<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
RULE 13e-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the
Securities Exchange Act of 1934
and Rule 13e-3 thereunder)
Cable TV Fund 12-B, Ltd.
------------------------
(Name of the Issuer)
Jones Intercable, Inc. (File No. 0-8947)
and
Cable TV Fund 12-B, Ltd. (File No. 0-13807)
-------------------------------------------
(Name of Person(s) Filing Statement)
Limited Partnership Interests
-----------------------------
(Title of Class of Securities)
Elizabeth M. Steele, Esq.
Vice President and General Counsel
Jones Intercable, Inc.
9697 E. Mineral Avenue
Englewood, Colorado 80112
(303) 784-8400
--------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf
of Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
a. X The filing of solicitation materials or an information statement
_____ subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under
the Securities Exchange Act of 1934.
b. _____ The filing of a registration statement under the Securities Act of
1933.
c. _____ A tender offer.
d. _____ None of the above.
<PAGE>
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: X
_____
Calculation of Filing Fee
TRANSACTION VALUATION* AMOUNT OF FILING FEE
- --------------------- --------------------
$12,438,468 $2,488
X Check box if any part of the fee is offset as provided by Rule 0-
_____ 11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: $2,488
Form or Registration No.: Schedule 14A
Filing Party: Cable TV Fund 12-B, Ltd.
Commission File No. 0-13807
Date Filed: June 9, 1998
*Pursuant to Rule 0-11(c)(2), the transaction valuation is based upon Cable TV
Fund 12-B, Ltd.'s 9 percent interest in the $138,205,200 sales price that is to
be paid to Cable TV Fund 12-BCD Venture by Jones Intercable, Inc. in connection
with the transaction that is the subject of the proxy solicitation.
<PAGE>
INTRODUCTION
------------
This Amendment No. 1 to Rule 13e-3 Transaction Statement is being filed
jointly by Cable TV Fund 12-B, Ltd., a Colorado limited partnership, and by
Jones Intercable, Inc., a Colorado corporation that is the general partner of
Cable TV Fund 12-B, Ltd., in connection with the sale of assets of Cable TV Fund
12-BCD Venture to an indirect wholly owned subsidiary of Jones Intercable, Inc.
upon the terms and subject to the conditions of a Purchase and Sale Agreement by
and between Cable TV Fund 12-BCD Venture and Jones Intercable, Inc. The sale may
be a transaction subject to Rule 13e-3 because it will result in the sale of
certain assets of Cable TV Fund 12-BCD Venture to an indirect wholly owned
subsidiary of Jones Intercable, Inc.
The transaction also involves a vote of the limited partners of Cable TV
Fund 12-B, Ltd., which is subject to Regulation 14A of the Securities Exchange
Act of 1934, and the information contained in the preliminary proxy statement
filed pursuant thereto is incorporated by reference in answer to the items of
this Amendment No. 1 to Rule 13e-3 Transaction Statement. Attached as an exhibit
to this Amendment No. 1 to Rule 13e-3 Transaction Statement are the preliminary
proxy solicitation materials that have been filed simultaneously herewith. The
cross-reference sheet that follows shows the location in the preliminary proxy
statement of the information incorporated by reference in response to the items
of this Amendment No. 1 to Rule 13e-3 Transaction Statement, as permitted by
General Instruction F to Schedule 13E-3.
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<PAGE>
CROSS-REFERENCE SHEET
---------------------
(Pursuant to General Instruction F to Schedule 13E-3)
<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------ ---------------
<S> <C>
1. Issuer and Class of
Security Subject to
the Transaction.
(a)................... Vote of the Limited Partners of Cable TV Fund
12-B, Ltd.; Certain Information About the
Partnership and the General Partner.
(b)-(c)............... Vote of the Limited Partners of Cable TV Fund
12-B, Ltd.
(d)................... Special Factors, Prior Acquisitions and Sales.
(e)................... [Not applicable.]
(f)................... [Not applicable.]
2. Identity and Background.
(a)-(d), (g).......... Vote of the Limited Partners of Cable TV Fund
12-B, Ltd.; Certain Information About the
Partnership and the General Partner; Schedule 1.
(e)-(f)............... [The answers to these items are in the negative;
pursuant to the Instruction following Item 2(f),
negative answers to Items 2(e) and 2(f) have not
been furnished to limited partners in the proxy
statement.]
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------ ---------------
<S> <C>
3. Past Contracts,
Transactions or
Negotiations.
(a)(1)................ Certain Related Party Transactions.
(a)(2)................ [None.]
(b)................... [None.]
4. Terms of the
Transaction.
(a)................... Proposed Sale of Assets.
(b)................... [Not applicable.]
5. Plans or Proposals of
the Issuer or
Affiliate.
(a)................... Vote of the Limited Partners of Cable TV Fund
12-B, Ltd.; Certain Information About the
Partnership and the General Partner.
(b)-(e)............... [Not applicable.]
(f)-(g)............... Vote of the Limited Partners of Cable TV Fund 12-B,
Ltd.; Certain Information About the Partnership
and the General Partner.
6. Source and Amounts of
Funds or Other
Consideration.
(a)................... Proposed Sale of Assets, The Purchase and Sale
Agreement; Proposed Sale of Assets, Purchase Price.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------- ---------------
<S> <C>
(b)................... Special Factors, The Appraisals; Special Factors,
Costs of the Transaction.
(c)................... Proposed Sale of Assets, The Purchase and Sale
Agreement.
(d)................... [Not applicable.]
7. Purpose(s),
Alternatives,
Reasons and Effects.
(a)................... Special Factors, The Partnership's Investment
Objectives; Special Factors, The General Partner's
Objectives; Special Factors, Reasons for the
Timing of the Sale.
(b)................... Special Factors, Reasons for the Timing of the
Sale; Special Factors, Recommendation of the
General Partner and Fairness of the Proposed Sale
of Assets.
(c)................... Special Factors, The Partnership's Investment
Objectives; Special Factors, Reasons for the
Timing of the Sale; Special Factors,
Recommendation of the General Partner and Fairness
of the Proposed Sale of Assets.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------- ---------------
<S> <C>
(d)................... Special Factors, Certain Effects of the Sale;
Special Factors, Recommendation of the General
Partner and Fairness of the Proposed Sale of
Assets; Federal and State Income Tax Consequences.
8. Fairness of the
Transaction.
(a)-(b)............... Vote of the Limited Partners of Cable TV Fund
12-B, Ltd.; Special Factors, Recommendation of the
General Partner and Fairness of the Proposed Sale
of Assets; Special Factors, The Appraisals.
(c)................... Vote of the Limited Partners of Cable TV Fund
12-B, Ltd.; Special Factors, Relevant Provisions
of the Partnership Agreement; Proposed Sale of
Assets, Conditions to Closing.
(d)-(e)............... Special Factors, Recommendation of the General
Partner and Fairness of the Proposed Sale of
Assets.
(f)................... [Not applicable.]
9. Reports, Opinions,
Appraisals and Certain
Negotiations.
(a)................... Vote of the Limited Partners of Cable TV Fund
12-B, Ltd.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------- ---------------
<S> <C>
(b)................... Special Factors, Recommendation of the General
Partner and Fairness of the Proposed Sale of
Assets; Special Factors, The Appraisals.
(c)................... Special Factors, The Appraisals; Available
Information.
10. Interest in Securities
of the Issuer
(a)................... Vote of the Limited Partners of Cable TV Fund
12-B, Ltd.; Schedule 1.
(b)................... [None.]
11. Contracts, [None.]
Arrangements or
Understandings with
Respect to the
Issuer's Securities.
12. Present Intention and
Recommendation of
Certain Persons with
Regard to the
Transaction.
