<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
[_] Definitive Proxy Statement COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
CABLE TV FUND 12-B, LTD.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: Limited
Partnership Interests
(2) Aggregate number of securities to which transaction applies: 111,035
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): Pursuant to
Rule 0-11(c)(2), the transaction valuation is based upon the
$141,718,000 sales price to be paid to Cable TV Fund 12-B, Ltd. by Jones
Intercable, Inc. in connection with the transaction that is the subject
of the proxy solicitation.
(4) Proposed maximum aggregate value of transaction: $141,718,000
(5) Total fee paid: $28,343.60
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
<PAGE>
REVISED PRELIMINARY COPY
[LOGO OF JONES INTERCABLE APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
NOTICE OF VOTE OF THE LIMITED PARTNERS
OF CABLE TV FUND 12-B, LTD.
To the Limited Partners of Cable TV Fund 12-B, Ltd.:
A special vote of the limited partners of Cable TV Fund 12-B, Ltd. (the
"Partnership") is being conducted through the mails on behalf of the
Partnership by Jones Intercable, Inc., the general partner of the Partnership,
for the purpose of obtaining limited partner approval of the sale, to Jones
Intercable, Inc. or one of its wholly owned subsidiaries, of the Augusta,
Georgia cable television system (the "Augusta System") owned by the
Partnership, for $141,718,000 in cash, subject to normal closing adjustments.
Information relating to this matter is set forth in the accompanying Proxy
Statement.
If the limited partners approve the proposed sale of the Augusta System and
if the transaction is closed, the Partnership will distribute the net sale
proceeds to its partners and it is estimated that the limited partners will
receive $844 for each $500 limited partnership interest, or $1,689 for each
$1,000 invested in the Partnership. The Partnership nevertheless will continue
to own a nine percent interest in the cable television systems serving
Palmdale/Lancaster, California, Albuquerque, New Mexico and Tampa, Florida,
through its investment in the Cable TV Fund 12-BCD Venture, until those systems
also are sold, and the Partnership will continue in business as a public entity
subject to the informational reporting requirements of the Securities Exchange
Act of 1934.
Only limited partners of record at the close of business on May 31, 1995 are
entitled to notice of, and to participate in, this vote of limited partners.
It is very important that all limited partners participate in the voting. The
Partnership's ability to complete the transaction discussed in the Proxy
Statement and the Partnership's ability to make a distribution to its partners
of the net proceeds of the sale of the Augusta System pursuant to the terms of
the Partnership's limited partnership agreement are dependent upon the approval
of the transaction by the holders of a majority of the Partnership's limited
partnership interests.
Jones Intercable, Inc., as general partner of the Partnership, urges you to
sign and return the enclosed proxy as promptly as possible. The proxy should be
returned in the enclosed envelope.
JONES INTERCABLE, INC.
General Partner
/s/ Elizabeth M. Steele
Elizabeth M. Steele
Secretary
Dated: June 30, 1995
<PAGE>
REVISED PRELIMINARY COPY
[LOGO OF JONES INTERCABLE APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY STATEMENT
VOTE OF THE LIMITED PARTNERS OF CABLE TV FUND 12-B, LTD.
This Proxy Statement is being furnished in connection with the solicitation
of the written consents of the limited partners of Cable TV Fund 12-B, Ltd.
(the "Partnership") by Jones Intercable, Inc., the general partner of the
Partnership (the "General Partner"), on behalf of the Partnership, for the
purpose of obtaining limited partner approval of the sale of the Augusta,
Georgia cable television system (the "Augusta System") owned by the
Partnership, for $141,718,000 in cash, subject to normal closing adjustments.
The Augusta System is proposed to be sold to the General Partner or to one of
its wholly owned subsidiaries.
Proxies in the form enclosed, properly executed and duly returned, will be
voted in accordance with the instructions thereon. Limited partners are urged
to sign and return the enclosed proxy as promptly as possible. Proxies cannot
be revoked except by delivery of a proxy dated as of a later date. Officers and
other employees of the General Partner may solicit proxies by mail, by fax, by
telephone or by personal interview. The deadline for the receipt of proxy votes
is September 30, 1995, unless extended, but the vote of the Partnership's
limited partners will be deemed to be concluded on the date that the General
Partner, on behalf of the Partnership, is in receipt of proxies executed by the
holders of a majority of the limited partnership interests either consenting to
or disapproving of the proposed transaction.
The Partnership has only one class of limited partners and no limited partner
has a right of priority over any other limited partner. The participation of
the limited partners is divided into limited partnership interests and each
limited partner owns one limited partnership interest for each $500 of capital
contributed to the Partnership.
As of May 31, 1995, the Partnership had 111,035 limited partnership interests
outstanding held by approximately 8,075 persons. There is no established
trading market for such interests. To the best of the General Partner's
knowledge, no person or group of persons beneficially own more than five
percent of the limited partnership interests. The General Partner owns no
limited partnership interests. Officers and directors of the General Partner
own a total of 45 limited partnership interests and all directors and officers
of the General Partner, individually and as a group, own less than one percent
of the limited partnership interests. To the best of the General Partner's
knowledge, the 45 limited partnership interests owned by officers and directors
of the General Partner will be voted in favor of the proposed transaction. Only
limited partners of record at the close of business on May 31, 1995 will be
entitled to notice of, and to participate in, the vote.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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Upon the consummation of the proposed sale of the Augusta System, the
Partnership will pay all of its indebtedness, which totalled approximately
$38,728,000 at March 31, 1995, including the approximately $44,000 owed to the
General Partner, and then the Partnership will distribute the net sale proceeds
to its partners. Once this anticipated distribution has been made, limited
partners will have received $844 for each $500 limited partnership interest, or
$1,689 for each $1,000 invested in the Partnership.
The Partnership has a nine percent ownership interest in the Cable TV Fund
12-BCD Venture (the "Venture"), a Colorado general partnership in which Cable
TV Fund 12-C, Ltd. has a 15 percent ownership interest and Cable TV Fund 12-D,
Ltd. has a 76 percent ownership interest. The Venture currently owns three
cable television systems serving the areas in and around Palmdale/Lancaster,
California, Albuquerque, New Mexico and Tampa, Florida (the "Venture Systems").
The Venture will continue to own and operate the Venture Systems until such
time as the investment objectives of the Partnership and the Venture with
respect to the Venture Systems have been met. There are no agreements yet in
place with respect to the sale of any of the Venture Systems, and the General
Partner cannot predict when the Partnership will be terminated and dissolved
because it cannot be determined at this time when all of the Venture Systems
ultimately will be sold. As of December 31, 1994, the Augusta System comprised
86 percent of the Partnership's assets and 76 percent of its revenues, while
the Partnership's nine percent ownership interest in the Venture comprised 14
percent of the Partnership's assets and 24 percent of its revenues. After the
sale of the Augusta System, the Partnership will continue to be a public entity
subject to the informational reporting requirements of the Securities Exchange
Act of 1934 (the "Exchange Act").
Limited partners should note that there are certain income tax consequences
of the proposed sale of the Augusta System, which are outlined herein under the
caption "Federal and State Income Tax Consequences."
The Board of Directors of the General Partner approved the proposed sale of
the Augusta System and the General Partner recommends approval of the
transaction by the holders of the Partnership's limited partnership interests.
In determining the fairness of the proposed transaction, the General Partner
followed the procedures required by Section 2.3(b)(iv)(b) of the Partnership's
limited partnership agreement (the "Partnership Agreement"), which provides
that the Partnership's cable television systems may be sold to the General
Partner or to one of its affiliates if the price paid by the General Partner or
such affiliate is not less than the average of three separate independent
appraisals of the fair market value of the system to be sold. Because the
purchase price to be paid by the General Partner is the average of three
separate independent appraisals of the fair market value of the Augusta System,
the Board of Directors of the General Partner has concluded that the
consideration to be paid by the General Partner to the Partnership for the
Augusta System is fair and reasonable.
The proposal that is the subject of this proxy solicitation will be adopted
only if approved by the holders of a majority of the limited partnership
interests. Each limited partnership interest entitles the holder thereof to one
vote on the proposal. Because the Partnership Agreement requires that the
proposal to sell the Augusta System be approved by the holders of a majority of
the limited partnership interests, abstentions and non-votes will be treated as
votes against the proposal. Because limited partners do not have dissenters' or
appraisal rights in connection with the proposed sale of the Augusta System, if
the holders of a majority of the limited partnership interests approve the
proposal, all limited partners will receive a distribution of the net sale
proceeds in accordance with the procedures prescribed by the Partnership
Agreement regardless of how or whether they vote on the proposal.
The approximate date on which this Proxy Statement and Form of Proxy are
being sent to limited partners is June 30, 1995.
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SPECIAL FACTORS
THE PARTNERSHIP'S INVESTMENT OBJECTIVES
The Partnership was formed to acquire, develop, operate and, ultimately, sell
cable television systems in the United States. Throughout the life of the
Partnership, the General Partner has sought to attain the Partnership's
investment objectives. At formation, the primary objectives of the Partnership
were to obtain capital appreciation in the value of the Partnership's cable
television properties; to generate tax losses that could be used to offset
taxable income of limited partners from other sources; and to obtain equity
build-up through debt reduction. It has been contemplated from the outset of
the Partnership's existence that capital appreciation in Partnership cable
television properties would be converted to cash by a sale of such properties
at such time as the General Partner determined that the Partnership's
investment objectives had substantially been achieved. It also was contemplated
from the outset of the Partnership's existence that the General Partner or one
of its affiliates could be the purchaser of the Partnership's cable television
properties.
The Partnership acquired the Augusta System from an unaffiliated party on
August 30, 1985. Based upon the track record of prior public partnerships
sponsored by the General Partner that had liquidated or were in the process of
liquidating their assets during the period that limited partnership interests
in the Partnership were being sold and based upon disclosures made to
prospective investors about the Partnership's investment objectives in the
Cable TV Fund 12 prospectus and accompanying sales brochure, investors in the
Partnership reasonably could have anticipated that the Partnership's investment
objectives would be achieved and its assets liquidated after a holding period
of approximately five to seven years. Due to the uncertain and then adverse
regulatory environment that developed in the early 1990s for the cable
television industry, the resultant decline in the prices for cable television
systems and the subsequent inactivity in the cable television system
marketplace, the General Partner determined that it would be prudent to delay
the sale of the Augusta System until market conditions improved, and as a
result the Augusta System has been held by the Partnership for almost ten
years.
The purpose of the sale of the Augusta System, from the Partnership's
perspective, is to attain the Partnership's primary investment objective, i.e.,
to convert the Partnership's capital appreciation in the Augusta System to
cash. The sale proceeds will be used to repay all outstanding indebtedness of
the Partnership, with the remaining sale proceeds to be distributed to the
partners of the Partnership in accordance with the distribution procedures
established by the Partnership Agreement. The sale of the Augusta System is
thus the necessary final step in the Partnership's accomplishment of its
investment objectives with respect to the Augusta System.
The Partnership was formed in June 1985 as a Colorado limited partnership in
connection with a public offering of its limited partnership interests. The
Augusta System was acquired by the Partnership in August 1985. Since its
acquisition, the Partnership has upgraded the technical quality and capability
of the Augusta System, including a major fiber optic rebuild, and has expanded
the area originally served by the Augusta System through construction of cable
plant extensions. The Partnership has been successful in increasing the cable
television service penetration in areas served by the Augusta System. The
Partnership enhanced revenues of the Augusta System through adjustments in
rates charged to subscribers and through the addition of new services, such as
advertising sales and pay-per-view programming. A more detailed discussion of
the Augusta System is set forth below under the captions "Special Factors,
Reasons for the Timing of the Sale" and "Proposed Sale of Assets, The Augusta
System."
A sale of the Partnership's cable systems, the repayment of all of the
Partnership's debt and the distribution of the net sale proceeds to partners
were the means originally contemplated by the General Partner and the limited
partners to accomplish the Partnership's investment objectives. The General
Partner determined that a sale of the Augusta System for cash was the best
means of providing limited partners with liquidity and the best way for the
limited partners to realize the capital appreciation in the Augusta System.
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Upon the sale by the Venture of its cable television systems located in
Houghton/Hancock, Michigan in August 1987 and California City, California in
April 1992, the sale proceeds were used to reduce the Venture's indebtedness
and none of the sale proceeds were distributed to the Partnership. The
Partnership thus has made no prior distributions to its partners.
THE GENERAL PARTNER'S OBJECTIVES
Like many of the other major cable television system operators in the United
States, the General Partner is seeking, through acquisitions and/or trades of
cable television systems, to group the cable television systems that it owns
and operates into geographical clusters. The purpose of the transaction, from
the General Partner's perspective, is to acquire a valuable cable television
system operating in a marketplace adjacent to the North Augusta, South Carolina
cable television system already owned by the General Partner that currently
serves approximately 15,475 basic subscribers and has approximately 9,690
premium channel subscriptions using approximately 517 miles of cable plant
passing approximately 24,060 dwelling units (the "North Augusta System"). The
Augusta System and the North Augusta System currently are managed as one, and
the General Partner intends to continue to manage the systems as one to realize
the benefits of operating efficiencies and economies of scale. Acquisition of
the Augusta System accomplishes the General Partner's geographical clustering
goal because not only is it adjacent to the North Augusta System, but it is in
relatively close proximity to other cable television systems owned and/or
operated by the General Partner in the neighboring states of South Carolina and
Florida.
In contrast to the Partnership, which is a Colorado limited partnership with
a finite term and which sought cable television properties with high growth
potential during a holding period of approximately five to seven years, the
General Partner, a Colorado corporation with perpetual existence, is seeking to
acquire mature cable television systems that can generate a steady stream of
income and that may appreciate in value over a longer holding period. The
Augusta System satisfies this objective of the General Partner.
