in the Sections
-----------------
indicated:
Term Section
---- -------
Action 11.4
Antitrust Division 7.8
Assumed Liabilities 4.1
Base Purchase Price 3.2
Buyer Damages 11.5
CLI 5.9.5
Closing Date 1.8
Code 5.15.2
Collective Bargaining Agreement 4.2
Cost of Service Election 5.9.4
-5-
<PAGE>
Deposit 3.1
Employee Benefit Plans 5.15.2
ERISA 5.15.1
Escrow Agent 3.1.1
Excluded Assets 4.2
FCC 1.10
Final Adjustments Report 3.4.2
Financial Statements 5.11
Franchises 1.14
FTC 7.8
GP 5.1
HSR Act 7.8
Indemnified Party 11.4
Indemnifying Party 11.4
Indemnity Escrow Agreement 3.1(a)
1992 Cable Act 5.9.4
Outside Closing Date 10.1.4
PCB 1.15
Preliminary Adjustments Report 3.4.1
Rate Regulation Documents 5.9.4
Seller Damages 11.6
Survival Period 11.1
Taking 12.17.2
Transaction Documents 5.2
Unreflected Liabilities 5.11
Section 2. Sale of Assets.
Subject to the terms and conditions set forth in this Agreement, at the
Closing, Seller will sell to Buyer, and Buyer will purchase from Seller, all of
Seller's rights, titles and interests in, to and under the Assets. Except as
otherwise specifically provided in this Agreement, all the Assets are intended
to be transferred to Buyer, whether or not described in the Schedules.
Section 3. Consideration.
3.1 Deposit. Upon execution and delivery of this Agreement by Seller
-------
and Buyer, Buyer shall deliver Two Million Dollars ($2,000,000) (the "Deposit")
to U.S. Bank National Association (the "Escrow Agent"), to be held in an
interest bearing account in accordance with a Deposit Escrow Agreement, dated
the date hereof, by and among Seller, Buyer and Escrow Agent.
3.2 Base Purchase Price. Buyer will pay to Seller total cash
-------------------
consideration of $48,000,000 (the "Base Purchase Price"), subject to adjustment
as provided in SECTIONS 3.2 and 3.3. Such consideration will be paid at Closing
as follows:
-6-
<PAGE>
3.2.1 Buyer shall wire to Escrow Agent the amount of Two Million
Dollars ($2,000,000), which will secure payment by Seller of post-Closing
adjustments and indemnification obligations of Seller to Buyer, in accordance
with an Indemnity Escrow Agreement in substantially the form attached as EXHIBIT
A (the "Indemnity Escrow Agreement"); and
3.2.2 Buyer shall wire to Seller Forty-six Million Dollars
($46,000,000) in immediately available funds pursuant to wire instructions
delivered no later than two Business Days prior to the Closing Date by Seller to
Buyer. Buyer shall receive credit for the Deposit, plus interest thereon, toward
this amount.
3.3 Adjustments to Base Purchase Price. The Base Purchase Price will be
----------------------------------
adjusted as follows:
3.3.1 If the number of EBSs as of the Closing Date is less than
23,500, the Base Purchase Price will be reduced by an amount equal to $2,043
multiplied by the number by which 23,500 exceeds the greater of 23,200 or the
number of EBSs as of the Closing Date.
3.3.2 Adjustments on a pro rata basis as of the Closing Date will be
made for all prepaid expenses (but only to the extent the full benefit thereof
will be realizable by Buyer within 12 months after the Closing Date), accrued
expenses (including real and personal property Taxes and the economic value of
all accrued vacation time permitted by Buyer's policies to be taken after the
Closing Date by Seller's System employees hired by Buyer), prepaid income,
subscriber prepayments and accounts receivable related to the Business, all as
determined in accordance with GAAP consistently applied, and to reflect the
principle that all expenses and income attributable to the Business for the
period prior to the Closing Date are for the account of Seller, and all expenses
and income attributable to the Business for the period on and after the Closing
Date are for the account of Buyer. The Purchase Price will be increased by an
amount equal to the sum of (a) 100% of the face amount of all accounts
receivable (other than from advertising sales) that are current or 30 days or
less past due as of the Closing Date, plus (b) 80% of the face amount of all
accounts receivable (other than from advertising sales) that are between 31 days
and 60 days past due as of the Closing Date, plus (c) 100% of the face amount of
all direct-billed advertising accounts receivable that are current or 60 days or
less past due as of the Closing Date, plus (d) 50% of the face amount of all
direct-billed advertising accounts receivable that are between 61 and 90 days
past due as of the Closing Date, plus (e) 100% of the face amount of all agency
advertising accounts receivable that are current or 90 days or less past due as
of the Closing Date, plus (f) 50% of all agency advertising accounts receivable
that are between 91 and 120 days past due as of the Closing Date; provided, that
Seller will not receive credit for any accounts receivable (a) any portion of
which is 60 days or more past due as of the Closing Date (other than accounts
receivable from advertising sales), (b) from subscribers whose accounts are
inactive or whose service is pending disconnection for any reason as of the
Closing Date or (c) resulting from advertising sales any portion of which is 120
days or more past due as of the Closing Date.
3.3.3 Buyer's account will be credited for the amount of all advance
payments to, or funds of third parties on deposit with, Seller as of the Closing
Date, relating to the Business,
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including advance payments and deposits by subscribers served by the Business
for converters, encoders, decoders, cable television service and related sales,
and the liability therefor will be assumed by Buyer.
3.4 Determination of Adjustments. Preliminary and final adjustments to
----------------------------
the Base Purchase Price will be determined as follows:
3.4.1 Not later than a date Seller reasonably believes is at least
10 Business Days prior to the expected Closing Date, Seller will deliver to
Buyer a report (the "Preliminary Adjustments Report"), certified as to
completeness and accuracy by an authorized officer of Jones Intercable, Inc.,
showing in detail the preliminary determination of the adjustments referred to
in SECTION 3.3, which are calculated as of the Closing Date (or as of any other
date agreed by the parties) and any documents substantiating the adjustments
proposed in the Preliminary Adjustments Report. The Preliminary Adjustments
Report will include a complete list of subscribers, a detailed calculation of
the number of Equivalent Basic Subscribers and a schedule setting forth advance
payments made to or by Seller and deposits made by Seller, as well as accounts
receivable information relating to the Business (showing sums due and their
respective aging as of the Closing Date). Seller also will furnish to Buyer its
billing report for the most current period as of the Closing Date. Following
receipt of such Preliminary Adjustments Report and supporting information, Buyer
will have five Business Days to review such Preliminary Adjustments Report and
supporting information and to notify Seller of any disagreements with Seller's
estimates. If Buyer provides a notice of disagreement with Seller's estimates of
the adjustments referred to in SECTION 3.3 within such five Business Day period,
Buyer and Seller will negotiate in good faith to resolve any such dispute and to
reach an agreement prior to the Closing Date on such estimated adjustments as of
the Closing Date. The basis for determining the Base Purchase Price to be paid
at Closing will be (a) the estimate so agreed upon by Buyer and Seller or (b) if
no notice of disagreement is provided, or if such notice is provided but the
parties do not reach such an agreement prior to the Closing Date, the estimate
of such adjustments set forth in the Preliminary Adjustments Report.
3.4.2 Within 90 days after the Closing, Seller will deliver to
Buyer a report (the "Final Adjustments Report"), similarly certified by Seller,
showing in detail the final determination of all adjustments which were not
calculated as of the Closing Date and containing any corrections to the
Preliminary Adjustments Report, together with any documents substantiating the
adjustments proposed in the Final Adjustments Report. Buyer will provide Seller
with reasonable access to all records which Buyer has in its possession and
which are necessary for Seller to prepare the Final Adjustments Report.
3.4.3 Within 30 days after receipt of the Final Adjustments
Report, Buyer will give Seller written notice of Buyer's objections, if any, to
the Final Adjustments Report. If Buyer makes any such objection, the parties
will agree on the amount, if any, which is not in dispute within 30 days after
Seller's receipt of Buyer's notice of objections to the Final Adjustments
Report. If Seller makes any such objection, the parties will agree on the
amount, if any, which is not in dispute within 30 days after Buyer's receipt of
Seller's objections. Any disputed amounts will be determined within 120 days
after the Closing Date by the accounting firm of Price Waterhouse,
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whose determination will be conclusive; provided, however, that if at the time
of such dispute, Price Waterhouse is the accounting firm for either Seller or
Buyer, the parties shall select a different accounting firm of national standing
acceptable to both parties to determine the dispute. Seller and Buyer will bear
equally the fees and expenses payable to such firm in connection with such
determination. The payment required after such determination will be made by the
responsible party by wire transfer of immediately available funds to the other
party within three Business Days after the final determination.
3.5 Allocation of Consideration. The consideration payable by Buyer
---------------------------
under this Agreement will be allocated among the Assets as set forth in a
schedule to be prepared not later than 180 days after the Closing Date (or April
1 of the year following the Closing Date if earlier) by an independent appraiser
with significant experience in the cable television industry. Such appraiser
will be selected by the mutual agreement of Buyer and Seller within 30 days
after the date of this Agreement, and the fees of such appraiser will be shared
equally by Buyer and Seller; provided, however, that if the parties so agree,
the appraisal and preparation of the schedule described above may occur prior to
Closing. Buyer and Seller agree to be bound by the allocation and will not take
any position inconsistent with such allocation and will file all returns and
reports with respect to the transactions contemplated by this Agreement,
including all federal, state and local Tax returns, on the basis of such
allocation.
Section 4. Assumed Liabilities and Excluded Assets.
4.1 Assignment and Assumption. Seller will assign, and Buyer will
-------------------------
assume and after the Closing will pay, discharge and perform the following (the
"Assumed Liabilities"): (a) Seller's obligations to subscribers of the Business
for (i) subscriber deposits held by Seller as of the Closing Date and which are
refundable, in the amount for which Buyer received credit under SECTION 3.3,
(ii) subscriber advance payments held by Seller as of the Closing Date for
services to be rendered by a System after the Closing Date, in the amount for
which Buyer received credit under SECTION 3.3 and (iii) the delivery of cable
television service to subscribers of the Business after the Closing Date; and
(b) obligations accruing and relating to periods after the Closing Date under
Governmental Permits listed on SCHEDULE 5.5 (to the extent that such
Governmental Permits are transferable) and Seller Contracts. Buyer will not
assume or have any responsibility for any liabilities or obligations of Seller
other than the Assumed Liabilities. In no event will Buyer assume or have any
responsibility for any liabilities or obligations associated with the Excluded
Assets.
4.2 Excluded Assets. The Excluded Assets, which will be retained by
---------------
Seller, will consist of the following: (a) programming contracts, retransmission
consent agreements and pole attachment agreements (except for those set forth on
SCHEDULE 5.7); (b) Employee Benefit Plans; (c) insurance policies and rights and
claims thereunder (except as otherwise provided in SECTION 12.17); (d) bonds,
letters of credit, surety instruments and other similar items; (e) cash and cash
equivalents and notes receivable; (f) Seller's trademarks, trade names, service
marks, service names, logos and similar proprietary rights (subject to Buyer's
rights under SECTION 7.15); (g) Seller's rights under any agreement governing or
evidencing an obligation of Seller for borrowed money; (h) Seller Contracts for
subscriber billing and equipment; (i) Seller's rights and obligations
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under any contract, license, authorization, agreement or commitment other than
those creating or evidencing Assumed Liabilities; (j) the Collective Bargaining
Agreement between Seller and International Association of Machinists and
Aerospace Workers South Atlantic District No. 96 and all related agreements
(together the "Collective Bargaining Agreement"); and (k) the assets described
on SCHEDULE 4.2.
Section 5. Representations and Warranties of Seller.
To induce Buyer to enter into this Agreement, Seller represents and
warrants to Buyer, as of the date of this Agreement and as of the Closing, as
follows:
5.1 Organization and Qualification. Seller is a limited
------------------------------
partnership duly organized and validly existing under the laws of the State of
Michigan and has all requisite partnership power and authority to own, lease and
use the Assets owned, leased or used by it and to conduct the Business as it is
currently conducted. Seller is duly qualified to do business in the State of
Georgia, and under the laws of each jurisdiction in which the ownership, leasing
or use of the Assets owned, leased or used by it or the nature of Seller's
activities makes such qualification necessary, except in any such jurisdiction
where the failure to be so qualified and in good standing would not have a
material adverse effect on the Business, the Assets or the Systems or on the
ability of Seller to perform its obligations under this Agreement. The general
partner of Seller is BCI (USA), L.P. ("GP").
5.2 Authority and Validity. Seller has all requisite partnership
----------------------
power and authority to execute and deliver, to perform its obligations under,
and to consummate the transactions contemplated by, this Agreement and all other
documents and instruments to be executed and delivered in connection with the
transactions contemplated by this Agreement (collectively, the "Transaction
Documents") to which Seller is a party. Subject to approval by the partners of
Seller, the execution and delivery by Seller of, the performance by Seller of
its obligations under, and the consummation by Seller of the transactions
contemplated by, this Agreement and the Transaction Documents to which Seller is
a party have been duly and validly authorized by all necessary action by or on
behalf of Seller and the general partner of Seller. This Agreement has been, and
when executed and delivered by Seller the Transaction Documents will be, duly
and validly executed and delivered by Seller and the valid and binding
obligations of Seller, enforceable against Seller in accordance with their
terms, except as the same may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to the enforcement of creditors' rights generally or by principles governing the
availability of equitable remedies.
5.3 No Conflict; Required Consents. Except for the Required
------------------------------
Consents, all of which are listed on SCHEDULE 5.3, the execution and delivery by
Seller, the performance of Seller under, and the consummation of the
transactions contemplated by, this Agreement and the Transaction Documents to
which Seller is a party do not and will not: (a) violate any provision of the
Partnership Agreement of Seller; (b) violate any Legal Requirement; (c) require
any consent, approval or authorization of, or filing of any certificate, notice,
application, report or other document with any Governmental Authority or other
Person; or (d) (i) violate or result in a breach of or default
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under (without regard to requirements of notice, lapse of time, or elections of
any Person, or any combination thereof), (ii) permit or result in the
termination, suspension or modification of, (iii) result in the acceleration of
(or give any Person the right to accelerate) the performance of Seller under, or
(iv) result in the creation or imposition of any Encumbrance under any Seller
Contract or any other instrument evidencing any of the Assets or by which Seller
or any of its assets is bound or affected, except for purposes of this clause
(d) such violations, conflicts, breaches, defaults, terminations, suspensions,
modifications, and accelerations as would not, individually or in the aggregate,
have a material adverse effect on any System, the Business or Seller, the
validity, binding effect or enforceability of this Agreement or on the ability
of Seller to perform its obligations under this Agreement or the Transaction
Documents to which Seller is a party.