(a)................... Vote of the Limited Partners of Cable TV Fund
12-B, Ltd.
(b)................... Vote of the Limited Partners of Cable TV Fund
12-B, Ltd.; Special Factors, Recommendation of the
General Partner and Fairness of the Proposed Sale
of Assets.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
-------------------- ---------------
<S> <C>
13. Other Provisions of
the Transaction.
(a)................... Special Factors, Certain Effects of the Sale.
(b)................... [Not applicable.]
(c)................... [Not applicable.]
14. Financial Information.
(a)(1)................ [Pursuant to General Instruction D to Schedule
13E-3, the audited financial statements of Cable TV
Fund 12-B, Ltd. for the fiscal years ended
December 31, 1997 and 1996 are incorporated by
reference from Cable TV Fund 12-B, Ltd.'s Annual
Report on Form 10-K/A No. 1 for the fiscal year
ended December 31, 1997, which is filed as an
exhibit to this Schedule 13E-3.]
(a)(2)................ [Pursuant to General Instruction D to Schedule 13E-
3, the unaudited financial statements of Cable TV
Fund 12-B, Ltd. for its first two 1998 fiscal
quarters are incorporated by reference from Cable
TV Fund 12-B, Ltd.'s Quarterly Reports on Form 10-Q
for the fiscal quarters ended March 31, 1998 and
June 30, 1998, which are filed as exhibits to
this Schedule 13E-3.]
(a)(3)................ [Not applicable.]
(a)(4)................ Special Factors, Recommendation of the General
Partner and Fairness of the Proposed Sale of
Assets.
(b)................... Unaudited Pro Forma Financial Information of Cable
TV Fund 12-B, Ltd.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------- ---------------
<S> <C>
15. Persons and Assets
Employed,
Retained or Utilized.
(a)................... Vote of the Limited Partners of Cable TV Fund
12-B, Ltd.
(b)................... [None.]
16. Additional Special Factors, Relevant Provisions of the
Information. Partnership Agreement.
- -------------------------------------------------------------------------------
17. Materials
Filed as Exhibits:
*(a)................... Jones Cable Holdings II, Inc.'s Credit Facility.
*(b)(1)................ Appraisal of the Palmdale System by
Strategis Financial Consulting, Inc.
*(b)(2)................ Appraisal of the Palmdale System by Waller
Capital Corporation
*(b)(3)................ Appraisal of the Palmdale System by Bond &
Pecaro, Inc.
*(c) [Not applicable.]
*(d)(1)................ Preliminary Proxy Statement to be furnished to the
limited partners of Cable TV Fund 12-B, Ltd.
*(d)(2)................ Cable TV Fund 12-B, Ltd.'s Annual Report on Form
10-K/A No. 1 for the fiscal year ended December 31,
1997.
*(d)(3)................ Cable TV Fund 12-B, Ltd.'s Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31,
1998.
(d)(4)................ Revised Preliminary Proxy Statement to be furnished
to the limited partners of Cable TV Fund 12-B, Ltd.
(d)(5)................ Cable TV Fund 12-B, Ltd.'s Quarterly Report on Form
10-Q for the fiscal quarter ended June 30, 1998.
(e)................... [Not applicable.]
(f)................... [Not applicable.]
- ------------------
*previously filed
</TABLE>
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<PAGE>
SIGNATURES
----------
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
JONES INTERCABLE, INC.,
a Colorado corporation
Dated: September 18, 1998 By:/s/ Elizabeth M. Steele
-----------------------
Elizabeth M. Steele
Vice President
CABLE TV FUND 12-B, LTD.,
a Colorado limited partnership
By: Jones Intercable, Inc.,
a Colorado corporation,
as general partner
Dated: September 18, 1998 By:/s/ Elizabeth M. Steele
------------------------
Elizabeth M. Steele
Vice President
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<PAGE>
EXHIBIT 99(d)(4)
[JONES INTERCABLE LOGO]
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
(the "General Partner"), for the purpose of obtaining limited partner approval
of the sale of the Palmdale, California cable television system (the "Palmdale
System") owned by the Cable TV Fund 12-BCD Venture, a joint venture in which
the Partnership has a 9 percent ownership interest (the "Venture"), for
$138,205,200 in cash, subject to customary working capital closing adjustments
that may have the effect of increasing or decreasing the sales price by a non-
material amount. The Palmdale System is proposed to be sold to Jones
Communications of California, Inc., an indirect wholly owned subsidiary of the
General Partner. Information relating to this matter is set forth in the
accompanying Proxy Statement.
If the limited partners approve the proposed sale of the Palmdale System and
if the transaction is closed, the Venture will repay all of its remaining
indebtedness, which, with accrued interest, is estimated to total
approximately $51,922,252, and then approximately $87,581,654 of net sale
proceeds will be distributed to the three constituent partnerships of the
Venture in proportion to their ownership interests. The Partnership
accordingly will receive 9 percent of such proceeds, estimated to total
approximately $8,039,628, and the Partnership will distribute this portion of
the net sale proceeds to its partners of record as of the closing date of the
sale of the Palmdale System. Of this amount, approximately $6,029,721 will be
distributed to the limited partners and approximately $2,009,907 will be
distributed to the General Partner. It is estimated that the limited partners
will receive $54 for each $500 limited partnership interest, or $108 for each
$1,000 invested in the Partnership. Distributions will be net of California
non-resident withholding, if applicable, and distribution checks will be
issued to the limited partners' account registration or pursuant to any
special payment instruction of record. Once the distribution of the net
proceeds from the sale of the Palmdale System has been made, limited partners
will have received a total of $1,031 for each $500 limited partnership
interest, or $2,062 for each $1,000 invested in the Partnership, taking into
account the prior distributions to limited partners made in 1995, 1996 and
July 1998.
<PAGE>
In voting on the proposed sale of the Palmdale System, limited partners
should carefully review and consider the Special Factors set forth in detail
on pages 3 through 24 of the accompanying Proxy Statement. These Special
Factors include, but are not limited to, the following:
. It is proposed that the Palmdale System be sold to a subsidiary of the
General Partner on terms and conditions that were not subject to arm's-
length negotiation. The terms of the purchase and sale agreement and the
process by which such terms were negotiated should not be deemed to be free
of potential conflicts of interest because neither the Partnership nor the
Venture have any employees or management other than the employees and
management of the General Partner who represented both the buyer and the
seller in the proposed sale transaction. The employees and management of
the General Partner owe a fiduciary duty to both the Partnership and its
limited partners and to the shareholders of the General Partner.
. The General Partner has determined that its acquisition of the Palmdale
System is in the best interests of its shareholders and that the Venture's
sale of the Palmdale System is in the best interests of the Partnership's
limited partners. The General Partner's recommendation that the limited
partners approve the transaction and the General Partner's determination
that the transaction is fair to the limited partners should not be deemed
to be free of potential conflicts of interest because the General Partner
owes a fiduciary duty to the Partnership and its limited partners in
analyzing the transaction as seller and it owes a fiduciary duty to its own
shareholders in analyzing the transaction as purchaser.
. The General Partner's determination that the Palmdale System would not be
marketed for sale to third party buyers, its decision not to consider
having the Venture sell the Palmdale System to any cable system operator
other than the General Partner, its contracting with independent appraisal
firms to prepare appraisals of the fair market value of the Palmdale System
and its review and acceptance of the appraisals should not be deemed to be
free of potential conflicts of interest in light of the General Partner's
decision to acquire the Palmdale System for its own account.
. The General Partner's determination that the Partnership's investment
objectives with respect to the Palmdale System have been achieved, its
consideration of the benefits and risks to the limited partners from a
longer holding period and its conclusion that now is the time for the
Palmdale System to be sold should not be deemed to be free of potential
conflicts of interest in light of the fact that the General Partner could
not purchase the Palmdale System unless it also determined that now was the
time for the Venture to sell the Palmdale System.
