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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):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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
Registrant's 9 percent interest in the $222,963,267 sales price that is
to be paid to the Cable TV Fund 12-BCD Venture in connection with the
transaction that is the subject of the proxy solicitation.
(4) Proposed maximum aggregate value of the transaction to the Registrant:
$20,066,694
(5) Total fee paid: $4,013
[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:
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[LOGO OF JONES INTERCABLE, INC.]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
NOTICE OF VOTE OF THE LIMITED PARTNERS OF CABLE TV FUND 12-B, LTD.
To the Limited Partners of Cable TV Fund 12-B, Ltd.:
A special vote of the limited partners of Cable TV Fund 12-B, Ltd. (the
"Partnership") is being conducted through the mails on behalf of the
Partnership by Jones Intercable, Inc., the general partner of the Partnership,
for the purpose of obtaining limited partner approval of the sale of the
Albuquerque, New Mexico cable television system (the "Albuquerque System")
owned by the Cable TV Fund 12-BCD Venture, a joint venture in which the
Partnership has a 9 percent ownership interest, for $222,963,267 in cash,
subject to customary working capital closing adjustments that may have the
effect of increasing or decreasing the sales price by a non-material amount.
The Albuquerque System is proposed to be sold to Jones Communications of New
Mexico, Inc., an indirect wholly owned subsidiary of the General Partner.
Information relating to this matter is set forth in the accompanying Proxy
Statement.
If the limited partners approve the proposed sale of the Albuquerque System
and if the transaction is closed, the Cable TV Fund 12-BCD Venture will repay
a portion of its debt and $125,000,000 of net sale proceeds will be
distributed to the three constituent partnerships of the Cable TV Fund 12-BCD
Venture in proportion to their ownership interests. The closing adjustments
will not affect the amount of the net sale proceeds distributed to the
partnerships. The Partnership accordingly will receive 9 percent of such
proceeds, estimated to total approximately $11,474,475, and the Partnership
will distribute this portion of the net sale proceeds to its partners of
record as of the closing date of the sale of the Albuquerque System. Of this
amount, approximately $8,605,856 will be distributed to the limited partners
and approximately $2,868,619 will be distributed to the general partner. It is
estimated that the limited partners will receive $78 for each $500 limited
partnership interest, or $156 for each $1,000 invested in the Partnership.
Once the distribution of the net proceeds from the sale of the Albuquerque
System has been made, limited partners will have received a total of $977 for
each $500 limited partnership interest, or $1,954 for each $1,000 invested in
the Partnership, taking into account the prior distributions to limited
partners made in 1995 and 1996.
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Only limited partners of record at the close of business on March 15, 1998
are entitled to notice of, and to participate in, this vote of limited
partners. It is very important that all limited partners participate in the
voting. The Cable TV Fund 12-BCD Venture's ability to complete the transaction
discussed in the Proxy Statement and the Partnership's ability to make a
distribution to its partners of its portion of the net proceeds of the sale of
the Albuquerque System pursuant to the terms of the Partnership's limited
partnership agreement (the "Partnership Agreement") are dependent upon the
approval of the transaction by the holders of a majority of the Partnership's
limited partnership interests.
The proposal that is the subject of this proxy solicitation will be adopted
only if approved by the holders of a majority of the limited partnership
interests. Each limited partnership interest entitles the holder thereof to
one vote on the proposal. Because the Partnership Agreement requires that the
proposal to sell the Albuquerque System be approved by the holders of a
majority of the limited partnership interests, abstentions and non-votes will
be treated as votes against the proposal. A properly executed consent returned
to the general partner on which a limited partner does not mark a vote will be
counted as a vote for the proposed sale of the Albuquerque System. Because
limited partners do not have dissenters' or appraisal rights in connection
with the proposed sale of the Albuquerque System, if the holders of a majority
of the limited partnership interests approve the proposal, all limited
partners will receive a distribution of the net sale proceeds in accordance
with the procedures prescribed by the Partnership Agreement regardless of how
or whether they vote on the proposal.
Jones Intercable, Inc., as the general partner of the Partnership, urges you
to sign and return the enclosed proxy card as promptly as possible. The proxy
card should be returned in the enclosed envelope.
JONES INTERCABLE, INC.
General Partner
[SIGNATURE OF ELIZABETH M. STEELE]
Elizabeth M. Steele
Secretary
Dated: March 27, 1998
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[LOGO OF JONES INTERCABLE INC.]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY STATEMENT
VOTE OF THE LIMITED PARTNERS OF CABLE TV FUND 12-B, LTD.
This Proxy Statement is being furnished in connection with the solicitation
of the written consents of the limited partners of Cable TV Fund 12-B, Ltd.
(the "Partnership") by Jones Intercable, Inc., the general partner of the
Partnership (the "General Partner"), on behalf of the Partnership, for the
purpose of obtaining limited partner approval of the sale of the Albuquerque,
New Mexico cable television system (the "Albuquerque System") owned by the
Cable TV Fund 12-BCD Venture (the "Venture"), a joint venture in which the
Partnership has a 9 percent ownership interest, for $222,963,267 in cash,
subject to customary working capital closing adjustments that may have the
effect of increasing or decreasing the sales price by a non-material amount.
The Albuquerque System is proposed to be sold to Jones Communications of New
Mexico, Inc., an indirect wholly owned subsidiary of the General Partner.
Proxies in the form enclosed, properly executed and duly returned, will be
voted in accordance with the instructions thereon. Limited partners are urged
to sign and return the enclosed proxy as promptly as possible. Proxies cannot
be revoked except by delivery of a proxy dated as of a later date. Officers
and other employees of the General Partner may solicit proxies by mail, by
fax, by telephone or by personal interview. The deadline for the receipt of
proxy votes is April 30, 1998, unless extended, but the vote of the
Partnership's limited partners will be deemed to be concluded on the date, at
least 20 business days from the date the proxy materials are sent to limited
partners, that the General Partner, on behalf of the Partnership, is in
receipt of proxies executed by the holders of a majority of the limited
partnership interests either consenting to or disapproving of the proposed
transaction. The General Partner may extend the deadline for receipt of proxy
votes if a majority of the limited partners fail to express an opinion on the
transaction by April 30, 1998. If the General Partner extends the deadline for
receipt of proxy votes, the limited partners will be informed by mail of the
reason for the extension and the new deadline. The cost of the proxy
solicitation will be paid by the General Partner.
The Partnership has only one class of limited partners and no limited
partner has a right of priority over any other limited partner. The
participation of the limited partners is divided into limited partnership
interests and each limited partner owns one limited partnership interest for
each $500 of capital contributed to the Partnership.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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As of March 6, 1998, the Partnership had 111,035 limited partnership
interests outstanding held by 7,351 persons. There is no established trading
market for such interests. To the best of the General Partner's knowledge, no
person or group of persons beneficially own more than five percent of the
limited partnership interests. During the past several years, Smithtown Bay,
LLC and Madison Partnership Liquidity Investors 30, LLC, two firms
unaffiliated with the Partnership, the General Partner and each other, have
conducted tender offers for interests in the Partnership. As of March 6, 1998,
Smithtown Bay, LLC and its affiliates owned 5,005 limited partnership
interests, or 4.5 percent of the limited partnership interests. As of such
date, Madison Partnership Liquidity Investors 30, LLC and its affiliates owned
1,950 limited partnership interests, or 1.8 percent of the limited partnership
interests. Pursuant to the terms of agreements between the Partnership and the
General Partner and such firms, all of the limited partnership interests held
by these firms will be voted in the same manner as the majority of all other
limited partners who vote on the sale of the Albuquerque System. Thus, for
example, if the limited partnership interests voted in favor of the
transaction constitute a majority of all limited partnership interests voted
but not a majority of all limited partnership interests, these firms will be
required to vote their limited partnership interests in favor of the
transaction, and in such event the votes of these firms could be sufficient to
cause the transaction to be approved by a majority of all limited partnership
interests, which is the vote necessary to cause the transaction to be
approved. The General Partner owns 6 limited partnership interests. Officers
and directors of the General Partner own no limited partnership interests. The
6 limited partnership interests owned by the General Partner will be voted in
favor of the proposed transaction. Only limited partners of record at the
close of business on March 15, 1998 will be entitled to notice of, and to
participate in, the vote.
As of the date of this Proxy Statement, the Partnership's only asset is its
9 percent ownership interest in the Venture. Cable TV Fund 12-C, Ltd. ("Fund
12-C") has a 15 percent ownership interest in the Venture and Cable TV Fund
12-D, Ltd. ("Fund 12-D") has a 76 percent ownership interest in the Venture.
As of the date of this Proxy Statement, the Venture owns the Albuquerque
System and the cable television system serving areas in and around Palmdale,
California (the "Palmdale System"). The Venture sold its cable television
system serving Houghton and Hancock, Michigan (the"Houghton/Hancock System")
in 1987, the Venture sold its cable television system serving California City,
California (the "California City System") in 1992 and the Venture sold its
cable television system serving Tampa, Florida (the "Tampa System") in 1996.
The Partnership sold its cable television system serving Augusta, Georgia (the
"Augusta System") in 1995.
Upon the consummation of the proposed sale of the Albuquerque System, the
Venture will repay its outstanding Senior Notes balance of $41,544,890 plus a
make whole premium that, based on current market interest rates, is estimated
to total $2,016,985, plus accrued interest and, pursuant to an amendment to
the Venture's credit facility, distribute $125,000,000 to the Partnership,
Fund 12-C and Fund 12-D in proportion to their ownership interests in the
Venture. The remaining proceeds will be used to repay a portion of the
outstanding balance and accrued interest on its credit facility. The closing
adjustments will not affect the amount of the net sale proceeds distributed to
the partnerships. The Partnership will receive 9 percent of the net sale
proceeds, estimated to total approximately $11,474,475, and the Partnership
will distribute this portion of the net sale proceeds to its partners of
record as of the closing date of the sale of the Albuquerque System. Because
limited partners have already received distributions in an amount in excess of
the capital initially contributed to the Partnership by the limited partners,
the Partnership's portion of the net proceeds from the Albuquerque System's
sale will be distributed 75 percent to the limited partners and 25 percent to
the General Partner. Based upon the Venture's financial information as of
December 31, 1997, as a result of the Albuquerque System's sale, the limited
partners of the Partnership, as a group, will receive approximately $8,605,856
and the General Partner will receive approximately $2,868,619. Limited
partners will receive $78 for each $500 limited partnership interest, or $156
for each $1,000 invested in the Partnership, from the Partnership's portion of
the net proceeds of the Albuquerque System's sale. Once the Partnership has
completed the distribution of its portion of the net proceeds from the sale of
the Albuquerque System, limited partners of the Partnership will have received
a total of $977 for each $500 limited partnership interest, or $1,954 for each
$1,000 invested in the Partnership, taking into account the prior
distributions to limited partners made in 1995 and 1996 from the net proceeds
of the sales of the Augusta System and the Tampa System.
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After the sale of the Albuquerque System by the Venture, the Partnership
will continue to be a public entity subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), until after the Palmdale System is sold. A separate vote of the limited
partners will be required to approve the sale of the Palmdale System.
Limited partners should note that there are certain income tax consequences
of the proposed sale of the Albuquerque System, which are outlined herein
under the caption "Federal Income Tax Consequences."
The Board of Directors of the General Partner has approved the proposed sale
of the Albuquerque System and the General Partner recommends approval of the
transaction by the holders of the Partnership's limited partnership interests.
In determining the fairness of the proposed transaction, the General Partner
followed the procedures mandated by Section 2.3(b)(iv)(b) of the Partnership's
limited partnership agreement (the "Partnership Agreement"), which provides
that the Partnership's cable television systems may be sold to the General
Partner or to one of its affiliates if the price paid by the General Partner
or such affiliate is determined by the average of three separate, independent
appraisals of the fair market value of the system to be sold. Because the
purchase price to be paid to the Venture is equal to the average of three
separate, independent appraisals of the fair market value of the Albuquerque
System, the Board of Directors of the General Partner has concluded that the
consideration to be paid to the Venture for the Albuquerque System is fair to
all unaffiliated limited partners of the Partnership.
The proposal that is the subject of this proxy solicitation will be adopted
only if approved by the holders of a majority of the limited partnership
interests. Each limited partnership interest entitles the holder thereof to
one vote on the proposal. Because the Partnership Agreement requires that the
proposal to sell the Albuquerque System be approved by the holders of a
majority of the limited partnership interests, abstentions and non-votes will
be treated as votes against the proposal. A properly executed consent returned
to the General Partner on which a limited partner does not mark a vote will be
counted as a vote for the proposed sale of the Albuquerque System. Because
limited partners do not have dissenters' or appraisal rights in connection
with the proposed sale of the Albuquerque System, if the holders of a majority
of the limited partnership interests approve the proposal, all limited
partners will receive a distribution of the Partnership's portion of the net
sale proceeds in accordance with the procedures prescribed by the Partnership
Agreement regardless of how or whether they vote on the proposal.
The General Partner has also prepared proxy statements that are being
delivered to the limited partners of Fund 12-C and Fund 12-D in connection
with their votes to approve the sale of the Albuquerque System by the Venture.
The closing of the sale of the Albuquerque System will occur only if the
transaction is approved by the holders of a majority of the limited
partnership interests of each of the three constituent partnerships of the
Venture. Copies of the proxy statements being delivered to the limited
partners of the Venture's two other constituent partnerships have been filed
with the Securities and Exchange Commission (the "Commission") and can be
obtained either from the Commission or from the General Partner upon written
request to Elizabeth M. Steele, Secretary, Jones Intercable, Inc., 9697 East
Mineral Avenue, Englewood, Colorado 80112, (303) 792-3111. See also "Certain
Information About the Partnership and the General Partner."
The approximate date on which this Proxy Statement and Form of Proxy are
being sent to limited partners is March 27, 1998.
SPECIAL FACTORS
THE PARTNERSHIP'S INVESTMENT OBJECTIVES
The Partnership was formed to acquire, develop, operate and, ultimately,
sell cable television systems. The primary objectives of the Partnership have
been to obtain capital appreciation in the value of the Partnership's cable
television properties; to generate tax losses that could be used to offset
taxable income of limited partners
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from other sources; and to obtain equity build-up through debt reduction. It
was contemplated from the outset of the Partnership's existence that capital
appreciation in Partnership cable television properties would be converted to
cash by a sale of such properties at such time as the General Partner
determined that the Partnership's investment objectives had substantially been
achieved and after a holding period of approximately five to seven years. It
also was contemplated from the outset of the Partnership's existence that the
General Partner or one of its affiliates could be the purchaser of the
Partnership's cable television properties.
The Venture was formed to pool the financial resources of three public
partnerships sponsored by the General Partner with identical investment
objectives and to enable them to acquire a greater number of and/or larger
cable television systems than any one of the partnerships could acquire on
their own. The Venture acquired the Albuquerque System in August 1986. Based
upon the track record of prior public partnerships sponsored by the General
Partner that had liquidated or were in the process of liquidating their assets
during the period that limited partnership interests in the Partnership were
being sold and based upon disclosures made to prospective investors about the
Partnership's investment objectives in the Cable TV Fund 12 prospectus and
accompanying sales brochure, investors in the Partnership reasonably could
have anticipated that the Partnership's investment objectives would be
achieved and its assets liquidated after a holding period of approximately
five to seven years. Due to the uncertain and then adverse regulatory
environment that developed in the early 1990s for the cable television
industry, the resultant decline in the prices for cable television systems and
the subsequent inactivity in the cable television system marketplace, the
General Partner determined that it would be prudent to delay the sale of the
Albuquerque System until market conditions improved, and as a result the
Albuquerque System has been held by the Venture for more than 11 years.
The purpose of the sale of the Albuquerque System, from the Partnership's
perspective, is to attain the Partnership's primary investment objective with
respect to the Albuquerque System, i.e., to convert the Partnership's capital
appreciation in the Albuquerque System to cash. The sale proceeds will be used
to repay a substantial portion of the Venture's debt, and the remaining sale
proceeds will be distributed to the three constituent partnerships of the
Venture. The Partnership in turn will distribute its portion of the net sale
proceeds to the partners of the Partnership in accordance with the
distribution procedures established by the Partnership Agreement. The sale of
the Albuquerque System is thus the necessary final step in the Partnership's
accomplishment of its investment objectives with respect to the Albuquerque
System.