The General Partner also may be in a better position than the Partnership to
access both debt and equity to finance the long-term development of the Augusta
System. The General Partner may be able to leverage the Augusta System at a
higher level than the Partnership has done and, accordingly, the General
Partner may be able to generate a greater return on its investment in the
Augusta System than the Partnership would be able to do within the same time
period. Because the General Partner's horizon is much longer term than the
Partnership's, and the General Partner will not need to sell the Augusta System
to achieve its objectives, it can better withstand the competition and
regulatory risks inherent in long-term holding and development of the Augusta
System.
RELEVANT PROVISIONS OF THE PARTNERSHIP AGREEMENT
Section 2.2(k) of the Partnership Agreement provides that the sale of all or
substantially all of the Partnership's assets is subject to the approval of the
holders of a majority of the Partnership's limited partnership interests.
Because the Augusta System represents 86 percent of the Partnership's assets
and 76 percent of its revenues, the sale of the Augusta System to the General
Partner is being submitted for limited partner approval.
Section 2.3(b)(iv)(b) of the Partnership Agreement permits the Partnership to
sell any or all of its cable television systems directly to the General Partner
or one or more of its affiliates if the system to be sold has been held by the
Partnership for at least three years, unless it is part of, or related to,
another system that has been held for three years, and provided that the price
paid to the Partnership by the General Partner is not less than the average of
three separate independent appraisals of the particular cable television system
or systems being sold, and that the cost of such appraisals are not borne by
the Partnership. Because the Augusta System has been held by the Partnership
for at least three years and the purchase price to be paid by the General
Partner is the average of three separate independent appraisals of the fair
market value of the Augusta System obtained at the General Partner's expense,
the requirements of Section 2.3(b)(iv)(b) of the Partnership Agreement have
been satisfied.
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REASONS FOR THE TIMING OF THE SALE
The decision to proceed with the sale of the Augusta System at this time was
based upon the General Partner's determination that the Partnership has
substantially achieved its investment objectives with respect to the Augusta
System. The Augusta System has appreciated in value through the General
Partner's operational expertise, general economic factors and certain other
developments such as the favorable regulatory environment during the first half
of the holding period and improvements in satellite technology generally
benefiting the cable television industry. This appreciation can best be seen by
the fact that the Augusta System was purchased for $57,850,000, $60,500,000 in
capital expenditures have been made by the Partnership and the Augusta System
is now proposed to be sold for $141,718,000, a difference of $23,368,000
between the amount invested in the Augusta System and the sales price.
The Partnership has a finite legal existence of 17 years, ten of which have
passed. It was not intended, however, that the Partnership would hold its cable
systems for the full 17-year period. Although it was not possible at the outset
of the Partnership to determine precisely how quickly the investment objectives
with respect to any particular system would be achieved, investors were
informed that the General Partner's past experience had shown that five to
seven years was the average length of time from the acquisition of a cable
system to its sale. An investor in the Partnership also was able, of course, to
examine the track record of the General Partner's prior public partnerships,
which, at the time of the Partnership's formation, showed that prior
partnerships had rarely held their cable systems for any longer than six years.
When investing in the Partnership, by virtue of the provisions of the
Partnership Agreement, the limited partners vested in the General Partner the
right and responsibility to determine when the Partnership's investment
objectives had been substantially achieved. The Augusta System was acquired
because, in the opinion of the General Partner at the time of the Augusta
System's acquisition, it had the potential for capital appreciation within a
reasonable period of time. It is the General Partner's opinion that during the
approximately ten years that the Augusta System has been held by the
Partnership, the Partnership's investment objectives with respect to the
Augusta System have been achieved.
The General Partner generally considered the benefits to the Limited Partners
that might be derived by holding the Augusta System for an additional period of
time. The General Partner assumed that the Augusta System probably will
continue to appreciate in value and that as a result the Augusta System might
be able to be sold for a greater sale price in the future. The General Partner
weighed these assumptions against the potential risks to investors from a
longer holding period, i.e., the risk that regulatory and/or competitive
developments could cause the Augusta System to decline in value, which could
result in a lesser sale price in the future. Weighing all of these factors, the
General Partner concluded that now rather than later was the time to sell the
Augusta System.
The Partnership's decision to sell the Augusta System at this time was
greatly influenced by the fact that the contemplated holding period of five to
seven years has been exceeded. The Augusta System was not sold earlier because
of the uncertain and then adverse regulatory environment that developed in the
early 1990s for the cable television industry.
During the early 1990s, for example, prices for cable television systems were
adversely affected by the fact that loans from commercial banks to cable
television system operators became more difficult to obtain. The inability of
potential purchasers of cable television systems to obtain loans to leverage
the purchase of cable television systems on terms historically available to
purchasers of cable television systems kept potential purchasers out of the
cable television system marketplace. This reduced demand for systems adversely
affected cable system resale values. The reluctance of commercial banks to make
loans to cable television system operators on terms historically available was
attributable to two factors that no longer exist: (i) the classification by
federal banking regulators of loans to cable television system operators as
highly leveraged transactions, and (ii) the uncertainty about the effects of
rate reregulation on cable television systems' operating cash flow during the
several year periods before and after the enactment in 1992 of the federal law
reregulating the cable television industry.
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In the several years prior to the enactment of the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"), the prices for
cable television systems also were depressed by speculation in the industry
about the provisions to be included in cable reregulation legislation pending
before Congress. During the months leading up to the enactment of the 1992
Cable Act, industry appraisers were reluctant to appraise cable television
systems because of their inability to predict the effects of rate reregulation
while the pending legislation was constantly being revised and rewritten.
The enactment of the 1992 Cable Act, which became effective on December 4,
1992, caused significant changes to the regulatory environment in which the
cable television industry operates. The 1992 Cable Act generally mandates a
greater degree of regulation of the cable television industry than existed
previously. Under the 1992 Cable Act's definition of effective competition,
nearly all cable systems in the United States, including the Augusta System,
became subject to rate regulation of basic and tier cable services. In April
1993, the FCC adopted regulations governing rates for basic and tier services.
In compliance with these rules, the Partnership reduced rates charged for
certain regulated services provided by the Augusta System effective September
1, 1993. These initial rate reductions resulted in some decrease in revenues
and operating income before depreciation and amortization; however, the
decrease was not as severe as originally anticipated because the General
Partner undertook actions to mitigate the rate reductions primarily through
new service offerings, product remarketing and repackaging and marketing
efforts directed at non-subscribers.
On February 22, 1994, however, the FCC adopted several additional rate
orders, including an order that revised its earlier-announced regulatory
scheme with respect to rates. The FCC's 1994 regulations generally required
additional rate reductions, absent a successful cost-of-service showing, of 17
percent of September 30, 1992 rates, adjusted for inflation, channel
modifications, equipment costs and increases in programming costs. On February
22, 1994, the FCC also adopted interim cost-of-service regulations. Under
these interim guidelines, rate reductions are not required of cable systems
that can successfully demonstrate that their rates for basic and other
regulated programming services are justified and reasonable using cost-of-
service standards. The FCC established an interim industry-wide 11.25 percent
permitted rate of return, and requested comments on whether this standard and
other interim cost-of-service standards should be made permanent.
After analyzing the effects of the two methods of rate regulation, the
General Partner concluded that the Partnership should file a cost-of-service
showing for the Augusta System. The General Partner anticipates that no
further reductions in basic and tier service rates will be required of the
Augusta System and thus the General Partner believes that there will be no
further reduction in the Augusta System's revenues or operating income
resulting from the FCC's rate regulations. The cost-of-service showing for the
Augusta System has not as yet received final approval from the system's
franchising authorities, however, and there can be no assurance that the
Partnership's cost-of-service showing will prevent further rate reductions
until such final approval is received.
The cable television system marketplace is finally emerging from the
approximately five years of transactional sluggishness attributable to the
foregoing regulatory uncertainties and developments. Because there is now some
renewed activity in the cable television system marketplace, and because
prices for certain cable television systems are approaching levels last seen
during the late 1980s, the General Partner decided, on behalf of the
Partnership, to proceed with the sale of the Augusta System at this time.
Another reason for the timing of the sale of the Augusta System from the
Partnership's perspective is the developing potential competition from Direct
Broadcast Satellite ("DBS") systems. Two operators of wide-scale DBS systems
began operations in 1994 and are able to distribute programming to subscribers
with a roof top or wall-mounted antenna by high-powered DBS satellites to most
areas of the United States. Potential competition from telephone companies
that are expected to be allowed to compete directly with cable television
systems in the near future also was a factor in the timing of the sale. The
Partnership has limited access to the capital that may be required to make the
technological improvements to the Augusta System, such as increasing channel
capacity or further converting to fiber optic cable, that may be necessary for
the Augusta System to compete successfully with providers of DBS or other
wireless cable services or
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telephone companies that may enter some or all of the markets served by the
Augusta System. The Partnership is limited in its ability to obtain additional
equity financing, in part because the limited partnership interests are non-
assessable. The Partnership Agreement also contains limits on the amounts that
the Partnership can borrow. And, the Partnership directly owns only one asset,
the Augusta System, to use as collateral for borrowings.
The General Partner, on the other hand, has been a multiple system cable
owner and operator for over twenty years and has longer term objectives. It can
thus better withstand the risks of a longer holding period. For example, if
significant competition to the Augusta System were to materialize, the General
Partner would be in a better position than the Partnership to finance the
marketing campaigns or technological improvements to the Augusta System
necessary to meet such competition because of the General Partner's greater
access to the debt and equity markets. The General Partner has a large pool of
assets that can be used to collateralize borrowings from commercial banks or
other sources of debt financing. The General Partner also has better access to
the debt and equity securities marketplace to finance expenditures that may
become necessary to meet future competition.
In determining that now was the time for the Partnership to sell the Augusta
System, the General Partner also took into account that because the limited
partners have used 100 percent of their "at risk" basis in the Partnership, the
limited partners likely will derive no significant tax benefits from a longer
holding period. The General Partner's belief that tax benefits have been
substantially realized is based on information gathered by the General Partner
and supplied annually to the limited partners on Schedule K-1, Form 1065, which
reveals that the limited partners' "at risk" basis in the Partnership has been
reduced to zero. The "at risk" basis of the limited partners is important
because a limited partner cannot deduct his share of Partnership losses in
excess of his basis. Although the deduction of Partnership losses may also be
limited by the application of the passive loss rules, the passive loss rules
allow deduction of losses to the extent of passive income. When, however, the
limited partners' "at risk" basis is reduced to zero, they can no longer offset
their taxable income with Partnership losses.
From the General Partner's perspective, the timing of its decision to seek to
purchase the Augusta System was influenced by the fact that the General Partner
completed several major transactions in 1994 that have given it the financial
resources to acquire cable television systems from its managed limited
partnerships and from unaffiliated sellers of cable television systems. The
General Partner has had long-standing, publicly announced plans to acquire for
its own account those cable television systems operated by the General Partner
on behalf of its managed limited partnerships that meet the General Partner's
objectives, including its geographical clustering objectives, when the
partnerships holding such systems have accomplished their investment objectives
with respect to such systems and when the General Partner has the financial
resources to acquire such systems.
On December 20, 1994, Bell Canada International Inc. ("BCI") purchased
7,414,300 newly issued shares of the General Partner's Class A Common Stock at
$27.50 per share for approximately $204,000,000. This transaction followed the
May 1994 purchase by BCI of 2,500,000 newly issued shares of the General
Partner's Class A Common Stock at $22.00 per share for $55,000,000. These two
transactions resulted in BCI acquiring an approximate 30 percent economic
interest in the General Partner for a total consideration of approximately
$259,000,000. BCI also has committed to invest up to an additional $141,000,000
to maintain its 30 percent economic interest in the event the General Partner
offers additional shares of its Class A Common Stock. BCI also has the right to
maintain or increase its ownership in the General Partner by investing amounts
beyond the $400,000,000 commitment.
Also on December 20, 1994, Jones International, Ltd. ("International"), which
is wholly owned by Glenn R. Jones, the chairman and chief executive officer of
the General Partner, as well as certain subsidiaries of International and Mr.
Jones individually, granted BCI options to acquire 2,878,151 shares of the
General Partner's Common Stock. Except in limited circumstances, the options
will only be exerciseable during the
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eighth year after December 20, 1994. The exercise of such options would result
in BCI holding a sufficient number of shares of the Common Stock of the General
Partner to enable BCI to elect 75 percent of the General Partner's Board of
Directors. BCI is a wholly owned subsidiary of BCE Inc., Canada's largest
telecommunications company.
Therefore, in light of all of the above factors, the General Partner has
determined that now is the appropriate time for the Partnership to convert its
capital appreciation in the Augusta System to cash through the sale to the
General Partner.
CERTAIN EFFECTS OF THE SALE
Upon consummation of the sale of the Augusta System to the General Partner,
the proceeds of the sale will be used to repay all indebtedness of the
Partnership and then the Partnership will distribute the remaining net sale
proceeds to the limited partners and to the General Partner pursuant to the
terms of the Partnership Agreement. Investors first will receive their initial
capital contributions to the Partnership, and the balance will be distributed
75 percent to the limited partners and 25 percent to the General Partner, in
accordance with the terms of the Partnership Agreement. Based upon the pro
forma financial information as of March 31, 1995, as a result of this
distribution, the limited partners of the Partnership, as a group, will receive
approximately $93,797,873 and the General Partner will receive approximately
$12,760,124. Both the limited partners and the General Partner will be subject
to federal income tax on the income resulting from the sale of the Augusta
System. See the detailed information below under the caption "Federal and State
Income Tax Consequences."
After the sale of the Augusta System, the Partnership will continue to own a
nine percent interest in the Venture until such time as all of the Venture
Systems also are sold.
Another effect of the sale is that it will result in the General Partner
owning and operating the Augusta System. Thus, as a result of the transaction,
the General Partner will make a substantial equity investment in the Augusta
System and it will have a greater equity ownership interest in the Augusta
System than it does now as general partner of the Partnership. Instead of the
residual 25 percent interest in the net proceeds from the sale of the Augusta
System that the General Partner will receive, the General Partner will have a
100 percent interest in any future capital appreciation of the Augusta System.