. The members of the Board of Directors of the General Partner who are not
employees of the General Partner did not vote separately to approve the
transaction. Neither the Board of Directors as a whole nor the independent
directors retained an unaffiliated representative to act solely on behalf
of the limited partners for the purpose of negotiating the terms of the
proposed sale of the Palmdale System and/or preparing a report concerning
the fairness of the proposed sale.
. The proposed $138,205,200 sales price for the Palmdale System is based on
the average of three separate independent appraisals of the Palmdale System
as of December 31, 1997. It is possible that the Palmdale System could be
sold for a higher sales price if it were marketed and sold to an
unaffiliated cable system operator. Strategis Financial Consulting, Inc.
valued the Palmdale System at $140,059,000. Bond & Pecaro, Inc. valued the
Palmdale System at $131,952,600. Waller Capital Corporation valued the
Palmdale System at $142,604,000. Due to the averaging process, two of the
three appraisals valued the Palmdale System at amounts greater than the
proposed sales price.
. One of the independent appraisers hired by the General Partner to determine
the fair market value of the Palmdale System is a subsidiary of one of the
firms hired to appraise the Tampa, Florida cable television system formerly
owned by the Venture when it was proposed to be sold to a subsidiary of the
General Partner in 1995. The sale of the Tampa system is now subject to a
derivative lawsuit challenging the sales price paid by a subsidiary of the
General Partner for the Tampa system. This appraiser applied the same
methodologies in valuing the Palmdale System as its affiliate employed in
valuing the Tampa system.
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<PAGE>
Another of the independent appraisers hired by the General Partner to
determine the fair market value of the Palmdale System also serves as the
General Partner's expert witness in this derivative lawsuit, aiding the
General Partner in the defense of this litigation.
Only limited partners of record at the close of business on September 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 Venture's ability to complete the transaction discussed in the
Proxy Statement and the Partnership's ability to make a distribution to its
partners of its portion of the net proceeds of the sale of the Palmdale System
pursuant to the terms of the Partnership's limited partnership agreement (the
"Partnership Agreement") are dependent upon the approval of the transaction by
the holders of a majority of the Partnership's limited partnership interests.
The proposal that is the subject of this proxy solicitation will be adopted
only if approved by the holders of a majority of the limited partnership
interests. Each limited partnership interest entitles the holder thereof to
one vote on the proposal. Because the Partnership Agreement requires that the
proposal to sell the Palmdale System be approved by the holders of a majority
of the limited partnership interests, abstentions and non-votes will be
treated as votes against the proposal. A properly executed consent returned to
the General Partner on which a limited partner does not mark a vote will be
counted as a vote for the proposed sale of the Palmdale System. Because
limited partners do not have dissenters' or appraisal rights in connection
with the proposed sale of the Palmdale System, if the holders of a majority of
the limited partnership interests approve the proposal, all limited partners
will receive a distribution of the net sale proceeds in accordance with the
procedures prescribed by the Partnership Agreement regardless of how or
whether they vote on the proposal.
Jones Intercable, Inc., as the general partner of the Partnership, urges you
to sign and return the enclosed proxy card as promptly as possible. The proxy
card should be returned in the enclosed envelope.
JONES INTERCABLE, INC.
General Partner
/S/ ELIZABETH M. STEELE
Elizabeth M. Steele
Secretary
Dated: October 1, 1998
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<PAGE>
[LOGO OF JONES INTERCABLE, INC. APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY STATEMENT
VOTE OF THE LIMITED PARTNERS OF CABLE TV FUND 12-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 Palmdale,
California cable television system (the "Palmdale System") owned by the Cable
TV Fund 12-BCD Venture (the "Venture"), a joint venture in which the
Partnership has a 9 percent ownership interest, for $138,205,200 in cash,
subject to customary working capital closing adjustments that may have the
effect of increasing or decreasing the sales price by a non-material amount.
The Palmdale System is proposed to be sold to Jones Communications of
California, Inc., an indirect wholly owned subsidiary of the General Partner.
Proxies in the form enclosed, properly executed and duly returned, will be
voted in accordance with the instructions thereon. Limited partners are urged
to sign and return the enclosed proxy as promptly as possible. Proxies cannot
be revoked except by delivery of a proxy dated as of a later date. Officers
and other employees of the General Partner may solicit proxies by mail, by
fax, by telephone or by personal interview. The deadline for the receipt of
proxy votes is November 15, 1998, unless extended, but the vote of the
Partnership's limited partners will be deemed to be concluded on the date, at
least 20 business days from the date the proxy materials are sent to limited
partners, that the General Partner, on behalf of the Partnership, is in
receipt of proxies executed by the holders of a majority of the limited
partnership interests either consenting to or disapproving of the proposed
transaction. The General Partner may extend the deadline for receipt of proxy
votes if a majority of the limited partners fail to express an opinion on the
transaction by November 15, 1998. If the General Partner extends the deadline
for receipt of proxy votes, the limited partners will be informed by mail of
the reason for the extension and the new deadline. The cost of the proxy
solicitation will be paid by the General Partner.
The Partnership has only one class of limited partners and no limited
partner has a right of priority over any other limited partner. The
participation of the limited partners is divided into limited partnership
interests and each limited partner owns one limited partnership interest for
each $500 of capital contributed to the Partnership.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE>
As of September 15, 1998, the Partnership had 111,035 limited partnership
interests outstanding held by 7,291 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 September 15,
1998, Smithtown Bay, LLC and its affiliates owned 5,440 limited partnership
interests, or 4.9 percent of the limited partnership interests. As of such
date, Madison Partnership Liquidity Investors 30, LLC and its affiliates owned
2,237 limited partnership interests, or 2.0 percent of the limited partnership
interests. Pursuant to the terms of agreements between the Partnership and the
General Partner and such firms, all of the limited partnership interests held
by these firms will be voted in the same manner as the majority of all other
limited partners who vote on the sale of the Palmdale System. Thus, for
example, if the limited partnership interests voted in favor of the
transaction constitute a majority of all limited partnership interests voted
but not a majority of all limited partnership interests, these firms will be
required to vote their limited partnership interests in favor of the
transaction, and in such event the votes of these firms could be sufficient to
cause the transaction to be approved by a majority of all limited partnership
interests, which is the vote necessary to cause the transaction to be
approved. The General Partner owns six limited partnership interests. Officers
and directors of the General Partner own no limited partnership interests. The
six 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 September 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 only the Palmdale
System. The Venture sold its cable television system serving Houghton and
Hancock, Michigan (the "Houghton/Hancock System") in 1987, the Venture sold
its cable television system serving California City, California (the
"California City System") in 1992, the Venture sold its cable television
system serving Tampa, Florida (the "Tampa System") in 1996 and the Venture
sold its cable television system serving Albuquerque, New Mexico (the
"Albuquerque System") in June 1998. The Partnership sold its cable television
system serving Augusta, Georgia (the "Augusta System") in 1995.