5.4 Assets. Seller has exclusive, good and marketable title to (or,
------
in the case of Assets that are leased, valid leasehold interests in) the Assets
(other than Real Property, as to which the representations and warranties in
SECTION 5.7 apply). The Assets are free and clear of all Encumbrances, except
(a) Permitted Encumbrances and (b) Encumbrances described on SCHEDULE 5.4, all
of which will be terminated, released or, in the case of rights of refusal
listed on SCHEDULE 5.4, waived, as appropriate, at or prior to the Closing.
Except as described on SCHEDULE 5.6, none of the Equipment is leased by Seller
from any other Person. All the Equipment is in good operating condition and
repair (ordinary wear and tear excepted). Except for items included in the
Excluded Assets, the Assets constitute all the assets necessary to permit Buyer
to (i) conduct the Business and to operate the Systems substantially as they are
being conducted and operated on the date of this Agreement and in compliance in
all material respects with all Legal Requirements, Governmental Permits and
Seller Contracts and (ii) perform all the Assumed Liabilities.
5.5 Governmental Permits. All Governmental Permits are listed on
--------------------
SCHEDULE 5.5. Complete and correct copies of all Governmental Permits have been
delivered by Seller to Buyer. Each Governmental Permit is in full force and
effect and Seller is not and, to Seller's Knowledge, the other party thereto is
not, in breach or default of any material terms or conditions thereunder, and is
valid under all applicable Legal Requirements according to its terms. There is
no legal action, governmental proceeding or investigation, pending or, to
Seller's Knowledge threatened, to terminate, suspend or modify any Governmental
Permit and Seller is in compliance with the material terms and conditions of all
the Governmental Permits and with other material applicable requirements of all
Governmental Authorities (including the FCC and the Register of Copyrights)
relating to the Governmental Permits, including all requirements for
notification, filing, reporting, posting and maintenance of logs and records. As
of the date of this Agreement, to Seller's Knowledge, no third party has been
granted or has applied for a cable television franchise or is providing or
intending to provide cable television services in any of the communities or
unincorporated areas currently served by the Business other than Buyer in the
City of Midway.
5.6 Seller Contracts. All Seller Contracts (other than those
----------------
constituting Excluded Assets) are described on SCHEDULE 5.6 or 5.7. Complete and
correct copies of all Seller Contracts have been delivered by Seller to Buyer.
Each Seller Contract is in full force and effect and constitutes the
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valid, legal, binding and enforceable obligation of Seller, and Seller is not
and to Seller's Knowledge each other party thereto is not, in breach or default
of any material terms or conditions thereunder.
5.7 Real Property.
-------------
5.7.1 All the Assets consisting of Real Property interests are
described on SCHEDULE 5.7. Except as otherwise disclosed on SCHEDULE 5.7, Seller
holds good, marketable and indefeasible fee simple title to the Real Property
shown as being owned by Seller on SCHEDULE 5.7 and the valid and enforceable
right to use and possess such Real Property, subject only to the Permitted
Encumbrances. Seller has valid and enforceable leasehold interests in Real
Property shown as being leased by Seller on SCHEDULE 5.7 and, with respect to
other Real Property not owned or leased by Seller, Seller has the valid and
enforceable right to use all such other Real Property pursuant to the easements,
licenses, rights-of-way or other rights described on SCHEDULE 5.7, subject only
to Permitted Encumbrances. Except for routine repairs, all of the material
improvements, leasehold improvements and the premises of the Real Property are
in good condition and repair and are suitable for the purposes used. The current
use and occupancy of the Real Property do not constitute nonconforming uses
under any applicable zoning Legal Requirements.
5.7.2 The documents delivered by Seller to Buyer as evidence of
each Seller Contract that is a lease of Real Property constitute the entire
agreement with the landlord in question. There are no leases or other
agreements, oral or written, granting to any Person other than Seller the right
to occupy or use any Real Property, except as described on SCHEDULE 5.7. All
easements, rights-of-way and other rights appurtenant to, or which are necessary
for Seller's current use of, any Real Property are valid and in full force and
effect, and Seller has not received any notice with respect to the termination,
breach or impairment of any of those rights. Each parcel of Real Property, any
improvements constructed thereon and their current use (a) has access to and
over all public streets, or private streets for which Seller has a valid right
of ingress and egress, (b) conforms in its current use and occupancy to all
zoning requirements without reliance upon a variance issued by a Governmental
Authority or a classification of the parcel in question as a nonconforming use,
and (c) conforms in all material respects in its use to all restrictive
covenants, if any, or other Encumbrances affecting all or part of such parcel.
5.8 Environmental Matters.
---------------------
5.8.1 The Real Property currently complies in all material
respects with and, to Seller's Knowledge, has previously been operated in
compliance in all material respects with, all Environmental Laws. Seller has not
directly or indirectly (a) generated, released, stored, used, treated, handled,
discharged or disposed of any Hazardous Substances at, on, under, in or about,
or in any other manner affecting, any Real Property, (b) transported any
Hazardous Substances to or from any Real Property or (c) undertaken or caused to
be undertaken any other activities relating to the Real Property which could
reasonably give rise to any liability under any Environmental Law, and, to
Seller's Knowledge, no other present or previous owner, tenant, occupant or user
of any Real Property or any other Person has committed or suffered any of the
foregoing. To Seller's Knowledge, (i) no release of Hazardous Substances outside
the Real Property has entered or
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threatens to enter any Real Property, nor (ii) is there any pending or
threatened claim based on Environmental Laws which arises from any condition of
the land surrounding any Real Property. No litigation based on Environmental
Laws which relates to any Real Property or any operations on conditions on it
(A) has been asserted or conducted in the past or is currently pending against
or with respect to Seller or, to Seller's Knowledge, any other Person, or (B) to
Seller's Knowledge is threatened or contemplated.
5.8.2 To Seller's Knowledge, other than as described on SCHEDULE
5.8, (a) no aboveground or underground storage tanks are currently or have been
located on any Real Property, (b) no Real Property has been used at any time as
a gasoline service station or any other facility for storing, pumping,
dispensing or producing gasoline or any other petroleum products or wastes and
(c) no building or other structure on any Real Property contains asbestos-
containing material.
5.8.3 Seller has provided Buyer with complete and correct copies
of (a) all studies, reports, surveys or other materials in Seller's possession
or, to Seller's Knowledge to which it has access, relating to the presence or
alleged presence of Hazardous Substances at, on or affecting the Real Property,
(b) all notices or other materials in Seller's possession or, to Seller's
Knowledge to which it has access, that were received from any Governmental
Authority having the power to administer or enforce any Environmental Laws
relating to current or past ownership, use or operation of the Real Property or
activities at the Real Property and (c) all materials in Seller's possession or,
to Seller's Knowledge to which it has access, relating to any litigation or
allegation by any Person concerning any Environmental Law.
5.9 Compliance with Legal Requirements.
----------------------------------
5.9.1 The ownership, leasing and use of the Assets as they are
currently owned, leased and used and the conduct of the Business and the
operation of the Systems as they are currently conducted and operated do not
violate or infringe, in any material respect, any Legal Requirements currently
in effect (other than the Legal Requirements described in SECTION 5.9.4, as to
which the provisions of SECTION 5.9.4 will apply, and other than as referenced
in Schedule 5.5 with respect to the City of Midway). Seller has received no
notice of any violation by Seller or the Business of any Legal Requirement
applicable to the Business or the Systems as currently conducted, and to
Seller's Knowledge, there is no basis for the allegation of any such a
violation.
5.9.2 A valid request for renewal has been duly and timely filed
under Section 626 of the Cable Communications Policy Act of 1984 with the proper
Governmental Authority with respect to applicable Governmental Permits with
franchising authorities that have expired prior to, or will expire within 30
months after, the date of this Agreement.
5.9.3 Seller has complied, and the Business is in compliance, in
all material respects, with the specifications set forth in Part 76, Subpart K
of the rules and regulations of the FCC, Section 111 of the U.S. Copyright Act
of 1976 and the applicable rules and regulations thereunder and the applicable
rules and regulations of the U.S. Copyright Office, the Register of Copyrights,
the Copyright Royalty Tribunal and the Communications Act of 1934, including
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provisions of any thereof pertaining to signal leakage, to utility pole make
ready and to grounding and bonding of cable television systems (in each case as
the same is currently in effect), and all other applicable Legal Requirements
relating to the construction, maintenance, ownership and operation of the
Assets, the Systems and the Business.
5.9.4 Notwithstanding the foregoing, to Seller's Knowledge, each
System is in compliance in all material respects with the provisions of the
Cable Television Consumer Protection and Competition Act of 1992 and the FCC
rules and regulations promulgated thereunder (the "1992 Cable Act") as such
Legal Requirements relate to the operation of the Business; provided, however,
that Seller does not hereby make any representation about rates charged to
subscribers, other than the representation regarding the rates charged to
subscribers set forth below. Seller has complied in all material respects with
the must carry and retransmission consent provisions of the 1992 Cable Act and
has all must carry elections and retransmission consent agreements necessary for
the operation of the Business. Seller has used reasonable good faith efforts to
establish rates charged to subscribers, effective since September 1, 1993, that
are or were allowable under the 1992 Cable Act and any authoritative
interpretation thereof now or then in effect, whether or not such rates are or
were subject to regulation at that date by any Governmental Authority, including
any local franchising authority and/or the FCC, unless such rates were not
subject to regulation pursuant to a specific exemption from rate regulation
contained in the 1992 Cable Act other than the failure of any franchising
authority to have been certified to regulate rates. Notwithstanding the
foregoing, Seller makes no representation or warranty that the rates charged to
subscribers (a) are allowable under any rules and regulations of the FCC or any
authoritative interpretation thereof, or (b) would be allowable under any rules
and regulations of the FCC or any authoritative interpretation thereof
promulgated after the date of the Closing. Seller has delivered to Buyer
complete and correct copies of all FCC Forms 393, 1200, 1205, 1210, 1215, 1220,
1225, 1235 and 1240 filed with respect to the Systems and copies of all other
FCC Forms filed by Seller and of all correspondence with any Governmental
Authority relating to rate regulation generally or specific rates charged to
subscribers with respect to the Systems, including copies of any complaints
(attached hereto as SCHEDULE 5.9.4) filed with the FCC with respect to any rates
charged to subscribers of the Systems, and any other documentation supporting an
exemption from the rate regulation provisions of the 1992 Cable Act claimed by
Seller with respect to any of the Systems (collectively, "Rate Regulation
Documents"). As of the date of this Agreement, Seller has received no notice
from any Governmental Authority with respect to an intention to enforce customer
service standards pursuant to the 1992 Cable Act and Seller has not agreed with
any Governmental Authority to establish customer service standards that exceed
the customer service standards promulgated pursuant to the 1992 Cable Act. In
addition, Seller has also delivered to Buyer documentation for each of the
Systems in which the franchising authority has not certified to regulate rates
as of the date of this Agreement showing a determination of allowable rates
using a benchmark methodology. Except as described in SCHEDULE 5.9.4, Seller has
not made any election with respect to any cost of service proceeding conducted
in accordance with Part 76.922 of Title 47 of the Code of Federal Regulations or
any similar proceeding (a "Cost of Service Election") with respect to any of the
Systems.
5.9.5 CLI. Seller has conducted all system and microwave
---
performance tests and all Cumulative Leakage Index ("CLI") related tests
applicable to the System. Seller has
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(i) maintained appropriate log books and other record keeping which accurately
and completely reflect in all material respects all results required to be shown
thereon; (ii) to the extent required by the rules and regulations of the FCC,
corrected any radiation leakage of the System required to be corrected in
connection with Seller's monitoring obligations under the rules and regulations
of the FCC; and (iii) otherwise complied in all material respects with all
applicable CLI rules and regulations in connection with the operation of the
System.
5.10 Patents, Trademarks and Copyrights. Seller has timely and
----------------------------------
accurately made all requisite filings and payments with the Register of
Copyrights with respect to the Business. Seller has delivered to Buyer complete
and correct copies of all current reports and filings, and all reports and
filings for the past three years, made or filed pursuant to copyright rules and
regulations with respect to the Business. Seller does not possess any patent,
patent right, trademark or copyright material to the operation of the Business
and Seller is not a party to any license or royalty agreement with respect to
any patent, trademark or copyright except for licenses respecting program
material and obligations under the Copyright Act of 1976 applicable to cable
television systems generally. The Business and the System have been operated in
such a manner so as not to violate or infringe upon the rights of, or give rise
to any rightful claim of any Person for copyright, trademark, service mark,
patent, license, trade secret infringement or the like.
5.11 Financial Statements. A correct copy of the unaudited
--------------------
financial statements for the Systems as of December 31, 1997, including an
unaudited income statement and balance sheet which fairly present the financial
condition of the Systems, is attached as SCHEDULE 5.11 (collectively, the
"Financial Statements"). At the date of the Financial Statements, Seller had no
liability or obligation, whether accrued, absolute, fixed or contingent
(including liabilities for Taxes or unusual forward or long-term commitments),
required by GAAP to be reflected or reserved against therein that were not fully
reflected or reserved against on the balance sheet included in the Financial
Statements, other than liabilities included in current liabilities, and none of
which was or would be material to the Business (collectively, the "Unreflected
Liabilities"). As of the date of this Agreement, since the date of the Financial
Statements, there has not existed or developed, and Seller is not aware of, any
additional Unreflected Liabilities.
5.12 Absence of Certain Changes. Since December 31, 1997 (a)
--------------------------
Seller has not incurred any obligation or liability (contingent or otherwise),
except normal trade or business obligations incurred in the ordinary course of
business, the performance of which would be reasonably likely, individually or
in the aggregate, to have a material adverse effect on the financial condition
or results of operations of the Business, (b) there has been no material adverse
change (except any change affecting the United States cable industry as a whole,
including any change arising from (i) legislation, litigation, rulemaking or
regulation or (ii) competition caused by or arising from other multiple channel
distribution services) in the business, condition (financial or otherwise) or
liabilities of the Business, and (c) the Business has been conducted only in the
ordinary course of business.
5.13 Legal Proceedings. Except as set forth in SCHEDULE 5.13:
-----------------
(a) there is no claim, investigation or litigation pending or, to Seller's
Knowledge, threatened, by or before any
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Governmental Authority or private arbitration tribunal against Seller which, if
adversely determined, would materially adversely affect the financial condition
or operations of the Business, the Systems, the Assets or the ability of Seller
to perform its obligations under this Agreement, or which, if adversely
determined, would result in the modification, revocation, termination,
suspension or other limitation of any of the Governmental Permits, Seller
Contracts or leases or other documents evidencing the Real Property; and (b)
there is not in existence any judgment requiring Seller to take any action of
any kind with respect to the Assets or the operation of the Systems, or to which
Seller (with respect to the Systems), the Systems or the Assets are subject or
by which they are bound or affected.