The General Partner also will bear the risks of system losses and any
diminution in system value. As the general partner of the Partnership, the
General Partner earns management fees and receives reimbursement of its direct
and indirect expenses allocable to the operation of the Augusta System. The
General Partner's right to receive such fees and reimbursements will terminate
on the sale of the Augusta System.
As a result of the sale of the Augusta System to the General Partner, the
General Partner will acquire all of the tangible and intangible property of the
Augusta System. For federal income tax purposes, the General Partner must
allocate the $141,718,000 purchase price among the tangible and intangible
assets that it acquires, and it will determine the appropriate amount of
depreciation based upon this allocation of the purchase price.
Neither Colorado law nor the Partnership Agreement afford dissenters' or
appraisal rights to limited partners in connection with the proposed sale of
the Augusta System. If the proposed transaction is approved by the holders of a
majority of limited partnership interests, all limited partners will receive a
distribution in accordance with the procedures prescribed by the Partnership
Agreement.
RECOMMENDATION OF THE GENERAL PARTNER AND FAIRNESS OF THE PROPOSED SALE OF
ASSETS
The General Partner believes that the proposed sale of the Augusta System and
the distribution of the net proceeds therefrom are both procedurally and
substantively fair to all unaffiliated limited partners of the Partnership, and
it recommends that the limited partners approve the transaction. The General
Partner,
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because of its 25 percent share of the residual sale proceeds, has an economic
interest parallel to the economic interest of the limited partners in seeing to
it that the Augusta System is sold for a fair price.
The General Partner's recommendation that the limited partners approve the
sale of the Augusta System and its fairness determination should not be deemed
to be free from conflicts of interest, however, in light of the fact that the
General Partner or one of its wholly owned subsidiaries is the proposed
purchaser of the Augusta System. Because the purchaser of the Augusta System
would benefit from a lower sales price, the General Partner also has an
economic interest in conflict with the economic interest of the limited
partners.
In determining the substantive and procedural fairness of the proposed
transaction, the General Partner considered each of the following factors, all
of which had a positive effect on its fairness determination. The factors are
listed in descending order of importance, i.e., the first factor listed was
given the most weight in the determination that the proposed transaction is
fair, although, as a practical matter, this is an approximation of the weight
given to each factor because the General Partner believes that each factor is
relevant and the General Partner was not able to weigh each factor precisely:
(i) The limited partnership interests are at present illiquid and the
cash to be distributed to limited partners as a result of the proposed sale
of the Augusta System will provide limited partners with liquidity and with
the means to realize the appreciation in the value of the Augusta System;
(ii) The purchase price represents the fair market valuation of the
Augusta System as determined by the average of three separate appraisals of
the Augusta System by qualified independent appraisers;
(iii) The Partnership has held the Augusta System for approximately ten
years, a holding period beyond that originally anticipated;
(iv) The conditions and prospects of the cable television industry in
which the Partnership is engaged, including the current adverse regulatory
environment, the developing threat of competition from DBS services and
telephone companies, and the working capital and other financial needs of
the Partnership if it were to continue to operate the Augusta System;
(v) The terms and conditions of the purchase and sale agreement by and
between the Partnership and the General Partner, including the fact that
the purchase price will be paid in cash, the fact that the General Partner
will not require the Partnership to make many of the representations and
warranties about the Augusta System or give indemnities that are
customarily given in transactions of this nature, the fact that the General
Partner's obligation to close is not contingent upon its ability to obtain
financing, the fact that transfers of the Augusta System's cable television
franchises from the Partnership to the General Partner do not need the
approval of local franchising authorities, which might be required if the
Augusta System were being sold to an unaffiliated party, and the fact that
the Partnership will pay no brokerage fees upon the sale of the Augusta
System, which it likely would have paid if the Augusta System were being
sold to an unaffiliated party;
(vi) The tax benefits to the limited partners of the Partnership's
investment in the Augusta System have been substantially realized because
the limited partners' "at risk" basis has been reduced to zero; and
(vii) The sale is being conducted in accordance with the terms of the
Partnership Agreement, including the fact that the proposed transaction
will not occur unless it is approved by the holders of at least a majority
of the limited partnership interests (less than one percent of which are
owned by affiliates of the General Partner).
Certain officers of the General Partner worked with each of the three
independent appraisers hired to prepare fair market value appraisals of the
Augusta System, providing them with current and historical profit and loss
statements for the Augusta System and with current subscriber reports. The
officers and directors of the General Partner received the final appraisal
reports. The members of the Board of Directors of the General Partner adopted
the analyses and conclusions of Malarkey-Taylor Associates, Inc., which valued
the
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Augusta System at $141,854,000, because Malarkey-Taylor Associates, Inc.'s
valuation procedures, assumptions and methodologies most closely approximate
the valuation procedures, assumptions and methodologies used by the General
Partner's management in evaluating cable television systems. The General
Partner's Board of Directors did not specifically adopt the $141,854,000 value
placed on the Augusta System by Malarkey-Taylor Associates, Inc., but the Board
did consider the fact that the value determined by this appraisal firm was very
close to the average of the three appraisals ($141,718,000) and concluded that
this fact supported its fairness determination.
The General Partner considered the fact that the $141,718,000 purchase price
to be paid to the Partnership for the Augusta System represents the average of
three independent appraisals of the current fair market value of the Augusta
System to be very persuasive evidence of the fairness of the proposed
transaction. The fair market valuations of the Augusta System were done by
respected industry appraisers using customary measures of value, i.e.,
determining present value of projected cash flow, applying multiples to current
and projected cash flow, and comparing the fair market valuation per subscriber
to comparable cable television system sales. In the opinion of the General
Partner, the fact that different valuation methods were used in preparing the
three separate independent fair market value appraisals lends further support
to its determination of fairness. Based upon the General Partner's experience
in analyzing appraisals of cable television system values, it was not surprised
that the three appraisal firms assigned different values to the Augusta System.
The General Partner has worked with these firms in the past and these firms
have not arrived at the same values in previous appraisals. The General Partner
believes it is usual and appropriate for appraisal firms to come to separate
and independent conclusions. Indeed, one of the reasons that the Partnership
Agreement requires the General Partner to obtain three separate independent
appraisals of value is to afford the Partnership and the unaffiliated limited
partners with the benefit of three separate valuation analyses. In light of the
foregoing, the General Partner believes that the fact that one firm appraised
the Augusta System at $147,000,000 no more detracts from its fairness
determination than the fact that one firm appraised the Augusta System at
$136,300,000 supports its fairness determination. Based upon the General
Partner's knowledge of and experience in the cable television industry, and its
review and consideration of the appraisals, it has concluded that the values
for the Augusta System determined by the three appraisals are fair and within
the range of values seen in the marketplace for comparable cable television
systems in similar condition.
The $141,718,000 purchase price represents the current fair market value of
the Augusta System on a going concern basis. The $141,718,000 purchase price
for the Augusta System also compares favorably to the approximately $14,851,000
net book value of the Augusta System ($268 per $1,000 of limited partnership
capital) at March 31, 1995. The liquidation value of a cable television system,
i.e., the sale of the system on other than a going concern basis, is not
usually considered to be an accurate indicator of the value of a cable
television system, primarily because the assets of a cable television system
typically are worth less when considered separately than when considered as a
going concern. The assets of a cable television system consequently are not
normally sold or purchased separately. A fair market valuation of a system
should, in the General Partner's view, be a valuation of the system as a going
concern. The liquidation value of the Augusta System therefore was not
considered by the General Partner in reaching its determination of fairness.
Because there has never been an established trading market for the
Partnership's limited partnership interests, the General Partner did not have
access to any reliable, official information about the historical or current
market prices for the Partnership's limited partnership interests in the very
limited secondary market where such interests from time to time have been sold.
The General Partner believes that such secondary market deeply discounts the
underlying value of the limited partnership interests due to their highly
illiquid nature. Therefore, even if trading information were available, the
historical or current market prices for the Partnership's limited partnership
interests would not be indicative of the value of the Partnership's cable
television system assets. For these reasons, the General Partner did not
consider the historical or current market prices for the partnership interests
when reaching its fairness determination.
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The fact that the Partnership has held the Augusta System for a period beyond
that originally anticipated was an important factor in the General Partner's
fairness determination--the General Partner believes that the transaction is
fair because a sale at this time will convert an illiquid investment into a
liquid one for all partners. And the current state of the cable television
industry also was considered by the General Partner in making its fairness
determination because the General Partner believes that it is fair to investors
that the General Partner rather than the Partnership take on the uncertainties
and risks involved in continuing to own and operate the Augusta System.
The fairness of the transaction is also demonstrated in an analysis of
certain of the terms and conditions of the purchase and sale agreement between
the Partnership and the General Partner, which favor the interests of the
Partnership. There is no financing contingency to closing. Because of the
General Partner's existing extensive knowledge about the Augusta System, the
Partnership has not been required to make many of the representations and
warranties about the quality of the Augusta System's tangible assets, the
quantity of the Augusta System's subscribers or the validity of the Augusta
System's intangible assets customarily found in cable television system
transactions. The Partnership also has not been asked to give warranties about
the Augusta System's rates as justified by the system's cost-of-service filing.
In addition, the Partnership is not required to indemnify the purchaser for
defects discovered by the purchaser after the closing. This frees the
Partnership from having to reserve a portion of the sale proceeds to cover
indemnification obligations. The transfer of the Augusta System's six cable
television franchises from the Partnership to the General Partner or to one of
its wholly owned subsidiaries will not require regulatory approval and thus
regulatory approval of franchise transfers is not a condition to closing. This
removes an obstacle to closing that might be present if the Augusta System were
being sold to an unaffiliated party. The Partnership also will pay no brokerage
fee in connection with the sale of the Augusta System. This will result in more
funds from the sale being available for distribution to the partners. Because
the Augusta System is being sold to the General Partner, the Partnership saved
the time and considerable expense of seeking third party buyers and potentially
protracted contract negotiations.
The General Partner is aware and considered that although consummation of
this transaction will result in aggregate distributions to the Partnership's
limited partners of approximately $1,689 per $1,000 of limited partnership
capital invested in the Partnership, the proposed sale will require the limited
partners to recognize, for federal income tax purposes, a gain resulting from
the sale. The proposed sale also will deprive the limited partners of an
opportunity to participate in the future growth of the Augusta System, if any,
and it will result in the General Partner or one of its wholly owned
subsidiaries owning the Augusta System. The General Partner nevertheless
concluded that the cash distributions to the limited partners of the
Partnership from the sale of the Augusta System to the General Partner
outweighed these consequences.
As disclosed above, the proposed transaction is subject to various conflicts
of interest arising out of the Partnership's relationships with the General
Partner. Because the General Partner and its affiliates are engaged in the
ownership and operation of cable television systems, they are generally in the
market to purchase cable television systems for their own account. A potential
conflict thus arises from the General Partner's fiduciary duty as general
partner of the Partnership and its management's fiduciary duty to the General
Partner's shareholders when it determines that Partnership cable television
systems will be sold to the General Partner or one of its affiliates and not to
an unaffiliated third party. This potential conflict of interest was disclosed
to limited partners in the prospectus delivered to investors at the time of the
public offering of interests in the Partnership. Prior to the Partnership's
public offering, the General Partner entered into negotiations with certain
state securities administrators as part of the process of clearing the offering
in the "merit" states, i.e., those states that permit the sale of securities
only if the state securities administrator deems the offering as a whole to be
fair, just and equitable. Several of the state securities administrators
focused on the potential conflicts of interest in the event that the
Partnership were to sell one or more of its cable television systems to the
General Partner or one of its affiliates. The General Partner agreed to include
the provision in the Partnership Agreement that permits the Partnership to sell
its cable television systems directly to the General Partner or one of its
affiliates only after a three-year holding period and only if the General
Partner or such affiliate pays a purchase price not less than the average of
three separate independent
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appraisals of the particular cable television system being sold. The General
Partner has concluded that the mechanisms for determining the purchase price
to be paid to the Partnership provide sufficient procedural safeguards to
minimize the effects of the potential conflicts of interest inherent in any
such transaction. The fact that these procedures have been carried out in
connection with the Partnership's proposed sale of the Augusta System,
together with the fact that the transaction is conditioned upon receipt of the
approval of the holders of a majority of the limited partnership interests in
the Partnership, of which affiliates of the General Partner own less than one
percent, enable the General Partner to conclude that the proposed transaction
is both procedurally and financially fair to all partners.
As disclosed above, the General Partner's decision to acquire the Augusta
System was motivated in part by the Augusta System's close proximity to the
North Augusta System, which already is owned by the General Partner. The Board
of Directors of the General Partner did not expressly consider offering a
specific premium to the Partnership in the price offered for the Augusta
System for this potential benefit to the General Partner. While no specific
premium was offered to the Partnership for this potential benefit to the
General Partner, in making its fairness determination the Board of Directors
of the General Partner was aware that a majority of cable television system
acquisitions in recent years have involved buyers seeking systems within close
proximity to systems already owned by the buyer in order to facilitate
geographical clustering of systems and to obtain the administrative and
operational advantages that clustering can provide. With this background and
knowledge of the marketplace, the Board of Directors of the General Partner
realized that the appraisals of the Augusta System's fair market value, to the
extent that they reflected the values of other cable television system
purchases and sales in the marketplace, impliedly factored in some premium due
to the Augusta System's proximity to the other system owned by the General
Partner.