Upon the consummation of the proposed sale of the Palmdale System, the
Venture will repay all of its remaining indebtedness, which, with accrued
interest, is estimated to total approximately $51,922,252, and then the
Venture will distribute approximately $87,581,654 to the Partnership, Fund 12-
C and Fund 12-D in proportion to their ownership interests in the Venture. The
Partnership will receive 9 percent of the net sale proceeds, estimated to
total approximately $8,039,628, and the Partnership will distribute this
portion of the net sale proceeds to its partners of record as of the closing
date of the sale of the Palmdale System. Because limited partners have already
received distributions in an amount in excess of the capital initially
contributed to the Partnership by the limited partners, the Partnership's
portion of the net proceeds from the Palmdale System's sale will be
distributed 75 percent to the limited partners and 25 percent to the General
Partner. Based upon the Venture's financial information as of June 30, 1998,
as a result of the Palmdale System's sale, the limited partners of the
Partnership, as a group, will receive approximately $6,029,721 and the General
Partner will receive approximately $2,009,907. Limited partners will receive
$54 for each $500 limited partnership interest, or $108 for each $1,000
invested in the Partnership, from the Partnership's portion of the net
proceeds of the Palmdale System's sale. Distributions will be net of
California non-resident withholding, if applicable, and distribution checks
will be issued to the limited partners' account registration or pursuant to
any special payment instruction of record. Once the Partnership has completed
the distribution of its portion of the net proceeds from the sale of the
Palmdale System, limited partners of the Partnership will have received a
total of $1,031 for each $500 limited partnership interest, or $2,062 for each
$1,000 invested in the Partnership, taking into account the prior
distributions to limited partners made in 1995, 1996 and July 1998 from the
net proceeds of the sales of the Augusta System, the Tampa System and the
Albuquerque System.
After the sale of the Palmdale System by the Venture, the Partnership will
cease to be a public entity subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). See "Certain Information About the Partnership and the General
Partner."
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Limited partners should note that there are certain income tax consequences
of the proposed sale of the Palmdale System, which are outlined herein under
the caption "Federal and State Income Tax Consequences."
The Board of Directors of the General Partner has approved the proposed sale
of the Palmdale System and the General Partner recommends approval of the
transaction by the holders of the Partnership's limited partnership interests.
In determining the fairness of the proposed transaction, the General Partner
followed the procedures outlined in by Section 2.3(b)(iv)(b) of the
Partnership's limited partnership agreement (the "Partnership Agreement"),
which provides that the Partnership's cable television systems may be sold to
the General Partner or to one of its affiliates if the price paid by the
General Partner or such affiliate is determined by the average of three
separate, independent appraisals of the fair market value of the system to be
sold. Because the purchase price to be paid to the Venture is equal to the
average of three separate, independent appraisals of the fair market value of
the Palmdale System, the Board of Directors of the General Partner has
concluded that the consideration to be paid to the Venture for the Palmdale
System is fair to all unaffiliated limited partners of the Partnership.
The proposal that is the subject of this proxy solicitation will be adopted
only if approved by the holders of a majority of the limited partnership
interests. Each limited partnership interest entitles the holder thereof to
one vote on the proposal. Because the Partnership Agreement requires that the
proposal to sell the Palmdale System be approved by the holders of a majority
of the limited partnership interests, abstentions and non-votes will be
treated as votes against the proposal. A properly executed consent returned to
the General Partner on which a limited partner does not mark a vote will be
counted as a vote for the proposed sale of the Palmdale System. Because
limited partners do not have dissenters' or appraisal rights in connection
with the proposed sale of the Palmdale System, if the holders of a majority of
the limited partnership interests approve the proposal, all limited partners
will receive a distribution of the Partnership's portion of the net sale
proceeds in accordance with the procedures prescribed by the Partnership
Agreement regardless of how or whether they vote on the proposal.
The General Partner has also prepared proxy statements that are being
delivered to the limited partners of Fund 12-C and Fund 12-D in connection
with their votes to approve the sale of the Palmdale System by the Venture.
The closing of the sale of the Palmdale System will occur only if the
transaction is approved by the holders of a majority of the limited
partnership interests of each of the three constituent partnerships of the
Venture. Copies of the proxy statements being delivered to the limited
partners of the Venture's two other constituent partnerships have been filed
with the Securities and Exchange Commission (the "Commission") and can be
obtained either from the Commission or from the General Partner upon written
request to Elizabeth M. Steele, Secretary, Jones Intercable, Inc., 9697 East
Mineral Avenue, Englewood, Colorado 80112, (303) 792-3111. See also "Certain
Information About the Partnership and the General Partner."
The approximate date on which this Proxy Statement and Form of Proxy are
being sent to limited partners is October 1, 1998.
SPECIAL FACTORS
THE PARTNERSHIP'S INVESTMENT OBJECTIVES
The Partnership was formed to acquire, develop, operate and, ultimately,
sell cable television systems. The primary objectives of the Partnership have
been to obtain capital appreciation in the value of the Partnership's cable
television properties; to generate tax losses that could be used to offset
taxable income of limited partners from other sources; and to obtain equity
build-up through debt reduction. It was contemplated from the outset of the
Partnership's existence that capital appreciation in Partnership cable
television properties would be converted to cash by a sale of such properties
at such time as the General Partner determined that the Partnership's
investment objectives had substantially been achieved and after a holding
period of approximately five to seven years. It also was contemplated from the
outset of the Partnership's existence that the General Partner or one of its
affiliates could be the purchaser of the Partnership's cable television
properties.
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The Venture was formed to pool the financial resources of three public
partnerships sponsored by the General Partner with identical investment
objectives and to enable them to acquire a greater number of and/or larger
cable television systems than any one of the partnerships could acquire on
their own. The Venture acquired the Palmdale System in April 1986. Based upon
the track record of prior public partnerships sponsored by the General Partner
that had liquidated or were in the process of liquidating their assets during
the period that limited partnership interests in the Partnership were being
sold and based upon disclosures made to prospective investors about the
Partnership's investment objectives in the Cable TV Fund 12 prospectus and
accompanying sales brochure, investors in the Partnership reasonably could
have anticipated that the Partnership's investment objectives would be
achieved and its assets liquidated after a holding period of approximately
five to seven years. Due to the uncertain and then adverse regulatory
environment that developed in the early 1990s for the cable television
industry, the resultant decline in the prices for cable television systems and
the subsequent inactivity in the cable television system marketplace, the
General Partner determined that it would be prudent to delay the sale of the
Palmdale System until market conditions improved, and as a result the Palmdale
System has been held by the Venture for over 12 years.
The purpose of the sale of the Palmdale System, from the Partnership's
perspective, is to attain the Partnership's primary investment objective with
respect to the Palmdale System, i.e., to convert the Partnership's capital
appreciation in the Palmdale System to cash. The sale proceeds will be used to
repay all of the Venture's debt, and the remaining sale proceeds will be
distributed to the three constituent partnerships of the Venture. The
Partnership in turn will distribute its portion of the net sale proceeds to
the partners of the Partnership in accordance with the distribution procedures
established by the Partnership Agreement. The sale of the Palmdale System is
thus the necessary final step in the Partnership's accomplishment of its
investment objectives with respect to the Palmdale System.
PRIOR ACQUISITIONS AND SALES
The Partnership was formed in 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. 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
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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."
The Venture sold the Albuquerque System in June 1998 to a subsidiary of the
General Partner for a sales price of $222,963,267, which price was determined
by the average of three separate, independent appraisals of the fair market
value of the Albuquerque System. Upon the closing of the sale of the
Albuquerque System, the Venture settled working capital adjustments that
increased proceeds by $3,168,601, repaid its then outstanding Senior Notes
balance of $41,544,890 plus $128,195 in accrued interest and a $1,342,455 make
whole premium, paid $799,950 in capital lease obligations, and repaid
$57,316,378 of the outstanding balance and accrued interest on its credit
facility. The Venture then distributed $125,000,000 of the net sale proceeds
to the three constituent partnerships of the Venture in proportion to their
ownership interests in the Venture. The Partnership's portion of this
distribution was $11,474,475, of which $8,605,856 was distributed to the
limited partners and $2,868,619 was distributed to the General Partner. The
transaction was approved by the holders of a majority of the Partnership's
limited partnership interests in a vote of the limited partners conducted
through the mails in May 1998.