5.14 Tax Returns; Other Reports. Seller has duly and timely filed
--------------------------
in correct form all federal, state and local Tax returns and all other Tax
reports required to be filed by Seller and has timely paid all Taxes which have
become due and payable, whether or not shown on any such report or return, the
failure of which to be filed or paid could adversely affect the Assets or result
in the imposition of an Encumbrance upon the Assets, except such amounts as are
being contested diligently and in good faith and are not in the aggregate
material. Except as specifically identified on SCHEDULE 5.14, Seller has
received no notice of, nor does Seller have any Knowledge of, any deficiency,
assessment or audit, or proposed deficiency, assessment or audit from any taxing
Governmental Authority which could affect or result in the imposition of an
Encumbrance upon the Assets.
5.15 Employment Matters.
------------------
5.15.1 SCHEDULE 5.15 contains a complete and correct list of
names and positions of all employees of Seller engaged in the Business as of the
date set forth in such SCHEDULE. Seller has no employment agreements, either
written or oral, with any employee of the Business. Seller has complied in all
material respects with applicable Legal Requirements relating to the employment
of labor, including WARN, the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), continuation coverage requirements with respect to group
health plans, and those relating to wages, hours, collective bargaining,
unemployment insurance, worker's compensation, equal employment opportunity, age
and disability discrimination, immigration control and the payment and
withholding of Taxes.
5.15.2 Each "employee benefit plan" or "multiemployer plan"
(as those terms are defined in ERISA) with respect to which Seller or any ERISA
Affiliate (as defined in ERISA) of Seller has any liability is set forth on
SCHEDULE 5.15 (the "Employee Benefit Plans"). Neither Seller nor its ERISA
Affiliates nor any Employee Benefit Plan is in material violation of any
provision of ERISA. No "reportable event," as defined in Section 4043 of ERISA,
has occurred and is continuing with respect to any Employee Benefit Plan. No
"prohibited transaction," within the meaning of Section 406 of ERISA, has
occurred with respect to any such Employee Benefit Plan, and no "accumulated
funding deficiency" or "withdrawal liability" (both as defined in Section 302 of
ERISA) exists with respect to any such Employee Benefit Plan. After the Closing,
Buyer will not be required, under ERISA, the Internal Revenue Code of 1986, as
amended (the "Code") or any collective bargaining agreement, to establish,
maintain or continue any Employee Benefit Plan
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currently maintained by Seller or any of its ERISA Affiliates, nor will Buyer
have any liabilities of any nature whatsoever under any Employment Benefit
Plans.
5.15.3 Except as set forth on SCHEDULE 5.15, Seller is not a
party to any collective bargaining agreements and Seller has not recognized or
agreed to recognize and has no duty to bargain with any labor organization or
collective bargaining unit. There are not pending any unfair labor practice
charges against Seller, any demand for recognition or any other request or
demand from a labor organization for representative status with respect to any
Person employed by Seller. Except as set forth on SCHEDULE 5.15, and to Seller's
Knowledge, Seller's employees are not engaged in organizing activity with
respect to any labor organization. Seller has no employment agreement, either
written or oral, express or implied, that would require Buyer to employ any
Person after the Closing Date. Seller has made no representations to any of its
employees regarding future employment with Buyer following consummation of the
transactions contemplated hereby.
5.16 Systems Information. SCHEDULE 5.16 sets forth a materially true
-------------------
and accurate description of the following information relating to the Business
as of the most recent monthly report generated by Seller in the ordinary course
of business containing the information required to prepare such SCHEDULE
(provided that such date is no earlier than two months prior to the date of this
Agreement):
5.16.1 the approximate number of miles of plant included in the
Assets;
5.16.2 the number of subscribers and EBS's served by the
Systems for each Franchise;
5.16.3 the approximate number of single family homes and
residential dwelling units passed by the Systems;
5.16.4 a description of basic and optional or tier services
available from the Systems, the rates charged by Seller for each and the number
of subscribers and subscriber equivalents receiving each optional or tier
service;
5.16.5 the stations and signals carried by the Systems and the
channel position of each such signal and station; and
5.16.6 the cities, towns, villages, townships, boroughs and
counties served by the Systems.
5.17 Bonds. Except as set forth on SCHEDULE 5.17, as of the date of
-----
this Agreement, there are no franchise, construction, fidelity, performance, or
other bonds or letters of credit posted by Seller in connection with its
operation or ownership of any of the Systems or Assets.
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5.18 Finders and Brokers. Seller has not employed any financial advisor,
-------------------
broker or finder or incurred any liability for any financial advisory,
brokerage, finder's or similar fee or commission in connection with the
transactions contemplated by this Agreement for which Buyer could be liable.
Section 6. Buyer's Representations and Warranties.
To induce Seller to enter into this Agreement, Buyer represents and
warrants to Seller, as of the date of this Agreement and as of the Closing, as
follows:
6.1 Organization and Qualification. Buyer is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Colorado and has all requisite corporate power and authority to own, lease and
use the assets owned, leased or used by it and to conduct its business as it is
currently conducted. Buyer is duly qualified to do business and is in good
standing under the law of Georgia, and of each jurisdiction in which the
ownership, leasing or use of the assets owned, leased or used by it or the
nature of Buyer's activities makes such qualification necessary, except in any
such jurisdiction where the failure to be so qualified and in good standing
would not have a material adverse effect on Buyer or on the ability of Buyer to
perform its obligations under this Agreement.
6.2 Authority and Validity. Buyer has all requisite corporate power and
----------------------
authority to execute and deliver, to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement and the Transaction
Documents to which Buyer is a party. The execution and delivery by Buyer of,
the performance by Buyer of its obligations under, and the consummation by Buyer
of the transactions contemplated by, this Agreement and the Transaction
Documents to which Buyer is a party have been duly and validly authorized by all
necessary action by or on behalf of Buyer. This Agreement has been, and when
executed and delivered by Buyer the Transaction Documents will be, duly and
validly executed and delivered by Buyer and the valid and binding obligations of
Buyer, enforceable against Buyer in accordance with their terms, except as the
same may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to the
enforcement of creditors' rights generally or by principles governing the
availability of equitable remedies.
6.3 No Conflicts; Required Consents. Except for the Required Consents,
-------------------------------
the execution and delivery by Buyer, the performance of Buyer under, and the
consummation of the transactions contemplated by, this Agreement and the
Transaction Documents to which Buyer is a party do not and will not (a) violate
any provision of the articles of incorporation or bylaws of Buyer, (b) violate
any Legal Requirement, (c) require any consent, approval or authorization of, or
filing of any certificate, notice, application, report or other document with
any Governmental Authority or other Person or (d) (i) violate or result in a
breach of or constitute a default under (without regard to requirements of
notice, lapse of time or elections of any Person or any combination thereof),
(ii) permit or result in the termination, suspension, modification of, (iii)
result in the acceleration of (or give any Person the right to accelerate) the
performance of Buyer under, or (iv) result in the creation or imposition of any
Encumbrance under, any instrument or other agreement to which Buyer is a party
or by which Buyer or any of its assets is bound or affected, except for purposes
of
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this clause (d) such violations, conflicts, breaches, defaults, terminations,
suspensions, modifications and accelerations as would not, individually or in
the aggregate, have a material adverse effect on the validity, binding effect or
enforceability of this Agreement or on the ability of Buyer to perform its
obligations under this Agreement or the Transaction Documents to which it is a
party.
6.4 Finders and Brokers. Buyer has not employed any financial advisor,
-------------------
broker or finder or incurred any liability for any financial advisory,
brokerage, finder's or similar fee or commission in connection with the
transactions contemplated by this Agreement for which Seller could be liable.
6.5 Legal Proceedings. There are no claims, actions, suits, proceedings
-----------------
or investigations pending or, to Buyer's Knowledge, threatened, by or before any
Governmental Authority, or any arbitrator, by or against or affecting or
relating to Buyer which, if adversely determined, would restrain or enjoin the
consummation of the transactions contemplated by this Agreement or declare
unlawful the transactions or events contemplated by this Agreement or cause any
of such transactions to be rescinded.
Section 7. Additional Covenants.
7.1 Access to Premises and Records. Between the date of this Agreement
------------------------------
and the Closing Date, Seller will give Buyer and its counsel, accountants and
other representatives full access during normal business hours upon reasonable
notice to all the premises and books and records of the Business and to all the
Assets and to the System personnel and will furnish to Buyer and such
representatives all such documents, financial information, and other information
regarding the Business and the Assets as Buyer from time to time reasonably may
request; provided that no such investigation will affect or limit the scope of
any of Seller's representations, warranties, covenants and indemnities in this
Agreement or any Transaction Document or limit liability for any breach of any
of the foregoing.
7.2 Continuity and Maintenance of Operations; Financial Statements. Except
--------------------------------------------------------------
as Buyer may otherwise consent in writing, between the date of this Agreement
and the Closing:
7.2.1 Seller will (a) conduct the Business and operate the Systems
only in the usual, regular and ordinary course consistent with past practices
(including fulfilling installation requests and making budgeted capital
expenditures; provided, however, that to the extent that any assumption
underlying any of Seller's budgeted capital expenditure(s) turns out to have
been untrue, and such capital expenditure(s) is no longer reasonably necessary
for the operation of the Business, Seller will not be required to make such
capital expenditure(s)) and (b) use commercially reasonable efforts to (i)
preserve its current business intact, including preserving existing
relationships with franchising authorities, suppliers, customers and others
having business dealings with Seller relating to the Business unless Buyer
requests otherwise, (ii) keep available the services of its employees and agents
providing services in connection with the Business and (iii) continue making
marketing, advertising and promotional expenditures with respect to the Business
consistent with past practices.
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<PAGE>
7.2.2 Seller will maintain the Assets in good repair, order and
condition (ordinary wear and tear excepted), will maintain equipment and
inventory at historical levels consistent with past practices, will maintain in
full force and effect, policies of insurance with respect to the Business in
such amounts and with respect to such risks as customarily maintained by
operators of cable television systems of the size and geographic location as the
Systems and will maintain its books, records and accounts in the usual, regular
and ordinary manner on a basis consistent with past practices. Seller will not
itself, and will not permit any of its partners, agents or employees to, pay any
of Seller's subscriber accounts receivable (other than for their own residences)
prior to the Closing Date. Seller will continue to implement its procedures for
disconnection and discontinuance of service to subscribers whose accounts are
delinquent in accordance with those in effect on the date of this Agreement.
7.2.3 Without the prior approval of Buyer, Seller will not (a) change
the rate charged for Basic Service, Expanded Basic Service or Pay TV or add,
delete, retier or repackage any programming services except to the extent
required under the 1992 Cable Act or any other Legal Requirement, provided
however if Seller changes such rates in order to so comply, Seller will provide
Buyer with copies of any FCC forms (even if not filed with any Governmental
Authority) that Seller used to determine that the new rates were allowable, (b)
sell, transfer or assign any portion of the Assets other than sales in the
ordinary course of business or permit the creation of any Encumbrance on any
Asset other than a Permitted Encumbrance or any Encumbrance which will be
released at or prior to Closing, (c) modify in any material respect, terminate,
suspend or abrogate any Governmental Permits, Seller Contracts or any other
contract or agreement (other than those constituting Excluded Assets), (d) enter
into any contract or commitment or incur any indebtedness or other liability or
obligation of any kind relating to any System or the Business involving an
expenditure in excess of $25,000, other than contracts or commitments which are
cancelable on 30 days' notice or less without penalty, (e) take or omit to take
any action that would result in any of its representations or warranties in this
Agreement or in any Transaction Document not being true and correct when made or
as of the Closing, (f) engage in any marketing, subscriber installation or
collection practices that are inconsistent with past practices, or (g) enter
into any agreement with or commitment to any competitive access providers with
respect to the Systems.
7.2.4 Seller promptly will deliver to Buyer true and complete copies
of monthly and quarterly financial statements and operating reports and any
reports with respect to the operations of the Business prepared by or for Seller
at any time between the date of this Agreement and the Closing Date. All
financial statements so delivered will be prepared in accordance with GAAP on a
basis consistent with the Financial Statements.
7.2.5 Seller will give or cause to be given to Buyer as soon as
reasonably possible but in any event no later than 5 Business Days prior to the
date of submission to the appropriate Governmental Authority, copies of all Rate
Regulation Documents prepared with respect to any of the Systems, and Seller
will make a good faith effort to address any specific concerns raised by Buyer
with respect to such documents.
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<PAGE>
7.2.6 Seller will duly and timely file a valid notice of renewal
under Section 626 of the Cable Communications Policy Act of 1984 with the
appropriate Governmental Authority with respect to all cable television
franchises of the Business that will expire within 36 months after any date
between the date of this Agreement and the Closing Date.
7.2.7 Seller will promptly notify Buyer of any fact, circumstance,
event or action by it or otherwise (a) which, if known at the date of this
Agreement, would have been required to be disclosed in or pursuant to this
Agreement or (b) the existence, occurrence or taking of which would result in
any of Seller's representations and warranties in this Agreement or any
Transaction Document not being true, complete and correct when made or at the
Closing, and, with respect to clause (b) use its best efforts to remedy the
same; provided, however, that nothing in this SECTION 7.2.7 shall be deemed to
limit Buyer's rights under SECTION 10.1.2.
7.3 Employee Matters.
----------------
7.3.1 Buyer will have no obligation to employ or offer employment to
any of the employees of Seller. Seller agrees that it will not make any
representations to any of its employees regarding future employment with Buyer
following consummation of the transactions contemplated hereby. Seller
acknowledges that it has no authority to bind Buyer to any employment
arrangement with any of Seller's employees. Seller hereby represents and
warrants that it has not represented itself as having any such authority and
agrees that it will not make any such representations. As of the Closing Date,
Seller will terminate the employment of all its employees who were employed
incidental to the conduct of the Business whose employment will not continue
with Seller after the Closing and will promptly pay to all such employees all
compensation, including salaries, commissions, bonuses, deferred compensation,
severance, insurance, pensions, profit sharing, vacation (except for accrued
vacation included in the adjustments pursuant to SECTION 3.3), sick pay and
other compensation or benefits to which they are entitled for periods prior to
the Closing, including all amounts, if any, payable on account of the
termination of their employment. Seller agrees to cooperate in all reasonable
respects with Buyer to allow Buyer to evaluate and interview employees of the
Business to make hiring decisions. Such cooperation will include but not be
limited to allowing Buyer to contact employees during work time and, with the
consent of the employee, making personnel records available. Buyer will give
Seller written notice on or before 60 days after the date hereof of the name of
all employees of the System to whom Buyer desires to offer employment on and
after the Closing Date (subject to satisfaction of Buyer's conditions for
employment). Seller will not, without the prior written consent of Buyer, change
the compensation or benefits of any employees of the Business except in
accordance with past practice.