The directors of the General Partner who are not employees of the General
Partner did not vote separately to approve the transaction, nor did the
outside directors retain an unaffiliated representative to act solely on
behalf of the limited partners for the purposes of negotiating the terms of
the proposed sale of the Augusta System to the General Partner and/or
preparing a report concerning the fairness of the proposed sale. While the
directors of the General Partner participating in the approval of the sale
recognized that the interests of the General Partner and the limited partners
may not in all respects necessarily be the same, they recognized also that the
purchase price was determined in accordance with the terms of the Partnership
Agreement, that is, by averaging three separate independent appraisals of the
Augusta System's fair market value. The members of the Board of Directors
relied on the specific right of the General Partner under Section
2.3(b)(iv)(b) of the Partnership Agreement to purchase the Augusta System, so
long as the purchase price was determined according to the three appraisal
method, as it had been. No suggestion was made that the Augusta System be
offered to unaffiliated parties. The members of the Board of Directors
reviewed and considered the appraisals and concluded that the values for the
Augusta System determined by the appraisers were fair and were within the
industry norms for comparable transactions. The seven directors of the General
Partner who participated in the March 17, 1995 meeting to discuss the
Partnership's sale of the Augusta System to the General Partner, Messrs.
Jones, O'Brien, Krejci, Somers, Vigil, Zinn and Zonker, voted unanimously to
approve the transaction. Two directors of the General Partner, Mr. Burney and
Ms. Marocco, were unable to attend the Board meeting at which the sale of the
Augusta System was discussed and approved due to scheduling conflicts.
It is anticipated that if the proposed transaction is not consummated, the
General Partner's current management team will continue to manage the Augusta
System on behalf of the Partnership until such time as the Augusta System
could be sold. No other alternatives have been or currently are being
considered.
THE APPRAISALS
In determining the price that the General Partner would offer for the
Augusta System, the General Partner retained Malarkey-Taylor Associates, Inc.,
Kagan Media Appraisals Inc. and Western Cablesystems, Inc. to prepare separate
appraisals of the fair market value of the Augusta System. The appraisers were
asked to determine the cash price a willing buyer would give a willing seller,
neither being under any compulsion to
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buy or sell and both having reasonable knowledge of relevant facts, in an
arm's-length transaction to acquire the Augusta System. These appraisals have
been made available to the Partnership by their delivery to the General
Partner. The officers and directors of the General Partner examined each of the
appraisals and discussed among themselves the merits of the appraisals'
assumptions, methodologies and conclusions, and, based on their experience in
and knowledge of the cable television industry, they found them to be fair and
reasonable. The written appraisal reports are available for inspection and
copying at the offices of the General Partner during regular business hours by
any interested limited partner of the Partnership or by his or her authorized
representative. Copies of such appraisals will be mailed by the General Partner
to any interested limited partner or to his or her authorized representative
upon written request to the General Partner.
The ranges of values determined by each of the three separate independent
appraisals of the fair market value of the Augusta System are presented and
discussed on the following pages of this proxy statement. Investors should note
that the ranges of values on a per-$500 limited partnership interest basis and
on the basis of $1,000 invested in the Partnership disclosed herein have been
computed as follows: each value established by an appraiser has been deemed to
be the sales price for the Augusta System and then adjustments have been made
to add the Partnership's cash on hand and the estimated net closing adjustments
and to subtract the $38,728,010 in estimated debt repayments, a return of
capital to the limited partners totaling $55,517,500 and to split the remainder
25 percent to the General Partner and 75 percent to the limited partners. These
ranges of values are presented in this manner so that limited partners can
compare their hypothetical return at each value with the anticipated return to
limited partners of $844 for each $500 limited partnership interest, or $1,689
for each $1,000 invested in the Partnership, given a sales price equal to the
average of the three separate independent appraisals.
Malarkey-Taylor Associates, Inc. concluded that the Augusta System's overall
fair market value as of December 31, 1994 was $141,854,000 ($846 for each $500
limited partnership interest or $1,691 for each $1,000 invested in the
Partnership). Kagan Media Appraisals Inc. concluded that the Augusta System's
overall fair market value as of December 31, 1994 was $136,300,000 ($808 for
each $500 limited partnership interest or $1,616 for each $1,000 invested in
the Partnership). Western Cablesystems, Inc. concluded that the Augusta
System's overall fair market value as of December 31, 1994 was $147,000,000
($880 for each $500 limited partnership interest or $1,761 for each $1,000
invested in the Partnership). The average of these three valuations is
$141,718,000 ($844 for each $500 limited partnership interest or $1,689 for
each $1,000 invested in the Partnership). The fair market valuations of the
Augusta System were undertaken within the same general period of time and each
of the appraisals was completed and delivered to the Partnership within one
month of the date that the purchase price was settled in the Purchase and Sale
Agreement. In the General Partner's view, the assumptions regarding system
operations underlying the three appraisals have generally remained unchanged
since December 31, 1994.
The General Partner provided the appraisers with current and historical
profit and loss statements for the Augusta System and with current subscriber
reports. The appraisers also gathered information from conversations with the
Augusta System's management team. From this information, the appraisers used
their independent analyses to project cash flow, determine growth of homes
passed, the Augusta System's future penetration and possible rate adjustments.
The appraisals thus reflect the application of the appraisers' expertise to the
data about the Augusta System supplied by the General Partner.
The Malarkey-Taylor Appraisal
Malarkey-Taylor Associates, Inc. ("Malarkey-Taylor") is the oldest consulting
firm specializing in the field of cable television. Its team of financial,
engineering and managerial professionals devotes a substantial portion of its
time to the appraisal of cable television systems. Malarkey-Taylor was selected
by the General Partner to render an opinion as to the fair market value of the
Augusta System in light of such overall qualifications. No limitations were
imposed with respect to the appraisal to be rendered by Malarkey-Taylor. The
firm was selected by the General Partner to prepare an independent appraisal of
the Augusta System because of the General Partner's familiarity with the firm,
and its good reputation in the cable television industry. Malarkey-Taylor has
prepared independent appraisals of other cable television systems owned
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and/or managed by the General Partner. The principals of Malarkey-Taylor are
not affiliated in any way with the General Partner.
Malarkey-Taylor used five generally accepted cable television valuation
methods in establishing the range of total fair market values of the Augusta
System as a going concern. The first method used a multiple of the past year's
operating income derived from comparable asset values of privately held and
publicly traded cable companies. (The appraisal report did not disclose and the
General Partner did not inquire as to the identities of the companies Malarkey-
Taylor used in determining the multiple.) The second method used a lower
multiple of the Augusta System's "running rate" operating income. Malarkey-
Taylor determined the Augusta System's "running rate" operating income by
calculating the system's annualized revenue based upon the subscribers, rates
and other income as of the appraisal date and multiplying this annualized
revenue amount by 48.8 percent , which was the year-to-date operating margin of
the system as of the appraisal date. The third method applied a slightly lower
multiple of next year's projected operating income. (The appraisal report did
not identify and the General Partner did not inquire as to any multiples or
ranges of multiples that Malarkey-Taylor determined for the comparable
companies.) The fourth method was a discounted net cash flow analysis to
achieve a target after-tax return on equity, given particular operating and
financing assumptions unique to the Augusta System's assets. The fifth method
was a discounted cash flow method that measured the net present value of the
projected pre-tax operating cash flows (less capital expenditures, plus the
residual value of the Augusta System) that represent the return on the total
investment. For each valuation method, Malarkey-Taylor established a "high" and
a "low" estimated fair market value. The General Partner did not inquire as to
the specific details of how each high and low estimated fair market value for
each valuation methodology was determined because, given Malarkey-Taylor's
expertise, the General Partner concluded that it could rely upon Malarkey-
Taylor's analyses and judgment.
The first valuation method used a multiple of the past year's operating
income of the Augusta System derived from comparable asset values of privately
held and publicly traded cable companies. Malarkey-Taylor determined, based
upon its expertise and knowledge of the cable television industry, a "low"
multiple of 10.5 and a "high" multiple of 11.5, concluding that a system
comparable to the Augusta System would be unlikely to sell for less than 10.5
times its past year's operating income and would be unlikely to sell for more
than 11.5 times its past year's operating income. While the appraisal report
does not disclose the assumptions of the appraiser in determining these
multiples, the General Partner has no reason to believe that they are not
reasonable. This method resulted in an estimated fair market value ranging from
a low of $138,167,432 ($821 for each $500 limited partnership interest or
$1,642 for each $1,000 invested in the Partnership) to a high of $151,326,235
($910 for each $500 limited partnership interest or $1,819 for each $1,000
invested in the Partnership) for the Augusta System.
The second valuation method used a lower multiple of the Augusta System's
"running rate" operating income. Malarkey-Taylor determined, again based on its
expertise and knowledge of the cable television industry, a "low" multiple of
10 and a "high" multiple of 11, concluding that a system comparable to the
Augusta System would be unlikely to sell for less than 10 times the dollar
amount of its "running rate" operating income and would be unlikely to sell for
more than 11 times the dollar amount of its "running rate" operating income.
These multiples are slightly lower than those used in the previous methodology
because of the increased risk and time factors involved in using current as
compared to historical information. While the appraisal report does not
disclose the assumptions of the appraiser in determining these multiples, the
General Partner has no reason to believe that they are not reasonable. This
method resulted in an estimated fair market value ranging from a low of
$135,257,712 ($801 for each $500 limited partnership interest or $1,602 for
each $1,000 invested in the Partnership) to a high of $148,783,483 ($892 for
each $500 limited partnership interest or $1,785 for each $1,000 invested in
the Partnership) for the Augusta System.
The third valuation method applied a slightly lower multiple of next year's
projected operating income of the Augusta System. For this valuation, Malarkey-
Taylor first estimated, through its own analyses of current financial and
operating data provided by the General Partner, next year's projected operating
income for the Augusta System and then, based on its expertise and knowledge of
the cable television industry, set a
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"low" multiple of 9.5 and a "high" multiple of 10.5, concluding that a system
comparable to the Augusta System would be unlikely to sell for less than 9.5
times the system's projected operating income for the following year and would
be unlikely to sell for more than 10.5 times the system's projected operating
income for the following year. These multiples are slightly lower than those
used in the previous methodologies because of the increased risk and time
factors involved in using projected as compared to historical and current
information. While the appraisal report does not disclose the assumptions of
the appraiser in determining these multiples, the General Partner has no reason
to believe that they are not reasonable. Malarkey-Taylor's projected operating
income for the Augusta System in 1995 was $14,292,381 compared to the Augusta
System's operating income for the year ended December 31, 1994 of $13,158,803.
This method resulted in an estimated fair market value ranging from a low of
$135,777,624 ($805 for each $500 limited partnership interest or $1,609 for
each $1,000 invested in the Partnership) to a high of $150,070,005 ($901 for
each $500 limited partnership interest or $1,802 for each $1,000 invested in
the Partnership) for the Augusta System.
The fourth valuation method was a discounted net cash flow analysis in which
a purchase price (estimated fair market value) was calculated to achieve a
target return on equity given particular operating and financing assumptions
specific to the Augusta System. This method involved the use of projected
operations for the Augusta System and a pre-determined target return on equity
for a hypothetical buyer. Based on the firm's use of typical debt-to-equity
ratios and debt services, it tested various purchase prices, i.e., potential
fair market values, to determine a value that yielded the desired return on
equity. Based on system information made available to Malarkey-Taylor by the
General Partner and on information generally available to Malarkey-Taylor about
the cable television industry, the firm made assumptions concerning the housing
growth, growth in the number of subscribers for basic and pay television,
increases in subscriber rates, increases in operating expenses and capital
expenditures. Malarkey-Taylor also made specific assumptions concerning the
capital structure that a typical, prudent buyer might experience, as well as
the probable interest rates that would be applicable in connection with any
debt financing that might be incurred. Malarkey-Taylor did a "high" and a "low"
analysis. In its "high" analysis, Malarkey-Taylor projected that the Augusta
System's revenues would grow from $29,196,202 in 1995 to $49,055,082 in 2002;
that the Augusta System's operating expenses would grow from $14,903,820 in
1995 to $23,583,072 in 2002; and that net income would grow from ($6,025,478)
in 1995 to $6,358,416 in 2002. In Malarkey-Taylor's "low" analysis, revenues
and operating expenses are projected to increase to the same levels by 2002 but
net income is projected to increase from ($5,612,018) in 1995 to $6,613,493 by
2002. Malarkey-Taylor projected that the Augusta System would add approximately
30 miles of cable plant per year between 1995 and 2002, resulting in growth of
the Augusta System's cable plant from 1,647 miles in 1995 to 1,892 miles in
2002. Malarkey-Taylor projected that the number of homes passed by the Augusta
System would grow from 102,040 in 1995 to 116,598 in 2002. Malarkey-Taylor
projected that basic subscribers would grow from 66,601 in 1995 to 78,435 in
2002. Malarkey-Taylor projected penetration of the Augusta System increasing
from 65.8 percent in 1995 to 67.3 percent in 2002. Malarkey-Taylor projected
that premium television subscriptions would grow from 52,990 in 1995 to 60,837
in 2002. Malarkey-Taylor estimated that the Augusta System would take
relatively small rate increases between 1995 and 2002, with, for example, 4
percent increases in basic rates each year, a 10 percent increase in expanded
basic rates in 1995, a 5 percent increase in such rates in 1996 and a 4 percent
increase in such rates through the rest of the period. Malarkey-Taylor
estimated that rate increases for pay television subscriptions, pay-per-view
showings, the rates for additional outlets, converter rentals and installations
would average 4 percent per year. These projections if true would result in an
increase in basic rates from $9.13 in 1995 to $12.01 in 2002, and an increase
in expanded basic rates from $15.45 in 1995 to $20.43 in 2002. Malarkey-Taylor
projected that the basic churn rate would remain constant at 30 percent. The
"low" value was determined using a 14 percent return on equity and the "high"
value was determined using a 12 percent return on equity. This method resulted
in an estimated fair market value ranging from a low of $137,113,082 ($814 for
each $500 limited partnership interest or $1,627 for each $1,000 invested in
the Partnership) to a high of $149,014,733 ($894 for each $500 limited
partnership interest or $1,788 for each $1,000 invested in the Partnership) for
the Augusta System.