Limited partners of the Partnership have received distributions from the
Augusta System sale, the Tampa System sale and the Albuquerque System sale
totaling $108,472,231. All distributions to date have given the Partnership's
limited partners an approximate return of $977 for each $500 limited
partnership interest, or $1,954 for each $1,000 invested in the Partnership.
The Partnership intends to make a distribution of the Partnership's portion of
the net proceeds of the sale of the Venture's Palmdale System to its partners.
Following this distribution, the Partnership will be liquidated and dissolved.
THE GENERAL PARTNER'S OBJECTIVES
The purpose of the Palmdale System's sale from the General Partner's
perspective is to enable the Venture to sell the Palmdale System at a fair
price and to enable the General Partner (through an indirect wholly owned
subsidiary) to acquire a cable television system operating in a marketplace in
which the General Partner itself desires to own and operate a cable television
system. The General Partner currently is one of the ten largest cable
television system operators in the United States, with owned and managed
systems totaling in excess of one million basic subscribers. A key element of
the General Partner's strategy is to increase the number of owned subscribers
clustered in attractive demographic areas. The General Partner is making
progress in clustering its owned subscribers in two primary groups of cable
systems. The General Partner's Maryland/Virginia cluster is based primarily on
geography. The General Partner's suburban cluster is based on similar market
and operating characteristics, rather than geography. The General Partner
believes that its clustering strategy may allow it to obtain both economies of
scale and operating efficiencies, for example in areas such as marketing,
administration and capital expenditures. The General Partner desires to add
the Palmdale System to its suburban cluster, which currently includes the
cable systems serving the communities of Savannah and Augusta, Georgia, Pima
County, Arizona, Albuquerque, New Mexico and Independence, Missouri.
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In contrast to the Partnership, which is a limited partnership with a finite
term and which sought cable television properties with high growth potential
during a holding period of approximately five to seven years, the General
Partner, a corporation with perpetual existence, is seeking to acquire cable
television systems that can generate a steady stream of income and may
appreciate in value over a longer holding period. The Palmdale System
satisfies this objective of the General Partner. The General Partner also may
be in a better position than the Partnership and the Venture to access both
debt and equity to finance the long-term development of the Palmdale System.
The General Partner may be able to leverage the Palmdale System at a higher
level than the Venture has done and, accordingly, the General Partner may be
able to generate a greater return on its investment in the Palmdale System
than the Partnership and the Venture would be able to do within the same time.
Because the General Partner's investment horizon is much longer term than the
Partnership's investment horizon, and the General Partner will not need to
sell the Palmdale System to achieve its investment objectives, it can better
withstand the costs associated with meeting the competition and the regulatory
risks inherent in long-term holding and development of the Palmdale System.
RELEVANT PROVISIONS OF THE PARTNERSHIP AGREEMENT
Section 2.2(k) of the Partnership Agreement provides that the sale of all or
substantially all of the Partnership's assets is subject to the approval of
the holders of a majority of the Partnership's limited partnership interests.
Because its investment in the Venture is the Partnership's sole remaining
asset and because the Palmdale System represents 100 percent of the Venture's
assets and 100 percent of the Venture's revenues, the sale of the Palmdale
System is being submitted for limited partner approval to the limited partners
of the Partnership, Fund 12-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 Palmdale System has been held by the Venture for at least three years and
the purchase price to be paid to the Venture is equal to the average of three
separate, independent appraisals of the fair market value of the Palmdale
System obtained at the General Partner's expense, these requirements of the
Partnership Agreement have been satisfied.
LEGAL PROCEEDINGS
The General Partner is a defendant in a now consolidated civil action filed
by limited partners of 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 has defended
and will continue to defend this lawsuit vigorously.
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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. The
plaintiffs did not object to the General Partner's choice, and the Court
approved the General Partner's choice of independent counsel. During the
period March through May 1998, the independent counsel met several times with
the attorneys representing the plaintiffs and the General Partner, and he also
reviewed a great quantity of written materials. The independent counsel issued
his report on August 3, 1998, which concluded that the plaintiffs' claims are
not meritorious and are not supported by a preponderance of the evidence. The
independent counsel further determined that the General Partner "did not
breach a fiduciary duty" owed to the plaintiffs or to the Partnership and the
Venture and that the General Partner "did not commit any impropriety in
connection with" the Venture's sale of the Tampa System. The independent
counsel specifically found that the three appraisals of the Tampa System were
independent and objective and met the requirements of the Partnership
Agreement. He further noted that the General Partner had met its fiduciary
duties of fairness and full disclosure to the Partnership and the Venture. On
August 5, 1998, the General Partner moved for summary judgment in its favor
based on the report of independent counsel, a motion the plaintiffs have
opposed. A ruling by the Court on the General Partner's summary judgment
motion is anticipated before year end.
Section 2.2 of the Partnership Agreement provides that the General Partner
will not be liable to the Partnership or to the limited partners for any act
or omission performed or omitted by it in good faith pursuant to the authority
granted to the General Partner by the Partnership Agreement. This provision
further provides that the General Partner will be liable to the Partnership
and to the limited partners only for fraud, bad faith or gross negligence in
the performance of the cable television activities of the Partnership or
negligence in the management of the internal affairs of the Partnership.
Section 9.6 of the Partnership Agreement provides that the Partnership "shall
indemnify and save harmless the General Partner and its affiliates and any
agent or officer or director thereof, from any loss or damage incurred by
them, including legal fees and expenses and amounts paid in settlement by
reason of any action performed by the General Partner or any agent, officer or
director thereof on behalf of the Partnership or in furtherance of its
interest; provided, however, that the foregoing shall not relieve the General
Partner of its fiduciary duty to the limited partners or liability for (nor
shall the General Partner be indemnified for) its fraud, bad faith or gross
negligence in the performance of the cable television activities of the
Partnership or negligence in the management of the internal affairs of the
Partnership." In accordance with the foregoing provisions of the Partnership
Agreement, the Partnership, together with Fund 12-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. Limited partners
are advised that the above-described indemnification provisions of the
Partnership Agreement do not limit the rights of limited partners to pursue
any federal securities law claims that they may have against the General
Partner.
In voting on the proposed sale of the Palmdale System, limited partners
should consider that the General Partner determined both the sales price of
the Tampa System and the sales price of the Palmdale System in a
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substantially similar way, i.e., both prices were determined by averaging
three separate, independent appraisals of the fair market value of the
respective systems obtained in accordance with the provisions of Section
2.3(b)(iv)(b) of the three partnerships' limited partnership agreements.
Limited partners should be aware that The Strategis Group, Inc., one of the
firms that rendered appraisals of the Tampa System for purposes of determining
the Tampa System's sale price, is the parent company of Strategis Financial
Consulting, Inc., which rendered one of the three appraisals of the Palmdale
System for purposes of determining the Palmdale System's sale price. Limited
partners should also consider that Bond & Pecaro, Inc., another firm that
rendered an appraisal of the Palmdale System for purposes of determining the
Palmdale System's sale price, also serves as the General Partner's expert
witness in the Tampa litigation, aiding the General Partner in the defense of
this litigation.
REASONS FOR THE TIMING OF THE SALE
The Partnership has a finite legal existence of 17 years, over 13 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 Palmdale System. The
General Partner's determination that the Palmdale System should be sold in
1998 should not be deemed to be free of potential conflicts of interest,
however, in light of the fact that the General Partner was a potential
purchaser of the Palmdale System. During the years that the Venture has owned
and operated the Palmdale System, senior management of the General Partner,
including Glenn R. Jones, the General Partner's Chief Executive Officer, James
B. O'Brien, the General Partner's President and Chief Operating Officer, and
Kevin P. Coyle, the General Partner's Vice President/Finance and Chief
Financial Officer, has monitored the performance of the Palmdale System. The
General Partner has overseen the Palmdale System's growth in the number of
homes passed, the miles of cable plant and the number of basic and premium
subscribers. The General Partner's management has regularly reviewed the
Palmdale System's budgets, it has examined the Palmdale System's liquidity and
capital needs and it has carefully monitored the Palmdale System's revenue and
cash flow growth to confirm that the Partnership's primary investment
objective, i.e., capital appreciation in the Palmdale System, was being
achieved.