PRIOR ACQUISITIONS AND SALES
The Partnership was formed in June 1985 as a Colorado limited partnership in
connection with a public offering of its limited partnership interests. The
Partnership acquired the Augusta System in August 1985, and it sold the
Augusta System in October 1995 to a subsidiary of the General Partner for a
sales price of $142,618,000, which price represented the average of three
separate, independent appraisals of the fair market value of the Augusta
System. The transaction was approved by the holders of approximately 75
percent of the Partnership's limited partnership interests in a vote of the
limited partners held in August 1995. The Partnership subsequently paid all of
its indebtedness and distributed the net sale proceeds to its partners. The
limited partners of the Partnership, as a group, received $96,079,375 from the
Augusta System's net sale proceeds and the General Partner received
$13,520,625 from the Augusta System's net sale proceeds.
In March 1986, the Partnership invested $12,437,500 of limited partner
capital contributions in the Venture, through which it acquired a 9 percent
ownership interest in the Venture. The Venture ultimately acquired five cable
television systems: the Houghton/Hancock System was acquired in May 1986, the
California City System was acquired in April 1986, the Albuquerque System was
acquired in August 1986, the Palmdale System was acquired in April 1986 and
the Tampa System was acquired in December 1986.
The Houghton/Hancock System was sold in August 1987 to an unaffiliated cable
television system operator for a sales price of $5,000,000 and the California
City System was sold in April 1992 to an unaffiliated cable television system
operator for a sales price of $2,608,000. The sale proceeds from the Venture's
sales of the Houghton/Hancock System and the California City System were used
to reduce the Venture's indebtedness.
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None of the sale proceeds were distributed to the Venture's three constituent
partnerships and thus none of the sale proceeds were distributed to the
Partnership or its partners. No vote of the limited partners of the
Partnership was required in connection with the sale of either of these
systems because neither of these systems constituted all or substantially all
of the Partnership's assets.
The Venture sold the Tampa System in February 1996 to a subsidiary of the
General Partner for a sales price of $110,395,667, which price was determined
by the average of three separate, independent appraisals of the fair market
value of the Tampa System. Because the Venture's debt arrangements did not
allow the Venture to make distributions on the sale of Venture assets, in
February 1996 the Venture's debt arrangements were amended to permit a
$55,000,000 distribution to the Venture's three constituent partnerships from
the Tampa System's sale proceeds, and the balance of the Tampa System's sale
proceeds was used to reduce Venture indebtedness. The Partnership's portion of
this distribution was $5,049,000, of which $3,787,000 was distributed to the
limited partners and $1,262,000 was distributed to the General Partner. No
vote of the limited partners of the Partnership was required in connection
with the sale of the Tampa System because the assets of the Tampa System did
not constitute all or substantially all of the Partnership's assets.
Immediately following its acquisition of the Tampa System, the subsidiary of
the General Partner that had acquired the Tampa System conveyed the Tampa
System, along with certain other cable television systems owned by the
subsidiary of the General Partner, and cash in the amount of $3,500,000, to
Time Warner Entertainment Advance/Newhouse Partnership ("Time Warner"), an
unaffiliated cable television system operator, in exchange for cable
television systems owned by Time Warner serving communities in Prince Georges
County, Maryland and Reston, Virginia. The Venture's sale of the Tampa System
and the subsequent exchange of the Tampa System for Time Warner systems are
the subject of litigation filed by several limited partners of Fund 12-D. See
"Special Factors, Legal Proceedings."
Limited partners of the Partnership have received distributions from the
Augusta System sale and the Tampa System sale totaling $99,866,375. All
distributions to date have given the Partnership's limited partners an
approximate return of $899 for each $500 limited partnership interest, or
$1,798 for each $1,000 invested in the Partnership.
The Partnership intends to make a distribution of the Partnership's portion
of the net proceeds of the sale of the Venture's Albuquerque System to its
partners. Following this distribution, the Partnership will continue to own
its 9 percent interest in the Venture.
After the sale of the Albuquerque System, the Venture will continue to own
and operate the Palmdale System until it also is sold. On March 10, 1998, the
General Partner's Board of Directors approved the Venture's sale of the
Palmdale System to the General Partner or one of its affiliates for a sales
price of $138,205,200. This sales price represents the average of three
separate independent appraisals of the fair market value of the Palmdale
System as of December 31, 1997 by three appraisal firms engaged by the General
Partner in January 1998.
Upon consummation of the sale of the Palmdale System, the Venture will pay
all of its remaining indebtedness, which is estimated to total $45,000,000,
and then the Venture will distribute the remaining sale proceeds to the three
constituent partnerships of the Venture in proportion to their ownership
interests in the Venture, and then the Partnership will distribute its portion
of the net sale proceeds to its partners of record as of the closing date
pursuant to the terms of the Partnership Agreement. Because the limited
partners have already received distributions in an amount in excess of the
capital initially contributed to the Partnership by the limited partners, the
net proceeds from the Palmdale System's sale will be distributed 75 percent to
the limited partners and 25 percent to the General Partner. Based upon the
Venture's financial information as of December 31, 1997, as a result of the
Palmdale System's sale, the limited partners of the Partnership, as a group,
will receive approximately $6,333,910 and the General Partner will receive
approximately $2,111,304. Limited partners will receive $57 for each $500
limited partnership interest, or $114 for each $1,000 invested in the
Partnership, from the Partnership's portion of the net proceeds of the
Palmdale System's sale. Once the distributions of the net proceeds from the
sale of the Palmdale System have been made, limited partners will have
received a total of
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$1,034 for each $500 limited partnership interest or $2,068 for each $1,000
invested in the Partnership, taking into account the prior distributions to
limited partners made in 1995 and 1996 from the net proceeds of the sales of
the Augusta System and the Tampa System and the distributions to limited
partners to be made in 1998 from the net proceeds of the sale of the
Albuquerque System.
A vote of the limited partners of the Partnership will be required later
this year to approve the sale of the Palmdale System. Proxy statements that
will be delivered to limited partners in connection with that vote will
provide the limited partners with disclosure of all material terms of the
sale, including, among other things, information about the three appraisal
reports used by the General Partner in determining the sales price, the
conditions for the closing of the sale and the basis for the General Partner's
determination that the sale of the Palmdale System on such terms would be fair
to the limited partners of the Partnership. Because the closing of the sale of
the Palmdale System is subject to a number of closing conditions, including
the approval of the transaction by the holders of a majority of the limited
partnership interests in each of the three constituent partnerships of the
Venture, there can be no assurance that the proposed sale of the Palmdale
System will close or that the estimated distributions to be paid to limited
partners from the Palmdale System's sale will be made. Limited partners are
accordingly advised that they should not take into account the proposed
Palmdale System's sale or the estimated distributions therefrom in making
their decision to approve or disapprove the proposed sale of the Albuquerque
System.
THE GENERAL PARTNER'S OBJECTIVES
The purpose of the Albuquerque System's sale from the General Partner's
perspective is to enable the Venture to sell the Albuquerque System at a fair
price and to enable the General Partner through an indirect wholly owned
subsidiary to acquire a cable television system operating in a marketplace in
which the General Partner itself desires to own and operate a cable television
system. The General Partner currently is one of the ten largest cable
television system operators in the United States, with owned and managed
systems totaling approximately 1.4 million basic subscribers. A key element of
the General Partner's strategy is to increase the number of owned subscribers
clustered in attractive demographic areas. The General Partner is making
progress in clustering its owned subscribers in two primary groups of cable
systems. The General Partner's Maryland/Virginia cluster is based primarily on
geography. The General Partner's suburban cluster is based on similar market
and operating characteristics, rather than geography. The General Partner
believes that its clustering strategy may allow it to obtain both economies of
scale and operating efficiencies, for example in areas such as marketing,
administration and capital expenditures. The General Partner desires to add
the Albuquerque System to its suburban cluster, which currently includes the
cable systems serving the communities of Savannah and Augusta, Georgia, Pima
County, Arizona and Independence, Missouri.
In contrast to the Partnership, which is a Colorado limited partnership with
a finite term and which sought cable television properties with high growth
potential during a holding period of approximately five to seven years, the
General Partner, a Colorado corporation with perpetual existence, is seeking
to acquire cable television systems that can generate a steady stream of
income and may appreciate in value over a longer holding period. The
Albuquerque System satisfies this objective of the General Partner. The
General Partner also may be in a better position than the Partnership and the
Venture to access both debt and equity to finance the long-term development of
the Albuquerque System. The General Partner may be able to leverage the
Albuquerque System at a higher level than the Venture has done and,
accordingly, the General Partner may be able to generate a greater return on
its investment in the Albuquerque System than the Partnership and the Venture
would be able to do within the same time. Because the General Partner's
investment horizon is much longer term than the Partnership's investment
horizon, and the General Partner will not need to sell the Albuquerque System
to achieve its investment objectives, it can better withstand the costs
associated with meeting the competition and the regulatory risks inherent in
long-term holding and development of the Albuquerque System.
RELEVANT PROVISIONS OF THE PARTNERSHIP AGREEMENT
Section 2.2(k) of the Partnership Agreement provides that the sale of all or
substantially all of the Partnership's assets is subject to the approval of
the holders of a majority of the Partnership's limited partnership
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interests. Because its investment in the Venture is the Partnership's sole
remaining asset and because the Albuquerque System represents 63.9 percent of
the Venture's assets and 64.3 percent of the Venture's revenues, the sale of
the Albuquerque System is being submitted for limited partner approval to the
limited partners of the Partnership, Fund 12-C and Fund 12-D.
Section 2.3(b)(iv)(b) of the Partnership Agreement permits the Partnership
to sell any or all of its cable television systems directly to the General
Partner or one or more of its affiliates if the system to be sold has been
held by the Partnership for at least three years, or if it is part of, or
related to, another system that has been held for three years, and provided
that the price paid to the Partnership by the General Partner or any such
affiliate is determined by the average of three separate, independent
appraisals of the particular cable television system or systems being sold,
and that the cost of such appraisals is not borne by the Partnership. Because
the Albuquerque System has been held by the Venture for at least three years
and the purchase price to be paid to the Venture is equal to the average of
three separate, independent appraisals of the fair market value of the
Albuquerque System obtained at the General Partner's expense, these
requirements of the Partnership Agreement have been satisfied.
LEGAL PROCEEDINGS
The General Partner is a defendant in a now consolidated civil action filed
by limited partners of Fund 12-D derivatively on behalf of the Partnership,
Fund 12-C and Fund 12-D in the Arapahoe County District Court in the State of
Colorado. The consolidated complaint generally alleges that the General
Partner breached its fiduciary duty to the plaintiffs and to the other limited
partners of the Partnership, Fund 12-C and Fund 12-D and the Venture in
connection with the Venture's sale of the Tampa System to a subsidiary of the
General Partner and the subsequent trade of the Tampa System to Time Warner.
The consolidated complaint also sets forth a claim for breach of contract and
a claim for breach of the implied covenant of good faith and fair dealing.
Among other things, the plaintiffs assert that the subsidiary of the General
Partner that acquired the Tampa System paid an inadequate price for the Tampa
System. The price paid for the Tampa System was determined by the average of
three separate, independent appraisals of the Tampa System's fair market value
as required by the limited partnership agreements of the Partnership, Fund 12-
C and Fund 12-D. The plaintiffs have challenged the adequacy and independence
of the appraisals. The consolidated complaint seeks damages in an unspecified
amount and an award of attorneys' fees, and the complaint also seeks punitive
damages and certain equitable relief.
The General Partner has filed its answer to the consolidated complaint and
has generally denied the substantive allegations in the complaint and has
asserted a number of affirmative defenses. The General Partner intends to
defend this lawsuit vigorously.
On August 29, 1997, the General Partner moved for summary judgment in its
favor on the ground that plaintiffs did not make demand on the General Partner
for the relief they seek before commencing their lawsuits or show that such a
demand would have been futile. On January 8, 1998, the Court (1) held that
plaintiffs did not make demand before commencing their lawsuits or show that
such demand would have been futile, (2) stayed the consolidated case and
vacated the February 17, 1998 trial date, (3) ordered that plaintiffs make a
demand on the General Partner and that the General Partner appoint an
independent counsel to review, consider and report on that demand, (4) ordered
that the independent counsel be appointed at the March 1998 meeting of the
General Partner's Board of Directors, and (5) ordered that the independent
counsel will be subject to the approval of the Court. The Court set a new
trial date for October 26, 1998 in the event that the case is not resolved
through the independent counsel process or otherwise. On March 10, 1998, the
General Partner's Board of Directors appointed an independent counsel, subject
to the approval of the Court.
Section 2.2 of the Partnership Agreement provides that the General Partner
will not be liable to the Partnership or to the limited partners for any act
or omission performed or omitted by it in good faith pursuant to the authority
granted to the General Partner by the Partnership Agreement. This provision
further provides that the General Partner will be liable to the Partnership
and to the limited partners only for fraud, bad faith or
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gross negligence in the performance of the cable television activities of the
Partnership or negligence in the management of the internal affairs of the
Partnership. Section 9.6 of the Partnership Agreement provides that the
Partnership "shall indemnify and save harmless the General Partner and its
affiliates and any agent or officer or director thereof, from any loss or
damage incurred by them, including legal fees and expenses and amounts paid in
settlement by reason of any action performed by the General Partner or any
agent, officer or director thereof on behalf of the Partnership or in
furtherance of its interest; provided, however, that the foregoing shall not
relieve the General Partner of its fiduciary duty to the limited partners or
liability for (nor shall the General Partner be indemnified for) its fraud,
bad faith or gross negligence in the performance of the cable television
activities of the Partnership or negligence in the management of the internal
affairs of the Partnership." In accordance with the foregoing provisions of
the Partnership Agreement, the Partnership, together with Fund 12-C and Fund
12-D, which have identical partnership agreement provisions with respect to
general partner liability and indemnification, will be obligated to indemnify
and save harmless the General Partner from any loss incurred by it, including
its legal fees and expenses and amounts paid in settlement, in connection with
the litigation concerning the Tampa System sale unless the General Partner is
found to have breached its fiduciary duty to the limited partners in
connection with the Tampa System sale or is found to have committed fraud or
to have acted in bad faith or with gross negligence in connection with the
Tampa System sale. Amounts reimbursed to the General Partner by the three
constituent partnerships of the Venture would be in proportion to their
ownership interests in the Venture and such amounts may be significant, but
the General Partner expects that any such reimbursement will not have a
material adverse effect on the Partnership or the Venture.
In voting on the proposed sale of the Albuquerque System, limited partners
should consider that the General Partner determined both the sales price of
the Tampa System and the sales price of the Albuquerque System in a
substantially similar way, i.e., both prices were determined by averaging
three separate, independent appraisals of the fair market value of the
respective systems obtained in accordance with the provisions of Section
2.3(b)(iv)(b) of the three partnerships' limited partnership agreements.
Limited partners should be aware that The Strategis Group, Inc. and Western
Cablesystems, Inc., two of the three appraisal firms that rendered appraisals
of the Tampa System, also rendered appraisals of the Albuquerque System for
purposes of determining the Albuquerque System's sale price. Limited partners
should also consider that Bond & Pecaro, Inc., the other firm that rendered an
appraisal of the Albuquerque System for purposes of determining the
Albuquerque System's sale price, also serves as the General Partner's expert
witness in the Tampa litigation, aiding the General Partner in the defense of
this litigation.
REASONS FOR THE TIMING OF THE SALE
The Partnership has a finite legal existence of 17 years, over 12 of which
have passed. It was not intended or expected, however, that the Partnership
would hold its cable systems for 17 years. Although it was not possible at the
outset of the Partnership to determine precisely how quickly the investment
objectives with respect to any particular system would be achieved, investors
were informed that the General Partner's past experience with prior
partnerships had shown that five to seven years was the average length of time
from the acquisition of a cable system to its sale. Investors in the
Partnership also were able to examine the track record of the General
Partner's prior partnerships because such track record was set forth in the
prospectus delivered in connection with the Partnership's initial public
offering. At the time of the formation of the Partnership, the track record
showed that prior partnerships had rarely held their cable systems for any
longer than six years.
It is the General Partner's publicly announced policy that it intends to
liquidate all of its managed partnerships, including the Partnership, as
opportunities for sales of partnership cable television systems arise in the
marketplace. The General Partner has determined that, as part of this general
liquidation plan, it is in the best interests of the Venture and the three
constituent partnerships of the Venture to sell the Albuquerque System. During
the years that the Venture has owned and operated the Albuquerque System,
senior management of the General Partner, including Glenn R. Jones, the
General Partner's Chief Executive Officer, James B. O'Brien, the General
Partner's President and Chief Operating Officer, and Kevin P. Coyle, the
General Partner's Vice President/Finance and Chief Financial Officer, has
monitored the performance of the Albuquerque System. The
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General Partner has overseen the Albuquerque System's growth in the number of
homes passed, the miles of cable plant and the number of basic and premium
subscribers. The General Partner's management has regularly reviewed the
Albuquerque System's budgets, it has examined the Albuquerque System's
liquidity and capital needs and it has carefully monitored the Albuquerque
System's revenue and cash flow growth to confirm that the Partnership's
primary investment objective, i.e., capital appreciation in the Albuquerque
System, was being achieved. In early 1997, the General Partner's management
determined that the Albuquerque System would need to be rebuilt and upgraded
in connection with the system's franchise renewal negotiations with the City
of Albuquerque and to keep the system competitive with DBS services and other
entertainment video providers in the Albuquerque area. The General Partner
determined that the Venture could not and should not bear the approximately
$30,000,000 of rebuild and upgrade costs and that the Venture should sell the
system before the rebuild began. Further, the General Partner concluded that,
because the Albuquerque System met the General Partner's objective of
acquiring cable systems with operating characteristics like those of the
Albuquerque System, the General Partner would exercise its right under Section
2.3(b)(iv)(b) of the Partnership Agreement to acquire the Albuquerque System.