7.3.2 All claims and obligations under, pursuant to or in connection
with any welfare, medical, insurance, disability or other employee benefit plans
of Seller or arising under any Legal Requirement affecting employees of Seller
incurred on or before the Closing Date or resulting or arising from events or
occurrences occurring or commencing on or before the Closing Date will remain
the responsibility of Seller, whether or not such employees are hired by Buyer
after the Closing.
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<PAGE>
7.3.3 In no event shall Purchaser by virtue of anything express or
implied, or anything done or not done pursuant to this Agreement, assume, or be
responsible for any liabilities or obligations of any kind with respect to
Seller's relationship with its employees at the time of termination of
employment of such employees, including without limitation any liabilities or
obligations described below. Seller will remain solely responsible for, and will
indemnify and hold harmless Buyer from and against all Losses arising from or
with respect to, all salaries and all severance, vacation (except for accrued
vacation included in the adjustments pursuant to SECTION 3.3), medical, sick,
holiday, continuation coverage and other compensation or benefits (including any
pension, retirement, savings and profit sharing plans and all expenses
attributable thereto) to which Seller's employees (whether or not hired by
Buyer) may be entitled as a result of their employment by Seller prior to the
Closing, the termination of their employment prior to the Closing, the
consummation of the transactions contemplated hereby or pursuant to any
applicable Legal Requirement (including without limitation WARN) or otherwise
relating to their employment prior to the Closing.
7.3.4 Nothing in this Agreement shall be interpreted to require Buyer
to adopt the Collective Bargaining Agreement, and/or any agreements, memoranda,
programs or employee benefit plans contained therein or contemplated thereby.
The Assumed Liabilities in no event shall include any collective bargaining
agreement or other labor agreement. Buyer shall not be obligated or responsible,
by virtue of this Agreement or anything done or not done pursuant to this
Agreement, for performance of any terms of any collective bargaining agreement
or other labor agreement applicable to any of Seller's employees, salaried or
hourly, at any of the Seller's facilities. Seller agrees that following the
Closing it will honor all of its continuing obligations under the Collective
Bargaining Agreement, if any.
7.3.5 Seller represents and warrants that it has not and shall not
make any representations to anyone, including without limitation any union
representing Seller's employees or to Seller's employees, that Buyer will, may,
or is considering adopting any collective bargaining agreement or other labor
agreement.
7.4 Leased Vehicles; Other Capital Leases. Seller will pay the remaining
-------------------------------------
balances on any leases for vehicles or capital leases included in the Equipment
and will deliver title to such vehicles and other Equipment free and clear of
all Encumbrances (other than Permitted Encumbrances) to Buyer at the Closing.
7.5 Required Consents; Estoppel Certificates.
----------------------------------------
7.5.1 Seller will use commercially reasonable efforts to obtain in
writing, as promptly as possible and at its expense, all the Required Consents,
the approval of its partners for the consummation of the transactions
contemplated hereby, and any other consent, authorization or approval required
to be obtained by Seller in connection with the transactions contemplated by
this Agreement, in form and substance reasonably satisfactory to Buyer and
deliver to Buyer copies of such Required Consents and such other consents,
authorizations or approvals promptly after they are obtained by Seller;
provided, however, that nothing in this SECTION 7.5 will limit the rights of
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Buyer to terminate the Agreement pursuant to SECTION 10.1.2 hereof if the
condition specified in SECTION 8.2.4 has not been met by the Outside Closing
Date. Such Required Consents will be proposed in a form that provides
confirmation from the third party of the continued existence of and the absence
of defaults under the applicable Seller Contract or Governmental Permit. Buyer
will cooperate with Seller to obtain all Required Consents, but Buyer will not
be required to accept or agree or accede to any modifications or amendments to,
or changes in, or the imposition of any condition to the transfer to Buyer of
(in each case other than inconsequential matters with no adverse effect on
Buyer), any Seller Contract or Governmental Permit that are not acceptable to
Buyer in its sole discretion. Notwithstanding the foregoing, Seller will
complete, execute and deliver to the appropriate Governmental Authority, the FCC
Forms 394 prepared by Buyer with respect to each franchise as to which such Form
394 is required within two Business Days after it receives each such Form 394
from Buyer.
7.5.2 Seller will use commercially reasonable efforts to obtain for
each lease that has not been recorded in the public records, execution of a
document suitable for recording in the public records and sufficient after
recording to constitute a memorandum of lease.
7.6 [Intentionally Omitted].
7.7 Title Commitments and Surveys.
-----------------------------
7.7.1 After the execution of this Agreement, Buyer will order at
Seller's expense (a) commitments for owner's title insurance policies on all
Real Property owned by Seller and on easements which provide access to each such
parcel of real property, (b) commitments for lessee's title insurance policies
for all Real Property leased by Seller which is used for headend or tower sites
and on easements which provide access to each such site and (c) an ALTA survey
(including such items on Table A of the Minimum Standard Detail Requirements and
Classifications thereto that Buyer in its reasonable judgment determines are
desirable or necessary) on each parcel of Real Property for which a title
insurance policy is to be obtained. The title commitments will evidence a
commitment to issue an ALTA title insurance policy insuring good, marketable and
indefeasible fee simple title or leasehold interest, in the case of leased Real
Property, if applicable) to each parcel of such Real Property, subject only to
Permitted Encumbrances, for such amount as Buyer directs and will contain no
exceptions except for items which in Buyer's reasonable opinion do not adversely
affect (other than in an immaterial way as to any individual parcel) the good,
marketable and indefeasible title to or Buyer's access or quiet use or enjoyment
of such Real Property in the manner the Real Property is presently used or in
the normal conduct of the Business. At the Closing, Seller will cause Buyer to
receive, at Seller's expense, title commitments redated to the date and time of
Closing. In the event Seller has not eliminated or caused to be eliminated all
unacceptable exceptions from such policies or commitments prior to Closing, and
Buyer elects to proceed with the Closing, Buyer will be entitled to
indemnification with respect to such exceptions as provided in SECTION 11.2.
7.7.2 Title insurance policies on all Real Property in such amounts
as Buyer directs will be delivered to Buyer at Seller's expense within 30 days
after the Closing Date
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evidencing title to the Real Property vested in Buyer consistent with the
commitments delivered at the Closing pursuant to SECTION 7.7.1.
7.8 HSR Notification. As soon as practicable after the execution of this
-----------------
Agreement, but in any event no later than 30 days after such execution, Seller
and Buyer will each complete and file, or cause to be completed and filed, any
notification and report required to be filed under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"); and each such
filing will request early termination of the waiting period imposed by the HSR
Act. The parties will use their reasonable best efforts to respond as promptly
as reasonably practicable to any inquiries received from the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
(the "Antitrust Division") for additional information or documentation and to
respond as promptly as reasonably practicable to all inquiries and requests
received from any other Governmental Authority in connection with antitrust
matters. The parties will use their respective reasonable best efforts to
overcome any objections which may be raised by the FTC, the Antitrust Division
or any other Governmental Authority having jurisdiction over antitrust matters.
Notwithstanding the foregoing, Buyer will not be required to make any
significant change in the operations or activities of the business (or any
material assets employed therein) of Buyer or any of its Affiliates, if Buyer
determines in good faith that such change would be materially adverse to the
operations or activities of the business (or any material assets employed
therein) of Buyer or any of its Affiliates having significant assets, net worth,
or revenue. Notwithstanding anything to the contrary in this Agreement, if
Buyer or Seller, in its sole opinion, considers a request from a governmental
agency for additional data and information in connection with the HSR Act to be
unduly burdensome, such party may terminate this Agreement by giving written
notice to the other. Within 10 days after receipt of a statement therefor,
Seller will reimburse Buyer for one-half of the filing fees payable by Buyer in
connection with Buyer's filing under the HSR Act.
7.9 No Shopping. None of Seller, its partners or any agent or
-----------
representative of any of them will, during the period commencing on the date of
this Agreement and ending with the earlier to occur of the Closing or the
termination of this Agreement, directly or indirectly (a) solicit or initiate
the submission of proposals or offers from any Person for, (b) participate in
any discussions pertaining to or (c) furnish any information to any Person other
than Buyer relating to, any direct or indirect acquisition or purchase of all or
any portion of the Assets.
7.10 Lien and Judgment Searches. Not more than 20 nor fewer than 10 days
--------------------------
prior to the expected Closing Date, Seller, at its expense, will provide Buyer
with (a) the results of a lien search conducted by a professional search company
of records in the offices of the secretaries of state in each state and county
clerks in each county where there exist tangible Assets, and in the state and
county where Seller's principal offices are located, including copies of all
financing statements or similar notices or filings (and any continuation
statements) discovered by such search company and (b) the results of a search of
the dockets of the clerk of each federal and state court sitting in the city,
county or other applicable political subdivision where the principal office or
any material assets of Seller may be located, with respect to judgments, orders,
writs or decrees against or affecting Seller or any of the Assets.
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7.11 Transfer Taxes. Any state or local sales or transfer Taxes imposed by
--------------
any Governmental Authority arising from or payable by reason of the transfer of
any of the Assets pursuant to this Agreement will be paid by Seller. Any state
or local use Taxes or fees or any other charge (including filing fees) imposed
by any Governmental Authority arising from or payable by reason of the transfer
of any of the Assets pursuant to this Agreement will be paid by one-half by
Buyer, with the balance to be paid by Seller.
7.12 Distant Broadcast Signals. Unless otherwise restricted or prohibited
-------------------------
by any Governmental Authority or applicable Legal Requirement, if requested by
Buyer, Seller will delete prior to the Closing Date any distant broadcast
signals which Buyer determines will result in unacceptable liability on the part
of Buyer for copyright payments with respect to continued carriage of such
signals after the Closing.
7.13 Letter to Programmers. On or before the Closing Date, Seller will
---------------------
transmit a letter in the form of EXHIBIT E to all programmers from which Seller
purchases programming for the Systems and provide Buyer with a copy of each such
letter.
7.14 Updated Schedules. Not later than ten Business Days prior to the
-----------------
expected Closing Date, Seller will deliver to Buyer revised copies of all
Schedules to this Agreement which will have been updated and marked to show any
changes occurring between the date of this Agreement and the date of delivery;
provided, however, that for purposes of Seller's representations and warranties
and covenants in this Agreement, all references as of the date of signing to the
Schedules will mean the version of the Schedules attached to this Agreement on
the date of signing, and all references as of the date of Closing to the
Schedules will mean the version of the Schedules attached to this Agreement on
the date of Closing, and provided further, that if the effect of any such
updates to Schedules is to disclose any one or more additional properties,
privileges, rights, interests or claims as Assets, Buyer, at or before Closing,
will have the right (to be exercised by written notice to Seller) to cause any
one or more of such items to be designated as and deemed to constitute Excluded
Assets for all purposes under this Agreement.
7.15 Use of Names and Logos. For a period of 90 days after the Closing
----------------------
Date, Buyer will be entitled to use all trademarks, trade names, service marks,
service names, logos and similar proprietary rights of Seller and all
derivations and abbreviations of such name and related marks to the extent
incorporated in or on the Assets transferred to it at the Closing.
Notwithstanding the foregoing, Buyer will not be required to remove or
discontinue using any such trade name or mark that is affixed to converters or
other items in or to be used in subscriber homes or properties, or as are used
in a similar fashion making such removal or discontinuation impracticable for
Buyer.
7.16 Subscriber Billing Services. Seller will provide to Buyer, upon
---------------------------
request, on terms and conditions reasonably satisfactory to each party, access
to and the right to use its billing system computers, software and related fixed
assets in connection with the Systems acquired by Buyer for a period of up to 90
days following the Closing to allow for conversion of existing billing
arrangements ("Transitional Billing Services"); provided however that Buyer will
not be required to pay Seller more than Seller's actual cost of providing such
service. Buyer will notify Seller at
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<PAGE>
least 10 days prior to the expected Closing Date as to whether it desires
Transitional Billing Services from Seller.
7.17 Satisfaction of Conditions. Each party will use its best efforts to
--------------------------
satisfy, or to cause to be satisfied, the conditions to the obligations of the
other party to consummate the transactions contemplated by this Agreement, as
set forth in SECTION 8, provided that Buyer will not be required to agree to any
increase in the amount payable with respect to, or any modification that makes
more burdensome in any material respect, any of the Assumed Liabilities.
7.18 Confidentiality and Publicity. Neither party will issue any press
-----------------------------
release or make any other public announcement or any oral or written statements
to Seller's employees concerning this Agreement or the transactions contemplated
hereby except as required by applicable Legal Requirements, without the prior
written consent of the other party. Each party will hold, and will cause its
employees, consultants, advisors and agents to hold the terms of this Agreement
in confidence; provided that (a) such party may use and disclose such
information once it has become publicly disclosed (other than by such party in
breach of its obligations under this Section) or which rightfully has come into
the possession of such party (other than from the other party) and (b) to the
extent that such party may be compelled by Legal Requirements to disclose any of
such information, but the party proposing to disclose such information will
first notify and consult with the other party concerning the proposed
disclosure, to the extent reasonably feasible. Each party also may disclose such
information to employees, consultants, advisors, agents and actual or potential
lenders whose knowledge is necessary to facilitate the consummation of the
transactions contemplated by this Agreement. The obligation by either party to
hold information in confidence pursuant to this Section will be satisfied if
such party exercises the same care with respect to such information as it would
exercise to preserve the confidentiality of its own similar information.
7.19 Bulk Transfers. Buyer waives compliance by Seller with Legal
--------------
Requirements relating to bulk transfers applicable to the transactions
contemplated hereby.
7.20 Environmental Reports. Within 60 days after the execution of this
---------------------
Agreement, Seller will, at its expense, obtain and deliver to Buyer for each
parcel of Real Property owned or leased by Seller a current Phase I
Environmental Site Assessment ("Environmental Report") prepared by a nationally
known environmental engineering firm reasonably satisfactory to Buyer in
accordance with ASTM Standard E 1527-93 and certified to Buyer. Each
Environmental Report will include, in addition to the process described in E
1527-93, such soil and groundwater sampling and other testing as will enable the
environmental engineers to determine if Hazardous Substances are detected and to
provide an estimate of the cost to remove and dispose of the Hazardous
Substances or otherwise remediate the property in accordance with all applicable
Environmental Laws.
Section 8. Conditions Precedent.