The General Partner concluded in January 1998 that, because the Palmdale
System met the General Partner's objective of acquiring cable systems with
operating characteristics like those of the Palmdale System, the General
Partner would proceed to acquire the Palmdale System pursuant to the
conditions of Section 2.3(b)(iv)(b) of the Partnership Agreement. The General
Partner accordingly did not market the system for sale and did not solicit
third party buyers for the Palmdale System but instead contracted with
independent appraisal firms to prepare appraisals of the fair market value of
the Palmdale System so that the General Partner could determine the price it
would offer to pay for the Palmdale System. The three appraisals obtained by
the General Partner valued the Palmdale System at $140,059,000, $131,952,600
and $142,604,000, respectively. The General Partner's Chief Financial Officer
then took the three appraised values and averaged them pursuant to the
requirements of Section 2.3(b)(iv)(b) of the Partnership Agreement, and
thereby determined that the price the General Partner would offer for the
Palmdale System would be $138,205,200. The General Partner's senior management
also agreed that this was a fair price and accepted it on behalf of the
Venture. See "Special Factors, The Appraisals." The General Partner's decision
to acquire the Palmdale System for its own account, its
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determination that the Venture would not market the system for sale and not
solicit third party buyers for the system, its contracting with independent
appraisal firms to prepare appraisals of the fair market value of the Palmdale
System and its review and acceptance of the appraisals should not be deemed to
be free of potential conflicts of interest in light of the fact that the
General Partner has determined that it would be in the best interests of the
General Partner and its shareholders for the General Partner to acquire the
Palmdale System.
No arm's-length negotiations of the terms of the purchase and sale agreement
were conducted because neither the Partnership nor the Venture have any
employees or management other than the employees and management of the General
Partner. When the appraisal process was completed in March 1998, the General
Partner prepared the standard purchase and sale agreement that it uses for the
acquisition of cable television systems from its managed partnerships. This
agreement was executed by officers of the General Partner both on behalf of
the General Partner as buyer and on behalf of the Venture as seller. The terms
of the purchase and sale agreement and the process by which such terms were
negotiated should not be deemed to be free of potential conflicts of interest
in light of the fact that management of the General Partner, which owes a
fiduciary duty to both the Partnership and its limited partners and to the
shareholders of the General Partner, represented all of the parties in the
negotiation of the purchase and sale agreement. A written memorandum to the
General Partner's Board of Directors from the General Partner's management
outlining the terms of the transaction, including the means by which
management had determined the sales price for the Palmdale System, the results
of the three appraisals, the operating and financial statistics of the
Palmdale System and the reasons why the General Partner should purchase the
Palmdale System, was submitted to the Board of Directors with a recommendation
from management that the Board of Directors approve the transaction, which the
Board of Directors did on March 10, 1998. The directors also were provided
with copies of the three appraisal reports that management had used in
determining the sales price and a copy of the draft purchase and sale
agreement. As discussed below, the Board of Directors unanimously concluded
that the transaction was fair to the unaffiliated limited partners of the
Partnership. See "Special Factors, Recommendation of the General Partner and
Fairness of the Proposed Sale of Assets."
When investing in the Partnership, by virtue of the provisions of Section
2.2(k) of the Partnership Agreement, the limited partners vested in the
General Partner the right and responsibility to determine when the
Partnership's investment objectives had been substantially achieved. The
Palmdale System was acquired by the Venture because, in the opinion of the
General Partner at the time of the Palmdale System's acquisition, it had the
potential for capital appreciation within a reasonable period of time. It is
the General Partner's opinion that during the over 12 years that the Palmdale
System has been held by the Venture, the Partnership's investment objectives
with respect to the Palmdale System have been achieved. The General Partner
used no specific benchmarks or measurement tools in determining that the
Partnership's investment objectives have been achieved. The General Partner
conducted a subjective evaluation of a variety of factors including the length
of 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 General Partner's conclusion that the Partnership's
investment objectives with respect to the Palmdale System have been achieved
should not be deemed to be free of potential conflicts of interest in light of
the fact that the General Partner could not purchase the Palmdale System
unless it also determined that now was the time for the Venture to sell the
Palmdale System.
The Palmdale System together with the neighboring California City System was
acquired by the Venture in April 1986 for an aggregate purchase price of
approximately $55,000,000. In addition, an affiliate of the General Partner
received a brokerage fee of approximately $2,100,000 from the Venture in
connection with the Palmdale System's acquisition. At acquisition, the
Palmdale System together with the neighboring California City System consisted
of approximately 470 miles of cable plant passing approximately 44,000 homes
and serving approximately 28,000 basic subscribers. The California City System
was sold in April 1992 for a sales price of $2,608,000. At the time of its
sale, the California City System served approximately 1,645 basic subscribers
and the Palmdale System served approximately 51,775 basic subscribers. As of
December 31, 1997, the Palmdale System consisted of approximately 1,096 miles
of cable plant passing approximately 88,000 homes and serving
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approximately 63,520 basic subscribers. During the holding period, the Venture
used approximately $53,576,000 in capital expenditures to expand the cable
plant of the Palmdale System. The increase in the value of the Palmdale System
during the holding period is demonstrated by the fact that the Palmdale System
together with the neighboring California City System was purchased for
$55,000,000 and the Palmdale System alone is proposed to be sold for
$138,205,200, a difference of $83,205,200.
In evaluating whether now was the time for the Venture to sell the Palmdale
System, the General Partner generally considered the benefits to the limited
partners that might be derived by the Venture's holding the Palmdale System
for an additional period of time. The General Partner assumed that the
Palmdale System might continue to appreciate in value and, if so, the Palmdale
System would be able to be sold for a greater sales price in the future. The
General Partner weighed these assumptions about the Palmdale System's
continuing growth against the risks to investors from a longer holding period,
i.e., the risks that regulatory, technology and/or competitive developments
could cause the Palmdale System to decline in value, which would result in a
lesser sales price in the future. A longer holding period would expose
investors to the risk that competition from direct broadcast satellite
companies, telephone companies and/or neighboring cable companies could
diminish the number of subscribers to the Palmdale System's basic and premium
services, thereby decreasing the value of the Palmdale System. A longer
holding period also would expose investors to the risk that changes in the
regulations promulgated by the governmental agencies that oversee cable
operations could make cable systems a less desirable investment, thereby
decreasing the value of the Palmdale System. The General Partner's decision to
sell the Palmdale System was greatly influenced by the fact that the
originally contemplated holding period had been exceeded. The General
Partner's consideration of the benefits and risks to the limited partners from
a longer holding period should not be deemed to be free of potential conflicts
of interest in light of the fact that the General Partner could not purchase
the Palmdale System unless it also determined that now was the time for the
Venture to sell the Palmdale System.
The General Partner determined that it is in a better position than the
Partnership to bear the risks of investment in the Palmdale System. The
Partnership is limited in its ability to obtain additional equity financing,
in part because the limited partnership interests are non-assessable. The
Partnership Agreement also contains limits on the amounts that the Partnership
can borrow. And the Partnership has only one asset, its interest in the
Venture, and the Venture's only asset is the Palmdale System, all of which
gives the Partnership limited collateral for borrowings. The General Partner,
on the other hand, is one of the nation's largest cable television companies
with longer term investment objectives. For example, if significant
competition to the Palmdale System were to develop, the General Partner would
be in a better position than the Partnership and the Venture to finance the
marketing campaigns or technological improvements necessary to meet such
competition. This analysis too should not be deemed to be free of the
potential conflicts of interest of the General Partner.