The General Partner accordingly did not market the system for sale and did not
solicit third party buyers for the Albuquerque System but instead contracted
with independent appraisal firms to prepare appraisals of the fair market
value of the Albuquerque System so that the General Partner could determine
the price it would offer to pay for the Albuquerque System. The first three
appraisals obtained by the General Partner valued the Albuquerque System at
$233,440,000, $221,349,800 and $206,600,000, respectively. Because the
appraisal that valued the Albuquerque System at only $206,600,000 was so much
lower than the other two appraisals, the General Partner's senior management
rejected it. The General Partner then engaged a fourth appraisal firm that
valued the Albuquerque System at $214,100,000, which management found
acceptable. The General Partner's Chief Financial Officer then took the three
appraised values and averaged them pursuant to the requirements of Section
2.3(b)(iv)(b) of the Partnership Agreement, and thereby determined that the
price the General Partner would offer for the Albuquerque System would be
$222,963,267. The General Partner's senior management also agreed that this
was a fair price and accepted it on behalf of the Venture. See "Special
Factors, The Appraisals." No arm's-length negotiations of the terms of the
purchase and sale agreement were conducted because neither the Partnership nor
the Venture have any employees or management other than the employees and
management of the General Partner. When the appraisal process was completed in
July 1997, the General Partner prepared the standard purchase and sale
agreement that it uses for the acquisition of cable television systems from
its managed partnerships. This agreement was executed by officers of the
General Partner both on behalf of the General Partner as buyer and on behalf
of the Venture as seller. A written memorandum dated July 23, 1997 to the
General Partner's Board of Directors from the General Partner's Chief
Financial Officer outlining the terms of the transaction, including the means
by which management had determined the sales price for the Albuquerque System,
the results of the four appraisals and management's rejection of the
$206,600,000 appraisal, the operating and financial statistics of the
Albuquerque System and the reasons why the General Partner should purchase the
Albuquerque System, was submitted to the Board of Directors with a
recommendation from management that the Board of Directors approve the
transaction, which the Board of Directors did on August 5, 1997. The directors
also were provided with copies of the three appraisal reports that management
had used in determining the sales price and a copy of the executed purchase
and sale agreement. As discussed below, the Board of Directors concluded, by
majority vote, that the transaction was fair to the unaffiliated limited
partners of the Partnership. See "Special Factors, Recommendation of the
General Partner and Fairness of the Proposed Sale of Assets."
When investing in the Partnership, by virtue of the provisions of Section
2.2(k) of the Partnership Agreement, the limited partners vested in the
General Partner the right and responsibility to determine when the
Partnership's investment objectives had been substantially achieved. The
Albuquerque System was acquired by the Venture because, in the opinion of the
General Partner at the time of the Albuquerque System's acquisition, it had
the potential for capital appreciation within a reasonable period of time. It
is the General Partner's opinion that during the more than 11 years that the
Albuquerque System has been held by the Venture, the Partnership's investment
objectives with respect to the Albuquerque System have been achieved. The
General Partner used no specific benchmarks or measurement tools in
determining that the Partnership's investment objectives have been achieved.
The General Partner conducted a subjective evaluation of a variety of factors
including the length of
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the holding period, the prospect for future growth as compared to the
potential risks, the cash on cash return to investors, the after-tax internal
rate of return to limited partners and the amount of gain to be recognized on
the sale of assets.
The Albuquerque System was acquired by the Venture in August 1986 for an
aggregate purchase price of approximately $84,625,700. In addition, an
affiliate of the General Partner received a brokerage fee of approximately
$3,217,200 from the Venture in connection with the Albuquerque System's
acquisition. At acquisition, the Albuquerque System consisted of approximately
1,770 miles of cable plant passing approximately 160,000 homes and serving
approximately 57,500 basic subscribers. As of April 30, 1997, the date of the
three appraisals of the Albuquerque System's fair market value discussed
below, the Albuquerque System consisted of approximately 2,640 miles of cable
plant passing approximately 232,200 homes and serving approximately 112,440
basic subscribers. During the holding period, the Venture used approximately
$86,428,400 in capital expenditures to expand the cable plant of the
Albuquerque System. The increase in the value of the Albuquerque System during
the holding period is demonstrated by the fact that the Albuquerque System was
purchased for $84,625,700 and is proposed to be sold for $222,963,267, a
difference of $138,337,567.
In evaluating whether now was the time for the Venture to sell the
Albuquerque System, the General Partner generally considered the benefits to
the limited partners that might be derived by the Venture's holding the
Albuquerque System for an additional period of time. The General Partner
assumed that the Albuquerque System might continue to appreciate in value and,
if so, the Albuquerque System would be able to be sold for a greater sales
price in the future. The General Partner weighed these assumptions about the
Albuquerque System's continuing growth against the risks to investors from a
longer holding period, i.e., the risks that regulatory, technology and/or
competitive developments could cause the Albuquerque System to decline in
value, which would result in a lesser sales price in the future. A longer
holding period would expose investors to the risk that competition from direct
broadcast satellite companies, telephone companies and/or neighboring cable
companies could diminish the number of subscribers to the Albuquerque System's
basic and premium services, thereby decreasing the value of the Albuquerque
System. A longer holding period also would expose investors to the risk that
changes in the regulations promulgated by the governmental agencies that
oversee cable operations could make cable systems a less desirable investment,
thereby decreasing the value of the Albuquerque System. The General Partner's
decision to sell the Albuquerque System was greatly influenced by the fact
that the originally contemplated holding period had been exceeded.
The General Partner is in a better position than the Partnership to bear the
risks of investment in the Albuquerque System. The Partnership is limited in
its ability to obtain additional equity financing, in part because the limited
partnership interests are non-assessable. The Partnership Agreement also
contains limits on the amounts that the Partnership can borrow. And the
Partnership has only one asset, its interest in the Venture, and the Venture's
only assets are the Albuquerque System and the Palmdale System, all of which
gives the Partnership limited collateral for borrowings. The General Partner,
on the other hand, is one of the nation's largest cable television companies
with longer term investment objectives. For example, if significant
competition to the Albuquerque System were to develop, the General Partner
would be in a better position than the Partnership and the Venture to finance
the marketing campaigns or technological improvements necessary to meet such
competition.
Therefore, in light of all of the above factors, the General Partner has
determined that now is the appropriate time for the Partnership to convert its
capital appreciation in the Albuquerque System to cash through the sale of the
Venture's Albuquerque System.
CERTAIN EFFECTS OF THE SALE
Upon consummation of the sale of the Albuquerque System, the proceeds of the
sale will be used to repay a substantial portion of the Venture's debts and
then the Venture will distribute the remaining sale proceeds to the three
constituent partnerships of the Venture in proportion to their ownership
interests in the Venture, and then
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the Partnership will distribute its portion of the net sale proceeds to its
partners of record as of the closing date pursuant to the terms of the
Partnership Agreement. Because the limited partners have already received
distributions in an amount in excess of the capital initially contributed to
the Partnership by the limited partners, the net proceeds from the Albuquerque
System's sale will be distributed 75 percent to the limited partners and 25
percent to the General Partner. Based upon the Venture's financial information
as of December 31, 1997, as a result of the Albuquerque System's sale, the
limited partners of the Partnership, as a group, will receive approximately
$8,605,856 and the General Partner will receive approximately $2,868,619.
Limited partners will receive $78 for each $500 limited partnership interest,
or $156 for each $1,000 invested in the Partnership, from the Partnership's
portion of the net proceeds of the Albuquerque System's sale. Once the
distributions of the net proceeds from the sale of the Albuquerque System have
been made, limited partners will have received a total of $977 for each $500
limited partnership interest, or $1,954 for each $1,000 invested in the
Partnership, taking into account the prior distributions to limited partners
made in 1995 and 1996 from the net proceeds of the sales of the Augusta System
and the Tampa System. Both the limited partners and the General Partner will
be subject to federal income tax on the income resulting from the sale of the
Albuquerque System. See the detailed information below under the caption
"Federal Income Tax Consequences."
In determining what portion of the sale proceeds to use to repay the
Venture's debts and what portion of the sale proceeds to use to make
distributions to the three constituent partnerships of the Venture, the
General Partner considered that the terms of both the Venture's Senior Notes
and the Venture's credit facility required that all sale proceeds be used to
extinguish these debts. The General Partner determined, however, that it would
be in the best interests of the limited partners of the three constituent
partnerships of the Venture to receive a portion of the sale proceeds in the
form of distributions. In pursuit of this end, the General Partner contacted
the commercial banks that are lenders under the Venture's credit facility and
reached agreement with them in principle to amend the Venture's credit
facility to allow for a distribution of $125,000,000 of the sale proceeds to
the Venture's three constituent partnerships in return for the Venture's
commitment to use the remaining sale proceeds to repay an estimated
$57,000,000 outstanding under the credit facility, including accrued interest,
leaving approximately $45,000,000 of debt outstanding under the amended credit
facility secured by the Venture's remaining Palmdale System. The distribution
and repayment amounts were arrived at in arm's-length negotiations between the
General Partner, acting on the Venture's behalf, and the lenders and were
based primarily upon the parties' determinations as to what level of debt was
appropriate and necessary for the Venture's continued ownership and operation
of the Palmdale System.
Another effect of the sale is that it will result in an indirect wholly
owned subsidiary of the General Partner acquiring the Albuquerque System.
Thus, as a result of this transaction, the General Partner will make a
substantial equity investment in the Albuquerque System and it will have a
greater equity ownership interest in the Albuquerque System than it does now
as the general partner of the three partnerships that comprise the Venture.
Instead of the residual 25 percent interest in the net proceeds from the sale
of the Albuquerque System that the General Partner will receive as the general
partner of the three partnerships that comprise the Venture, the General
Partner will have a 100 percent interest in any future capital appreciation of
the Albuquerque System. The General Partner's acquisition of the Albuquerque
System will advance its goal of increasing the number of owned subscribers in
attractive demographic areas and may allow the General Partner to obtain
economies of scale and operating efficiencies by adding the Albuquerque System
to its suburban cluster of systems with similar market and operating
characteristics. The General Partner also will bear 100 percent of the risk of
system losses and any diminution in system value. As the general partner of
the three partnerships that comprise the Venture, the General Partner earns
management fees and receives reimbursement of its direct and indirect expenses
allocable to the operation of the Albuquerque System. The General Partner's
right to receive such fees and reimbursements related to the Albuquerque
System will terminate on the Venture's sale of the Albuquerque System.
Neither Colorado law nor the Partnership Agreement afford dissenters' or
appraisal rights to limited partners in connection with the proposed sale of
the Albuquerque System. If the proposed transaction is approved by the holders
of a majority of limited partnership interests, all limited partners will
receive a distribution in accordance with the procedures prescribed by the
Partnership Agreement regardless of how or whether they vote on the proposal.
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RECOMMENDATION OF THE GENERAL PARTNER AND FAIRNESS OF THE PROPOSED SALE OF
ASSETS
The General Partner believes that the proposed sale of the Albuquerque
System and the distribution of the net proceeds therefrom are both
procedurally and substantively fair to all unaffiliated limited partners of
the Partnership, and it recommends that the limited partners approve the
transaction. The General Partner's recommendation that the limited partners
approve the sale of the Albuquerque System and its fairness determination
should not be deemed to be free from potential conflicts of interest, however,
in light of the fact that one of its subsidiaries is the proposed purchaser of
the Albuquerque System. Because the purchaser of the Albuquerque System would
benefit from a lower sales price, the General Partner has an economic interest
in conflict with the economic interest of the limited partners.
In determining the substantive and procedural fairness of the proposed
transaction, the General Partner's Board of Directors on August 5, 1997
considered each of the following factors, all of which had a positive effect
on its fairness determination. The factors are listed in descending order of
importance, i.e., the first factor listed was given the most weight in the
determination that the proposed transaction is fair, although, as a practical
matter, this is an approximation of the weight given to each factor because
each factor is relevant and the General Partner's Board of Directors was not
able to weigh the relative importance of each factor precisely:
(i) The limited partnership interests are at present illiquid and the
cash to be distributed to limited partners as a result of the proposed sale
of the Albuquerque System will provide limited partners with liquidity and
with the means to realize the appreciation in the value of the Albuquerque
System;
(ii) The purchase price represents a fair market valuation of the
Albuquerque System as determined by the average of three separate,
independent appraisals of the Albuquerque System by qualified independent
appraisers;
(iii) The Venture has held the Albuquerque System for over 11 years, a
holding period beyond that originally anticipated;
(iv) The conditions and prospects of the cable television industry in
which the Venture is engaged, including the developing threat of
competition from DBS services and telephone companies, and the working
capital and other financial needs of the Venture if it were to continue to
own the Albuquerque System, which is scheduled for a $30,000,000 rebuild in
the near future to remain competitive;
(v) The terms and conditions of the purchase and sale agreement,
including the fact that the purchase price will be paid in cash, the fact
that the Venture was not required to make many of the representations and
warranties about the Albuquerque System or give indemnities that are
customarily given in transactions of this nature, the fact that the
purchaser's obligation to close is not contingent upon its ability to
obtain financing, and the fact that the Venture will pay no brokerage fees
upon the sale of the Albuquerque System, which it likely would have paid if
the Albuquerque System were being sold to an unaffiliated party; and
(vi) The sale is being conducted in accordance with the terms of the
Partnership Agreement, including the fact that the proposed transaction
will not occur unless it is approved by the holders of at least a majority
of the limited partnership interests.
An officer of The Jones Group, Ltd., the cable brokerage subsidiary of the
General Partner, worked with each of the independent appraisers hired to
prepare fair market value appraisals of the Albuquerque System, providing them
with current and historical profit and loss statements for the Albuquerque
System and with current subscriber reports. Certain officers and all of the
directors of the General Partner received the final appraisal reports. The
members of the Board of Directors of the General Partner adopted the analyses
and conclusions of Bond & Pecaro, Inc., which valued the Albuquerque System at
$221,349,800, because such firm's valuation procedures, assumptions and
methodologies most closely approximate the valuation procedures, assumptions
and methodologies used by the General Partner's management in evaluating cable
television systems. The General Partner's Board of Directors did not
specifically adopt the $221,349,800 value placed on the Albuquerque System by
Bond & Pecaro, Inc., but the Board did consider the fact that the value
determined by this appraisal firm was close to the average of the three
appraisals and concluded that this fact supported its fairness determination.
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In making its fairness determination, the General Partner's Board of
Directors did not consider that Strategis' overall fair market value of the
Albuquerque System exceeds the sales price by approximately $8,440,000 or that
Strategis' "high" market value estimate exceeds the sales price by
approximately $18,870,000. Because it was the methodology for determining the
sales price mandated by the partnership agreements, the General Partner's
Board of Directors considered the fact that the sales price to be paid to the
Venture for the Albuquerque System was determined by averaging three
independent appraisals of the fair market value of the Albuquerque System to
be very persuasive evidence of the fairness of the proposed transaction. As
provided in Section 2.3(b)(iv)(b) of the Partnerships' three partnership
agreements, the General Partner may purchase a cable television system from
the Partnerships if the price paid to the Partnerships by the General Partner
is determined by the average of three separate, independent appraisals of the
cable television system to be sold. It does not provide that the purchase
price shall be determined by the highest of the three appraisals. In light of
this governing partnership agreement provision, the General Partner's Board of
Directors did not consider offering the Venture a sales price equal to
Strategis' appraisal values. Whenever a sum is to be determined by the average
of three values, there will be, by definition, values that are higher than and
values that are lower than the average. This implies to the General Partner
that such a process, agreed by all parties, is fair.