8.1 Conditions to the Obligations of Buyer and Seller. The obligations of
-------------------------------------------------
each party to consummate the transactions contemplated by this Agreement are
subject to the satisfaction, at or
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before the Closing, of the following, which may be waived by the parties to the
extent permitted by applicable Legal Requirements:
8.1.1 HSR Act Filings. All filings required under the HSR Act have
---------------
been made and the applicable waiting period has expired or been earlier
terminated without the receipt of any objection or the commencement or threat of
any litigation by a Governmental Authority of competent jurisdiction to restrain
the consummation of the transactions contemplated by this Agreement.
8.1.2 Absence of Litigation. No action, suit or proceeding is pending
---------------------
or threatened by or before any Governmental Authority and no Legal Requirement
has been enacted, promulgated or issued or become or deemed applicable to any of
the transactions contemplated by this Agreement by any Governmental Authority,
which would (a) prohibit Buyer's ownership or operation of all or a material
portion of any System, the Business or the Assets, (b) compel Buyer to dispose
of or hold separate all or a material portion of any System, the Business or the
Assets as a result of any of the transactions contemplated by this Agreement,
(c) if determined adversely to Buyer's interest, materially impair the ability
of Buyer to realize the benefits of the transactions contemplated by this
Agreement (including the ability to acquire the Systems pursuant to a like-kind
exchange under Section 1031 of the Code) or have a material adverse effect on
the right of Buyer to exercise full rights of ownership of the Systems or (d)
prevent or make illegal the consummation of any transactions contemplated by
this Agreement.
8.2 Conditions to the Obligations of Buyer. The obligations of Buyer to
--------------------------------------
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or before the Closing, of the following conditions, which may
be waived by Buyer to the extent permitted by applicable Legal Requirements:
8.2.1 Representations and Warranties. All representations and
------------------------------
warranties of Seller in this Agreement and any Transaction Document are true and
correct in all material respects, in each case on and as of the Closing Date
with the same effect as if made at and as of the Closing Date, except for
changes permitted or contemplated by this Agreement.
8.2.2 Performance of Agreements. Seller has performed in all material
-------------------------
respects all obligations and agreements and complied in all material respects
with all covenants and conditions in this Agreement and any Transaction Document
to be performed or complied with by Seller at or before the Closing.
8.2.3 Deliveries. Seller has delivered the items and documents
----------
required to be delivered by it pursuant to this Agreement, including those
required under SECTION 9.2.
8.2.4 Consents and Franchise Extensions and Renewals. Seller has
----------------------------------------------
delivered to Buyer evidence, in form and substance satisfactory to Buyer, that
all of the Required Consents marked with an asterisk on SCHEDULE 5.3 have been
obtained or given (or deemed to have been given) and are in full force and
effect.
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<PAGE>
8.2.5 Environmental Matters. The Environmental Reports delivered to
---------------------
Buyer pursuant to SECTION 7.20 and any other environmental audits or assessments
conducted with respect to the Assets do not indicate the existence of any
conditions that could reasonably be expected to give rise to a material risk of
liability.
8.2.6 No Material Adverse Change. There has not been any material
--------------------------
adverse change in the Business, the Assets or the Systems since the date of this
Agreement other than any change arising out of general economic conditions in
the United States or any change affecting the United States cable television
industry as a whole, including any change arising from (a) legislation,
litigation, rulemaking or regulation or (b) competition caused by or arising
from other multiple channel distribution services.
8.2.7 EBS. As of the Closing Date, the Business has no fewer than
---
23,200 EBSs.
8.2.8 Partner Approval. The partners of Seller shall have approved
----------------
this Agreement and the transactions contemplated by this Agreement.
8.3 Conditions to Obligations of Seller. The obligations of Seller to
-----------------------------------
consummate the transactions contemplated by this Agreement are subject to the
satisfaction by Seller at or before the Closing, of the following, which may be
waived by Seller, to the extent permitted by applicable Legal Requirements:
8.3.1 Representations and Warranties. All representations and
------------------------------
warranties of Buyer contained in this Agreement and any Transaction Document are
true and correct in all material respects, in each case on and as of the Closing
Date with the same effect as if made on and as of the Closing Date, except for
changes permitted or contemplated by this Agreement.
8.3.2 Performance of Agreements. Buyer has performed in all material
-------------------------
respects all obligations and agreements, and complied in all material respects
with all covenants and conditions in this Agreement and any Transaction Document
to be performed or complied with by Buyer at or before the Closing.
8.3.3 Deliveries. Buyer has delivered the items and documents
----------
required to be delivered by it pursuant to this Agreement, including those
required under SECTION 9.3.
8.3.4 Partner Approval. The partners of Seller shall have approved
----------------
this Agreement and the transactions contemplated by this Agreement.
8.4 Waiver of Conditions. Any party may waive in writing any or all of the
--------------------
conditions to its obligations under this Agreement.
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Section 9. Closing
9.1 The Closing; Time and Place. The Closing will be held on a date
---------------------------
specified by Buyer (upon three Business Days prior notice to Seller) that is
within 15 days after all conditions to the Closing contained in this Agreement
(other than those based on acts to be performed at the Closing) have been
satisfied or waived. The Closing will be held at 10:00 a.m. local time at
Buyer's office located at 9697 East Mineral Avenue, Englewood, Colorado 80112,
or at such place and time as Buyer and Seller may agree.
9.2 Seller's Delivery Obligations. At the Closing, Seller will deliver (or
-----------------------------
cause to be delivered) to Buyer the following:
9.2.1 a Bill of Sale, Assignment and Assumption Agreement in the form
attached as EXHIBIT B;
9.2.2 a special warranty deed in a form reasonably acceptable to
Buyer (and complying with applicable state laws) with respect to each parcel of
owned Real Property, duly executed and acknowledged and in recordable form,
warranting to defend title to such Real Property against all persons claiming
by, through or under Seller, subject only to Permitted Encumbrances, and in form
sufficient to permit the title company to issue the title policy described in
SECTION 7.7.1 to Buyer with respect to such Real Property;
9.2.3 an Assignment and Assumption of Contracts in the form attached
as EXHIBIT C;
9.2.4 one or more Assignments of Leases in the form attached as
EXHIBIT D and, if requested by Buyer, short forms or memoranda of such
Assignments in recordable form;
9.2.5 any memorandum of lease obtained by Seller pursuant to SECTION
7.5.2;
9.2.6 an affidavit of Seller, under penalty of perjury, that Seller
is not a "foreign person" (as defined in the Foreign Investment in Real Property
Tax Act and applicable regulations) and that Buyer is not required to withhold
any portion of the consideration payable under this Agreement under the
provisions of such Act in the form attached as EXHIBIT F;
9.2.7 motor vehicle title certificates and such other transfer
instruments as Buyer may deem necessary or advisable to transfer the Assets to
Buyer and to perfect Buyer's rights in the Assets;
9.2.8 an opinion of Peter J. Bernbaum, counsel to Seller, or of any
other counsel to Seller reasonably acceptable to Buyer, dated the Closing Date,
in substantially the form set forth in EXHIBIT H;
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<PAGE>
9.2.9 evidence satisfactory to Buyer that all Encumbrances affecting
any of the Assets (other than Permitted Encumbrances) have been terminated and
released;
9.2.10 the title insurance commitments described in SECTION 7.7.1;
9.2.11 a certificate, dated the Closing Date, signed by an executive
officer of GP, stating that to his or her knowledge, the conditions set forth in
SECTIONS 8.3.1 and 8.3.2, are satisfied; and
9.2.12 such other documents as Buyer may reasonably request in
connection with the transactions contemplated by this Agreement.
9.3 Buyer's Delivery Obligations. At the Closing, Buyer will deliver (or
-----------------------------
cause to be delivered) to Seller the following:
9.3.1 the Base Purchase Price required to be paid at the Closing, as
adjusted in accordance with Section 3.4.1 of this Agreement minus the Deposit
(plus interest accrued thereon);
9.3.2 a Bill of Sale, Assignment and Assumption Agreement in the form
attached as EXHIBIT B;
9.3.3 an Assignment and Assumption of Contracts in the form attached
as EXHIBIT C;
9.3.4 a certificate, dated the Closing Date, signed by an executive
officer of Buyer, stating that to his or her knowledge, the conditions set forth
in SECTIONS 8.2.1, 8.2.2, 8.2.6 and 8.2.7 are satisfied;
9.3.5 the opinion of Elizabeth Steele, Esq., counsel for Buyer, dated
the Closing Date, in substantially the form set forth in EXHIBIT H; and
9.3.6 such other documents as Seller may reasonably request in
connection with the transactions contemplated by this Agreement.
Section 10. Termination
10.1 Termination Events. This Agreement may be terminated and the
------------------
transactions contemplated by this Agreement may be abandoned:
10.1.1 At any time by the mutual written agreement of Buyer and
Seller;
10.1.2 By Buyer at any time, if Seller is in material breach or
default of any of Seller's covenants, agreements or other obligations in this
Agreement or in any Transaction Document, or if any of Seller's representations
in this Agreement or in any Transaction Document
<PAGE>
is not true in all material respects when made or when otherwise required by
this Agreement or any Transaction Document to be true and such breach or default
or failure to be true is not cured by Seller or waived by Buyer prior to
Closing;
10.1.3 By Seller at any time, if Buyer is in material breach or
default of any of Buyer's covenants, agreements or other obligations in this
Agreement or in any Transaction Document, or if any of Buyer's representations
in this Agreement or in any Transaction Document is not true in all material
respects when made or when otherwise required by this Agreement or any
Transaction Document to be true and such breach or default or failure to be true
is not cured by Buyer or waived by Seller prior to Closing;
10.1.4 By either party upon written notice to the other, if Closing
has not occurred on or before November 30, 1998 (the "Outside Closing Date"),
for any reason other than a material breach or default by such party of its
respective covenants, agreements or other obligations under this Agreement, or
any of its representations this Agreement not being true and accurate in all
material respects when made or when otherwise required by this Agreement to be
true and accurate in all material respects; and
10.1.5 As otherwise provided in this Agreement.
10.2 Effect of Termination. If this Agreement is terminated pursuant to
---------------------
SECTION 10.1, all obligations of the parties under this Agreement will
terminate, except for the obligations set forth in SECTIONS 7.18, 11 and 12.16.
Termination of this Agreement pursuant to SECTIONS 10.1.2 or 10.1.3 will not
limit or impair any remedies that any party may have with respect to a breach or
default by the other of its covenants, agreements or obligations under this
Agreement.
Section 11. Survival of Representations and Warranties; Indemnification.
11.1 Survival of Representations and Warranties. The representations and
------------------------------------------
warranties of Seller in this Agreement and in the Transaction Documents to be
delivered by Seller pursuant to this Agreement will survive until the first
anniversary of the Closing Date, except that (a) all such representations and
warranties with respect to any federal, state or local Taxes, rates,
Environmental Law, ERISA, employment matters or copyright matters will survive
until 60 days after the expiration of the applicable statute of limitations
(including any extensions) for such federal, state or local Taxes, rates,
Environmental Law, ERISA, employment matters or copyright matters, respectively
and (b) the representations and warranties as to ownership of the Assets in
SECTION 5.4, SECTION 5.7.1 and in the deed or deeds delivered with respect to
Real Property will survive the Closing and the delivery of such deeds and will
continue in full force and effect without limitation. The representations and
warranties of Buyer in this Agreement and in the Transaction Documents to be
delivered by Buyer pursuant to this Agreement will survive until the first
anniversary of the Closing Date. The periods of survival of the representations
and warranties prescribed by this SECTION 11.1 are referred to as the "Survival
Period." The liabilities of the parties under their respective representations
and warranties will expire as of the expiration of the applicable Survival
Period; provided, however, that such expiration will not include, extend or
apply to any
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<PAGE>
representation or warranty, the breach of which has been asserted by Buyer in a
written notice to Seller before such expiration or about which Seller has given
Buyer written notice before such expiration indicating that facts or conditions
exist that, with the passage of time or otherwise, can reasonably be expected to
result in a breach (and describing such potential breach in reasonable detail).
The covenants and agreements of the parties in this Agreement (that are by their
terms intended to be performed after Closing) and in the Transaction Documents
to be delivered by Seller or Buyer pursuant to this Agreement, will survive the
Closing and will continue in full force and effect without limitation.
11.2 Indemnification by Seller. Seller will indemnify and hold harmless
-------------------------
Buyer and its shareholders and its and their respective Affiliates, and the
shareholders, directors, officers, employees, agents, successors and assigns and
any Person claiming by or through any of them, as the case may be, from and
against:
11.2.1 all Losses resulting from or arising out of (i) any breach of
any representation or warranty made by Seller in this Agreement or in the
Transactions Documents delivered by Seller, (ii) any breach of any covenant,
agreement or obligation of Seller contained in this Agreement or in the
Transaction Documents delivered by Seller, (iii) any act or omission of Seller
with respect to, or any event or circumstance related to, the ownership or
operation of the Assets or the conduct of the Business, which act, omission,
event or circumstance occurred or existed prior to or at the Closing Date,
without regard to whether a claim with respect to such matter is asserted before
or after the Closing Date, including any matter described on SCHEDULE 5.13, (iv)
any liability or obligation not included in the Assumed Liabilities, (v) any
title defect Seller fails to eliminate as an exception from a title insurance
commitment referred to in SECTION 7.7.1, (vi) any claim that the transactions
contemplated by this Agreement violates WARN, or any similar state or local law
or any bulk transfer or fraudulent conveyance laws of any jurisdiction, (vii)
the presence, generation, removal or transportation of a Hazardous Substance on
or from any of the Real Property prior to the Closing Date, including the costs
of removal or clean-up of such Hazardous Substance and other compliance with the
provisions of any Environmental Laws (whether before or after Closing), or
(viii) any rate refund ordered by any Governmental Authority for periods prior
to the Closing Date; and
11.2.2 all claims, actions, suits, proceedings, demands, judgments,
assessments, fines, interest, penalties, costs and expenses (including
settlement costs and reasonable legal, accounting, experts' and other fees,
costs and expenses) incident or relating to or resulting from any of the
foregoing.
In the event that an indemnified item arises under both clause 11.2.1(i) and
under one or more of clauses 11.2.1(ii) through 11.2(viii) of this SECTION 11.2,
Buyer's rights to pursue its claim under clauses 11.2.1(ii) through 11.2(viii),
as applicable, will exist notwithstanding the expiration of the Survival Period
applicable to such claim under clause 11.2.1(i).