Therefore, in light of all of the above factors, the General Partner has
determined that now is the appropriate time for the Partnership to convert its
capital appreciation in the Palmdale System to cash through the sale of the
Venture's Palmdale System.
CERTAIN EFFECTS OF THE SALE
Upon consummation of the sale of the Palmdale System, the proceeds of the
sale will be used to repay all of the Venture's debts and then the Venture
will distribute the remaining sale proceeds to the three constituent
partnerships of the Venture in proportion to their ownership interests in the
Venture, and then the Partnership will distribute its portion of the net sale
proceeds (approximately $8,039,628) 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 June 30, 1998, as a result of
the Palmdale System's sale, the limited partners of the Partnership, as a
group, will receive approximately $6,029,721 and the General Partner will
receive approximately $2,009,907. Limited partners will receive $54 for each
$500 limited partnership interest, or $108 for each $1,000 invested in the
Partnership, from
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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 $1,031
for each $500 limited partnership interest, or $2,062 for each $1,000 invested
in the Partnership, taking into account the prior distributions to limited
partners made from the net proceeds of the sales of the Augusta System, the
Tampa System and the Albuquerque System. Both the limited partners and the
General Partner will be subject to federal and state income tax on the income
resulting from the sale of the Palmdale System. See the detailed information
below under the caption "Federal and State Income Tax Consequences."
Another effect of the sale is that it will result in an indirect wholly
owned subsidiary of the General Partner acquiring the Palmdale System. Thus,
as a result of this transaction, the General Partner will make a substantial
equity investment in the Palmdale System and it will have a greater equity
ownership interest in the Palmdale System than it does now as the general
partner of the three partnerships that comprise the Venture. Instead of the
residual 25 percent interest in the net proceeds from the sale of the Palmdale
System that the General Partner will receive as the general partner of the
three partnerships that comprise the Venture, the General Partner will have a
100 percent interest in any future capital appreciation of the Palmdale
System. The General Partner's acquisition of the Palmdale System will advance
its goal of increasing the number of owned subscribers in attractive
demographic areas and may allow the General Partner to obtain economies of
scale and operating efficiencies by adding the Palmdale System to its suburban
cluster of systems with similar market and operating characteristics. The
General Partner also will bear 100 percent of the risk of system losses and
any diminution in system value. As the general partner of the three
partnerships that comprise the Venture, the General Partner earns management
fees and receives reimbursement of its direct and indirect expenses allocable
to the operation of the Palmdale System. The General Partner's right to
receive such fees and reimbursements related to the Palmdale System will
terminate on the Venture's sale of the Palmdale System.
Neither Colorado law nor the Partnership Agreement afford dissenters' or
appraisal rights to limited partners in connection with the proposed sale of
the Palmdale System. If the proposed transaction is approved by the holders of
a majority of limited partnership interests, all limited partners will receive
a distribution in accordance with the procedures prescribed by the Partnership
Agreement regardless of how or whether they vote on the proposal.
All distributions of the Partnership from the proceeds of the sale of the
Palmdale System will be made to the Partnership's limited partners of record
as of the closing date of the sale of the Palmdale System. Because transferees
of limited partnership interests following the closing date of the sale of the
Palmdale System would not be entitled to any distributions from the
Partnership, a transfer of limited partnership interests following the closing
date of the sale of the Palmdale System would have no economic value. The
General Partner therefore has determined that, pursuant to the authority
granted to it by Section 3.5 of the Partnership Agreement, it will approve no
transfers of limited partnership interests following the closing of the sale
of the Palmdale System. Sales of limited partnership interests pursuant to
limited tender offers, in the secondary market or otherwise will not be
possible following the closing of the sale of the Palmdale System.
RECOMMENDATION OF THE GENERAL PARTNER AND FAIRNESS OF THE PROPOSED SALE OF
ASSETS
The General Partner believes that the proposed sale of the Palmdale System
and the distribution of the net proceeds therefrom are both procedurally and
substantively fair to all unaffiliated limited partners of the Partnership,
and it recommends that the limited partners approve the transaction. The
General Partner's recommendation that the limited partners approve the sale of
the Palmdale System and its fairness determination should not be deemed to be
free of potential conflicts of interest, however, in light of the fact that
one of its subsidiaries is the proposed purchaser of the Palmdale System.
Because the purchaser of the Palmdale System would benefit from a lower sales
price, the General Partner has an economic interest in conflict with the
economic interest of the limited partners.
In determining the substantive and procedural fairness of the proposed
transaction, the General Partner's Board of Directors on March 10, 1998
considered each of the following factors, all of which had a positive effect
on its fairness determination. The factors are listed in descending order of
importance, i.e., the first factor listed
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<PAGE>
was given the most weight in the determination that the proposed transaction
is fair, although, as a practical matter, this is an approximation of the
weight given to each factor because each factor is relevant and the General
Partner's Board of Directors was not able to weigh the relative importance of
each factor precisely:
(i) the limited partnership interests are at present illiquid and the
cash to be distributed to limited partners as a result of the proposed sale
of the Palmdale System will provide limited partners with liquidity and
with the means to realize the appreciation in the value of the Palmdale
System;
(ii) the sales price represents a fair market valuation of the Palmdale
System as determined by the average of three separate appraisals of the
Palmdale System by qualified independent appraisers;
(iii) the Venture has held the Palmdale System for over 12 years, a
holding period beyond that originally anticipated;
(iv) the conditions and prospects of the cable television industry in
which the Venture is engaged, including the developing threat of
competition from DBS services and telephone companies, and the working
capital and other financial needs of the Venture if it were to continue to
own the Palmdale System;
(v) the terms and conditions of the purchase and sale agreement,
including the fact that the sales price will be paid in cash, the fact that
the Venture was not required to make many of the representations and
warranties about the Palmdale System or give indemnities that are
customarily given in transactions of this nature, the fact that the
purchaser's obligation to close is not contingent upon its ability to
obtain financing, and the fact that the Venture will pay no brokerage fees
upon the sale of the Palmdale System, which it likely would have paid if
the Palmdale System were being sold to an unaffiliated party; and
(vi) the sale is being conducted in accordance with the terms of the
Partnership Agreement, including the fact that the proposed transaction
will not occur unless it is approved by the holders of at least a majority
of the limited partnership interests.
An officer of The Jones Group, Ltd., the cable brokerage subsidiary of the
General Partner, worked with each of the independent appraisers hired to
prepare fair market value appraisals of the Palmdale System, providing them
with current and historical profit and loss statements for the Palmdale System
and with current subscriber reports. Certain officers and all of the directors
of the General Partner received the final appraisal reports. The members of
the Board of Directors of the General Partner adopted the analyses and
conclusions of Strategis Financial Consulting, Inc., which valued the Palmdale
System at $140,059,000, because such firm's valuation procedures, assumptions
and methodologies most closely approximate the valuation procedures,
assumptions and methodologies used by the General Partner's management in
evaluating cable television systems. The General Partner's Board of Directors
did not specifically adopt the $140,059,000 value placed on the Palmdale
System by Strategis Financial Consulting, Inc., but the Board did consider the
fact that the value determined by this appraisal firm was the closest of the
three appraisals to the average of the three appraisals and concluded that
this fact supported its fairness determination.