The General Partner considered the fact that the $222,963,267 purchase price
to be paid to the Venture for the Albuquerque System was determined by the
average of three independent appraisals of the fair market value of the
Albuquerque System to be very persuasive evidence of the fairness of the
proposed transaction. The General Partner reviewed and considered the three
appraisals but it did not consider specific comparable transactions in
reaching its conclusions that the values for the Albuquerque System determined
by the three appraisals are within the range of values seen in the marketplace
for comparable cable television systems in similar condition. The General
Partner is regularly engaged in the sale and/or purchase of cable television
systems in the marketplace both for its own account and for the account of its
various managed partnerships. It is the cumulative experience of the General
Partner's management and Board of Directors in such transactions on which the
fairness conclusions were based. The General Partner considered that the fair
market valuations of the Albuquerque System were done by respected industry
appraisers using customary measures of value. Based upon the General Partner's
knowledge of and experience in the cable television industry, and its review
and consideration of the appraisals, it has concluded that the values for the
Albuquerque System determined by the three appraisals are fair and within the
range of values seen in the marketplace for comparable cable television
systems in similar condition.
The $222,963,267 purchase price represents the current fair market value of
the Albuquerque System on a going concern basis. The $222,963,267 purchase
price for the Albuquerque System also compares favorably to the $74,371,396
net book value of the Albuquerque System at December 31, 1997. The liquidation
value of a cable television system, i.e., the sale of the system on other than
a going concern basis, is not usually considered to be an accurate indicator
of the value of a cable television system, primarily because the assets of a
cable television system typically are worth less when considered separately
than when considered as a going concern. The assets of a cable television
system consequently are not normally sold or purchased separately. A fair
market valuation of a system should, in the General Partner's view, be a
valuation of the system as a going concern. The liquidation value of the
Albuquerque System therefore was not considered by the General Partner in
reaching its determination of fairness.
Because there has never been an established trading market for the
Partnership's limited partnership interests, the General Partner does not have
access to any reliable, official information about the historical or current
market prices for the Partnership's limited partnership interests in the very
limited secondary market where such interests from time to time have been
sold. The General Partner believes that such secondary market deeply discounts
the underlying value of the limited partnership interests due to their highly
illiquid nature. Therefore, even if trading information were available, the
historical or current market prices for the Partnership's limited partnership
interests would not necessarily be indicative of the value of the
Partnership's 9 percent ownership of the Venture's cable television system
assets. For these reasons, the General Partner did not consider the historical
or current market prices for the limited partnership interests when reaching
its fairness determination.
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During the past several years, however, several limited partners of the
Partnership who are not in any way affiliated with the Partnership or with the
General Partner conducted tender offers for interests in the Partnership at
prices ranging from $54 to $70 per $500 limited partnership interest. The $78
per $500 limited partnership interest to be distributed to limited partners
from the Partnership's portion of the net proceeds of the Albuquerque System's
sale compares favorably to these tender offer prices, especially in light of
the fact that the tender offer prices theoretically reflect the distributions
to be made to limited partners from the Partnership's portion of the net
proceeds from both the Albuquerque System sale and the sale of the Palmdale
System.
The fact that the Venture has held the Albuquerque System for a period
beyond that originally anticipated was another important factor in the General
Partner's fairness determination--the General Partner believes that the
transaction is fair because a sale at this time will convert an illiquid
investment into a liquid one for all partners. And the current state of the
cable television industry also was considered by the General Partner in making
its fairness determination because the General Partner believes that it is
fair to investors that someone other than the Partnership and the Venture take
on the uncertainties and risks involved in continuing to own and operate the
Albuquerque System.
The fairness of the transaction is also demonstrated in an analysis of
certain of the terms and conditions of the purchase and sale agreement, which
generally are more favorable to the Venture than reasonably could be expected
if the purchaser were not an affiliated company. There is no financing
contingency to closing. Because of the General Partner's existing extensive
knowledge about the Albuquerque System, the Venture has not been required to
make many of the representations and warranties about the quality of the
Albuquerque System's tangible assets, the quantity of the Albuquerque System's
subscribers or the validity of the Albuquerque System's intangible assets
customarily found in cable television system transactions. The Venture likely
would have been required to give such representations and warranties to an
unaffiliated party if the Albuquerque System were being sold to an
unaffiliated party. In addition, the Venture is not required to indemnify the
purchaser for defects discovered by the purchaser after the closing. This
frees the Venture from having to reserve a portion of the sale proceeds to
cover typical indemnification obligations. The Venture also will pay no
brokerage fee in connection with the sale of the Albuquerque System, which it
likely would have paid if the Albuquerque System were being sold to an
unaffiliated party. This will result in more funds from the sale being
available for distribution to the Venture's three constituent partnerships and
thus to their partners.
The General Partner is aware and considered that although consummation of
this transaction will result in a distribution to the Partnership's limited
partners of approximately $156 per $1,000 of limited partnership capital
invested in the Partnership, there are several potential negative consequences
of the transaction to limited partners. For example, the proposed sale will
require the limited partners to recognize, for federal income tax purposes, a
gain resulting from the sale. And although the three fair market valuations
established by the independent appraisals took into account the present value
of the projected future growth of the Albuquerque System and the sales price
(the average of the three appraisals) thus takes into account the present
value of the projected future growth of the Albuquerque System, the proposed
sale will deprive the limited partners of an opportunity to participate in the
actual future growth of the Albuquerque System, if any. The General Partner
nevertheless concluded that the cash distributions to the limited partners of
the Partnership from the sale of the Albuquerque System outweighed these
consequences.
As disclosed above, the proposed transaction is subject to various potential
conflicts of interest arising out of the Partnership's relationships with the
General Partner. Because the General Partner and its affiliates are engaged in
the ownership and operation of cable television systems, they are generally in
the market to purchase cable television systems for their own account. A
potential conflict thus arises from the General Partner's fiduciary duty as
general partner of the Partnership and its management's fiduciary duty to the
General Partner's shareholders when it determines that Partnership cable
television systems will be sold to the General Partner or one of its
affiliates and not to an unaffiliated third party. This potential conflict of
interest was disclosed to limited partners in the prospectus delivered to
investors at the time of the public offering of interests in the Partnership.
Prior to the Partnership's public offering, the General Partner entered into
negotiations with certain state securities administrators as part of the
process of clearing the offering in the "merit" states, i.e., those states
that
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permit the sale of securities only if the state securities administrator deems
the offering as a whole to be fair, just and equitable. Several of the merit
state securities administrators focused on the potential conflicts of interest
in the event that the Partnership were to sell one or more of its cable
television systems to the General Partner or one of its affiliates. The
General Partner agreed to include the provision in the Partnership Agreement
that permits the Partnership to sell its cable television systems directly to
the General Partner or one of its affiliates only after a three-year holding
period and only if the General Partner or such affiliate pays a purchase price
that is not less than the average of three separate independent appraisals of
the particular cable television system being sold. The General Partner has
concluded that the mechanisms for determining the purchase price to be paid to
the Partnership provide sufficient procedural safeguards to minimize the
effects of the potential conflicts of interest inherent in any such
transaction. The fact that these procedures have been carried out in
connection with the Venture's proposed sale of the Albuquerque System,
together with the fact that the transaction also is conditioned upon receipt
of the approval of the holders of a majority of the limited partnership
interests in the three partnerships that comprise the Venture, enable the
General Partner to conclude that the proposed transaction is both procedurally
and financially fair to all partners.
The directors of the General Partner who are not employees of the General
Partner did not vote separately to approve the transaction, nor did the
outside directors retain an unaffiliated representative to act solely on
behalf of the limited partners for the purposes of negotiating the terms of
the proposed sale of the Albuquerque System and/or preparing a report
concerning the fairness of the proposed sale. While the directors of the
General Partner who approved the sale recognized that the interests of the
General Partner and the limited partners may not in all respects necessarily
be the same, they recognized also that the purchase price was determined in
accordance with the terms of the Partnership Agreement, that is, by averaging
three separate independent appraisals of the Albuquerque System's fair market
value. The members of the Board of Directors who approved the sale relied on
the specific right of the General Partner under Section 2.3(b)(iv)(b) of the
Partnership Agreement to purchase the Albuquerque System. The members of the
Board of Directors who approved the sale reviewed and considered the
appraisals and, based upon their general knowledge of cable television system
transactions undertaken by the General Partner and its affiliates and by
unaffiliated cable television companies, concluded that the values for the
Albuquerque System determined by the appraisers were fair and were within the
industry norms for comparable transactions. All 13 directors of the General
Partner at the time participated in the August 5, 1997 meeting to discuss and
vote on the Partnership's sale of the Albuquerque System to the General
Partner. Each of Messrs. Glenn R. Jones, James B. O'Brien, James J. Krejci,
William E. Frenzel, Donald L. Jacobs, Howard O. Thrall, Robert E. Cole,
Raphael M. Solot, Sanford Zisman and Robert B. Zoellick voted to approve the
transaction. Messrs. Derek H. Burney and Siim A. Vanaselja abstained on the
vote and Mr. Robert Kearney voted against the transaction. To the best of the
General Partner's knowledge and belief, the abstentions and negative vote were
based on the fact that these three directors wanted more time to analyze the
General Partner's acquisition of the Albuquerque System as it pertained to the
General Partner's overall acquisition strategy in light of the General
Partner's finite capital resources for acquisitions of cable systems. No
director of the General Partner raised any questions or expressed any
reservations about the fairness of the transaction to the Venture, to its
three constituent partnerships or to the limited partners of the Partnership.
It is anticipated that if the proposed transaction is not consummated, the
General Partner's current management team will continue to manage the
Albuquerque System on behalf of the Venture until such time as the Albuquerque
System could be sold. No other alternatives have been or are being considered.
THE APPRAISALS
At regular intervals during the holding period, the General Partner obtained
appraisals of all of the Partnership's cable television systems so that the
General Partner could fulfill its obligation of reporting the Partnership's
asset values to trustees and custodians of qualified plans that own limited
partner interests in the Partnership. These appraised values also have been
reported to all investors in the quarterly and annual reports mailed to
limited partners with copies of the Partnership's periodic reports on Forms
10-Q and 10-K. The most recent appraisal of the Albuquerque System done prior
to the General Partner's decision to buy the system from
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the Venture was done as of July 31, 1996 by The Strategis Group, Inc., which
valued the Albuquerque System as of such date at $232,071,000. This old
appraisal was not used by the General Partner's management in determining the
sales price that the General Partner would offer for the Albuquerque System
and it was not considered by the General Partner's Board of Directors in
making its fairness determinations.
In determining the price that the General Partner would offer for the
Albuquerque System, in the spring of 1997 the General Partner retained The
Strategis Group, Inc., Kagan Media Appraisals Inc. and Bond & Pecaro, Inc. to
prepare separate appraisals of the fair market value of the Albuquerque System
as of April 30, 1997. Each of the appraisers were asked to determine the cash
price a willing buyer would give a willing seller, neither being under any
compulsion to buy or sell and both having reasonable knowledge of relevant
facts, in an arm's-length transaction to acquire the Albuquerque System. Upon
receipt of the appraisal prepared by Kagan Media Appraisals, Inc., which
appraised the Albuquerque System at only $206,600,000, management of the
General Partner reviewed it and, based upon management's experience in and
knowledge of the cable television industry and its conclusions as compared to
the other two appraisals, management deemed this appraisal to be too low and
rejected it. The General Partner then retained a fourth appraisal firm,
Western Cablesystems, Inc., to prepare an appraisal of the fair market value
of the Albuquerque System as of April 30, 1997. Upon receipt of the appraisals
prepared by The Strategis Group, Inc., Bond & Pecaro, Inc. and Western
Cablesystems, Inc., management of the General Partner examined each of them
and discussed among themselves the merits of the appraisals' assumptions,
methodologies and conclusions, and, based on their experience in and knowledge
of the cable television industry, they found each of them to be fair and
reasonable. The appraisal reports prepared by The Strategis Group, Inc., Bond
& Pecaro, Inc. and Western Cablesystems, Inc. were then submitted to the Board
of Directors of the General Partner for review. As disclosed above, a majority
of the Board of Directors of the General Partner approved the transaction
based upon a price determined by averaging these three appraisals.
The written appraisal reports of The Strategis Group, Inc., Bond & Pecaro,
Inc. and Western Cablesystems, Inc. are available for inspection and copying
at the offices of the General Partner during regular business hours by any
interested limited partner of the Partnership or by his or her authorized
representative. Copies of such appraisals will be mailed by the General
Partner to any interested limited partner or to his or her authorized
representative upon written request to the General Partner at the expense of
the requesting limited partner. Copies of these three appraisals also have
been publicly filed with the Securities and Exchange Commission and may be
inspected at the Commission's public reference facilities and at its World
Wide Web site.
The General Partner provided each of the appraisers with the same current
and historical profit and loss statements for the Albuquerque System and with
the same current subscriber reports. The appraisers also gathered information
about the Albuquerque System's subscribers, channel line-up, technology, cable
plant, penetration rates and the local economy from questionnaires that each
individual appraisal firm prepared and provided to the general manager of the
Albuquerque System and from conversations with the Albuquerque System's
management team. From this information, the appraisers used their independent
analyses to project cash flow, determine growth of homes passed, the
Albuquerque System's future penetration and possible rate adjustments. The
appraisals thus reflect the application of the appraisers' expertise to the
data about the Albuquerque System supplied by the General Partner.
The General Partner's $222,963,267 offer for the Albuquerque System was
based on the three separate, independent appraisals of the Albuquerque System
prepared by The Strategis Group, Inc., Bond & Pecaro, Inc. and Western
Cablesystems, Inc. as of April 30, 1997. The Strategis Group, Inc. concluded
that the Albuquerque System's overall fair market value as of April 30, 1997
was $233,440,000. Bond & Pecaro, Inc. concluded that the Albuquerque System's
overall fair market value as of April 30, 1997 was $221,349,800. Western
Cablesystems, Inc. concluded that the Albuquerque System's overall fair market
value as of April 30, 1997 was $214,100,000.
In the General Partner's view, the assumptions regarding system operations
and the cable television system marketplace underlying the three appraisals
have generally remained unchanged since the date of the appraisals.
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The Strategis Appraisal
The Strategis Group, Inc. ("Strategis") has served the communications
industry for nearly 30 years. Its team of financial, engineering and
managerial professionals devotes a substantial portion of its time to the
appraisal of cable television systems, cellular telephone systems, paging
systems, mobile radio and broadcast stations. Strategis was selected by the
General Partner to render an opinion as to the fair market value of the
Albuquerque System in light of such overall qualifications. No limitations
were imposed with respect to the appraisal to be rendered by Strategis. The
firm was selected by the General Partner to prepare an independent appraisal
of the Albuquerque System because of the General Partner's familiarity with
the firm and its good reputation in the cable television industry. Strategis
has prepared independent appraisals of other cable television systems owned
and/or managed by the General Partner. The principals of Strategis are not
affiliated in any way with the General Partner.
Strategis used five generally accepted cable television valuation methods
using the income approach to valuation in establishing the range of fair
market values of the Albuquerque System as a going concern. The first method
used a multiple of the past year's operating income derived from comparable
asset values of privately held and publicly traded cable companies. The second
method used a lower multiple of the Albuquerque System's annualized current
month's operating income. The third method applied a slightly lower multiple
of next year's projected operating income. The fourth method was a discounted
net cash flow analysis in which a purchase price (estimated fair market value)
was calculated to achieve a target after-tax return on equity, given
particular operating and financing assumptions unique to the Albuquerque
System's assets. The fifth method was a discounted cash flow analysis that
measured the net present value of the pre-tax operating cash flows (less
capital expenditures, plus the residual value of the Albuquerque System) that
represent the return on total investment. For each valuation method, Strategis
established a "high" and a "low" estimated fair market value.
The first valuation method used a multiple of the past year's operating
income of the Albuquerque System derived from comparable asset values of
certain cable companies. The cable companies used to generate baseline values
for this methodology included Adelphia Communications Corporation, Cablevision
Systems, Century Communications, Comcast, Cox Communications, EW Scripps,
International Cabletel, Knight-Ridder, Media General, TCA Cable TV,
Telecommunications, Inc., Time Warner, United Holdings, US West, Washington
Post and the General Partner. Strategis determined, based upon its expertise
and knowledge of the cable television industry, a "low" multiple of 10.5 and a
"high" multiple of 11.5, concluding that a system comparable to the
Albuquerque System would be unlikely to sell for less than 10.5 times its past
year's operating income and would be unlikely to sell for more than 11.5 times
its past year's operating income. These operating income multiples were
determined based upon several factors. First, the "pre-determined target
returns on equity" developed in connection with the fourth valuation method
discussed below were examined for the implied capitalization rate. The
capitalization rate is the inverse of the valuation multiple. The basic
equation supporting a valuation multiple is a fraction, with one being the
numerator and the rate of return minus the growth rate being the denominator.