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<PAGE>
The fifth valuation method was a discounted cash flow analysis that measured
the net present value of the projected pre-tax operating cash flows (less
capital expenditures, plus the residual value of the Augusta System) that
represent the return on the total investment rather than those that could
result from an assumed "purchase" with a pre-determined debt to equity ratio.
The same set of financial projections that the firm prepared and used in the
fourth valuation methodology were used for growth in subscribers, revenues,
operating expenses and capital expenditures. The projected pre-tax operating
cash flows for the Augusta System, plus the last-year residual value of the
Augusta System less capital expenditures, were discounted to the present time
at an acceptable current cost of money. This method indicated the present value
of the future pre-tax operating cash flows, using an acceptable discounted
factor based on the weighted average cost of money. The "high" value was
determined using a 16.6 percent return on investment and the "low" value was
determined using a 15.1 percent return on investment. This method resulted in
an estimated fair market value ranging from a low of $133,758,710 ($791 for
each $500 limited partnership interest or $1,582 for each $1,000 invested in
the Partnership) to a high of $144,973,331 ($867 for each $500 limited
partnership interest or $1,733 for each $1,000 invested in the Partnership) for
the Augusta System.
Malarkey-Taylor's valuation methodologies resulted in differing values for
the Augusta System. The reason for this is grounded in the basic approach that
the firm takes. The five different methods allow five different views of the
Augusta System's value. The first method looks at past performance, but allows
nothing for future performance. The second method looks at the system as it is
as of the date of the appraisal. The third method looks at the system's
projected operating income in the first year following the proposed sale. Both
discounted cash flow methods fully consider the future value of the system by
recognizing projected operating income and expenses, including capital
expenditures. Based upon all of the available information about a system being
appraised, the appraiser decides how to weight each of the five methods. The
final estimated fair market value is not a straight average of all of the
methods. Although the weighting is not shown in the appraisal report, Malarkey-
Taylor generally prefers the discounted cash flow methods since they consider a
broader range of factors that represent all sources of value, present and
future. Malarkey-Taylor accordingly generally gives greater consideration to
the discounted cash flow methods in its final judgment concerning the fair
market value of a cable television system. Malarkey-Taylor's conclusions as to
the range of values were based upon information and data supplied by the
General Partner, Malarkey-Taylor's on-sight inspection of the Augusta System in
1991, interviews with management and general cable television industry
information. The fair market value appraisal of $141,854,000 ($846 for each
$500 limited partnership interest or $1,691 for each $1,000 invested in the
Partnership) reached by Malarkey-Taylor was based on the various valuations
generated by it, and Malarkey-Taylor's general knowledge and expertise in the
cable television industry.
As compensation for rendering an opinion as to the fair market value of the
Augusta System, the General Partner paid Malarkey-Taylor a fee of $3,500. Such
fee was not contingent upon the conclusion reached by Malarkey-Taylor in its
opinion. As compensation for rendering opinions as to the fair market value of
other cable television systems owned and/or managed by the General Partner and
its affiliates, and completing the analysis of the allocations of purchase
prices between tangible and intangible assets for various cable television
systems owned and/or managed by the General Partner and its affiliates,
Malarkey-Taylor has received fees totalling $288,057 during the two years prior
to the date hereof.
The Kagan Appraisal
Kagan Media Appraisals Inc. ("Kagan") has more than twenty-five years of
experience in appraising communications properties. During that period, Kagan,
according to its records, has appraised more than $24 billion worth of media
properties, including more than $6.5 billion worth of cable television systems.
Kagan was selected by the General Partner to render an opinion as to the fair
market value of the Augusta System in light of such overall qualifications. No
limitations were imposed with respect to the appraisal to be rendered by Kagan.
The firm was selected by the General Partner to prepare an independent
appraisal of the Augusta System because of the firm's reputation in the
industry, and its relationship with one of the most notable analysts on the
cable television industry. Kagan has prepared independent appraisals of other
cable
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television systems owned and/or managed by the General Partner. Certain
affiliates of Kagan generally invest in publicly held media companies pursuant
to an investment policy adopted by them in 1974. As a result, portfolios owned
and/or managed by affiliates of Kagan as of March 17, 1995 maintain a long-term
investment in the General Partner. In addition, the General Partner subscribes
to a number of information services provided by affiliates of Kagan and
employees of the General Partner from time to time enroll in seminars or serve
as panelists in seminars conducted by affiliates of Kagan. The General Partner
believes that Kagan's holdings in it are not material and do not compromise
Kagan's status as an independent appraiser of the Augusta System's value. Kagan
has certified to the General Partner in its appraisal report that it has no
present or contemplated financial interest in the Augusta System and that its
employment and compensation are in no way contingent upon the value reported.
Kagan used two cable television system appraisal methodologies in reaching a
conclusion as to the fair market value of the Augusta System, namely: (i)
projected future cash flows discounted back to a cumulative present value, and
(ii) correlation of those results with analysis of recent comparable cable
television system sales. Kagan prepared a ten-year discounted cash flow
projection for the Augusta System, discounted by a 10 percent factor that was
slightly above Moody's Aaa corporate bond yield (8.49 percent at January 1995),
an indicator that is widely accepted in financial circles as a reliable
indicator of future inflation and the cost of funds.
With respect to the Augusta System, Kagan projected that household growth in
the system's service area will average 1.5 percent per year from 1995 to 1998
and 1 percent per year from 1999 through 2004. Kagan also noted that the
system's management intends to pass all new home growth in the franchise areas
served by the Augusta System. Kagan concluded that the Augusta System's
penetration can be expected to grow by 1 percent annually through 1998 and by
.5 percent annually from 1999 through 2002, until it reaches 71 percent in
2003. Kagan noted the rate increases planned for 1995 and projected that for
the remainder of the forecast period basic rates would increase at
approximately 5 percent annually. Kagan concluded that the basic churn rate
would remain constant throughout the period at 33 percent per year. Kagan
assumed that pay rate increases would average 3.5 percent per year in order to
maintain penetration. Kagan also analyzed growth in pay-per-view, advertising,
home shopping and ancillary revenues. Kagan concluded that the combination of
expected household growth, steady gains in penetration, modest rate increases
and continued growth in pay-per-view, home shopping and advertising revenues
are projected to raise total system revenue to $58,800,000 in 2004, or to
$60.37 per subscriber per month by that time. This is an average growth rate of
approximately 5.8 percent annually over the ten-year period. The ten-year
discounted cash flow projections yielded a value of approximately $136,300,000
($808 for each $500 limited partnership interest or $1,616 for each $1,000
invested in the Partnership) for the Augusta System.
In order to correlate this statistical valuation with the realities of the
marketplace, Kagan analyzed the sale of a number of comparable cable television
systems that took place in June 1994 or later although Kagan considered the
entire 1994 year in its analysis. Although in Kagan's opinion the pool of
available comparables was quite small, Kagan concluded that its study of the
deals done in 1994 yielded an identifiable set of value benchmarks that can be
applied to the Augusta System. Comparison of a cable television system to
similar properties recently sold is an accepted appraisal methodology used to
correlated statistical findings with the realities of the private marketplace.
Each of the comparables involved cable systems similar to the Augusta System in
size, area demographics, basic and pay penetration levels and revenue per
subscriber. Like cable properties can often be compared to one another on a
value-per-subscriber basis. This test is a valuation yardstick that reflects a
multiple of the cash flow a subscriber is expected to generate in the first or
second year of ownership. Kagan reported that cable systems have historically
sold most often in the range of 9 to 11 times projected first-year cash flow
with the higher end of the range generally assigned to systems that are
expected to achieve significant near-term increases in cash flow. Kagan
acknowledged that the cloud of reregulation put a damper on system trading
activity in 1993 and 1994 as cable operators struggled to determine the long-
term effects on system operations. This restrictive trading environment limited
the pool of comparable sales. Kagan noted that fewer deals occurred in 1994
than in any of the last 12 years. The first
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comparable that Kagan considered was an August 1994 transaction where an
Alabama system was sold for $1,906 per subscriber. Applying this value-per-
subscriber to the Augusta System's subscribers produced a comparable value of
$126,900,000 ($745 for each $500 limited partnership interest or $1,489 for
each $1,000 invested in the Partnership). A second comparable considered was
the purchase of a Louisiana system in June 1994 for $1,979 per subscriber.
Applying this value-per-subscriber to the Augusta System's subscribers produced
a comparable value of $131,800,000 ($778 for each $500 limited partnership
interest or $1,556 for each $1,000 invested in the Partnership). Kagan also
looked at a transaction in September 1994 which involved the sale of a North
Carolina system for $2,109 per subscriber. If applied to the Augusta System's
subscribers, that transaction's value-per-subscriber would yield a comparable
value of $140,500,000 ($837 for each $500 limited partnership interest or
$1,673 for each $1,000 invested in the Partnership) for the Augusta System. The
final transaction examined by Kagan involved the purchase of a Chicago-area
system for a value of $2,056 per subscriber. Applying this comparable to the
Augusta System's subscribers implies a comparable value of $136,900,000 ($812
for each $500 limited partnership interest or $1,624 for each $1,000 invested
in the Partnership) for the Augusta System. The average of the four comparable
values examined by Kagan was $134,000,000 ($793 for each $500 limited
partnership interest or $1,585 for each $1,000 invested in the Partnership).
Kagan finally correlated the values determined by the discounted cash flow
analysis and the comparable sales analysis. This correlation of values was a
highly subjective process undertaken by the independent appraiser. The
discounted cash flow analysis yielded a value for the Augusta System of
approximately $136,300,000 ($808 for each $500 limited partnership interest or
$1,616 for each $1,000 invested in the Partnership) while the analysis of
comparable sales yielded a value for the Augusta System of approximately
$134,100,000 ($794 for each $500 limited partnership interest or $1,587 for
each $1,000 invested in the Partnership). Kagan concluded that the proximity of
these values, within less than 2 percent of each other, arrived at through two
independent appraisal methodologies, underscored the validity of the
assumptions used to cast the ten-year cash flow projections and established a
range within which the value of the Augusta System could be expected to fall.
In arriving at a single estimate of value, Kagan considered the fact that the
Augusta System is a single well-clustered system in a semi-rural market showing
signs of moderate growth potential, with modern plant facilities making
excellent use of fiber optics technology for future expansion, with upside in
advertising, home shopping and particularly pay-per-view revenues. Kagan
concluded that the current fair market value of the Augusta System is
approximately $136,300,000 ($808 for each $500 limited partnership interest or
$1,616 for each $1,000 invested in the Partnership). The analysis undertaken by
Kagan was based in part on financial statements and operating data of the
Augusta System furnished to Kagan by the General Partner. Kagan made no visit
to the Augusta System but it did ask management questions about the system.
As compensation for rendering an opinion as to the fair market value of the
Augusta System, the General Partner paid Kagan a fee of $25,000. Such fee was
not contingent upon the conclusion reached by Kagan in its opinion. As
compensation for rendering opinions as to the fair market value of other cable
television systems and related businesses owned and/or managed by the General
Partner and its affiliates, and completing the analysis of the allocations of
purchase prices between tangible and intangible assets for various cable
television systems owned and/or managed by the General Partner and its
affiliates, Kagan has received fees totalling $41,705 during the two years
prior to the date hereof.
The Western Cablesystems Appraisal
R. Michael Kruger, the owner and president of Western Cablesystems, Inc.
("Western"), has since 1979 appraised hundreds of systems for a variety of
clients including major multiple system cable operators, independent operators
and clients outside the cable television industry, according to information
provided by Western. In addition to appraising cable television systems,
Western presently operates four small cable television systems and is currently
active in the system acquisition marketplace. Western was selected by the
General Partner to render an opinion as to the fair market value of the Augusta
System in light of such overall qualifications. No limitations were imposed
with respect to the appraisal to be rendered by Western. The
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<PAGE>
firm was selected by the General Partner to prepare an independent appraisal of
the Augusta System because of the General Partner's familiarity with the firm
and Western's knowledge of the cable television industry. Western has prepared
independent appraisals of other cable television systems owned and/or managed
by the General Partner. The principals of Western are not affiliated in any way
with the General Partner.
Western used two appraisal methodologies in determining the fair market value
of the Augusta System. Western first examined the market value of the Augusta
System as determined by comparable transactions in the cable television system
marketplace. Western's appraisal report stated that transaction values are
typically reported on the basis of either a value-per-subscriber or an
operating income multiple. Western considered both but placed more reliance on
the income multiple. Western also used what it called the "income approach" to
value the Augusta System. This methodology involved the determination of the
discounted present value of free cash flow generated over ten years, plus an
allowance for the terminal value of the system after ten years.
Western looked at the Augusta System's future growth (determining that the
Augusta System will have average or less than average growth), the system's
demographics (determining that the system's demographics are reasonably
favorable for cable but are not above average), the competitive situation
(determining that the Augusta System has relatively little direct competition
at present), system marketability (concluding that the system is of a very
attractive size and is in an area with a number of qualified buyers), rates
(determining that the system has average prospects for rate changes) and the
system's channel capacity and quality (concluding that the Augusta System is
above average in capacity and quality). The appraisal report does not
specifically disclose how the Augusta System's future growth prospects,
demographics, competitive situation, marketability, rate increase potential and
channel capacity and quality were determined to be average, above average or
below average. The General Partner did not inquire about how Western made its
determinations because the General Partner concluded that, given Western's
expertise, it could rely upon Western's analyses and judgment in making such
determination. Western then examined ten comparable transactions that occurred
during 1994. These transactions involved the sales of cable television systems
at cash flow multiples ranging from a low of 8 times cash flow to a high of
12.1 times cash flow. These transactions had value-per-subscriber rates ranging
from a low of $1,217 to a high of $2,667. Given all of this data, Western
concluded that the Augusta System should command an average multiple of 10
times cash flow, which would give the system a value of $149,100,000 ($895 for
each $500 limited partnership interest or $1,789 for each $1,000 invested in
the Partnership). At this price, the value per subscriber for the Augusta
System would be $2,184, within the range of reported comparable transaction
prices.