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<PAGE>
11.3 Indemnification by Buyer. Buyer will indemnify and hold harmless
------------------------
Seller and Seller's partners, employees, agents, successors and assigns, and any
Person claiming by or through any of them, as the case may be, from and against:
11.3.1 all Losses resulting from or arising out of (i) any
breach of any representation or warranty made by Buyer in this Agreement or in
the Transaction Documents delivered by Buyer, (ii) any breach of any covenant,
agreement or obligation of Buyer contained in this Agreement or in the
Transaction Documents delivered by Buyer or (iii) the failure by Buyer to
perform any of its obligations in respect of the Assumed Liabilities; and
11.3.2 all claims, actions, suits, proceedings, demands,
judgments, assessments, fines, interest, penalties, costs and expenses
(including settlement costs and reasonable legal, accounting, experts' and other
fees, costs and expenses) incident or relating to or resulting from any of the
foregoing.
In the event that an indemnified item arises under both clause 11.3.1(i) and
under one or more of clauses 11.3.1(ii) or 11.3.1(iii) of this SECTION 11.3,
Seller's rights to pursue its claim under clauses 11.3.1(ii) or 11.3.1(iii), as
applicable, will exist notwithstanding the expiration of the Survival Period
applicable to such claim under clause 11.3.1(i).
11.4 Third Party Claims. Promptly after the receipt by any party of
------------------
notice of any claim, action, suit or proceeding by any Person who is not a party
to this Agreement (collectively, an "Action"), which Action is subject to
indemnification under this Agreement, such party (the "Indemnified Party") will
give reasonable written notice to the party from whom indemnification is claimed
(the "Indemnifying Party"). The Indemnified Party will be entitled, at the sole
expense and liability of the Indemnifying Party, to exercise full control of the
defense, compromise or settlement of any such Action unless the Indemnifying
Party, within a reasonable time after the giving of such notice by the
Indemnified Party, (a) admits in writing to the Indemnified Party the
Indemnifying Party's liability to the Indemnified Party for such Action under
the terms of this SECTION 11, (b) notifies the Indemnified Party in writing of
the Indemnifying Party's intention to assume such defense, (c) provides evidence
reasonably satisfactory to the Indemnified Party of the Indemnifying Party's
ability to pay the amount, if any, for which the Indemnified Party may be liable
as a result of such Action and (d) retains legal counsel reasonably satisfactory
to the Indemnified Party to conduct the defense of such Action. The other party
will cooperate with the party assuming the defense, compromise or settlement of
any such Action in accordance with this Agreement in any manner that such party
reasonably may request. If the Indemnifying Party so assumes the defense of any
such Action, the Indemnified Party will have the right to employ separate
counsel and to participate in (but not control) the defense, compromise or
settlement of the Action, but the fees and expenses of such counsel will be at
the expense of the Indemnified Party unless (i) the Indemnifying Party has
agreed to pay such fees and expenses, (ii) any relief other than the payment of
money damages is sought against the Indemnified Party or (iii) the Indemnified
Party will have been advised by its counsel that there may be one or more
defenses available to it which are different from or additional to those
available to the Indemnifying Party, and in any such case that portion of the
fees and expenses of such separate counsel that are reasonably related to
matters
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<PAGE>
covered by the indemnity provided in this SECTION 11 will be paid by the
Indemnifying Party. No Indemnified Party will settle or compromise any such
Action for which it is entitled to indemnification under this Agreement without
the prior written consent of the Indemnifying Party, unless the Indemnifying
Party has failed, after reasonable notice, to undertake control of such Action
in the manner provided in this SECTION 11.4. No Indemnifying Party will settle
or compromise any such Action (A) in which any relief other than the payment of
money damages is sought against any Indemnified Party or (B) in the case of any
Action relating to the Indemnified Party's liability for any Tax, if the effect
of such settlement would be an increase in the liability of the Indemnified
Party for the payment of any Tax for any period beginning after the Closing
Date, unless the Indemnified Party consents in writing to such compromise or
settlement.
11.5 Limitations on Indemnification -- Seller. Seller will not be
----------------------------------------
liable for indemnification arising solely under SECTION 11.2.1(I) for (a) any
Losses of or to Buyer or any other person entitled to indemnification from
Seller or (b) any claims, actions, suits, proceedings, demands, judgments,
assessments, fines, interest, penalties, costs and expenses (including
settlement costs and reasonable legal, accounting, experts' and other fees,
costs and expenses) incidental or relating to or resulting from any of the
foregoing (the items described in clauses (a) and (b) collectively being
referred to for purposes of this SECTION 11.5 as "Buyer Damages") unless the
amount of Buyer Damages for which Seller would, but for the provisions of this
SECTION 11.5, be liable exceeds, on an aggregate basis, $250,000 (the "Threshold
Amount"), in which case Seller will be liable for all such Buyer Damages, which
will be due and payable within 15 days after Seller's receipt of a statement
therefor; provided, however, that Seller shall be liable for (a) all rate
refunds ordered by any Governmental Authority for periods prior to the Closing
Date and (b) all federal, state or local taxes determined by any Governmental
Authority to be owing for periods prior to the Closing Date, regardless of
whether the aggregate amount of such rate refunds and/or taxes equals or exceeds
the Threshold Amount.
11.6 Limitations on Indemnification -- Buyer. Buyer will not be
---------------------------------------
liable for indemnification arising solely under SECTION 11.3.1(I) for (a) any
Losses of or to Seller or any other person entitled to indemnification from
Buyer or (b) any claims, actions, suits, proceedings, demands, judgments,
assessments, fines, interest, penalties, costs and expenses (including
settlement costs and reasonable legal, accounting, experts' and other fees,
costs and expenses) incidental or relating to or resulting from any of the
foregoing the items described in clauses (a) and (b) collectively being referred
to for purposes of this SECTION 11.6 as "Seller Damages") unless the amount of
Seller Damages for which Buyer would, but for the provisions of this SECTION
11.6, be liable exceeds, on an aggregate basis, the Threshold Amount, in which
case Buyer will be liable for all such Seller Damages, which will be due and
payable within 15 days after Buyer's receipt of a statement therefor.
Section 12. Miscellaneous
12.1 Parties Obligated and Benefited. Subject to the limitations set
-------------------------------
forth below, this Agreement will be binding upon the parties and their
respective assigns and successors in interest and will inure solely to the
benefit of the parties and their respective assigns and successors in
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<PAGE>
interest, and no other Person will be entitled to any of the benefits conferred
by this Agreement. Without the prior written consent of the other party, neither
party may assign any of its rights under this Agreement or delegate any of its
duties under this Agreement, except as described in the following sentence.
Buyer agrees that Seller will have the right to assign its right to sell the
Assets under this Agreement to a qualified institution, acting as a Qualified
Intermediary (as such term is used in Treas. Reg. Section 1.1031(k)-1(g)(4), and
that this Agreement constitutes notice to Buyer of such assignment, which
assignment Seller will make effective immediately prior to Closing (provided no
such assignment will relieve Seller of any obligations under this Agreement).
12.2 Notices. Any notice, request, demand, waiver or other communication
-------
required or permitted to be given under this Agreement will be in writing and
will be deemed to have been duly given only if delivered in person or by first
class, prepaid, registered or certified mail, or sent by courier or, if receipt
is confirmed, by telecopier:
to Buyer at:
c/o Jones Intercable, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
Attention: President
Telecopy: (303) 799-1644
with a copy similarly addressed to the attention of the General
Counsel;
with a copy to:
Davis, Graham & Stubbs LLP
370 Seventeenth Street, Suite 4700
Denver, Colorado 80202
Attention: John L. McCabe, Esq.
Telecopy: 893-1379
to Seller at:
Bresnan Communications Company, L.P.
709 Westchester Avenue
White Plains, New York 10604
Attention: Robert V. Bresnan, General Counsel
Telecopy: (914) 993-6601
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<PAGE>
Any party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this SECTION 12.2. All
notices will be deemed to have been received on the date of delivery, which in
the case of deliveries by telecopier will be the date of the sender's
confirmation, or on the third Business Day after mailing in accordance with this
Section, except that any notice of a change of address will be effective only
upon actual receipt.
12.3 Attorneys' Fees'. In the event of any action or suit based upon
----------------
or arising out of any alleged breach by any party of any representation,
warranty, covenant or agreement contained in this Agreement, the prevailing
party will be entitled to recover reasonable attorneys' fees and other costs of
such action or suit from the other party.
12.4 Waiver. This Agreement or any of its provisions may not be waived
------
except in writing. The failure of any party to enforce any right arising under
this Agreement on one or more occasions will not operate as a waiver of that or
any other right on that or any other occasion.
12.5 Captions. The captions of this Agreement are for convenience only
--------
and do not constitute a part of this Agreement.
12.6 Choice of Law. THIS AGREEMENT AND THE RIGHTS OF THE PARTIES UNDER
-------------
IT WILL BE GOVERNED BY AND CONSTRUED IN ALL RESPECTS IN ACCORDANCE WITH THE LAWS
OF THE STATE OF COLORADO, WITHOUT REGARD TO THE CONFLICTS OF LAWS RULES OF
COLORADO.
12.7 Terms. Terms used with initial capital letters will have the
-----
meanings specified, applicable to both singular and plural forms, for all
purposes of this Agreement. The word "include" and derivatives of that word are
used in this Agreement in an illustrative sense rather than limiting sense.
12.8 Rights Cumulative. All rights and remedies of each of the parties
-----------------
under this Agreement will be cumulative, and the exercise of one or more rights
or remedies will not preclude the exercise of any other right or remedy
available under this Agreement or applicable law.
12.9 Further Actions. Seller and Buyer will execute and deliver to the
---------------
other, from time to time at or after the Closing, for no additional
consideration and at no additional cost to the requesting party, such further
assignments, certificates, instruments, records, or other documents, assurances
or things as may be reasonably necessary to give full effect to this Agreement
and to allow each party fully to enjoy and exercise the rights accorded and
acquired by it under this Agreement.
12.10 Time. If the last day permitted for the giving of any notice or the
----
performance of any act required or permitted under this Agreement falls on a day
which is not a Business Day, the time for the giving of such notice or the
performance of such act will be extended to the next succeeding Business Day.
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12.11 Late Payments. If either party fails to pay the other any amounts
-------------
when due under this Agreement, the amounts due will bear interest from the due
date to the date of payment at the annual rate publicly announced from time to
time by The Bank of New York as its prime rate (the "Prime Rate") plus 2%,
adjusted as and when changes in the Prime Rate are made.
12.12 Counterparts. This Agreement may be executed in counterparts, each
------------
of which will be deemed an original.
12.13 Entire Agreement. This Agreement (including the Schedules and
----------------
Exhibits referred to in this Agreement, which are incorporated in and constitute
a part of this Agreement) and the Transaction Documents contain the entire
agreement of the parties and supersedes all prior oral or written agreements and
understandings with respect to the subject matter. This Agreement may not be
amended or modified except by a writing signed by the parties.
12.14 Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable will be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining rights
of the Person intended to be benefited by such provision or any other provisions
of this Agreement.
12.15 Construction. This Agreement has been negotiated by Buyer and
------------
Seller and their respective legal counsel, and legal or equitable principles
that might require the construction of this Agreement or any provision of this
Agreement against the party drafting this Agreement will not apply in any
construction or interpretation of this Agreement.
12.16 Expenses. Except as otherwise expressly provided in this
--------
Agreement, each party will pay all of its expenses, including attorneys' and
accountants' fees, in connection with the negotiation of this Agreement, the
performance of its obligations and the consummation of the transactions
contemplated by this Agreement.
12.17 Risk of Loss; Condemnation.
--------------------------
12.17.1 Seller will bear the risk of any loss or damage to the
Assets resulting from fire, theft or other casualty (except reasonable wear and
tear) at all times prior to the Closing. If any such loss or damage is
sufficiently substantial so as to preclude or prevent resumption of normal
operations of any material portion of a System or the replacement or restoration
of the lost or damaged property within 30 days from the occurrence of the event
resulting in such loss or damage, Seller will immediately notify Buyer in
writing of that fact and Buyer, at any time within 10 days after receipt of such
notice, may elect by written notice to Seller either (a) to waive such defect
and proceed toward consummation of the transaction in accordance with terms of
this Agreement or (b) terminate this Agreement. If Buyer elects to so terminate
this Agreement, Buyer and Seller will stand fully released and discharged of any
and all obligations under this Agreement. If Buyer elects to consummate the
transactions contemplated by this Agreement notwithstanding such loss or damage
and does so, there will be no adjustment in the consideration payable to Seller
on account of such loss or damage but all insurance proceeds payable as a result
of the occurrence of the event
-37-
<PAGE>
resulting in such loss or damage (to the extent not used to replace or restore
such lost or damaged property) will be delivered by Seller to Buyer, or the
rights to such proceeds will be assigned by Seller to Buyer if not yet paid over
to Seller.
12.17.2 If, prior to the Closing, any part of or interest in the Assets
is taken or condemned as a result of the exercise of the power of eminent
domain, or if a Governmental Authority having such power informs Seller or Buyer
that it intends to condemn all or any part of or interest in the Assets (such
event being called, in either case, a "Taking"), and such Taking involves a
material part of or interest in the Assets, then Buyer may terminate this
Agreement. If Buyer does not elect or have the right to terminate this
Agreement, then (a) Buyer will have the sole right, in the name of Seller, if
Buyer so elects, to negotiate for, claim, contest and receive all damages with
respect to the Taking, (b) Seller will be relieved of its obligation to convey
to Buyer the Assets or interests that are the subject of the Taking, (c) at the
Closing Seller will assign to Buyer all of Seller's rights to all damages
payable with respect to such Taking and will pay to Buyer all damages previously
paid to Seller with respect to the Taking and (d) following the Closing, Seller
will give Buyer such further assurances of such rights and assignment with
respect to the taking as Buyer may from time to time reasonably request.
******************
-38-
<PAGE>
The parties have executed this Agreement as of the day and year first above
written.
SELLER:
BRESNAN COMMUNICATIONS COMPANY, L.P.
By: BCI (USA), L.P.,
its managing general partner
By: Bresnan Communications, Inc.,
its managing general partner
By:/s/ Michael Bresnan
-------------------------------
Name: Michael Bresnan
-----------------------------
Title: SVP Domestic Division
----------------------------
BUYER:
JONES COMMUNICATIONS OF GEORGIA/
SOUTH CAROLINA, INC.
By:/s/ Elizabeth Steele
--------------------------------
Name: Elizabeth Steele
------------------------------
Title: Vice President
-----------------------------
-39-
<PAGE>
EXHIBIT 2.6
GRANTS SYSTEM
-------------
PURCHASE AND SALE AGREEMENT
---------------------------
THIS PURCHASE AND SALE AGREEMENT is made as of the 16th day of June, 1998,
by and between SPACELINK FUND 3, LTD., a Colorado limited partnership
("Seller"), and JONES COMMUNICATIONS OF NEW MEXICO, INC., a Colorado corporation
("Buyer").