For the rates of return, Strategis refers to the "predetermined (pre-tax)
target returns on equity" calculated as follows:
12%/(l-.34) = 18.2%
14%/(l-.34) = 21.2%
For the rate of growth estimate, Strategis examined projected growth in the
Albuquerque System's operating income in the latter years of the projection
term. During the last two years, the average growth rate in operating cash
flow is approximately 9 percent on Strategis' model. The inverse of the
capitalization rate implies multiples of:
1
(18.2%-9.0%) = 10.9 high
1
(21.2%-9.0%) = 8.2 low
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These calculated multiples were then adjusted by Strategis based on its
experience in the cable television industry. According to Strategis, in its
judgment, with a small adjustment the implied high multiple is reasonable for
a mature cable system such as the Albuquerque System. Strategis stated,
however, that the implied low multiple, if applied to operating cash flow,
would not provide an adequate estimate of value for a mature cable system such
as the Albuquerque System. The multiples ultimately used by Strategis in its
first valuation method, 10.5 and 11.5, as adjusted from the capitalization
rate approach, in Strategis' judgment, appropriately reflect the value of the
Albuquerque System. This method resulted in an estimated fair market value
ranging from a low of $222,661,506 to a high of $243,867,363 for the
Albuquerque System.
The second valuation method used a lower multiple of the Albuquerque
System's annualized current month's operating income. Strategis determined,
again based on its expertise and knowledge of the cable television industry, a
"low" multiple of 10 and a "high" multiple of 11, concluding that a system
comparable to the Albuquerque System would be unlikely to sell for less than
10 times the dollar amount of its annualized current month's operating income
and would be unlikely to sell for more than 11 times the dollar amount of its
annualized current month's operating income. These multiples are slightly
lower than those used in the previous methodology because of the increased
risk and time factors involved in using current as compared to historical
information. This method resulted in an estimated fair market value ranging
from a low of $226,577,517 to a high of $249,235,269 for the Albuquerque
System.
The third valuation method applied a slightly lower multiple of next year's
operating income of the Albuquerque System. For this valuation, Strategis
first estimated, through its own analyses of current financial and operating
data provided by the General Partner, next year's operating income for the
Albuquerque System. The projection of next year's operating income for this
third valuation method is the sum derived by subtracting projected operating
expenses from projected revenues of the Albuquerque System to be generated
during the first twelve months following the valuation date. Strategis
projected growth in residential service revenue based on previously
established or reasonably foreseeable patterns of growth in: the marketplace
and plant facilities (homes passed); the subscriber base; the amount of
programming to sold to subscribers and the rates charged for programming,
associated equipment rentals and service installations. Strategis projected
revenue for commercial accounts to increase at a steady but lower rate than
residential revenue, while advertising revenue was projected based on
Strategis' estimates of the long term potential growth for local advertising
in the Albuquerque market. Operating expenses were projected by Strategis
based on the Albuquerque System's actual historical expenses and Strategis'
familiarity with cable system operating expenses typical for a system of the
Albuquerque System's size. Line item expenses within the technical-operations,
general and administrative, sales and marketing, and programming departments
were examined and projected based on their relationship to the number of
subscribers or plant miles, whichever was appropriate, and included a general
inflation component. Based on its expertise and knowledge of the cable
television industry, set a "low" multiple of 9.5 and a "high" multiple of 10.5
concluding that a system comparable to the Albuquerque System would be
unlikely to sell for less than 9.5 times the system's projected operating
income for the following year and would be unlikely to sell for more than 10.5
times the system's projected operating income for the following year. These
multiples are slightly lower than those used in the previous methodologies
because of the increased risk and time factors involved in using projected as
compared to historical and current information. This method resulted in an
estimated fair market value ranging from a low of $229,407,846 to a high of
$253,556,040 for the Albuquerque System.
The fourth valuation method was a discounted net cash flow analysis in which
a purchase price (estimated fair market value) was calculated to achieve a
target after-tax return on equity given particular operating and financing
assumptions specific to the Albuquerque System. This method involved the use
of projected operations for the Albuquerque System and a pre-determined target
return on equity for a hypothetical buyer. Strategis used the Capital Asset
Pricing Model ("CAPM") as a guide in developing discount rates used in the
discounted cash flow model for the fourth valuation method. The CAPM was
developed to estimate the rate of return on equity that would be required by
investors to take on the risk of a given investment. Strategis used the CAPM
in conjunction with observations of actual market transactions and its
judgment. The following illustrates use of the CAPM and the support it
provided for the "pre-determined target return on equity" used to value the
Albuquerque System.
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To estimate a "pre-determined target return on equity" for the CAPM,
Strategis examined movements in stock prices over 1995 and 1996 of the same
cable television multiple system operators that it examined in determining the
multiples for the first valuation method discussed above. The movements in
individual stock prices were compared to movements in the stock market as a
whole, as indicated by the price of the Standard & Poor's 500 stock index. The
extent to which movements in a particular stock are related to movements in
the market overall is reflected in the stock's "beta." Strategis calculated
individual betas for the above-referenced cable television multiple system
operators. Average and median betas for the entire group were then multiplied
by the "equity risk premium," which measures the additional return to equity
investors over and above the return to holders of non-equity investments. The
risk-free rate of investment is then added to determine the required equity
return of the investment. The equation is as follows:
Beta* (Equity Risk Premium) + Risk-Free Rate = Required Return on Equity
In doing this analysis, Strategis found that the average beta for the group
of companies it examined was 1.16 and that the median beta for this same group
of companies was 1.56. It determined that the equity risk premium was 10
percent based upon average annual premiums over 1987 to 1996 as calculated in
Ibbotson Associate's Stocks, Bonds, Bills and Inflation (SBBI) Yearbook 1997.
Strategis also found that the risk-free rate was 6.6 percent which was the
yield on intermediate term government bonds as of April 1997. This statistic
was derived from the SBBI Yearbook 1998. The calculations are as follows:
(1.16* 10%) + 6.6% = 18.2% Required Return on Equity
(1.56* 10%) + 6.6% = 22.2% Required Return on Equity
Strategis then multiplied these rates by 1 minus the tax rate to calculate
the after-tax required return on equity rates as follows:
18.2%* (1-.34) = 12.0%
22.2%* (1-.34) = 14.7%
Based on Strategis' professional judgment, in Strategis' opinion these
calculations provide reasonable support for the use of 12% as the high and 14%
as the low after-tax "pre-determined target returns on equity."
Based on system information made available to Strategis by the General
Partner and on information generally available to Strategis about the cable
television industry, the firm made assumptions and projections of a variety of
factors that will affect future cash flow including housing growth, plant
mileage, growth in the number of subscribers for basic and pay television,
adjustments in subscriber rates, increases in operating expenses and capital
expenditures. Strategis also made specific assumptions concerning the capital
structure that a typical, prudent buyer might experience, as well as the
probable interest rates that would be applicable in connection with any debt
financing that might be incurred. Strategis did a "high" and a "low" analysis.
In its "high" analysis, Strategis projected that the Albuquerque System's
revenues would grow from $55,071,766 in 1998 to $98,776,702 in 2004; that the
Albuquerque System's operating expenses would grow from $30,923,572 in 1998 to
$51,702,980 in 2004; and that net loss would decrease from $(9,639,099) in
1998 to $(553,008) in 2004. In Strategis' "low" analysis, revenues and
operating expenses are projected to increase to the same levels by 2004, but
net loss of $(8,959,488) in 1998 is projected to become net income of $587,701
in 2004. Strategis projected that the Albuquerque System would add
approximately 97 miles of cable plant per year between 1998 and 2004,
resulting in growth of the Albuquerque System's cable plant from 2,639 miles
in 1997 to 3,313 miles in 2004. Strategis projected that the number of homes
passed by the Albuquerque System would grow from 233,798 in 1997 to 273,601 in
2004. Strategis projected that basic subscribers would grow from 112,613 in
1997 to 155,041 in 2004. Strategis projected penetration of the Albuquerque
System increasing from 48.7 percent in 1998 to 56.7 percent in 2004. Strategis
projected that premium television subscriptions would grow from 60,912 in 1997
to 84,636 in 2004. Strategis estimated that the Albuquerque System would take
moderate rate increases between 1998 and 2004, with, for example, a 1 percent
increase in basic rates in 1998, a 5 percent increase in basic rates in 1999
and 3 percent increases in basic rates each year thereafter, and a 2 percent
increase in
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expanded basic rates in 1998, a 6 percent increase in such rates in 1999, a 3
percent increase in such rates in 2000, a 10 percent increase in such rates in
2001, a 9 percent increase in such rates in 2002 and a 3 percent increase in
such rates each year thereafter. Strategis estimated that rate increases for
pay television subscriptions would average 1 percent per year. Strategis
estimated that rate increases for pay-per-view showings, converter rentals and
installations would average 3 percent per year. These projections, if true,
would result in an increase in basic rates from $10.03 in 1998 to $12.16 in
2004, and an increase in the rates for the expanded basic tier from $15.39 in
1998 to $21.27 in 2004. As explained in the preceding paragraphs, the "low"
value was determined using a 14 percent return on equity and the "high" value
was determined using a 12 percent return on equity. This method resulted in an
estimated fair market value ranging from a low of $220,489,882 to a high of
$240,054,504 for the Albuquerque System.
The fifth valuation method was a discounted cash flow analysis that measured
the net present value of the pre-tax operating cash flows (less capital
expenditures, plus the residual value of the Albuquerque System) that
represent the return on the total investment rather than those that could
result from an assumed "purchase" with a pre-determined debt to equity ratio.
The same set of financial projections that the firm prepared and used in the
fourth valuation methodology were used for growth in subscribers, revenues,
operating expenses and capital expenditures. The projected pre-tax operating
cash flows for the Albuquerque System, plus the last-year residual value of
the Albuquerque System less capital expenditures, were discounted to the
present time at an acceptable current cost of money. This method indicated the
present value of the future pre-tax operating cash flows, using an acceptable
discounted factor based on the weighted average cost of money. The "high"
value was determined using a 15.1 percent target return on investment and the
"low" value was determined using a 16.6 percent target return on investment.
This method resulted in an estimated fair market value ranging from a low of
$219,992,327 to a high of $238,088,179 for the Albuquerque System.
Strategis' valuation methodologies resulted in differing values for the
Albuquerque System. The reason for this is grounded in the basic approach that
the firm takes. The five different methods allow five different views of a
system's value. The first method looks at past performance, but allows nothing
for future performance. The second method looks at the system as it is as of
the date of the appraisal. The third method looks at the system's projected
operating income in the first year following the proposed sale. Both
discounted cash flow methods fully consider the future value of the system by
recognizing projected operating income and expenses, including capital
expenditures. Based upon all of the available information about a system being
appraised, the appraiser decides how to weight each of the five methods. The
final estimated fair market value is not a straight average of all of the
methods. Although the weighting is not shown in the appraisal report,
Strategis generally prefers the discounted cash flow methods since they
consider a broader range of factors that represent all sources of value,
present and future. Strategis accordingly generally gives greater
consideration to the discounted cash flow methods in its final judgment
concerning the fair market value of a cable television system. Strategis'
conclusions as to the range of values were based upon information and data
supplied by the General Partner, Strategis' onsite inspection of the
Albuquerque System in April 1997, interviews with the Albuquerque System's
onsite management team and general cable television industry information. The
fair market value appraisal of $233,440,000 reached by Strategis was based on
the various valuations generated by it, and Strategis' general knowledge and
expertise in the cable television industry.
As compensation for rendering an opinion as to the fair market value of the
Albuquerque System, the General Partner paid Strategis a fee of $7,500. Such
fee was not contingent upon the conclusion reached by Strategis in its
opinion. As compensation for rendering opinions as to the fair market value of
other cable television systems owned and/or managed by the General Partner and
its affiliates, and completing the analysis of the allocations of purchase
prices between tangible and intangible assets for various cable television
systems owned and/or managed by the General Partner and its affiliates,
Strategis has received fees and expense reimbursements totaling $241,470
during the two years prior to the date hereof.
The Bond & Pecaro Appraisal
Bond & Pecaro, Inc. ("Bond & Pecaro") is a consulting firm specializing in
valuations, asset appraisals and related financial services for the
communications industry. The firm has appraised assets of more than 1,500
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media properties. Bond & Pecaro was selected by the General Partner to render
an opinion as to the fair market value of the Albuquerque System in light of
such overall qualifications. No limitations were imposed with respect to the
appraisal to be rendered by Bond & Pecaro. The firm was selected by the
General Partner to prepare an independent appraisal of the Albuquerque System
because of the firm's reputation in the industry. Bond & Pecaro has prepared
independent appraisals of other cable television systems owned and/or managed
by the General Partner. Bond & Pecaro also is serving as the General Partner's
expert witness aiding the General Partner in its defense of the litigation
filed by limited partners of Fund 12-D challenging the terms of the Venture's
sale of the Tampa System to a subsidiary of the General Partner. See "Special
Factors, Legal Proceedings." The principals of Bond & Pecaro are not
affiliated in any way with the General Partner.
Bond & Pecaro used both the income and the market methodologies to determine
the fair market value of the Albuquerque System as of April 30, 1997. The firm
developed a discounted cash flow analysis to determine the value of the
Albuquerque System based upon its economic potential. The results of this
analysis indicated that the value of the Albuquerque System as of April 30,
1997 was $221,349,800. In order to verify the results of the discounted cash
flow analysis, Bond & Pecaro also utilized a comparable sales approach,
relying upon an analysis of subscriber multiples. The results of this analysis
supported the firm's conclusions about valuation resulting from application of
the income approach.
Bond & Pecaro reported that the initial parameter upon which its discounted
cash flow projection is based is homes passed. Two factors affect the number
of homes passed: new plant construction and household growth. In preparing its
projection, Bond & Pecaro assumed that the number of households in the
Albuquerque System's franchise area will increase at a rate equivalent to the
average growth projected for the areas served by the system as a whole, or
approximately 1.9 percent per year. Bond & Pecaro concluded that the basic
penetration rate would grow substantially over the 10-year projected period
from the current 49.2 percent to approximately 71.6 percent by 2007. The firm
projected that pay penetration of the Albuquerque System will increase from a
level of 54.1 percent in April 1997 to approximately 64.0 percent by 2007.
Bond & Pecaro concluded that due to regulatory and competitive restrictions,
service rates for basic and expanded basic services are expected to grow with
inflation while premium channel service rates are expected to remain
relatively flat throughout the 10-year projected period. Bond & Pecaro
estimated that pay-per-view service revenue will increase at a 12.5 percent
annual rate through 2007, that commercial advertising will increase at a 12.5
percent annual rate through 2007 and that annual installation revenue would
grow at a compound annual rate of 2.5 percent during the projection period.
The firm concluded that equipment rental revenues as well as other revenues
also should increase by 10 percent annually through 2007. Bond & Pecaro
concluded that total system revenues would increase from $55,000,000 in 1997
to $127,100,000 in 2007. For purposes of its appraisal, Bond & Pecaro assumed
that the Albuquerque System would maintain an operating profit margin of 42.3
percent, which was the system's operating profit margin in 1996. Bond & Pecaro
used an estimated tax rate of 38.1 percent to project the taxable income of
the Albuquerque System because the estimated rate reflects the combined
federal, state and local tax rates in effect on April 30, 1997. Capital
expenditures were projected at approximately $13,400,000 annually during the
ten-year period.
Bond & Pecaro then determined the net after-tax cash flow for the
Albuquerque System. After taxes were subtracted from the system's taxable
income, non-cash depreciation and amortization expense was added back to net
income to yield after-tax cash flow. From the after-tax cash flow, the
provision for subsequent capital expenditures was deducted to calculate the
net after-tax cash flows. Bond & Pecaro used a discount rate of 12 percent to
calculate the present value of the net after-tax cash flows. In order to
account for the risks associated with investments in the cable television
industry and in the Albuquerque System in particular, Bond & Pecaro added a
premium to a base discount rate to develop the 12 percent rate employed in its
analysis. Bond & Pecaro then applied a multiplier of 10 to the Albuquerque
System's 2007 operating cash flow. Bond & Pecaro's appraisal noted that
multiples used in the valuation of cable television systems of a type similar
to the Albuquerque System range from 8 to 12 times operating cash flow,
depending on market conditions and a system's profit potential. Bond & Pecaro
noted also that exceptional circumstances will warrant multiples outside of
this range. The appraisal report indicated that the selected multiple of 10
was used to estimate the value of the system at the end of the investment
period. According to Bond & Pecaro, this multiple reflects the state of the
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market for cable television systems as of April 30, 1997, tempered by the
economic conditions of the system's franchise service area, the necessity for
a system rebuild, the uncertainty introduced by re-regulation of the cable
television industry and the prospects for increased competition from wireless
cable companies and direct broadcast satellite operators. The 10-year
discounted cash flow projection of Bond & Pecaro yielded a value of
$221,349,800 for the Albuquerque System.