For purposes of its income approach analysis, Western determined the Augusta
System's ten-year free cash flow by making its own assumptions about growth in
basic and pay revenues, other revenue items, salaries, labor costs, taxes, and
other expenses, including programming costs, pole rent, office costs, marketing
costs and advertising sales costs. The annual free cash flow was then
discounted using an average cost of capital, which Western determined was 13.79
per cent. Western then added a discounted terminal value which was calculated
at 5.5 times the tenth year's cash flow. Using this income approach, Western
estimated the potential value of the Augusta System at $140,808,000 ($839 for
each $500 limited partnership interest or $1,677 for each $1,000 invested in
the Partnership).
Because Western places somewhat more reliance on the current multiple
calculation (because it involves somewhat fewer assumptions), Western selected
an appraised value closer to it than to the value determined by the income
approach. Western thus concluded that the appraised value of the Augusta System
at December 31, 1994 was $147,000,000 ($880 for each $500 limited partnership
interest or $1,761 for each $1,000 invested in the Partnership). The appraisal
is based in part on system financial and operating data provided to Western by
the General Partner. The appraiser also visited the Augusta System in January
1995 for the purpose of inspecting the general market and system data.
As compensation for rendering an opinion as to the fair market value of the
Augusta System, the General Partner paid Western a fee of $5,000. Such fee was
not contingent upon the conclusion reached by Western
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<PAGE>
in its opinion. As compensation for rendering opinions as to the fair market
value of other cable television systems owned and/or managed by the General
Partner and its affiliates, Western has received fees totalling $33,344 during
the two years prior to the date hereof.
COSTS OF THE TRANSACTION
The following is a reasonably itemized estimate of all expenses incurred or
to be incurred in connection with the proposed sale of the Augusta System, all
of which will be paid by the General Partner, including without limitation the
cost of soliciting the votes of the holders of limited partnership interests:
<TABLE>
<S> <C>
Filing fees $28,344
Legal fees $10,000
Accounting fees $10,000
Appraisal fees $33,500
Printing costs $25,000
Postage and miscellaneous costs $ 5,000
</TABLE>
-----------------------------------------------
PROPOSED SALE OF ASSETS
THE PURCHASE AND SALE AGREEMENT
Pursuant to the terms and conditions of a purchase and sale agreement dated
as of February 22, 1995 (the "Purchase and Sale Agreement") by and between the
Partnership and the General Partner, the Partnership has agreed to sell the
Augusta System to the General Partner. Prior to closing, the General Partner
may assign its rights as purchaser of the Augusta System under the Purchase and
Sale Agreement to a wholly owned subsidiary of the General Partner. The sale of
the Augusta System will be accounted for using the purchase method of
accounting.
The General Partner intends to finance its acquisition of the Augusta System
using a portion of the $196,500,000 net proceeds of the General Partner's
offering of $200,000,000 of 9 5/8 percent Senior Notes. The Senior Notes
offering closed on March 23, 1995. The Senior Notes will mature on March 15,
2002. The Senior Notes bear interest from the date of issuance (March 23, 1995)
at the rate of 9 5/8 percent per annum, payable semi-annually on March 15 and
September 15 of each year, commencing September 15, 1995. The Senior Notes are
not redeemable prior to maturity and are not subject to any mandatory
redemption or sinking fund. The Senior Notes are senior unsecured obligations
of the General Partner ranking equally with all other senior unsecured
obligations of the General Partner.
Based upon amounts estimated as of March 31, 1995, the aggregate cost of the
acquisition of the Augusta System to the General Partner, including the
adjusted contract purchase price, will be approximately $142,037,062. The
amount required to complete the purchase of the Augusta System will be repaid
from the revenues generated by the Augusta System and the General Partner's
other cable television systems, from the revenues generated by the General
Partner's other business activities and from other sources of funds, including
possible future financings.
The closing of the sale will occur on a date upon which the Partnership and
the General Partner mutually agree. It is anticipated that the closing will
occur within a few weeks after receipt of the approval of the Partnership's
limited partners. Because the closing is conditioned upon, among other things,
the approval of the limited partners and the receipt of material third party
consents necessary for the transfer of the Augusta System to the General
Partner, there can be no assurance that the proposed sale will occur. If all
conditions precedent to the General Partner's obligation to close are not
eventually satisfied or waived, the General Partner's obligation to purchase
the Augusta System will terminate.
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<PAGE>
THE AUGUSTA SYSTEM
The assets to be acquired by the General Partner consist primarily of the
real and personal, tangible and intangible assets of the Partnership's Augusta
System. The Augusta System was purchased by the Partnership from unaffiliated
parties in August 1985 for an aggregate purchase price of $57,850,000. The
Partnership also paid a brokerage fee of $2,603,250 to an affiliate of the
General Partner. The Augusta System was purchased using the limited partner
capital contributions to the Partnership, and amounts available under the
Partnership's credit facility with a commercial bank.
At the date of acquisition in 1985, the Augusta System served approximately
44,000 basic subscribers and had approximately 32,000 premium channel
subscriptions, using approximately 1,000 miles of cable plant passing
approximately 70,000 dwelling units. As of December 31, 1994, the Augusta
System served approximately 66,600 basic subscribers and had approximately
50,200 premium channel subscriptions, using approximately 1,600 miles of cable
plant passing approximately 102,000 dwelling units.
The General Partner will purchase all of the tangible assets of the Augusta
System, including, among other things, the headend equipment, underground and
aboveground cable distribution systems, towers, earth satellite receive
stations, and furniture and fixtures of the Augusta System. The General
Partner also will acquire certain of the intangible assets of the Augusta
System, including, among other things, all of the franchises, leases,
agreements, permits, licenses and other contracts and contract rights of the
Augusta System. Also included in the sale are certain parcels of real estate
owned by the Augusta System, the subscriber accounts receivable of the Augusta
System and all of the Augusta System's engineering records, files, schematics,
maps, reports, promotional graphics, marketing materials and reports filed
with federal, state and local regulatory agencies. Certain of the Augusta
System's assets will be retained by the Partnership, including cash or cash
equivalents on hand and in banks, certain insurance policies and rights and
claims thereunder, and any federal or state income tax refunds to which the
Partnership may be entitled.
PURCHASE PRICE
Subject to the adjustments described below, the purchase price for the
Augusta System is $141,718,000. The purchase price will be reduced by any
accounts payable and accrued expenses and vehicle lease obligations existing
on the closing date. The purchase price will be increased by any accounts
receivable existing on the closing date. The purchase price for the Augusta
System also will be adjusted as of the closing date with respect to all items
of income and expense associated with the operation of the Augusta System.
This adjustment will reflect, in accordance with generally accepted accounting
principles, that all expenses and income attributable to the period on or
after the closing date are for the account of the General Partner and those
prior to the closing date are for the account of the Partnership. Please see
Note 3 of the Notes to Unaudited Pro Forma Financial Statements for a detailed
accounting of the estimated closing adjustments.
CONDITIONS TO CLOSING
The General Partner's obligations under the Purchase and Sale Agreement are
subject to the following conditions: (a) the Partnership shall have obtained
all material consents and approvals from governmental authorities and other
third parties necessary to the transfer of the Augusta System to the General
Partner, (b) the holders of a majority of limited partnership interests of the
Partnership shall have approved the transaction and (c) the statutory waiting
period applicable to the Purchase and Sale Agreement and the transactions
contemplated thereby under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, shall have terminated or shall have expired. In order to
sell the Augusta System, the Partnership must obtain the consent of third
parties with whom the Partnership has contracts related to the Augusta System,
such as pole attachment agreements or other service agreements, to the
transfer thereof. The General Partner does not anticipate that the Partnership
will experience any difficulty in obtaining the necessary consents and
approvals. If, however, the Partnership fails to obtain certain consents and
approvals of third parties with whom the Augusta System has contracted, the
General Partner may, in its sole discretion, waive this condition to closing.
The General Partner likely would close without all consents only if the
missing consents were deemed by the General Partner to be
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<PAGE>
immaterial. In such circumstances, the General Partner would agree to
indemnify the Partnership for any liabilities incurred in connection with a
closing without prior receipt of all necessary consents.
The Partnership's obligations under the Purchase and Sale Agreement are
subject to the following conditions: (a) approval of the transaction by the
holders of a majority of the Partnership's limited partnership interests, (b)
receipt of the purchase price for the Augusta System and (c) the expiration or
termination of all waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
On May 2, 1995, the General Partner and the Partnership received early
termination of their Hart-Scott-Rodino Antitrust Improvements Act of 1976
filings, thereby removing this as a condition to closing. No pre-closing
transfers of licenses will be required, so the consent of the Federal
Communications Commission to the proposed transaction will not be required as
a condition to closing.
FEDERAL AND STATE INCOME TAX CONSEQUENCES
The purpose of the following discussion of the income tax consequences of
the proposed transaction is to inform the limited partners of the Partnership
of the federal and state income tax consequences to the Partnership and to its
partners arising from the sale of the Augusta System. The tax information
included herein was prepared by the tax department of the General Partner and
was reviewed by the Group Vice President/Taxation/Administration of the
General Partner. The tax information is taken from tax data compiled by the
General Partner in its role as the Partnership's tax administrator and is not
based upon the advice or formal opinion of counsel. The tax discussion that
follows is merely intended to inform the limited partners of factual
information and should not be considered tax advice.
By the expected date of the Augusta System's sale, the limited partners will
have received certain tax benefits from their investment in the Partnership.
Assuming maximum federal income tax rates and no other sources of passive
income, limited partners will have received $7,320,454 in tax benefits from
Partnership losses ($132 per $1,000 invested).
Application of the at risk rules and the passive activity loss limitation
has limited deductible losses in prior years and created at risk and passive
loss carryovers to the year of sale. The gain on sale incorporates all prior
losses disallowed under the loss limitations that are presumed deductible in
the year of sale.
The sale of the Augusta System will result in a gain for federal income tax
purposes. The amount of this gain allocated to limited partners is
approximately $55,219,242. The General Partner estimates that $45,307,531
($816 per $1,000 invested) of this total gain will be treated as ordinary
income. This amount of ordinary income results from the recapture of
depreciation on personal property under Section 1245. The General Partner
estimates that the remainder of the gain, or approximately $9,911,711 ($179
per $1,000 invested), will be Section 1231 gain that will generally be treated
as long term capital gain by the limited partners.
Assuming the 31 percent rate applies to ordinary income and a 28 percent
rate applies to long-term capital gain, as a result of the sale of the Augusta
System, a limited partner will be subject to federal income taxes of $303 per
$1,000 invested in the Partnership. The taxable income will be recognized in
the year of the closing of the sale, which is expected to be 1995.
Because the Augusta System is located in the State of Georgia, limited
partners who are not resident in Georgia are required to report their
allocable gain to Georgia on Form 500. Georgia law requires the Partnership to
withhold 4 percent of a nonresident partner's distribution and to remit such
amounts withheld to the Georgia Department of Revenue. The amount withheld
will be separately stated on the stub of the distribution check and the
General Partner will provide additional documentation of the amount of the
withheld Georgia taxes by January 31 following the year of sale. The amount of
tax withheld will be treated
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<PAGE>
as a distribution to the limited partner. The withheld taxes will be allowed as
a credit against any Georgia tax computed on Form 500. Limited partners may or
may not have a tax refund after the filing of the required Georgia tax return.
Limited partners who are non-resident aliens or foreign corporations
("foreign persons") are subject to a withholding tax on their share of the
Partnership's income from the sale of the Augusta System. The withholding rates
are 39.6 percent for individual partners and 35 percent for corporate partners.
The tax withheld will be remitted to the Internal Revenue Service and the
foreign person will receive a credit on their U.S. tax return for the amount of
the tax withheld by the Partnership. The tax withheld will be treated as a
distribution to the limited partner.
CERTAIN INFORMATION ABOUT THE PARTNERSHIP
AND THE GENERAL PARTNER
The General Partner acquires, develops and operates cable television systems
for itself and for its managed limited partnerships. Based on the number of
basic subscribers served by the General Partner's owned and managed cable
television systems, the General Partner is one of the largest cable television
system operators in the United States. It owns and/or manages for affiliated
public limited partnerships 55 cable television systems in 23 states serving
approximately 1.3 million basic subscribers. The principal executive offices of
the Partnership and the General Partner are located at 9697 East Mineral
Avenue, Englewood, Colorado 80112, and their telephone number is (303) 792-
3111.
The limited partnership interests of the Partnership are registered pursuant
to Section 12(g) of the Exchange Act. As such, the Partnership currently is
subject to the informational reporting requirements of the Exchange Act and, in
accordance therewith, is obligated to file periodic reports, proxy statements
and other information with the Securities and Exchange Commission relating to
its business, financial condition and other matters. Reports and other
information filed by the Partnership can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at the following regional offices of the
Commission: 7 World Trade Center, Suite 1300, New York, New York 10048 and
Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. The Partnership is an Edgar filer. The Partnership will continue in
existence and will continue to be subject to the informational reporting
requirements of the Exchange Act after the sale of the Augusta System. The
Partnership's registration and reporting requirements under the Exchange Act
will not be terminated until dissolution of the Partnership.
The General Partner also is subject to the informational filing requirements
of the Exchange Act and, in accordance therewith, files periodic reports, proxy
statements and other financial information with the Securities and Exchange
Commission relating to its business, financial condition and other matters.
Information, as of particular dates, concerning the General Partner's directors
and officers, their compensation, options granted to them, the principal
holders of the General Partner's securities and any material interest of such
persons in transactions with the General Partner is required to be disclosed in
certain documents filed with the Commission. Such reports, proxy statements and
other information may be inspected at the above-listed public reference
facilities maintained by the Commission. Copies of such materials may be
obtained upon payment of the Commission's prescribed charges by writing to the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C.