RECITALS
--------
A. Seller owns and operates a cable television system serving Grants and
Thoreau in the State of New Mexico (the "System").
B. Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, the System upon the terms and conditions set forth in this Agreement.
AGREEMENT
---------
In consideration of the mutual promises contained in this Agreement and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Purchase and Sale. Subject to the terms and conditions set forth in
-----------------
this Agreement, Seller hereby agrees to sell, convey, assign, transfer and
deliver to Buyer, and Buyer hereby agrees to purchase from Seller, on the
Closing Date (as defined in Paragraph 9 hereof), all of Seller's right, title
and interest in and to the System and the Assets (as defined in Paragraph 2
hereof) then being transferred and sold pursuant hereto, free and clear of all
security interests, liens, pledges, charges and encumbrances.
2. Assets. (a) The assets to be conveyed to Buyer hereunder shall consist
------
of all of the assets and properties of Seller, whether real, personal, tangible
or intangible, of whatever description and wherever located, now owned or used
by Seller solely in connection with Seller's ownership or operation of the
System, except those items excluded pursuant to subparagraph 2(b) hereof, but
including all additions made to the Closing Date, to the end that all of
Seller's assets owned on the Closing Date which are used or owned solely in
connection with Seller's ownership or operation of the System shall pass to
Buyer. Such assets (collectively, the "Assets") shall include, without
limitation:
<PAGE>
(i) all of Seller's towers, tower equipment, antennas, aboveground and
underground cable, distribution systems, headend amplifiers, line amplifiers,
earth satellite receive stations and related equipment, microwave equipment,
testing equipment, motor vehicles, office equipment, furniture and fixtures,
supplies, inventory and other physical assets owned or used by Seller solely in
connection with Seller's ownership or operation of the System;
(ii) the franchises, leases, agreements, permits, consents, licenses and
other contracts, pole line or joint pole agreements, underground conduit
agreements, agreements for the reception or transmission of signals by
microwave, easements, rights-of-way and construction permits, if any, and any
other obligations and agreements between Seller and suppliers and customers,
which are owned or used by Seller solely in connection with Seller's ownership
and operation of the System;
(iii) the real property owned and used solely in connection with the
System;
(iv) all accounts receivable of Seller arising in connection with the
System;
(v) all engineering records, files, data, drawings, blueprints,
schematics, maps, reports, lists and plans and processes owned or developed by
or for Seller and intended for use in connection with the System;
(vi) all promotional graphics, original art work, mats, plates, negatives
and other advertising, or related materials developed by or for Seller and
intended for use in connection with the System;
(vii) all of Seller's correspondence files, lists, records and reports
concerning customers and prospective customers of the Systems, concerning
television stations whose transmissions are or may be carried as part of the
Systems and concerning all dealings with federal, state, and local regulatory
agencies, including all reports filed by or on behalf of Seller with the
Federal Communications Commission (the "FCC") in connection with the System and
any Statements of Account of the System filed by or on behalf of Seller with the
united States Copyright Office in connection with the System; provided however,
--------- -------
that Seller shall not transfer to Buyer the licenses and agreements for which
the consent of a third party is required to transfer (the "Additional
Agreements") until Seller has obtained the approval of the parties granting the
Additional Agreements to
2
<PAGE>
such transfer, whereupon such Additional Agreements shall be deemed to be
included in the assets to be transferred to Buyer pursuant to this Agreement.
(b) The following properties and assets relating to the System and its
business operations shall be retained by Seller and shall not be sold, assigned
or transferred to Buyer;
(i) cash or cash equivalents on hand or in banks;
(ii) insurance policies and rights and claims thereunder;
(iii) all claims, rights and interest in and to any refunds for
Federal, state or local income or other taxes or fees of any nature whatsoever
for periods prior to the Closing Date, including without limitation, fees paid
to the United States Copyright Office; and
(iv) assets disposed of in the normal course of business or with the
written consent of Buyer between the date hereof and the Closing Date.
3. Purchase Price. Subject to the adjustments to be made in accordance
--------------
with Paragraph 4 hereof, the total purchase price for the Assets shall be Six
Million Four Hundred Twenty Thousand Eight Hundred Six Dollars ($6,420,806) (the
"Purchase Price"), which Purchase Price represents the average of three separate
independent appraisals of the System. The Purchase Price shall by payable to
Seller at Closing in cash, by cashier's check or by wire transfer of Federal
funds to a bank or banks designated by Seller.
4. Adjustments. All adjustments provided for herein with respect to this
-----------
transaction shall increase or decrease the Purchase Price, as appropriate, and
shall be made as of the close of business (5:01 p.m., local time) on the Closing
Date.
(a) Rent, pole rents, franchise fees, taxes, power and utility fees and
deposits, insurance premiums, licenses, customer prepayments and deposits, and
other prepayments and amounts due shall be prorated and debited or credited to
Seller or Buyer, as applicable. For purposes of adjustments made under this
Paragraph 4(a), the subscriber accounts receivable which are due and payable for
and with respect to the month in which the Closing takes place shall be prorated
as of the Closing Date.
3
<PAGE>
(b) The Purchase Price shall be reduced by any accounts payable,
accrued expenses and vehicle lease obligations for which Seller would otherwise
be liable hereunder, but for which the obligation for payment is assumed by
Buyer.
(c) Seller and Buyer shall jointly determine the adjustments required
by this Paragraph 4 at the Closing. The net amount to which Buyer or Seller, as
the case may be, is entitled pursuant hereto shall be thereupon paid by Buyer or
Seller, as the case may be, by an adjustment to the Purchase Price. All
adjustments made at Closing shall be tentative and shall be subject to final
adjustment within 90 days after Closing.
5. Assumption of Liabilities. Buyer shall agree to assume and discharge
-------------------------
all debts, liabilities and obligations of Seller arising with respect to periods
subsequent to the Closing Date under any franchise, license, permit, lease,
instrument or agreement transferred to Buyer hereunder and, with respect to
periods prior to and including the Closing Date, to assume and discharge all
obligations of Seller to the extent that the Purchase Price is reduced pursuant
to Paragraph 4(b) hereof; provided, however, that Buyer shall not assume the
-------- -------
Additional Agreements until Seller has obtained the approval of the parties
granting the Additional Agreements to Seller's transfer of the Additional
Agreements to Buyer, whereupon the Additional Agreements shall be deemed to be
included in the assets to be assumed by Buyer hereunder. Buyer hereby agrees to
indemnify and to hold harmless from and against any and all damages, costs,
claims and expenses (the "Indemnifiable Claims") arising by reason of the
ownership, operation or control of the System after Closing Date; provided,
--------
however, that Buyer shall not indemnify and hold harmless Seller from any
- -------
Indemnifiable Claims arising under Additional Agreements as a result of actions
relating to any period before Seller has obtained the approval of the parties
granting the Additional Agreements to Seller's transfer of the Additional
Agreements to Buyer. Anything herein to the contrary notwithstanding, there is
hereby excluded from the assumed obligations, and Seller hereby agrees to retain
and discharge, and to indemnify and hold Buyer harmless from and against, any
and all Indemnifiable Claims to the extent they arise (a) out of any debt,
liability or obligation arising with respect to periods prior to the Closing
Date for which no reduction of the Purchase Price has been made pursuant to
Paragraph 4(b) hereof, (b) out of any debt, liability or obligation arising
under the Additional Agreements arising as a result of actions relating to any
period before Seller has obtained the approval of the parties granting the
Additional Agreements to Seller's transfer of the Additional Agreements to
Buyer, and (c) any debt, liability or obligation of Seller not expressly assumed
hereunder, whenever arising.
4
<PAGE>
6. Seller's Representations. Seller hereby represents, warrants,
------------------------
covenants and agrees, that:
(a) Seller is a limited partnership duly organized and validly existing
under the laws of the State of Colorado. Seller has all requisite partnership
power and authority to own and operate its properties and to carry on its
business as now and where being conducted.
(b) All necessary consents and approvals have been obtained by Seller
for the execution and delivery of this Agreement. The execution and delivery of
this Agreement by Seller has been duly and validly authorized and approved by
all necessary action of Seller. This Agreement is a valid and binding obligation
of Seller, enforceable against it in accordance with its terms.
(c) Subject to the receipt of any required consents, Seller has full
legal power, right and authority to sell and convey to Buyer legal and
beneficial title to the Assets and Seller's sale to Buyer shall transfer good
and marketable title thereto, free and clear of all security interests, liens,
pledges, charges and encumbrances of every kind.
(d) The execution, delivery and performance of this Agreement by Seller
will not violate any provisions of law and will not, with or without the giving
of notice or the passage of time, conflict with or result in any breach of any
of the terms or conditions of, or constitute a default under, any mortgage,
agreement or other instrument to which Seller is a party or by which Seller, the
Assets or the System are bound. The execution, delivery and performance of this
Agreement will not result in the creation of any security interest, lien,
pledge, charge or encumbrance upon the Assets or the Systems.
7. Conditions Precedent to Buyer's Obligations. The obligations of Buyer
-------------------------------------------
under this Agreement with respect to the purchase and sale of the Assets shall
be subject to the fulfillment on or prior to the Closing Date of each of the
following conditions:
(a) All of the representations and warranties by Seller contained in
this Agreement shall be true and correct in all material respects at and as of
the Closing Date. Seller shall have complied with and performed all of the
agreements, covenants and conditions required by this Agreement to be performed
or complied with by it on or prior to the Closing Date.
5
<PAGE>
(b) Seller shall have delivered to Buyer such instruments, consents and
approvals of third parties as are necessary to transfer the Assets to Buyer
pursuant to this Agreement.
(c) The statutory waiting period applicable to this Agreement and the
transactions contemplated hereby under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), shall have been terminated
or shall have expired.
8. Conditions Precedent to Seller's Obligation. The obligations of Seller
-------------------------------------------
under this Agreement with respect to the purchase and sale of the Assets shall
be subject to the fulfillment on or prior to the Closing Date of each of the
following conditions:
(a) The statutory waiting period applicable to this Agreement and the
transactions contemplated hereby under the HSR Act, shall have been terminated
or shall have expired.
(b) Buyer shall have delivered the Purchase Price to Seller in
accordance with Paragraph 3 hereof.
9. Closing. The closing hereunder (the "Closing") shall be held in the
-------
offices of Seller, 9697 East Mineral Avenue, Englewood, Colorado, 80112, on such
date or dates as the parties hereto shall mutually agree (the "Closing Date").
At the Closing, all cash, checks, notes, deeds, bills of sale, certificates of
title, assignments and other instruments and documents referred to or
contemplated by this Agreement shall be exchanged by the parties hereto.
10. Brokerage. Seller represents and warrants to Buyer that Seller will
---------
be solely responsible for, and pay in full, any and all brokerage or finder's
fees or agent's commissions or other like payment owing in connection with
Seller's use of any broker, finder or agent in connection with this Agreement or
the transactions contemplated hereby. Buyer represents and warrants to Seller
that Buyer will be solely responsible for, and pay in full, any and all
brokerage or finder's fees or agent's commission or other like payment owing in
connection with Buyer's use of any broker, finder or agent in connection with
this Agreement or the transaction contemplated hereby. Each party hereto agrees
to indemnify and hold the other party hereto harmless against and in respect of
any breach by it of the provision of this Paragraph 10.
6
<PAGE>
11. Miscellaneous.
-------------
(a) Buyer shall have the right, upon notice to Seller, to assign prior
to the Closing Date, in whole or in part, its rights and obligations hereunder
to any affiliate of Buyer, including any public limited partnership or
partnerships of which Buyer or any affiliate of Buyer is a general partner or
any joint venture or general partnership of which Buyer, or any affiliate of
Buyer, or any of such public limited partnership or partnerships is a
constituent partner, or to any subsidiary of Buyer or other entity controlled
by, controlling or under common control with Buyer, or, subject to Seller's
consent, to any other entity.
(b) From time to time after the Closing Date, Seller shall, if
requested by Buyer, make, execute and deliver to Buyer such additional
assignments, bills of sale, deeds and other instruments of transfer, as may be
necessary or proper to transfer to Buyer all of Seller's right, title and
interest in and to the assets covered by this Agreement. Such efforts and
assistance shall be without cost to Buyer.
(c) This Agreement embodies the entire understanding and agreement
among the parties concerning the subject matter hereof and supersedes any and
all prior negotiations, understandings or agreements in regard thereto. This
Agreement shall be interpreted, governed and construed in accordance with the
laws of the State of Colorado. This Agreement may not be modified or amended
except by an agreement in writing executed by both Buyer and Seller.
(d) Any sales, use, transfer or documentary taxes imposed in connection
with the sale and deliver of the Assets and the rights acquired by Buyer under
this Agreement shall be paid by Buyer.
7
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement as of the day
and year first above written.
SELLER:
------
SPACELINK FUND 3, LTD.
a Colorado limited partnership
By: Jones Intercable Funds, Inc., a Colorado
corporation, as its general partner
By: /s/ James B. O'Brien
--------------------
Title: President
--------------------
BUYER:
-----
JONES COMMUNICATIONS OF NEW MEXICO, INC.,
a Colorado corporation
By: /s/ Ruth E. Warren
-------------------------
Title: Vice President/Operations
-------------------------
8
<PAGE>
Exhibit 2.7
SOCORRO SYSTEM
--------------
PURCHASE AND SALE AGREEMENT
---------------------------
THIS PURCHASE AND SALE AGREEMENT is made as of the 16th day of June, 1998,
by and between SPACELINK FUND 3, LTD., a Colorado limited partnership
("Seller"), and JONES COMMUNICATIONS OF NEW MEXICO, INC., a Colorado corporation
("Buyer").
RECITALS
--------
A. Seller owns and operates a cable television system serving Socorro, New
Mexico (the "System").
B. Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, the System upon the terms and conditions set forth in this Agreement.
AGREEMENT
---------
In consideration of the mutual promises contained in this Agreement and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Purchase and Sale. Subject to the terms and conditions set forth in
-----------------
this Agreement, Seller hereby agrees to sell, convey, assign, transfer and
deliver to Buyer, and Buyer hereby agrees to purchase from Seller, on the
Closing Date (as defined in Paragraph 9 hereof), all of Seller's right, title
and interest in and to the System and the Assets (as defined in Paragraph 2
hereof) then being transferred and sold pursuant hereto, free and clear of all
security interests, liens, pledges, charges and encumbrances.