In order to correlate this statistical valuation with the realities of the
marketplace, Bond & Pecaro analyzed the sale of six comparable cable
television systems that took place between September 1996 and February 1997.
The sales examined by Bond & Pecaro were selected based upon their
comparability to the Albuquerque System. The six cable television system
transactions examined by Bond & Pecaro were: (i) the transaction between one
of the General Partner's managed partnerships and an unaffiliated third party
relating to the proposed sale of the Roseville, California cable television
system for a sales price of $31,000,000 or a price per subscriber of $1,938,
(ii) the transaction between one of the General Partner's managed partnerships
and an unaffiliated third party relating to the sale of the Rosenburg, Texas
cable television system for a sales price of $5,500,000 or a price per
subscriber of $1,986, (iii) the sale of the Palo Alto, California cable
television system by one unaffiliated cable television system operator to
another for a sales price of $54,100,000 or a price per subscriber of $2,042,
(iv) the sale of the Jonesburo, Arkansas cable television system by one
unaffiliated cable television system operator to another for a sales price of
$41,000,000 or a price per subscriber of $2,000, (v) the sale of the
Independence, Missouri cable television system by one of the General Partner's
managed partnerships to a subsidiary of the General Partner for a sales price
of $171,200,000 or a price per subscriber of $2,004, and (vi) the sale of the
Hickory, North Carolina cable television system by one unaffiliated cable
system operator to another for a sales price of $68,100,000 or $1,946 per
subscriber. With this analysis, Bond & Pecaro concluded that the average price
per subscriber paid for the six comparable cable television systems sales was
approximately $1,971. Bond & Pecaro concluded that the Albuquerque System's
overall fair market value was $221,349,800. This $221,349,800 value reflects a
subscriber multiple of approximately $1,966 per subscriber, which is
consistent with prevailing subscriber multiples of comparable sales.
A representative of Bond & Pecaro visited the offices and technical
facilities of the Albuquerque System in May 1997 as part of its preparation of
the appraisal report. The firm's representative consulted with system
management regarding market factors and system-specific issues that impacted
the value of the system's tangible and intangible assets. Specific data
provided by the system and the General Partner included historical audited
financial statements for fiscal years 1994 through 1996, 1997 year to date
unaudited financial statements, operating statistical summaries, system
technical data, market demographic data and related materials. Other sources
consulted in the preparation of the appraisal included industry factbooks,
government publications and similar reference materials. Bond & Pecaro also
relied upon information furnished by the Albuquerque System's management
relating to the age, condition and adequacy of the system's physical plant.
As compensation for rendering an opinion as to the fair market value of the
Albuquerque System, the General Partner paid Bond & Pecaro a fee of $11,789.
Such fee was not contingent upon the conclusions reached by Bond & Pecaro in
its opinion. As compensation for rendering opinions as to the fair market
value of other cable television systems owned and/or managed by the General
Partner and its affiliates, Bond & Pecaro has received fees totaling $17,122
during the two years prior to the date hereof.
The Western Cablesystems Appraisal
R. Michael Kruger, the owner and president of Western Cablesystems, Inc.
("Western Cablesystems"), has since 1979 appraised hundreds of cable
television systems for a variety of clients including major multiple system
cable operators, independent operators and clients outside the cable
television industry, according to information provided by Western
Cablesystems. In addition to appraising cable television systems, Western
Cablesystems presently operates several small cable television systems and it
is currently active in the cable television system acquisition marketplace.
Western Cablesystems was selected by the General Partner to render an opinion
as to the fair market value of the Albuquerque System in light of such overall
qualifications. No limitations were imposed with respect to the appraisal to
be rendered by Western Cablesystems. The firm was selected by the General
Partner to prepare an independent appraisal of the Albuquerque System because
of the
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General Partner's familiarity with the firm and Western Cablesystems'
knowledge of the cable television industry. Western Cablesystems has prepared
independent appraisals of other cable television systems owned and/or managed
by the General Partner. Western Cablesystems has informed the General Partner
that it owns 500 shares of the General Partner's common stock purchased
approximately 15 years ago. The General Partner believes that Western
Cablesystems' equity holdings in the General Partner are not material and do
not compromise Western Cablesystems' status as an independent appraiser of the
Albuquerque System's value. The principals of Western Cablesystems are not
affiliated in any way with the General Partner.
Western Cablesystems used two appraisal methodologies in determining the
fair market value of the Albuquerque System. Western Cablesystems first
examined the market value of the Albuquerque System as determined by
comparable transactions in the cable television system marketplace. Western
Cablesystems' appraisal report states that transaction values are typically
reported on the basis of either a value-per-subscriber or an operating income
multiple. Western Cablesystems considered both but placed more reliance in its
determination of the fair market value of the Albuquerque System on the
operating income multiples of comparable sales. Western Cablesystems also used
what it termed the "income" approach to value the Albuquerque System. This
methodology involved the determination of the discounted present value of free
cash flow generated over ten years, plus an allowance for the terminal value
of the Albuquerque System after ten years.
Western Cablesystems looked at the Albuquerque System's future growth in the
number of homes passed and the number of subscribers (determining that the
Albuquerque System will have average growth rates in the long run), the
system's demographics (determining that the system's demographics are somewhat
below average due to the system's relatively fewer higher-income residents),
the competitive situation (determining that the Albuquerque System may face
slightly more than normal competition, particularly from DBS, given that the
off-air reception in the Albuquerque area is good and the system's channel
lineup is somewhat weak), the system's channel capacity and quality
(concluding that the Albuquerque System is below average in capacity and
quality and that there will be a need for a rebuild and upgrade of the system
prior to franchise renewal negotiations), the system's general operations
(concluding that the system is normal with respect to matters such as staff
and franchise issues), the system's potential for new revenues (concluding
that the Albuquerque System has average potential for new revenue sources) and
the system's marketability (concluding that although the system is of an
attractive size it is relatively isolated and would therefore have average
marketability compared to systems of similar size). Western Cablesystems
concluded that overall the Albuquerque System would be at or slightly below
market norms compared to comparably sized systems. The appraisal report does
not specifically disclose how the Albuquerque System's future growth
prospects, demographics, competitive situation, marketability and channel
capacity and quality were determined to be average, above average or below
average. The General Partner did not inquire about how Western Cablesystems
made its determinations because the General Partner concluded that, given
Western Cablesystems' expertise, it could rely upon Western Cablesystems'
analyses and judgment in making such determinations.
Western Cablesystems then examined several reasonably similar transactions
involving the sale of cable television systems. These transactions involved
the sales of cable television systems at cash flow multiples ranging from a
low of 9 times cash flow to a high of 10 times cash flow. These transactions
had value-per-subscriber rates ranging from a low of $1,471 to a high of
$2,108. Western Cablesystems examined the sale of the 290,000 subscriber
Minneapolis, Minnesota cable television system by one unaffiliated cable
television system operator to another for a price equal to $2,069 per
subscriber and a 10 times cash flow multiple. Western Cablesystems noted that
the Minneapolis system has a 51 percent penetration but is in a better market
than the Albuquerque System with more growth potential. Western Cablesystems
then examined the sale of a cable television system in the Buffalo, New York
and Erie, Pennsylvania area. This 166,000 subscriber system with a 60 percent
penetration was sold for a price equal to $2,108 per subscriber and a 10 times
cash flow multiple. Western Cablesystems also looked at the sale of the 53,000
subscriber Bangor, Maine cable system, which has a 62 percent penetration, for
a 9 times operating income multiple and a price equal to $1,471 per
subscriber. Western Cablesystems also examined the trade of the Myrtle Beach
and Hampton, Virginia cable television systems, each of which serve
approximately 45,000 subscribers, and were traded by unaffiliated cable
television system operators. These systems were valued at 9.5 times cash flow
and at a price equal to $1,600 per subscriber.
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Western Cablesystems also looked at the Hickory, North Carolina system, which
was sold by one unaffiliated cable television system operator to another for
9.7 times cash flow and at a price equal to $1,946 per subscriber. Western
Cablesystems also examined a sale transaction in Michigan between two
unrelated parties involving a cable system serving approximately 40,000
customers, which sold for a sales price equivalent to $1,875 per subscriber.
Given all of this data, Western Cablesystems concluded that the Albuquerque
System should command an average multiple of 10 times cash flow which would
give the system a value of $222,360,000. At this price, the value per
subscriber for the Albuquerque System would be $1,909, within the range of
reported comparable transaction prices.
For purposes of its income approach analysis, Western Cablesystems projected
the Albuquerque System's ten year free cash flow by making its own assumptions
about growth in basic and pay revenues, other revenue items, salaries, labor
costs, taxes and other expenses including programming costs, pole rent, office
costs, marketing costs and advertising sales costs. The annual free cash flow
was then discounted using an average cost of capital which Western
Cablesystems determined was 12.7 percent. Western Cablesystems then added a
discounted terminal value which was calculated at 6 times the tenth year's
cash flow. Using this income approach, Western Cablesystems estimated the
potential value of the Albuquerque System at $205,791,000.
The range of values as calculated by the two different approaches taken by
Western Cablesystems is $205,791,000 to $222,360,000. The values are
reasonably consistent and Western Cablesystems placed reliance on each
valuation. Western Cablesystems concluded that the discounted cash flow
approach may better reflect the growth prospects for the Albuquerque System
which, in Western Cablesystems' opinion, are somewhat below some of the
comparable transactions examined. Western Cablesystems noted that the
discounted cash flow analysis also explicitly considers the rebuild costs,
which it deemed to be an important factor in valuation. Western Cablesystems
concluded that a midpoint of the two valuations was appropriate and thus
concluded that the appraised value of the Albuquerque System at April 30, 1997
was $214,100,000. Western Cablesystems' appraisal is based on system financial
and operating data provided to Western Cablesystems by the General Partner.
The appraiser also visited the Albuquerque System in June 1997 for the purpose
of inspecting the general market and system data.
As compensation for rendering an opinion as to the fair market value of the
Albuquerque System, the General Partner paid Western Cablesystems a fee of
$7,500. Such fee was not contingent upon the conclusion reached by Western
Cablesystems in its opinion. As compensation for rendering opinions as to the
fair market value of other cable television systems owned and/or managed by
the General Partner and its affiliates and for other services provided,
Western Cablesystems has received fees and expense reimbursements totaling
$65,724 during the two years prior to the date hereof.
COSTS OF THE TRANSACTION
The following is a reasonably itemized estimate of all expenses incurred or
to be incurred in connection with the proposed sale of the Albuquerque System,
all of which will be paid by the General Partner, including without limitation
the cost of soliciting the votes of the holders of limited partnership
interests:
<TABLE>
<S> <C>
Filing fees $ 4,013
Legal fees $10,000
Accounting fees $10,000
Appraisal fees $26,789
Printing costs $30,000
Postage and miscellaneous costs $ 5,000
</TABLE>
PROPOSED SALE OF ASSETS
THE PURCHASE AND SALE AGREEMENT
Pursuant to the terms and conditions of a purchase and sale agreement dated
as of July 28, 1997 (the "Purchase and Sale Agreement") by and between the
Venture as seller and the General Partner as purchaser,
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the Venture agreed to sell the Albuquerque System to the General Partner or to
a subsidiary of the General Partner. The General Partner has assigned its
rights and obligations as purchaser to Jones Communications of New Mexico,
Inc., an indirect wholly owned subsidiary. The purchaser intends to finance
the acquisition of the Albuquerque System using cash on hand and borrowings
available under credit facilities dated as of October 29, 1996 among Jones
Cable Holdings II, Inc., as the borrower, and several lenders, including The
Bank of Nova Scotia, NationsBank of Texas, N.A. and Societe Generale as the
managing agents. The maximum amount available under the credit facilities is
$600 million. One $300 million facility reduces quarterly beginning March 31,
2000 through the final maturity date and the lenders' commitment under the
other $300 million facility terminates on October 27, 1998. Interest on
amounts outstanding under the credit facilities varies from the "base rate,"
which generally approximates the prime rate, to the base rate plus 1/4 percent
or LIBOR plus 1/2 percent to 1 1/4 percent depending on certain financial
covenants. The effective interest rate on the $128,000,000 outstanding at
December 31, 1997 was 6.19 percent. The credit facilities are secured by a
pledge of the stock of all of the subsidiaries of the borrower. Jones
Communications of New Mexico, Inc. is a wholly owned subsidiary of Jones Cable
Holdings II, Inc., which in turn is a wholly owned subsidiary of the General
Partner.
Based upon amounts estimated as of December 31, 1997, the aggregate cost of
the acquisition of the Albuquerque System to the purchaser, including working
capital adjustments, will be approximately $225,683,739. Amounts borrowed by
the purchaser to acquire the Albuquerque System will be repaid from cash
generated by the operations of the Albuquerque System and other systems owned
by Jones Cable Holdings II, Inc. and from other sources of funds, including
possible future refinancings.
The closing of the sale will occur on a date upon which the Venture and the
purchaser mutually agree. It is anticipated that the closing will occur within
a few weeks after receipt of the approval of the sale by the limited partners
of the Venture's three constituent partnerships. Because the closing is
conditioned upon, among other things, the approval of the limited partners of
the Venture's three constituent partnerships and the consent of governmental
franchising authorities and other third parties, there can be no assurance
that the proposed sale will occur. If all conditions precedent to the
purchaser's obligation to close are not eventually satisfied or waived, the
purchaser's obligation to purchase the Albuquerque System will terminate.
THE ALBUQUERQUE SYSTEM
The assets to be acquired consist primarily of the real and personal,
tangible and intangible assets of the Venture's Albuquerque System. The
purchaser will purchase all of the tangible assets of the Albuquerque System,
including, among other things, the headend equipment, underground and
aboveground cable distribution systems, towers, earth satellite receive
stations, and furniture and fixtures of the Albuquerque System. The purchaser
also will acquire certain of the intangible assets of the Albuquerque System,
including, among other things, all of the franchises, leases, agreements,
permits, licenses and other contracts and contract rights of the Albuquerque
System. Also included in the sale are any parcels of real estate owned by the
Albuquerque System, the subscriber accounts receivable of the Albuquerque
System and all of the Albuquerque System's engineering records, files,
schematics, maps, reports, promotional graphics, marketing materials and
reports filed with federal, state and local regulatory agencies. Certain of
the Albuquerque System's assets will be retained by the Venture, including
cash or cash equivalents on hand and in banks, certain insurance policies and
rights and claims thereunder, and any federal or state income tax refunds to
which the Venture may be entitled.
SALES PRICE
Subject to the customary working capital closing adjustments described
below, the sales price for the Albuquerque System is $222,963,267. The sales
price will be reduced by any accounts payable and accrued expenses and vehicle
lease obligations existing on the closing date. The sales price will be
increased by any accounts receivable existing on the closing date. The sales
price for the Albuquerque System also will be adjusted as of the closing date
with respect to all items of income and expense associated with the operation
of the Albuquerque System. This adjustment will reflect, in accordance with
generally accepted accounting principles, that all expenses and income
attributable to the period on or after the closing date are for the account of
the purchaser and those prior to the closing date are for the account of the
seller. While these adjustments may have
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the effect of increasing or decreasing the sales price, any adjustment is not
expected to be material. Please see Note 4 of the Notes to Unaudited Pro Forma
Financial Statements for a detailed accounting of the estimated closing
adjustments.
CONDITIONS TO CLOSING
The purchaser's obligations under the Purchase and Sale Agreement are
subject to the following conditions: (a) the Venture shall have obtained all
material consents and approvals from governmental authorities and third
parties with whom the Venture has contracted that are necessary for the
transfer of the Albuquerque System, (b) all representations and warranties of
the Venture shall be true and correct in all material respects as of the
closing date and (c) termination or expiration of the statutory waiting period
applicable to the Purchase and Sale Agreement and the transactions
contemplated thereby under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"). All waiting periods under the HSR Act have
expired, thereby removing this as a condition to closing. The Venture still
must obtain the consent of the City of Albuquerque and other franchising
authorities to the transfer of the Albuquerque System's cable franchises. The
Venture and the General Partner have filed all documents required to obtain
the consents of the City of Albuquerque and other franchising authorities to
the transfer of the Albuquerque System's cable franchises. It is anticipated
that the Venture will not experience any significant difficulty in obtaining
the necessary consents and approvals to the currently proposed sale. If,
however, the Venture fails to obtain certain non-material consents and
approvals of third parties with whom the Albuquerque System has contracted,
the purchaser likely will waive this condition to closing. In such
circumstances, the purchaser would agree to indemnify the Venture for any
liabilities incurred in connection with a closing without prior receipt of all
necessary consents.