20549. The General Partner also is an Edgar filer.
The name, business address and principal occupation and employment for the
past five years of each of the directors and executive officers of the General
Partner are set forth in Schedule 1 to this Proxy Statement. To the best
knowledge of any of the persons listed on Schedule 1 hereto, except as
disclosed on such schedule, no persons listed on such schedule beneficially own
any limited partnership interests in the Partnership.
Except as disclosed herein, neither the General Partner nor, to the best of
its knowledge, any of the persons listed on Schedule 1 hereto, has any
contract, arrangement, understanding or relationship with any other person with
respect to any limited partnership interest of the Partnership, including, but
not limited to,
23
<PAGE>
any contract, arrangement, understanding or relationship concerning the
transfer or the voting of any of such interests, joint ventures, loan or option
arrangements, puts or calls, guaranties of loans, guaranties against loss or
the giving or withholding of proxies.
CERTAIN RELATED PARTY TRANSACTIONS
The General Partner and its affiliates engage in certain transactions with
the Partnership and the Venture as contemplated by the Partnership Agreement.
The General Partner believes that the terms of such transactions are generally
as favorable as could be obtained by the Partnership and the Venture from
unaffiliated parties. This determination has been made by the General Partner
in good faith, but none of the terms were or will be negotiated at arm's-length
and there can be no assurance that the terms of such transactions have been or
will be as favorable as those that could have been obtained by the Partnership
and the Venture from unaffiliated parties.
The General Partner charges the Partnership and the Venture a management fee
relating to their respective cable television systems, and the Partnership and
the Venture reimburse the General Partner for certain allocated overhead and
administrative expenses in accordance with the terms of the Partnership
Agreement. These expenses consist primarily of salaries and benefits paid to
corporate personnel, rent, data processing services and other facilities costs.
Such personnel provide engineering, marketing, administrative, accounting,
legal and investor relations services to the Partnership and the Venture.
Allocations of personnel costs are based primarily on actual time spent by
employees of the General Partner with respect to cable television systems
managed. Systems owned by the General Partner and all other systems owned by
partnerships for which Jones Intercable, Inc. is the general partner are also
allocated a proportionate share of these expenses. No duplicate management or
other fees or reimbursements are charged to the Partnership and the Partnership
bears only nine percent of the fees and reimbursements paid by the Venture,
which is attributable to the Partnership's nine percent ownership interest in
the Venture.
The General Partner from time to time also advances funds to the Partnership
and to the Venture and charges interest on the balances payable from the
Partnership and the Venture. The interest rate charged the Partnership and the
Venture approximates the General Partner's weighted average cost of borrowing.
The cable television systems owned by the Partnership and the Venture receive
stereo audio programming from Superaudio, a joint venture owned 50 percent by
an affiliate of the General Partner and 50 percent by an unaffiliated party,
educational video programming from Mind Extension University, Inc., an
affiliate of the General Partner, and computer video programming from Jones
Computer Network, Ltd., an affiliate of the General Partner, for fees based
upon the number of subscribers receiving the programming.
Jones Infomercial Networks, Inc. ("Infomercial"), an affiliate of the General
Partner, provides advertising time for third parties on the cable television
systems owned by the Partnership. In consideration, the revenues generated from
the third parties are shared two-thirds and one-third between Infomercial and
the Partnership. During the year ended December 31, 1994, the Partnership
received revenues from Infomercial totalling $24,531.
The charges to the Partnership and the Venture for related party transactions
were as follows for the periods indicated:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1994 1993
---------- ----------
<S> <C> <C>
The Partnership
Management fees...................................... $1,347,800 $1,348,760
Allocation of expenses............................... 2,045,084 1,857,040
Interest expense..................................... 9,903 -0-
Amount of notes and advances outstanding............. 112,495 163,266
Highest amount of notes and advances outstanding..... 163,266 289,033
Programming fees:
Superaudio......................................... 39,929 40,882
Mind Extension University.......................... 36,178 23,769
Jones Computer Network............................. 5,373 -0-
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------
1994 1993
---------- ----------
<S> <C> <C>
The Venture
Management fees...................................... $4,641,154 $4,456,577
Allocation of expenses............................... 6,951,110 6,048,783
Interest expense..................................... 33,627 15,477
Amount of notes and advances outstanding............. 616,810 188,430
Highest amount of notes and advances outstanding..... 929,508 511,646
Programming fees:
Superaudio......................................... 135,346 134,179
Mind Extension University.......................... 124,043 79,002
Jones Computer Network............................. 71,961 -0-
</TABLE>
USE OF PROCEEDS FROM AUGUSTA SYSTEM SALE
The following is a brief summary of the Partnership's estimated use of the
proceeds from the sale of the Augusta System. All of the following selected
financial information is based upon amounts as of March 31, 1995 and certain
estimates of liabilities at closing. Final results may differ from these
estimates. A more detailed discussion of the financial consequences of the sale
of the Augusta System is set forth below under the caption "Unaudited Pro Forma
Financial Information." All limited partners are encouraged to review carefully
the unaudited pro forma financial statements and notes thereto.
If the holders of a majority of limited partnership interests of the
Partnership approve the proposed sale of the Augusta System and the transaction
is closed, the Partnership will pay all of its indebtedness and then the
Partnership will distribute the net sale proceeds pursuant to the terms of the
Partnership Agreement. The estimated uses of the sale proceeds are as follows:
<TABLE>
<S> <C>
Contract Sales Price of the Augusta System.................... $141,718,000
Add:Cash on Hand.............................................. 3,248,945
Less:Estimated Net Closing Adjustments........................ 319,062
Repayment of Debt......................................... (38,728,010)
------------
Cash Available for Distribution by the Partnership....... 106,557,997
Return of Limited Partners' Initial Capital.............. (55,517,500)
------------
Estimated Residual Proceeds.............................. $ 51,040,497
============
Limited Partners' Share (75%)............................ $ 38,280,373
General Partner's Share (25%)............................ $ 12,760,124
============
Based upon financial information available at March 31, 1995, below is an
estimate of all cash distributions that will have been made to limited partners
after the distribution of the proceeds from the sale of the Augusta System is
completed.
Summary of Estimated Cash Distributions to Limited Partners:
Return of Limited Partners' Initial Capital................. $55,517,500
Limited Partners' Share of Residual Proceeds on Sale of
Augusta System............................................. 38,280,373
------------
Total Estimated Cash Received by Limited Partners........... $93,797,873
============
Total Cash Received per $1,000 of Limited Partnership
Capital.................................................... $ 1,689
============
Total Cash Received per $500 Limited Partnership Interest .. $ 844
============
</TABLE>
Assuming an average holding period of approximately ten years, the estimated
after-tax internal rate of return on an investment in the Partnership is
approximately 4.6 percent. This internal rate of return includes
25
<PAGE>
only the distributions to be made on the sale of the Augusta System and does
not reflect the expected additional future distributions to be made upon the
sale of the Venture Systems.
Based on financial information available at March 31, 1995, the following
table presents the estimated results of the Partnership when it has completed
the sale of the Augusta System:
<TABLE>
<S> <C>
Dollar Amount Raised....................................... $55,517,500
Number of Cable Television Systems Purchased Directly...... One
Number of Cable Television Systems Purchased Indirectly.... Five
Date of Closing of Offering................................ September 1985
Date of First Sale of Properties........................... August 1987
Tax and Distribution Data per $1,000 of Limited Partnership
Capital:
Federal Income Tax Results
Ordinary Income (Loss)
--from operations...................................... $ (319)
--from recapture....................................... $ 816
Capital Gain (Loss).................................... $ 179
Cash Distributions to Investors
Source (on GAAP basis)
--investment income.................................... $ 689
--return of capital.................................... $1,000
Source (on cash basis)
--sales................................................ $1,689
</TABLE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF CABLE TV FUND 12-B, LTD.
The following unaudited pro forma balance sheet assumes that as of March 31,
1995, the Partnership had sold the Augusta System for $141,718,000. The funds
available to the Partnership, adjusting for the estimated net closing
adjustments of the Augusta System, are expected to total approximately
$142,037,067. Such funds will be used to repay indebtedness and the balance
will be distributed pursuant to the terms of the Partnership Agreement, which
generally will be first, to the limited partners in an amount that equals the
amount initially contributed to the partnership capital by the limited
partners; the balance, 75 percent to the limited partners and 25 percent to the
General Partner.
The unaudited pro forma balance sheet should be read in conjunction with the
appropriate notes to the unaudited pro forma balance sheet.
ALL OF THE FOLLOWING UNAUDITED PRO FORMA FINANCIAL INFORMATION IS BASED UPON
AMOUNTS AS OF MARCH 31, 1995 AND CERTAIN ESTIMATES OF LIABILITIES AT CLOSING.
FINAL RESULTS MAY DIFFER FROM SUCH INFORMATION.
26
<PAGE>
CABLE TV FUND 12-B, LTD.
UNAUDITED PRO FORMA BALANCE SHEET
MARCH 31, 1995
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
----------- ------------ ------------
<S> <C> <C> <C>
ASSETS
Cash and Cash Equivalents............. $ 3,248,945 $103,309,052 $106,557,997
Trade Receivables, net................ 795,861 (795,861) --
Investment in Cable Television
Properties:
Property, plant and equipment, net.. 40,154,735 (40,154,735) --
Franchise costs, net................ 13,379,975 (13,379,975) --
Losses in excess of investment in
cable television venture........... (2,197,446) -- (2,197,446)
----------- ------------ ------------
Total investment in cable
television properties............ 51,337,264 (53,534,710) (2,197,446)
Deposits, Prepaid Expenses and
Deferred Charges..................... 504,597 (504,597) --
----------- ------------ ------------
Total Assets.......................... $55,886,667 $ 48,473,884 $104,360,551
=========== ============ ============
LIABILITIES AND PARTNERS' CAPITAL
(DEFICIT)
Liabilities:
Debt................................ $38,683,849 $(38,683,849) $ --
Accounts payable.................... 44,161 (44,161) --
Accrued liabilities................. 849,760 (849,760) --
Subscriber prepayments.............. 131,636 (131,636) --
Accrued Distribution to Limited
Partners........................... -- 93,797,873 93,797,873
Accrued Distribution to General
Partner............................ -- 12,760,124 12,760,124
----------- ------------ ------------
Total Liabilities................. 39,709,406 66,848,591 106,557,997
----------- ------------ ------------
Partners' Capital (Deficit):
General Partner..................... (316,076) (233,285) (549,361)
Limited Partners.................... 16,493,337 (18,141,422) (1,648,085)
----------- ------------ ------------
Total Partners' Capital (Deficit). 16,177,261 (18,374,707) (2,197,446)
----------- ------------ ------------
Total Liabilities and Partners'
Capital (Deficit).................. $55,886,667 $ 48,473,884 $104,360,551
=========== ============ ============
</TABLE>
The accompanying notes to unaudited pro forma financial statements are an
integral part of this unaudited balance sheet.
27
<PAGE>
CABLE TV FUND 12-B, LTD.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
----------- ------------ -----------
<S> <C> <C> <C>
REVENUES............................... $26,956,006 $(26,956,006) $ --
COSTS AND EXPENSES:
Operating, general and administrative
expense............................. 13,932,687 (13,932,687) --
Management fees and allocated
overhead from
General Partner..................... 3,392,884 (3,392,884) --
Depreciation and Amortization........ 9,380,877 (9,380,877) --
----------- ------------ -----------
OPERATING INCOME....................... 249,558 (249,558) --
----------- ------------ -----------
OTHER INCOME (EXPENSE):
Interest expense..................... (2,555,513) 2,555,513 --
Other, net........................... 119,749 (119,749) --
----------- ------------ -----------
Total other income (expense), net.. (2,435,764) 2,435,764 --
----------- ------------ -----------
LOSS BEFORE EQUITY IN NET LOSS OF CABLE
TELEVISION JOINT VENTURE.............. (2,186,206) 2,186,206 --
EQUITY IN NET LOSS OF CABLE TELEVISION
JOINT VENTURE......................... (1,182,039) -- (1,182,039)
----------- ------------ -----------
NET LOSS............................... $(3,368,245) $ 2,186,206 $(1,182,039)
=========== ============ ===========
</TABLE>
The accompanying notes to unaudited pro forma financial statements are an
integral part of this unaudited statement.
28
<PAGE>
CABLE TV FUND 12-B, LTD.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
----------- ----------- ---------
<S> <C> <C> <C>
REVENUES.................................. $ 6,991,658 $(6,991,658) $ --
COSTS AND EXPENSES:
Operating............................... 3,700,432 (3,700,432) --
Management fees and allocated overhead
from General Partner................... 870,012 (870,012) --
Depreciation and amortization........... 2,488,109 (2,488,109) --
----------- ----------- ---------
OPERATING INCOME.......................... (66,895) 66,895 --
----------- ----------- ---------
OTHER INCOME (EXPENSE):
Interest expense........................ (786,044) 786,044 --
Other, net.............................. 53,800 (53,800) --
----------- ----------- ---------
Total other income (expense), net..... (732,244) 732,244 --
----------- ----------- ---------
LOSS BEFORE EQUITY IN NET LOSS OF CABLE
TELEVISION JOINT VENTURE................. (799,139) 799,139 --
EQUITY IN NET LOSS OF CABLE TELEVISION
JOINT VENTURE............................ (393,320) -- (393,320)
----------- ----------- ---------
NET LOSS.................................. $(1,192,459) $ 799,139 $(393,320)
=========== =========== =========
</TABLE>
The accompanying notes to unaudited pro forma financial statements are an
integral part of this unaudited statement
29
<PAGE>
CABLE TV FUND 12-B, LTD.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1) The following calculations present the sale of the Augusta System and the
resulting estimated proceeds expected to be received by the Partnership.
2) The unaudited pro forma balance sheet assumes that the Partnership had
sold the Augusta System for $141,718,000 as of March 31, 1995. The unaudited
statement of operations assumes that the Partnership had sold the Augusta
System as of January 1, 1994.