2. Assets. (a) The assets to be conveyed to Buyer hereunder shall consist
------
of all of the assets and properties of Seller, whether real, personal, tangible
or intangible, of whatever description and wherever located, now owned or used
by Seller solely in connection with Seller's ownership or operation of the
System, except those items excluded pursuant to subparagraph 2(b) hereof, but
including all additions made to the Closing Date, to the end that all of
Seller's assets owned on the Closing Date which are used or owned solely in
connection with Seller's ownership or operation of the System shall pass to
Buyer. Such assets (collectively, the "Assets") shall include, without
limitation:
<PAGE>
(i) all of Seller's towers, tower equipment, antennas, aboveground and
underground cable, distribution systems, headend amplifiers, line amplifiers,
earth satellite receive stations and related equipment, microwave equipment,
testing equipment, motor vehicles, office equipment, furniture and fixtures,
supplies, inventory and other physical assets owned or used by Seller solely in
connection with Seller's ownership or operation of the System;
(ii) the franchises, leases, agreements, permits, consents, licenses and
other contracts, pole line or joint pole agreements, underground conduit
agreements, agreements for the reception or transmission of signals by
microwave, easements, rights-of-way and construction permits, if any, and any
other obligations and agreements between Seller and suppliers and customers,
which are owned or used by Seller solely in connection with Seller's ownership
and operation of the System;
(iii) the real property owned and used solely in connection with the
System;
(iv) all accounts receivable of Seller arising in connection with the
System;
(v) all engineering records, files, data, drawings, blueprints,
schematics, maps, reports, lists and plans and processes owned or developed by
or for Seller and intended for use in connection with the System;
(vi) all promotional graphics, original art work, mats, plates, negatives
and other advertising, or related materials developed by or for Seller and
intended for use in connection with the System;
(vii) all of Seller's correspondence files, lists, records and reports
concerning customers and prospective customers of the Systems, concerning
television stations whose transmissions are or may be carried as part of the
Systems and concerning all dealings with federal, state, and local regulatory
agencies, including all reports filed by or on behalf of Seller with the
Federal Communications Commission (the "FCC") in connection with the System and
any Statements of Account of the System filed by or on behalf of Seller with the
united States Copyright Office in connection with the System; provided however,
--------- -------
that Seller shall not transfer to Buyer the licenses and agreements for which
the consent of a third party is required to transfer (the "Additional
Agreements") until Seller has obtained the approval of the parties granting the
Additional Agreements to
2
<PAGE>
such transfer, whereupon such Additional Agreements shall be deemed to be
included in the assets to be transferred to Buyer pursuant to this Agreement.
(b) The following properties and assets relating to the System and its
business operations shall be retained by Seller and shall not be sold, assigned
or transferred to Buyer;
(i) cash or cash equivalents on hand or in banks;
(ii) insurance policies and rights and claims thereunder;
(iii) all claims, rights and interest in and to any refunds for
Federal, state or local income or other taxes or fees of any nature whatsoever
for periods prior to the Closing Date, including without limitation, fees paid
to the United States Copyright Office; and
(iv) assets disposed of in the normal course of business or with the
written consent of Buyer between the date hereof and the Closing Date.
3. Purchase Price. Subject to the adjustments to be made in accordance
--------------
with Paragraph 4 hereof, the total purchase price for the Assets shall be Three
Million Six Hundred Thirty Eight Thousand Seven Hundred Ninety One Dollars
($3,638,791) (the "Purchase Price"), which Purchase Price represents the average
of three separate independent appraisals of the System. The Purchase Price
shall by payable to Seller at Closing in cash, by cashier's check or by wire
transfer of Federal funds to a bank or banks designated by Seller.
4. Adjustments. All adjustments provided for herein with respect to this
-----------
transaction shall increase or decrease the Purchase Price, as appropriate, and
shall be made as of the close of business (5:01 p.m., local time) on the Closing
Date.
(a) Rent, pole rents, franchise fees, taxes, power and utility fees and
deposits, insurance premiums, licenses, customer prepayments and deposits, and
other prepayments and amounts due shall be prorated and debited or credited to
Seller or Buyer, as applicable. For purposes of adjustments made under this
Paragraph 4(a), the subscriber accounts receivable which are due and payable for
and with respect to the month in which the Closing takes place shall be prorated
as of the Closing Date.
3
<PAGE>
(b) The Purchase Price shall be reduced by any accounts payable,
accrued expenses and vehicle lease obligations for which Seller would otherwise
be liable hereunder, but for which the obligation for payment is assumed by
Buyer.
(c) Seller and Buyer shall jointly determine the adjustments required
by this Paragraph 4 at the Closing. The net amount to which Buyer or Seller, as
the case may be, is entitled pursuant hereto shall be thereupon paid by Buyer or
Seller, as the case may be, by an adjustment to the Purchase Price. All
adjustments made at Closing shall be tentative and shall be subject to final
adjustment within 90 days after Closing.
5. Assumption of Liabilities. Buyer shall agree to assume and discharge
-------------------------
all debts, liabilities and obligations of Seller arising with respect to periods
subsequent to the Closing Date under any franchise, license, permit, lease,
instrument or agreement transferred to Buyer hereunder and, with respect to
periods prior to and including the Closing Date, to assume and discharge all
obligations of Seller to the extent that the Purchase Price is reduced pursuant
to Paragraph 4(b) hereof; provided, however, that Buyer shall not assume the
-------- -------
Additional Agreements until Seller has obtained the approval of the parties
granting the Additional Agreements to Seller's transfer of the Additional
Agreements to Buyer, whereupon the Additional Agreements shall be deemed to be
included in the assets to be assumed by Buyer hereunder. Buyer hereby agrees to
indemnify and to hold harmless from and against any and all damages, costs,
claims and expenses (the "Indemnifiable Claims") arising by reason of the
ownership, operation or control of the System after Closing Date; provided,
--------
however, that Buyer shall not indemnify and hold harmless Seller from any
- -------
Indemnifiable Claims arising under Additional Agreements as a result of actions
relating to any period before Seller has obtained the approval of the parties
granting the Additional Agreements to Seller's transfer of the Additional
Agreements to Buyer. Anything herein to the contrary notwithstanding, there is
hereby excluded from the assumed obligations, and Seller hereby agrees to retain
and discharge, and to indemnify and hold Buyer harmless from and against, any
and all Indemnifiable Claims to the extent they arise (a) out of any debt,
liability or obligation arising with respect to periods prior to the Closing
Date for which no reduction of the Purchase Price has been made pursuant to
Paragraph 4(b) hereof, (b) out of any debt, liability or obligation arising
under the Additional Agreements arising as a result of actions relating to any
period before Seller has obtained the approval of the parties granting the
Additional Agreements to Seller's transfer of the Additional Agreements to
Buyer, and (c) any debt, liability or obligation of Seller not expressly assumed
hereunder, whenever arising.
4
<PAGE>
6. Seller's Representations. Seller hereby represents, warrants,
------------------------
covenants and agrees, that:
(a) Seller is a limited partnership duly organized and validly existing
under the laws of the State of Colorado. Seller has all requisite partnership
power and authority to own and operate its properties and to carry on its
business as now and where being conducted.
(b) All necessary consents and approvals have been obtained by Seller
for the execution and delivery of this Agreement. The execution and delivery of
this Agreement by Seller has been duly and validly authorized and approved by
all necessary action of Seller. This Agreement is a valid and binding obligation
of Seller, enforceable against it in accordance with its terms.
(c) Subject to the receipt of any required consents, Seller has full
legal power, right and authority to sell and convey to Buyer legal and
beneficial title to the Assets and Seller's sale to Buyer shall transfer good
and marketable title thereto, free and clear of all security interests, liens,
pledges, charges and encumbrances of every kind.
(d) The execution, delivery and performance of this Agreement by Seller
will not violate any provisions of law and will not, with or without the giving
of notice or the passage of time, conflict with or result in any breach of any
of the terms or conditions of, or constitute a default under, any mortgage,
agreement or other instrument to which Seller is a party or by which Seller, the
Assets or the System are bound. The execution, delivery and performance of this
Agreement will not result in the creation of any security interest, lien,
pledge, charge or encumbrance upon the Assets or the Systems.
7. Conditions Precedent to Buyer's Obligations. The obligations of Buyer
-------------------------------------------
under this Agreement with respect to the purchase and sale of the Assets shall
be subject to the fulfillment on or prior to the Closing Date of each of the
following conditions:
(a) All of the representations and warranties by Seller contained in
this Agreement shall be true and correct in all material respects at and as of
the Closing Date. Seller shall have complied with and performed all of the
agreements, covenants and conditions required by this Agreement to be performed
or complied with by it on or prior to the Closing Date.
5
<PAGE>
(b) Seller shall have delivered to Buyer such instruments, consents and
approvals of third parties as are necessary to transfer the Assets to Buyer
pursuant to this Agreement.
(c) The statutory waiting period applicable to this Agreement and the
transactions contemplated hereby under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), shall have been terminated
or shall have expired.
8. Conditions Precedent to Seller's Obligation. The obligations of Seller
-------------------------------------------
under this Agreement with respect to the purchase and sale of the Assets shall
be subject to the fulfillment on or prior to the Closing Date of each of the
following conditions:
(a) The statutory waiting period applicable to this Agreement and the
transactions contemplated hereby under the HSR Act, shall have been terminated
or shall have expired.
(b) Buyer shall have delivered the Purchase Price to Seller in
accordance with Paragraph 3 hereof.
9. Closing. The closing hereunder (the "Closing") shall be held in the
-------
offices of Seller, 9697 East Mineral Avenue, Englewood, Colorado, 80112, on such
date or dates as the parties hereto shall mutually agree (the "Closing Date").
At the Closing, all cash, checks, notes, deeds, bills of sale, certificates of
title, assignments and other instruments and documents referred to or
contemplated by this Agreement shall be exchanged by the parties hereto.
10. Brokerage. Seller represents and warrants to Buyer that Seller will
---------
be solely responsible for, and pay in full, any and all brokerage or finder's
fees or agent's commissions or other like payment owing in connection with
Seller's use of any broker, finder or agent in connection with this Agreement or
the transactions contemplated hereby. Buyer represents and warrants to Seller
that Buyer will be solely responsible for, and pay in full, any and all
brokerage or finder's fees or agent's commission or other like payment owing in
connection with Buyer's use of any broker, finder or agent in connection with
this Agreement or the transaction contemplated hereby. Each party hereto agrees
to indemnify and hold the other party hereto harmless against and in respect of
any breach by it of the provision of this Paragraph 10.
6
<PAGE>
11. Miscellaneous.
-------------
(a) Buyer shall have the right, upon notice to Seller, to assign prior
to the Closing Date, in whole or in part, its rights and obligations hereunder
to any affiliate of Buyer, including any public limited partnership or
partnerships of which Buyer or any affiliate of Buyer is a general partner or
any joint venture or general partnership of which Buyer, or any affiliate of
Buyer, or any of such public limited partnership or partnerships is a
constituent partner, or to any subsidiary of Buyer or other entity controlled
by, controlling or under common control with Buyer, or, subject to Seller's
consent, to any other entity.
(b) From time to time after the Closing Date, Seller shall, if
requested by Buyer, make, execute and deliver to Buyer such additional
assignments, bills of sale, deeds and other instruments of transfer, as may be
necessary or proper to transfer to Buyer all of Seller's right, title and
interest in and to the assets covered by this Agreement. Such efforts and
assistance shall be without cost to Buyer.
(c) This Agreement embodies the entire understanding and agreement
among the parties concerning the subject matter hereof and supersedes any and
all prior negotiations, understandings or agreements in regard thereto. This
Agreement shall be interpreted, governed and construed in accordance with the
laws of the State of Colorado. This Agreement may not be modified or amended
except by an agreement in writing executed by both Buyer and Seller.
(d) Any sales, use, transfer or documentary taxes imposed in
connection with the sale and deliver of the Assets and the rights acquired by
Buyer under this Agreement shall be paid by Buyer.
7
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement as of the
day and year first above written.
SELLER:
------
SPACELINK FUND 3, LTD.,
a Colorado limited partnership
By: Jones Intercable Funds, Inc., a Colorado
corporation, as its general partner
By: /s/ James B. O'Brien
-------------------------------
Title: President
-------------------------------
BUYER:
-----
JONES COMMUNICATIONS OF NEW MEXICO, INC.,
a Colorado corporation
By: /s/ Ruth E. Warren
-------------------------------
Title: Vice President/Operations
-------------------------------
8
<PAGE>
EXHIBIT 21
----------
JONES INTERCABLE, INC.
LIST OF SUBSIDIARIES
Evergreen Intercable, Inc.
International Aviation, Ltd.
Jones Cable Corporation
Jones Cable Holdings, Inc.
Jones Cable Holdings II, Inc.
Jones Communications, Inc.
Jones Communications of Arizona, Inc.
Jones Communications of California, Inc.
Jones Communications of Georgia/South Carolina, Inc.
Jones Communications of Maryland, Inc.
Jones Communications of Missouri, Inc.
Jones Communications of New Mexico, Inc.
Jones Communications of Virginia, Inc.
Jones Electronic Manufacturing Services, Inc.
Jones Futurex, Inc.
The Intercable Group, Ltd. (fka The Jones Group, Ltd.)
Jones Intercable Funds, Inc.
Jones Intercble of Ft. Myers, Inc.
Jones Intercable of Leeds, Inc.
Jones Intercable of San Diego, Inc.
Jones Intercable of South Hertfordshire, Inc.
Jones Material Management, Inc.
Jones of Wisconsin, Inc.
Jones Panorama Properties, Inc.
Jones Programming Services, Inc.
Jones Satellite Programming, Inc.
Jones Spacelink Acquisition Corporation
Jones Spacelink Cable Corporation
Jones Spacelink Management, Inc.
Jones Telecommunications of California, Inc.
Jones Telecommunications of Maryland, Inc.
Jones Telecommunications of Virginia, Inc.
Jones Tri-City Intercable, Inc.
Jones U.K. Holdings, Inc.
Saturn Cable T.V., Inc.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation
by reference of our report included in this Form 10-K into the Company's
previously filed Registration Statements on Form S-3, File Nos. 333-40147 and
333-40149 and on Form S-8, File Nos. 33-54596 and 33-52813.
ARTHUR ANDERSEN LLP
Denver, Colorado
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,586
<SECURITIES> 0
<RECEIVABLES> 26,884
<ALLOWANCES> 2,822
<INVENTORY> 0
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<PP&E> 1,005,080
<DEPRECIATION> (311,655)
<TOTAL-ASSETS> 1,731,093
<CURRENT-LIABILITIES> 112,781
<BONDS> 1,462,707
0
0
<COMMON> 412
<OTHER-SE> 155,193
<TOTAL-LIABILITY-AND-EQUITY> 1,731,093
<SALES> 0
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<OTHER-EXPENSES> 446,282
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<INCOME-PRETAX> (80,418)
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