The Venture's obligations under the Purchase and Sale Agreement are subject
to the following conditions: (a) the receipt of the purchase price for the
Albuquerque System, (b) the limited partners of the Partnership, Fund 12-C and
Fund 12-D shall have approved the Venture's sale of the Albuquerque System and
(c) the statutory waiting periods applicable to the Purchase and Sale
Agreement and the transactions contemplated thereby under the HSR Act shall
have terminated or shall have expired.
FEDERAL INCOME TAX CONSEQUENCES
The purpose of the following discussion of the income tax consequences of
the proposed transaction is to inform the limited partners of the Partnership
of the federal income tax consequences to the Partnership and to its partners
arising from the sale of the Albuquerque System. The tax information included
herein was prepared by the tax department of the General Partner. The tax
information is taken from tax data compiled by the General Partner in its role
as the Partnership's tax administrator and is not based upon the advice or
formal opinion of counsel. The tax discussion that follows is merely intended
to inform the limited partners of factual information and should not be
considered tax advice.
By the expected date of the Albuquerque System's sale, most of the limited
partners will have received certain tax benefits from their investment in the
Partnership. Assuming maximum federal income tax rates and no other sources of
passive income, original limited partners of the Partnership will have
received $7,328,310 in tax benefits from Partnership losses ($132 per $1,000
invested).
The sale of the Albuquerque System will result in a gain for federal income
tax purposes. The amount of this gain allocated to limited partners is
approximately $12,826,023. The General Partner estimates that $10,598,848
($191 per $1,000 invested) of this gain will be treated as ordinary income.
This amount of ordinary income results from the recapture of depreciation on
personal property under Section 1245. The General Partner estimates that the
remainder of the gain, $2,227,175 ($40 per $1,000 invested), will be treated
as long term capital gain under Section 1231. No significant passive loss
carryforwards from the Partnership should be available to offset these gain
allocations.
Assuming the 31 percent rate applies to ordinary income and the 20 percent
rate applies to long term capital gain income, as a result of the sale of the
Albuquerque System, a limited partner will be subject to federal income taxes
of $67 per $1,000 invested in the Partnership. The taxable income will be
recognized in the year of the closing of the sale, which is expected to be
1998.
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Limited partners that have acquired their partnership interests recently in
the limited partnership secondary market will have allocable income from the
sale of the Albuquerque System in the amounts reported herein. Because the
Partnership does not have an IRC Section 754 election in effect, the purchase
of limited partnership interests in the Partnership places the new limited
partner in the same position as the person from whom he purchased his limited
partnership interests except for passive loss carryforwards and tax basis in
the limited partnership interests. Recent investors will not have their net
tax basis in the partnership interests reflected on their annual Schedule K-
1s. These limited partners must track their tax basis by adjusting their
original costs by allocable income or loss and partnership distributions.
Their adjusted tax basis will be pertinent in the year when they sell their
limited partnership interests or when the Partnership is liquidated.
Limited partners who are non-resident aliens or foreign corporations
("foreign persons") are subject to a withholding tax on their share of the
Partnership's income from the sale of the Albuquerque System. The withholding
rates are 39.6 percent for individual partners and 35 percent for corporate
partners. The tax withheld will be remitted to the Internal Revenue Service
and the foreign person will receive a credit on their U.S. tax return for the
amount of the tax withheld by the Partnership. The tax withheld will be
treated as a distribution to the limited partner.
CERTAIN INFORMATION ABOUT THE PARTNERSHIP
AND THE GENERAL PARTNER
The General Partner acquires, develops and operates cable television systems
for itself and for its managed limited partnerships. Based on the number of
basic subscribers served by the General Partner's owned and managed cable
television systems, the General Partner is one of the ten largest cable
television system operators in the United States serving approximately 1.4
million basic subscribers. The principal executive offices of the Partnership
and the General Partner are located at 9697 East Mineral Avenue, Englewood,
Colorado 80112, and their telephone number is (303) 792-3111.
The limited partnership interests of the Partnership are registered pursuant
to Section 12(g) of the Exchange Act. As such, the Partnership currently is
subject to the informational reporting requirements of the Exchange Act and,
in accordance therewith, is obligated to file periodic reports, proxy
statements and other information with the Commission relating to its business,
financial condition and other matters. Reports and other information filed by
the Partnership can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the following regional offices of the Commission: 7 World
Trade Center, Suite 1300, New York, New York 10048 and Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The
Commission also maintains a World Wide Web site that contains reports, proxy
statements and information statements of registrants (including the
Partnership) that file electronically with the Commission at
http://www.sec.gov. The Partnership will continue in existence and will
continue to be subject to the informational reporting requirements of the
Exchange Act after the sale of the Albuquerque System. The Partnership's
registration and reporting requirements under the Exchange Act will not be
terminated until the dissolution of the Partnership after the sale of the
Venture's Palmdale System.
The General Partner also is subject to the informational filing requirements
of the Exchange Act and, in accordance therewith, files periodic reports,
proxy statements and other financial information with the Securities and
Exchange Commission relating to its business, financial condition and other
matters. Information, as of particular dates, concerning the General Partner's
directors and officers, their compensation, options granted to them, the
principal holders of the General Partner's securities and any material
interest of such persons in transactions with the General Partner is required
to be disclosed in certain documents filed with the Commission. Such reports,
proxy statements and other information may be inspected at the above-listed
public reference facilities maintained by the Commission and at the
Commission's World Wide Web site. Copies of such materials may be obtained
upon payment of the Commission's prescribed charges by writing to the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C.
20549.
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The name, business address and principal occupation and employment for the
past five years of each of the directors and executive officers of the General
Partner are set forth in Schedule 1 to this Proxy Statement. To the best
knowledge of any of the persons listed on Schedule 1 hereto, except as
disclosed on such schedule, no persons listed on such schedule beneficially
own any limited partnership interests in the Partnership.
Except as disclosed herein, neither the General Partner nor, to the best of
its knowledge, any of the persons listed on Schedule 1 hereto, has any
contract, arrangement, understanding or relationship with any other person
with respect to any limited partnership interest of the Partnership,
including, but not limited to, any contract, arrangement, understanding or
relationship concerning the transfer or the voting of any of such interests,
joint ventures, loan or option arrangements, puts or calls, guaranties of
loans, guaranties against loss or the giving or withholding of proxies.
CERTAIN RELATED PARTY TRANSACTIONS
The General Partner and its affiliates engage in certain transactions with
the Venture. The General Partner believes that the terms of such transactions
are generally as favorable as could be obtained by the Venture from
unaffiliated parties. This determination has been made by the General Partner
in good faith, but none of the terms were or will be negotiated at arm's-
length and there can be no assurance that the terms of such transactions have
been or will be as favorable as those that could have been obtained by the
Venture from unaffiliated parties.
The purchase price for the Albuquerque System was determined in accordance
with the provisions of the Partnership Agreement but the proposed sale of the
Albuquerque System by the Venture to the General Partner or to one of the
General Partner's subsidiaries was not negotiated at arm's-length and thus
there can be no assurance that the terms of such transaction have been or will
be as favorable as those that could have been obtained by the Venture from an
unaffiliated purchaser.
The General Partner charges the Venture a management fee relating to the
General Partner's management of the Venture's cable television systems, and
the Venture reimburses the General Partner for certain allocated overhead and
administrative expenses in accordance with the terms of the Partnership
Agreement. These expenses consist primarily of salaries and benefits paid to
corporate personnel, rent, data processing services and other facilities
costs. Such personnel provide engineering, marketing, administrative,
accounting, legal and investor relations services to the Venture. Allocations
of personnel costs are based primarily on actual time spent by employees of
the General Partner with respect to cable television systems managed. Systems
owned by the General Partner and its subsidiaries and all other systems owned
by partnerships for which Jones Intercable, Inc. or one of its subsidiaries is
the general partner are also allocated a proportionate share of these
expenses. No duplicate management or other fees or reimbursements are charged
to the Partnership.
The General Partner from time to time also advances funds to the Venture and
charges interest on the balances payable by the Venture. The interest rate
charged the Venture approximates the General Partner's weighted average cost
of borrowing.
Knowledge TV, Inc. is an affiliate of the General Partner that owns and
operates Knowledge TV, a network that provides programming related to
computers and technology; business, careers and finance; health and wellness;
and global culture and languages. Knowledge TV, Inc. sells its programming to
the cable television systems owned by the Venture.
Jones Computer Network, Ltd., an affiliate of the General Partner, operated
the television network Jones Computer Network. This network provided
programming focused primarily on computers and technology. Jones Computer
Network sold its programming to the cable television systems owned by the
Venture. Jones Computer Network terminated its programming in April 1997.
The Great American Country network provides country music video programming
to the cable television systems owned by the Venture. This network is owned
and operated by Great American Country, Inc., a subsidiary of Jones
International Networks, Ltd., an affiliate of the General Partner.
28
<PAGE>
Jones Galactic Radio, Inc. is a company owned by Jones International
Networks, Ltd., an affiliate of the General Partner, Superaudio, a joint
venture between Jones Galactic Radio, Inc. and an unaffiliated entity,
provides satellite programming to the cable television systems owned by the
Venture.
The Product Information Network Venture (the "PIN Venture") is a venture
among a subsidiary of Jones International Networks, Ltd., an affiliate of the
General Partner, and two unaffiliated cable system operators. The PIN Venture
operates the Product Information Network ("PIN"), which is a 24-hour network
that airs long-form advertising generally known as "infomercials." The PIN
Venture generally makes incentive payments of approximately 60 percent of its
net advertising revenue to the cable systems that carry its programming. The
Venture's systems carry PIN for all or part of each day. Revenues received by
the Venture from the PIN Venture relating to the Venture's owned cable
television systems totaled $199,997 for the year ended December 31, 1997.
The charges to the Venture for related party transactions were as follows
for the periods indicated:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Management fees.......................... $4,133,751 $4,118,188 $5,069,985
Allocation of expenses................... 4,615,841 5,491,265 7,183,663
Interest expense......................... 0 0 220,743
Amount of notes and advances outstanding. 0 0 4,198,739
Highest amount of notes and advances
outstanding............................. 0 0 4,574,572
Programming fees:
Knowledge TV, Inc. .................... 131,277 126,665 145,598
Jones Computer Network, Ltd. .......... 85,543 248,044 283,339
Great American Country................. 131,863 141,753 0
Superaudio............................. 118,032 116,710 135,861
</TABLE>
29
<PAGE>
USE OF PROCEEDS FROM ALBUQUERQUE SYSTEM SALE
The following is a brief summary of the Venture's estimated use of proceeds
and of the Partnership's estimated use of its portion of the proceeds from the
Venture's sale of the Albuquerque System. All of the following selected
financial information is based upon amounts as of December 31, 1997 and
certain estimates of liabilities at closing. Final results may differ from
these estimates. A more detailed discussion of the financial consequences of
the sale of the Albuquerque System is set forth below under the caption
"Unaudited Pro Forma Financial Information." All limited partners are
encouraged to review carefully the unaudited pro forma financial statements
and notes thereto.
If the holders of a majority of limited partnership interests of the three
partnerships that comprise the Venture approve the proposed sale of the
Albuquerque System and the transaction is closed, the Venture will repay its
outstanding Senior Notes balance of $41,544,890 plus a make whole premium
that, based on current market interest rates, is estimated to total $2,016,985
and, subject to an amendment to the Venture's credit facility to permit a
portion of the sale proceeds to be distributed to the three constituent
partnerships of the Venture, the Venture will repay an estimated $57,000,000
of the then outstanding balance of its credit facility, including accrued
interest, leaving approximately $45,000,000 of debt outstanding under the
amended credit facility secured by the Palmdale System, and then the
$125,000,000 net sale proceeds will be distributed to the three constituent
partnerships of the Venture in proportion to their ownership interests in the
Venture. Because the make whole premium will be calculated as of the closing
date using the then-current market interest rates, the exact amount of the
make whole premium cannot be determined precisely until the closing date. The
closing adjustments will not affect the amount of the net sale proceeds
distributed to the partnerships. The Partnership will receive 9 percent of the
net sale proceeds, estimated to total approximately $11,474,475, and the
Partnership will distribute this portion of the net sale proceeds to its
partners of record as of the closing date of the sale of the Albuquerque
System and pursuant to the terms of the Partnership Agreement. The estimated
uses of the sale proceeds are as follows:
<TABLE>
<S> <C>
Contract Sales Price of the Albuquerque System................. $222,963,267
Add: Cash on Hand.............................................. 552,676
Estimated Net Closing Adjustments......................... 2,720,472
Less:Repayment of Debt Plus Accrued Interest................... (99,219,430)
Make Whole Premium........................................ (2,016,985)
------------
Cash Available for Distribution to Joint Venturers........ 125,000,000
Cash Distributed to Fund 12-C and Fund 12-D............... 113,525,525
------------
Cash Available for Distribution by the Partnership........ $ 11,474,475
============
Limited Partners' Share (75%)............................. $ 8,605,856
============
General Partner's Share (25%)............................. $ 2,868,619
============
</TABLE>
Based upon financial information available at December 31, 1997, below is an
estimate of all cash distributions that will have been made to limited
partners after the distribution of the proceeds from the sale of the
Albuquerque System is completed.
30
<PAGE>
<TABLE>
<S> <C>
Summary of Estimated Cash Distributions to Limited Partners:
Return of Limited Partners' Initial Capital on the 1995 Sale
of the Partnership's Augusta System......................... $ 55,517,500
Limited Partners' Share of Residual Proceeds on the 1995 Sale
of the Partnership's Augusta System......................... 40,561,875
Limited Partners' Share of Residual Proceeds on the 1996 Sale
of the Venture's Tampa System............................... 3,787,000
Limited Partners' Share of Residual Proceeds on the 1998 Sale
of the Venture's Albuquerque System......................... 8,605,856
------------
Total Estimated Cash Received by Limited Partners............ $108,472,231
============
Total Cash Received per $1,000 of Limited Partnership
Capital..................................................... $ 1,954
============
Total Cash Received per $500 Limited Partnership Interest ... $ 977
============
</TABLE>
The estimated after-tax internal rate of return on an investment in the
Partnership is approximately 5.65 percent. This internal rate of return
includes the distribution to be made on the sale of the Albuquerque System and
the prior distribution of the net proceeds from the sale of the Venture's
Tampa System and the prior distributions of the net proceeds from the sale of
the Partnership's Augusta System.
Based on financial information available at December 31, 1997, the following
table presents the estimated results of the Partnership when the Venture has
completed the sale of the Albuquerque System:
<TABLE>
<S> <C>
Dollar Amount Raised....................................... $ 55,517,500
Number of Cable Television Systems Purchased Directly...... One
Number of Cable Television Systems Purchased Indirectly.... Five
Date of Closing of Offering................................ September 1985
Date of First Sale of Properties........................... August 1987
Tax and Distribution Data per $1,000 of Limited Partnership
Capital:
Federal Income Tax Results
Ordinary Income (Loss)
--from operations...................................... $ (1,091)
--from recapture....................................... $ 1,963
Capital Gain (Loss).................................... $ 147
Cash Distributions to Investors
Source (on GAAP basis)
--investment income.................................... $ 954
--return of capital.................................... $ 1,000
Source (on cash basis)
--sales................................................ $ 1,954
</TABLE>
31
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF CABLE TV FUND 12-B, LTD.
The following unaudited pro forma financial statements assume that as of
December 31, 1997, the Venture had sold the Albuquerque System for
$222,963,267. The funds available to the Venture, adjusting for the estimated
net closing adjustments of the Albuquerque System, are expected to total
approximately $225,683,739. Such funds plus cash on hand will be used to repay
indebtedness and to distribute $125,000,000 to the three constituent
partnerships of the Venture pursuant to the percentage ownership interests in
the Venture of each partnership and then each partnership will distribute its
share of the distribution pursuant to the terms of their partnership
agreements. The Partnership will receive $11,474,475 from such distribution.
Pursuant to the terms of the Partnership Agreement, the $11,474,475
distribution will be allocated 75 percent to the limited partners ($8,605,856)
and 25 percent to the General Partner ($2,868,619). The limited partner
distribution of $8,605,856 represents $78 per each $500 limited partnership
interest or $156 for each $1,000 invested in the Partnership.
The unaudited pro forma financial statements should be read in conjunction
with the appropriate notes to the unaudited pro forma financial statements.
ALL OF THE FOLLOWING UNAUDITED PRO FORMA FINANCIAL INFORMATION IS BASED UPON
AMOUNTS AS OF DECEMBER 31, 1997 AND CERTAIN ESTIMATES OF LIABILITIES AT
CLOSING. FINAL RESULTS MAY DIFFER FROM SUCH INFORMATION.
32
<PAGE>
CABLE TV FUND 12-B, LTD.