3) The estimated gain recognized from the sale of the Augusta System and
corresponding estimated distribution to limited partners as of March 31, 1995
has been computed as follows:
GAIN ON SALE OF ASSETS:
<TABLE>
<S> <C>
Contract sales price............................................. $141,718,000
Less: Net book value of investment in cable television properties
at March 31, 1995.......................................... 53,534,710
------------
Gain on sale of assets........................................... $ 88,183,290
============
DISTRIBUTIONS TO PARTNERS:
Contract sales price............................................. $141,718,000
Add:Trade receivables, net....................................... 795,861
Prepaid expenses................................................. 504,597
Less:Accrued liabilities assumed by the General Partner.......... (849,760)
Subscriber prepayments........................................... (131,636)
------------
Adjusted cash received........................................... 142,037,062
Less:Outstanding debt to third parties........................... (38,683,849)
Outstanding debt to General Partner.............................. (44,161)
Add:Cash on hand................................................. 3,248,945
------------
Cash available for distribution.................................. 106,557,997
Return of limited partners' initial capital...................... (55,517,500)
Residual proceeds................................................ $ 51,040,497
============
Amount due Limited Partners (75%)................................ $ 38,280,373
============
Amount due General Partner (25%)................................. $ 12,760,124
============
</TABLE>
30
<PAGE>
AVAILABLE INFORMATION
The Partnership's Annual Reports on Form 10-K for the fiscal years ended
December 31, 1994 and December 31, 1993 and the Partnership's Quarterly Report
on Form 10-Q for the fiscal quarter ended March 31, 1995 previously have been
mailed to the limited partners of the Partnership. Additional copies of the
Partnership's Annual Reports on Form 10-K for the fiscal years ended December
31, 1994 and December 31, 1993 and the Partnership's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1995 are available to each limited
partner of the Partnership without charge upon written request to: Elizabeth M.
Steele, Secretary, Jones Intercable, Inc., 9697 East Mineral Avenue, Englewood,
Colorado 80112, (303) 792-3111. Copies of the three independent appraisals of
the fair market value of the Augusta System and copies of the Purchase and Sale
Agreement between the Partnership and the General Partner also are available to
each limited partner of the Partnership without charge upon written request to
Ms. Steele.
A Rule 13e-3 Transaction Statement furnishing certain additional information
with respect to the transaction described herein has been jointly filed by the
Partnership and the General Partner with the Securities and Exchange
Commission.
INCORPORATION BY REFERENCE
The Partnership's Annual Reports on Form 10-K for the fiscal years ended
December 31, 1994 and December 31, 1993 and the Partnership's Quarterly Report
on Form 10-Q for the fiscal quarter ended March 31, 1995 are incorporated by
reference in this Proxy Statement. The Partnership specifically incorporates by
reference herein Item 1. Business, Item 2. Properties, Item 5. Market for the
Registrant's Common Stock and Related Security Holder Matters, Item 6. Selected
Financial Data, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations and Item 8. Financial Statements from the
1994 and 1993 Annual Reports on Form 10-K and the March 31, 1995 Quarterly
Report on Form 10-Q in its entirety.
31
<PAGE>
SCHEDULE 1
EXECUTIVE OFFICERS AND DIRECTORS OF THE GENERAL PARTNER
Set forth below is the name, residence or business address, present principal
occupation or employment and five-year employment history of the executive
officers and directors of the General Partner. Also set forth is the aggregate
number of limited partnership interests of the Partnership beneficially owned
by each such person. The present principal occupation of each executive officer
of the General Partner is as an executive officer of the General Partner. The
Partnership has no officers or employees. All persons listed except for Messrs.
Burney, Ladouceur and Somers are citizens of the United States. Messrs. Burney,
Ladouceur and Somers are citizens of Canada.
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Glenn R. Jones Mr. Jones has served as Chairman of the Board of 0
c/o Jones Intercable, Directors and Chief Executive Officer of the
Inc. 9697 E. Mineral General Partner since its formation in 1970.
Avenue Englewood, CO
80112
Christopher J. Bowick Mr. Bowick is the General Partner's Group Vice 0
c/o Jones Intercable, President/Technology and its Chief Technical
Inc. 9697 E. Mineral Officer. Prior to joining the General Partner
Avenue Englewood, CO in 1991, Mr. Bowick worked as Vice President of
80112 Engineering of Scientific Atlanta's
transmission systems business division.
Timothy J. Burke Mr. Burke joined the General Partner in 1982 as 20
c/o Jones Intercable, corporate tax manager, and he has served as
Inc. 9697 E. Mineral Group Vice President/Taxation/Administration
Avenue Englewood, CO since 1990.
80112
Derek H. Burney Mr. Burney was appointed a Director of the 0
c/o Bell Canada General Partner in December 1994 and he became
International Inc. Vice Chairman of the General Partner's Board in
1000 de la Gauchetiere January 1995. Mr. Burney joined BCE Inc.,
Bureau 1100 Canada's largest telecommunications company, in
Montreal (PQ) Canada H3B January 1993, and he has been Chairman of Bell
4Y8 Canada International Inc., a subsidiary of BCE
Inc., since that time and, in addition, he has
been the subsidiary's Chief Executive Officer
since July 1993. Prior to joining BCE Inc., Mr.
Burney was Canada's ambassador to the United
States from 1989 to 1992.
Kevin P. Coyle Mr. Coyle, Group Vice President/Finance of the 0
c/o Jones Intercable, General Partner, has been the General Partner's
Inc. 9697 E. Mineral Chief Financial Officer since 1990. Mr. Coyle
Avenue Englewood, CO has been an associate of the General Partner
80112 since 1981.
William E. Frenzel Mr. Frenzel was appointed a Director of the 0
c/o Jones Intercable, General Partner in April 1995. He has been a
Inc. Guest Scholar since 1991 with the Brookings
9697 E. Mineral Avenue Institution, a research organization located in
Englewood, CO 80112 Washington D.C. Until his retirement in January
1991, Mr. Frenzel served for twenty years in
the United States House of Representatives.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Donald L. Jacobs Mr. Jacobs was appointed a Director of the 0
c/o Jones Intercable, General Partner in April 1995. From 1983 to
Inc. 1992, at which time Mr. Jacobs retired, Mr.
9697 E. Mineral Avenue Jacobs was an executive officer of TRW. Prior
Englewood, CO 80112 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 that appointment,
he was President of ESL, Inc., a subsidiary of
TRW.
Larry Kaschinske Mr. Kaschinske has been the Controller and Chief 0
c/o Jones Intercable, Accounting Officer of the General Partner since
Inc. 9697 E. Mineral 1994. Mr. Kaschinske has been an associate of
Avenue Englewood, CO the General Partner since 1984.
80112
James J. Krejci Mr. Krejci has been a Director of the General 0
c/o Jones Intercable, Partner since 1987. He was the President of the
Inc. International Division of International Gaming
9697 E. Mineral Avenue Technology headquartered in Reno, Nevada from
Englewood, CO 80112 May 1994 until March 1995. Prior to joining
International Gaming Technology, Mr. Krejci had
been a Group Vice President of the General
Partner since 1987.
Philip R. Ladouceur Mr. Ladouceur was appointed a Director of the 0
c/o Bell Canada General Partner in April 1995. Mr. Ladouceur
International Inc. joined Bell Canada International Inc. as
1000 de la Gauchetiere Executive Vice President of Operations in March
Bureau 1100 1995. From 1993 to March 1995, Mr. Ladouceur
Montreal (PQ) Canada was President, Chief Executive Officer and a
H3B 4Y8 Director of ISM Information Systems Management
(Alberta) Corporation, a major information
management company based in Alberta, Canada.
From 1990 to 1992, Mr. Ladouceur was Executive
Vice President and a Director of Sharwood and
Company, a Toronto merchant bank and President
and Senior Partner of HDL Capital Corporation
in Toronto.
Christine Jones Marocco Ms. Marocco was appointed a Director of the 0
c/o Jones Intercable, General Partner in December 1994. She is a
Inc. homemaker and the daughter of Glenn R. Jones.
9697 E. Mineral Avenue
Englewood, CO 80112
James B. O'Brien Mr. O'Brien has been President, Chief Operating 0
c/o Jones Intercable, Officer and a Director of the General Partner
Inc. since 1989. Mr. O'Brien has been with the
9697 E. Mineral Avenue General Partner since 1982 in various
Englewood, CO 80112 operational management positions.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Daniel E. Somers Mr. Somers was appointed a Director of the 0
c/o Bell Canada General Partner in December 1994. Mr. Somers is
International Inc. the Executive Vice President and Chief
1000 de la Gauchetiere Financial Officer of Bell Canada International
Bureau 1100 Inc. Prior to joining Bell Canada International
Montreal (PQ) Canada H3B Inc. in January 1992, Mr. Somers had been the
4Y8 President and Chief Executive Officer of Radio
Atlantic Holdings Limited since January 1989.
Elizabeth M. Steele Ms. Steele joined the General Partner in 1987 as 0
c/o Jones Intercable, Vice President/General Counsel and Secretary.
Inc. Prior to that time, Ms. Steele was a partner at
9697 E. Mineral Avenue Davis, Graham & Stubbs, a Denver, Colorado law
Englewood, CO 80112 firm that serves as counsel to the General
Partner.
Raymond L. Vigil Mr. Vigil has been Group Vice President/Human 0
c/o Jones Intercable, Resources of the General Partner since 1993.
Inc. Mr. Vigil also is a Director of the General
9697 E. Mineral Avenue Partner. Previous to joining the General
Englewood, CO 80112 Partner, Mr. Vigil served as Executive Director
of Learning at US West. Prior to U.S. West, Mr.
Vigil worked in various human resources posts
over a 14-year term with the IBM Corporation.
Ruth E. Warren Ms. Warren has been Group Vice 0
c/o Jones Intercable, President/Operations of the General Partner
Inc. since 1990. Ms. Warren has been with the
9697 E. Mineral Avenue General Partner in various operational
Englewood, CO 80112 management positions since 1980.
Cynthia A. Winning Ms. Winning joined the General Partner as Group 0
c/o Jones Intercable, Vice President/Marketing in December 1994.
Inc. Prior to joining the General Partner, Ms.
9697 E. Mineral Avenue Winning served in 1994 as the President of PRS
Englewood, CO 80112 Inc., a Denver, Colorado sports and event
marketing company. From 1979 to 1981 and from
1986 to 1994, Ms. Winning served as the Vice
President and Director of Marketing for
Citicorp Retail Services, Inc.
Robert S. Zinn Mr. Zinn was appointed a Director of the General 0
c/o Jones Intercable, Partner in December 1994. Mr. Zinn has been a
Inc. lawyer in the General Partner's law department
9697 E. Mineral Avenue since 1991. Prior to that time, Mr. Zinn was a
Englewood, CO 80112 partner at Davis, Graham & Stubbs, a Denver,
Colorado law firm that serves as counsel to the
General Partner.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Robert L. Zoellick Mr. Zoellick was appointed a Director of the 0
General Partner in April 1995. Mr. Zoellick is
Executive Vice President, General Counsel and
Corporate Secretary of Fannie Mae, a federally
chartered and stockholder-owned corporation
that is the largest housing finance investor in
the United States. From August 1992 to January
1993, Mr. Zoellick served as Deputy Chief of
Staff of the White House and Assistant to the
President. From May 1991 to August 1992, Mr.
Zoellick served concurrently as the Under
Secretary of State for Economic and
Agricultural Affairs and as Counselor of the
Department of State. From 1985 to 1988, Mr.
Zoellick served at the Department of Treasury
in various capacities.
David K. Zonker Mr. Zonker was appointed a Director of the 25
c/o Jones Intercable, General Partner in December 1994. Mr. Zonker
Inc. has been the President of Jones International
9697 E. Mineral Avenue Securities, Ltd., an affiliate of the General
Englewood, CO 80112 Partner that served as the dealer-manager of
the Partnership's initial public offering,
since 1984. Mr. Zonker joined the General
Partner in 1980.
</TABLE>
35
<PAGE>
[LOGO OF JONES INTERCABLE APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE PARTNERSHIP BY THE GENERAL PARTNER
The undersigned Limited Partner of Cable TV Fund 12-B, Ltd., a Colorado
limited partnership, hereby votes on the sale of Cable TV Fund 12-B, Ltd.'s
Augusta, Georgia cable television system pursuant to the terms and conditions
of that certain Purchase and Sale Agreement dated as of February 22, 1995, as
follows:
[_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS
(continued on other side)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED LIMITED PARTNER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE PROPOSED SALE TRANSACTION.
PLEASE SIGN EXACTLY AS NAME
APPEARS.
++++ ++++ When limited partnership inter-
+ + ests are held by more than one
+ + person, all should sign. When
+ + signing as attorney, as executor,
administrator, trustee or guard-
ian, please give full title as
such. If a corporation, please
+ + sign in full corporation name by
+ + authorized officer. If a partner-
+ + ship, please sign in partnership
++++ ++++ name by authorized person.
DATED: _____________________, 1995
__________________________________
Signature
__________________________________
Signature
______________________________
Signature
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE>
[LOGO OF JONES INTERCABLE APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE PARTNERSHIP BY THE GENERAL PARTNER
The undersigned Limited Partner of Cable TV Fund 12-B, Ltd., a Colorado
limited partnership, hereby votes on the sale of Cable TV Fund 12-B, Ltd.'s
Augusta, Georgia cable television system pursuant to the terms and conditions
of that certain Purchase and Sale Agreement dated as of February 22, 1995, as
follows:
[_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS
(continued on other side)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED LIMITED PARTNER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE PROPOSED SALE TRANSACTION.
PLEASE SIGN EXACTLY AS NAME
APPEARS.
++++ ++++
+ + DATED: _____________________, 1995
__________________________________
Beneficial Owner Signature
(Investor)
__________________________________
+ + Authorized Trustee/Custodian
++++ ++++ Signature
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