UNAUDITED PRO FORMA BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............... $ 55,348 $ -- $ 55,348
Distribution receivable from cable
television joint venture............... -- 11,474,475 11,474,475
----------- ----------- -----------
Total Assets........................ $ 55,348 $11,474,475 $11,529,823
=========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
(DEFICIT)
Liabilities:
Loss in excess of investment in cable
television joint venture............. $ 2,592,136 $(1,981,099) $ 611,037
Accrued distribution to Limited
Partners............................. -- 8,605,856 8,605,856
Accrued distribution to General
Partner.............................. -- 2,868,619 2,868,619
----------- ----------- -----------
Total Liabilities................... 2,592,136 9,493,376 12,085,512
----------- ----------- -----------
Partners' Capital (Deficit):
General Partner....................... (193,733) (2,734,063) (2,927,796)
Limited Partners...................... (2,343,055) 4,715,162 2,372,107
----------- ----------- -----------
Total Partners' Capital (Deficit)... (2,536,788) 1,981,099 (555,689)
----------- ----------- -----------
Total Liabilities and Partners'
Capital (Deficit).................... $ 55,348 $11,474,475 $11,529,823
=========== =========== ===========
</TABLE>
The accompanying notes to unaudited pro forma financial statements are
an integral part of this unaudited balance sheet.
33
<PAGE>
CABLE TV FUND 12-B, LTD.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
----------- ----------- ---------
<S> <C> <C> <C>
EQUITY IN NET INCOME (LOSS) OF CABLE
TELEVISION
JOINT VENTURE............................... $(440,479) $489,025 $48,546
--------- -------- -------
NET INCOME (LOSS) ........................... $(440,479) $489,025 $48,546
========= ======== =======
NET INCOME (LOSS) PER LIMITED PARTNERSHIP
INTEREST.................................... $ (3.93) $ .43
========= =======
</TABLE>
The accompanying notes to unaudited pro forma financial statements are an
integral part of this unaudited statement.
34
<PAGE>
CABLE TV FUND 12-B, LTD.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1) The Partnership has a 9 percent ownership interest in the Venture through
capital contributions made during 1986 of $12,437,500. The following
calculations present the sale of the Albuquerque System and the resulting
estimated distributions to be received by the Partnership.
2) The unaudited pro forma balance sheet of the Partnership assumes that the
Venture had sold the Albuquerque System for $222,963,267 as of December 31,
1997. The unaudited statements of operations of the Partnership assumes that
the Venture had sold the Albuquerque System as of January 1, 1997.
3) The Partnership will receive $11,474,475 from the Venture. Pursuant to
the terms of the Partnership Agreement, the $11,474,475 distribution will be
allocated 75 percent to the limited partners ($8,605,856) and 25 percent to
the General Partner ($2,868,619). The limited partner distribution of
$8,605,856 represents $78 per each $500 limited partnership interest or $156
for each $1,000 invested in the Partnership.
4) The estimated gain recognized from the sale of the Albuquerque System and
corresponding estimated distribution to limited partners as of December 31,
1997 has been computed as follows:
GAIN ON SALE OF ASSETS:
<TABLE>
<S> <C>
Contract sales price............................................. $222,963,267
Less: Net book value of investment in cable television properties
at December 31, 1997....................................... (74,371,396)
Make whole premium......................................... (2,016,985)
------------
Gain on sale of assets........................................... $146,574,886
============
Partnership's share of gain on sale of assets.................... $ 13,455,574
============
DISTRIBUTIONS TO PARTNERS:
Contract sales price............................................. $222,963,267
Add: Trade receivables, net..................................... 2,653,036
Prepaid expenses........................................... 2,654,486
Less: Accrued liabilities........................................ (2,350,078)
Subscriber prepayments..................................... (236,972)
------------
Adjusted cash received .......................................... 225,683,739
Less: Outstanding debt plus accrued interest to third parties.... (99,219,430)
Make whole premium......................................... (2,016,985)
Add: Cash on hand.............................................. 552,676
------------
Cash available for distribution to joint venturers............... 125,000,000
Cash distributed to Fund 12-C and Fund 12-D...................... 113,525,525
------------
Cash available for distribution by the Partnership............... $ 11,474,475
============
Limited Partners' share (75%).................................... $ 8,605,856
============
General Partner's share (25%).................................... $ 2,868,619
============
</TABLE>
35
<PAGE>
AVAILABLE INFORMATION
The Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 is being mailed to the limited partners of the Partnership
together with this Proxy Statement. Copies of the three independent appraisals
of the fair market value of the Albuquerque System and copies of the Purchase
and Sale Agreement between the Venture and the General Partner have been
publicly filed with the Securities and Exchange Commission and may be
inspected at the Commission's public reference facilities and at its World
Wide Web site, and such documents also are available to each limited partner
of the Partnership upon written request to Elizabeth M. Steele, Secretary,
Jones Intercable, Inc., 9697 East Mineral Avenue, Englewood, Colorado 80112,
(303) 792-3111. Copies of these documents will be provided at the expense of
the requesting limited partner.
A Rule 13e-3 Transaction Statement furnishing certain additional information
with respect to the transaction described herein has been jointly filed by the
Partnership and the General Partner with the Securities and Exchange
Commission. This document may be inspected at the Commission's public
reference facilities and at its World Wide Web site.
INCORPORATION BY REFERENCE
The Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 is incorporated by reference in its entirety in this Proxy
Statement.
36
<PAGE>
SCHEDULE 1
EXECUTIVE OFFICERS AND DIRECTORS OF THE GENERAL PARTNER
Set forth below is the name, residence or business address, present
principal occupation or employment and five-year employment history of the
executive officers and directors of the General Partner. Also set forth is the
aggregate number of limited partnership interests of the Partnership
beneficially owned by each such person. The present principal occupation of
each executive officer of the General Partner is as an executive officer of
the General Partner. The Partnership has no officers or employees. All persons
listed except for Messrs. Fridman, Kearney and Vanaselja are citizens of the
United States. Messrs. Fridman, Kearney and Vanaselja are citizens of Canada.
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Glenn R. Jones Mr. Jones has served as Chairman of the Board of 0
c/o Jones Intercable, Directors and Chief Executive Officer of the
Inc. 9697 E. Mineral General Partner since its formation in 1970. He
Avenue Englewood, CO served as President of the General Partner from
80112 1984 to 1988. Mr. Jones has been involved in
the cable television business in various
capacities since 1961.
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.
Robert E. Cole Mr. Cole was appointed a Director of the General 0
c/o Jones Intercable, Partner in March 1996. Mr. Cole is currently
Inc. self-employed as a partner of First Variable
9697 E. Mineral Avenue Insurance Marketing and is responsible for
Englewood, CO 80112 marketing to National Association of Securities
Dealers, Inc. firms in northern California,
Oregon, Washington and Alaska. From 1993 to
1995, Mr. Cole was the director of marketing
for Lamar Life Insurance Company; from 1992 to
1993, Mr. Cole was senior vice president of PMI
Inc., a third party lender serving the special
needs of corporate owned life insurance (COLI);
and from 1988 to 1992, Mr. Cole was the
principal of a specialty investment banking
firm that provided services to finance the
ownership and growth of emerging companies,
productive assets and real property.
Kevin P. Coyle Mr. Coyle, Group Vice President/Finance of the 0
c/o Jones Intercable, General Partner, has been the General Partner's
Inc. 9697 E. Mineral Chief Financial Officer since 1990. Mr. Coyle
Avenue Englewood, CO has been an associate of the finance department
80112 of the General Partner since 1981.
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
William E. Frenzel Mr. Frenzel was appointed a Director of the 0
1775 Massachusetts General Partner in April 1995. He has been a
Avenue, NW Guest Scholar since 1991 with the Brookings
Washington, DC 20036 Institution, a research organization located in
Washington, DC. Until his retirement in January
1991, Mr. Frenzel served for twenty years in
the United States House of Representatives.
Josef J. Fridman Mr. Fridman was appointed a director of the 0
c/o BCI Telecom Holding Inc. General Partner in February 1998. He is senior
1000 rue de la vice-president, law and corporate secretary of
Gauchetiere Bureau 1100 BCE Inc. Mr. Fridman joined Bell Canada, a
Montreal (PQ) wholly owned subsidiary of BCE Inc., in 1969,
Canada H3B 4Y8 and he has held increasingly senior positions
with Bell Canada and BCE Inc. since such time.
He has held his current position since 1991.
Donald L. Jacobs Mr. Jacobs was appointed a Director of the 0
60435 Tekampe Road General Partner in April 1995. Mr. Jacobs is a
Bend, OR 97702 retired executive officer of TRW. Prior to his
retirement in 1992, he was Vice President and
Deputy Manager of the Space and Defense Sector;
prior to that appointment, he was the Vice
President and General Manager of the Defense
Systems Group; and prior to that appointment,
he was President of ESL, Inc., a subsidiary of
TRW.
Larry Kaschinske Mr. Kaschinske has been the Controller and Chief 0
c/o Jones Intercable, Accounting Officer of the General Partner since
Inc. 9697 E. Mineral 1994. Mr. Kaschinske has been an associate of
Avenue Englewood, CO the finance department of the General Partner
80112 since 1984.
Robert Kearney Mr. Kearney was appointed a Director of the 0
c/o BCI Telecom Holding General Partner in July 1997. Mr. Kearney is a
Inc. retired executive officer of Bell Canada. Prior
1000 rue de la to his retirement in December 1993, Mr. Kearney
Gauchetiere was the President and Chief Executive Officer
Bureau 1100 of Bell Canada. He served as Chairman of BCE
Montreal (PQ) Canadian Telecom Group in 1994 and as Deputy
Canada H3B 4Y8 Chairman of BCI Management Limited in 1995.
James J. Krejci Mr. Krejci has been a Director of the General 0
3100 Arapahoe Avenue Partner since 1987. Mr. Krejci is President and
Boulder, CO 80303 CEO of Imagelink Technologies, Inc., a
privately financed company with leading
technology in the desktop or personal computer
videoconferencing market. Prior to joining
Imagelink Technologies in July 1996, he was the
President of the International Division of
International Gaming Technology headquartered
in Reno, Nevada. Prior to joining International
Gaming Technology in May 1994, Mr. Krejci had
been a Group Vice President of the General
Partner since 1987.
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
James B. O'Brien Mr. O'Brien has been President and a Director of 0
c/o Jones Intercable, the General Partner since 1989 and a member of
Inc. the Executive Committee of the General
9697 E. Mineral Avenue Partner's Board of Directors since 1993.
Englewood, CO 80112 Mr. O'Brien has been with the General Partner
since 1982 in various operational management
positions.
Raphael M. Solot Mr. Solot was appointed a Director of the 0
501 South Cherry Street General Partner in March 1996. Mr. Solot is an
Denver, CO 80222 attorney in private practice. He has practiced
law for 34 years with an emphasis on franchise,
corporate and partnership law and complex
litigation.
Cheryl M. Sprague Ms. Sprague joined the General Partner as Group 0
c/o Jones Intercable, Vice President/Human Resources in November
Inc. 1997. Prior to November 1997 and since December
9697 E. Mineral Avenue 1995, Ms. Sprague served as Director, Human
Englewood, CO 80112 Resources for Westmoreland Coal Company. From
October 1993 to December 1995, Ms. Sprague
served as President of Peak Executive
Resources. From April 1992 to October 1993, Ms.
Sprague was Vice President, Human Resources for
Penrose-St. Francis Healthcare System.
Elizabeth M. Steele Ms. Steele joined the General Partner in 1987 as 0
c/o Jones Intercable, Vice President/General Counsel and Secretary.
Inc. Prior to that time, Ms. Steele was a partner at
9697 E. Mineral Avenue Davis, Graham & Stubbs, a Denver, Colorado law
Englewood, CO 80112 firm that serves as counsel to the General
Partner.
Howard O. Thrall Mr. Thrall was appointed a director of the 0
c/o Jones Intercable, General Partner in March 1996 and he had
Inc. previously served as a director of the General
9697 E. Mineral Avenue Partner from December 1988 to December 1994.
Englewood, CO 80112 Mr. Thrall is now a management and
international marketing consultant. From
September 1993 through July 1996, Mr. Thrall
served as Vice President of Sales, Asian
Region, for World Airways, Inc. From 1984 until
August 1993, Mr. Thrall was with the McDonnell
Douglas Corporation, where he was a Regional
Vice President, Commercial Marketing with the
Douglas Aircraft Company subsidiary.
Siim A. Vanaselja Mr. Vanaselja was appointed a Director of the 0
c/o BCI Telecom Holding General Partner in August 1996. Mr. Vanaselja
Inc. joined BCE Inc., Canada's largest
1000 rue de la telecommunications company, in February 1994
Gauchetiere and he has served in various capacities with
Bureau 1100 that company and its subsidiaries since that
Montreal (PQ) time. He currently serves as Executive Vice
Canada H3B 4Y8 President and Chief Financial Officer of Bell
Canada International Inc. and Vice President of
BCI Telecom Holding Inc., BCE Inc.
subsidiaries. Prior to joining BCE Inc., Mr.
Vanaselja was a partner in the Toronto office
of KPMG Peat Marwick Thorne.
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
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.
Sanford Zisman Mr. Zisman was appointed a Director of the 0
3773 Cherry Creek North Drive- General Partner in June 1996. Mr. Zisman is a
Denver, CO 80209 principal in the law firm Zisman & Ingraham,
P.C. of Denver, Colorado. He has practiced law
for 32 years, with an emphasis on tax, business
and estate planning and probate administration.
Robert L. Zoellick Mr. Zoellick was appointed a Director of the 0
3900 Wisconsin General Partner in April 1995. Mr. Zoellick is
Avenue, NW the John M. Olin Professor at the U.S. Naval
Washington, DC 20016 Academy for the 1997-1998 term. From 1993
through 1997, he was an Executive Vice
President at Fannie Mae, a federally chartered
and stockholder-owned corporation that is the
largest housing finance investor in the United
States. From August 1992 to January 1993, Mr.
Zoellick served as Deputy Chief of Staff of the
White House and Assistant to the President.
From May 1991 to August 1992, Mr. Zoellick
served concurrently as the Under Secretary of
State for Economic and Agricultural Affairs and
as Counselor of the Department of State, a post
he assumed in March 1989. From 1985 to 1988,
Mr. Zoellick served at the Department of
Treasury in a number of capacities, including
Counselor to the Secretary.
</TABLE>
S-4
<PAGE>
[LOGO OF JONES INTERCABLE APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE PARTNERSHIP BY THE GENERAL PARTNER
The undersigned Limited Partner of Cable TV Fund 12-B, Ltd., a Colorado
limited partnership, hereby votes on the sale of Cable TV Fund 12-BCD Venture's
Albuquerque, New Mexico cable television system to Jones Communications of New
Mexico, Inc., an indirect wholly owned subsidiary of Jones Intercable, Inc.,
for a sales price of $222,963,267 in cash, subject to normal closing
adjustments, pursuant to the terms and conditions of that certain Purchase and
Sale Agreement dated as of July 28, 1997, as follows:
[_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS
(YOU MUST SIGN ON THE REVERSE SIDE OF THIS PROXY CARD FOR YOUR VOTE TO COUNT.)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED LIMITED PARTNER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE PROPOSED SALE TRANSACTION.
PLEASE SIGN EXACTLY AS NAME
APPEARS ON LABEL.
DATED: ______________________, 1998
___________________________________
Beneficial Owner Signature
(Investor)
___________________________________
Authorized Trustee/Custodian
Signature
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE>
[LOGO OF JONES INTERCABLE APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE PARTNERSHIP BY THE GENERAL PARTNER
The undersigned Limited Partner of Cable TV Fund 12-B, Ltd., a Colorado
limited partnership, hereby votes on the sale of Cable TV Fund 12-BCD Venture's
Albuquerque, New Mexico cable television system to Jones Communications of New
Mexico, Inc., an indirect wholly owned subsidiary of Jones Intercable, Inc.,
for a sales price of $222,963,267 in cash, subject to normal closing
adjustments, pursuant to the terms and conditions of that certain Purchase and
Sale Agreement dated as of July 28, 1997, as follows:
[_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS
(YOU MUST SIGN ON THE REVERSE SIDE OF THIS PROXY CARD FOR YOUR VOTE TO COUNT.)
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THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED LIMITED PARTNER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE PROPOSED SALE TRANSACTION.
ALL OWNERS MUST SIGN EXACTLY AS
NAME(S) APPEAR ON LABEL.
When limited partnership
interests are held by more than
one person, all owners must sign.
When signing as attorney, as
executor, administrator, trustee
or guardian, please give full
title as such. If a corporation,
please sign in full corporation
name by authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
DATED: ______________________, 1998
___________________________________
Signature - Investor 1
___________________________________
Signature - Investor 2
___________________________________
Signature - Investor 3
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