In making its fairness determination, the General Partner's Board of
Directors did not consider that Strategis' overall fair market value of the
Palmdale System exceeds the sales price by approximately $1,853,800 or that
Strategis' "high" market value estimate exceeds the sales price by
approximately $7,821,800. Because it was the methodology for determining the
sales price mandated by the partnership agreements, the General Partner's
Board of Directors considered the fact that the sales price to be paid to the
Venture for the Palmdale System was determined by averaging three independent
appraisals of the fair market value of the Palmdale System to be very
persuasive evidence of the fairness of the proposed transaction. As provided
in Section 2.3(b)(iv)(b) of the Partnerships' three partnership agreements,
the General Partner may purchase a cable television system from the
Partnerships if the price paid to the Partnerships by the General Partner is
determined by the average of three separate, independent appraisals of the
cable television system to be sold. It does not provide that the purchase
price shall be determined by the highest of the three appraisals. In light of
this governing partnership agreement provision, the General Partner's Board of
Directors did not consider offering the Venture a sales price equal to
Strategis' appraisal values. Whenever a sum is to be determined by the average
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<PAGE>
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 $138,205,200 purchase price
to be paid to the Venture for the Palmdale System was determined by the
average of three independent appraisals of the fair market value of the
Palmdale System to be very persuasive evidence of the fairness of the proposed
transaction. The General Partner reviewed and considered the three appraisals
but it did not consider specific comparable transactions in reaching its
conclusions that the values for the Palmdale System determined by the three
appraisals are within the range of values seen in the marketplace for
comparable cable television systems in similar condition. The General Partner
is regularly engaged in the sale and/or purchase of cable television systems
in the marketplace both for its own account and for the account of its various
managed partnerships. It is the cumulative experience of the General Partner's
management and Board of Directors in such transactions on which the fairness
conclusions were based. The General Partner considered that the fair market
valuations of the Palmdale System were done by respected industry appraisers
using customary measures of value. Based upon the General Partner's knowledge
of and experience in the cable television industry, and its review and
consideration of the appraisals, it has concluded that the values for the
Palmdale System determined by the three appraisals are fair and within the
range of values seen in the marketplace for comparable cable television
systems in similar condition.
The $138,205,200 purchase price represents the current fair market value of
the Palmdale System on a going concern basis. The $138,205,200 purchase price
for the Palmdale System also compares favorably to the $38,077,176 net book
value of the Palmdale System at June 30, 1998. The liquidation value of a
cable television system, i.e., the sale of the system on other than a going
concern basis, is not usually considered to be an accurate indicator of the
value of a cable television system, primarily because the assets of a cable
television system typically are worth less when considered separately than
when considered as a going concern. The assets of a cable television system
consequently are not normally sold or purchased separately. A fair market
valuation of a system should, in the General Partner's view, be a valuation of
the system as a going concern. The liquidation value of the Palmdale System
therefore was not considered by the General Partner in reaching its
determination of fairness.
Because there has never been an established trading market for the
Partnership's limited partnership interests, the General Partner does not have
access to any reliable, official information about the historical or current
market prices for the Partnership's limited partnership interests in the very
limited secondary market where such interests from time to time have been
sold. The General Partner believes that such secondary market deeply discounts
the underlying value of the limited partnership interests due to their highly
illiquid nature. Therefore, even if trading information were available, the
historical or current market prices for the Partnership's limited partnership
interests would not necessarily be indicative of the value of the
Partnership's 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.
During the past several years, however, several limited partners of the
Partnership who are not in any other way affiliated with the Partnership or
with the General Partner conducted tender offers for interests in the
Partnership at prices ranging from $54 to $85 per $500 limited partnership
interest. The $54 per $500 limited partnership interest to be distributed to
limited partners from the Partnership's portion of the net proceeds of the
Palmdale System's sale compares favorably to these tender offer prices,
especially in light of the fact that the tender offer prices theoretically
reflected both the distributions made to limited partners from the
Partnership's portion of the net proceeds from the Albuquerque System sale
($78 per $500 limited partnership interest) and the distributions to be made
to limited partners from the sale of the Palmdale System.
The fact that the Venture has held the Palmdale System for a period beyond
that originally anticipated was another important factor in the General
Partner's fairness determination--the General Partner believes that the
transaction is fair because a sale at this time will convert an illiquid
investment into a liquid one for all partners. And the current state of the
cable television industry also was considered by the General Partner in making
its
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<PAGE>
fairness determination because the General Partner believes that it is fair to
investors that someone other than the Partnership and the Venture take on the
uncertainties and risks involved in continuing to own and operate the Palmdale
System.
The fairness of the transaction is also demonstrated in an analysis of
certain of the terms and conditions of the purchase and sale agreement, which
generally are more favorable to the Venture than reasonably could be expected
if the purchaser were not an affiliated company. There is no financing
contingency to closing. Because of the General Partner's existing extensive
knowledge about the Palmdale System, the Venture has not been required to make
many of the representations and warranties about the quality of the Palmdale
System's tangible assets, the quantity of the Palmdale System's subscribers or
the validity of the Palmdale System's intangible assets customarily found in
cable television system transactions. The Venture likely would have been
required to give such representations and warranties to an unaffiliated party
if the Palmdale System were being sold to an unaffiliated party. In addition,
the Venture is not required to indemnify the purchaser for defects discovered
by the purchaser after the closing. This frees the Venture from having to
reserve a portion of the sale proceeds to cover typical indemnification
obligations. The Venture also will pay no brokerage fee in connection with the
sale of the Palmdale System, which it likely would have paid if the Palmdale
System were being sold to an unaffiliated party. This will result in more
funds from the sale being available for distribution to the Venture's three
constituent partnerships and thus to their partners.
The General Partner is aware and considered that although consummation of
this transaction will result in a distribution to the Partnership's limited
partners of approximately $108 per $1,000 of limited partnership capital
invested in the Partnership, there are several potential negative consequences
of the transaction to limited partners. For example, the proposed sale will
require the limited partners to recognize, for federal income tax purposes, a
gain resulting from the sale. And although the three fair market valuations
established by the independent appraisals took into account the present value
of the projected future growth of the Palmdale System and the sales price (the
average of the three appraisals) thus takes into account the present value of
the projected future growth of the Palmdale System, the proposed sale will
deprive the limited partners of an opportunity to participate in the actual
future growth of the Palmdale System, if any. The General Partner nevertheless
concluded that the cash distributions to the limited partners of the
Partnership from the sale of the Palmdale System outweighed these
consequences.
As disclosed above, the proposed transaction is subject to various potential
conflicts of interest arising out of the Partnership's relationships with the
General Partner. Because the General Partner and its affiliates are engaged in
the ownership and operation of cable television systems, they are generally in
the market to purchase cable television systems for their own account. A
potential conflict thus arises from the General Partner's fiduciary duty as
general partner of the Partnership and its management's fiduciary duty to the
General Partner's shareholders when it determines that Partnership cable
television systems will be sold to the General Partner or one of its
affiliates and not to an unaffiliated third party. This potential conflict of
interest was disclosed to limited partners in the prospectus delivered to
investors at the time of the public offering of interests in the Partnership.
Prior to the Partnership's public offering, the General Partner entered into
negotiations with certain state securities administrators as part of the
process of clearing the offering in the "merit" states, i.e., those states
that permit the sale of securities only if the state securities administrator
deems the offering as a whole to be fair, just and equitable. Several of the
merit state securities administrators focused on the potential conflicts of
interest in the event that the Partnership were to sell one or more of its
cable television systems to the General Partner or one of its affiliates. The
General Partner agreed to include the provision in the Partnership Agreement
that permits the Partnership to sell its cable television systems directly to
the General Partner or one of its affiliates only after a three-year holding
period and only if the General Partner or such affiliate pays a purchase price
that is not less than the average of three separate independent appraisals of
the particular cable television system being sold. The General Partner has
concluded that the mechanisms for determining the purchase price to be paid to
the Partnership provide sufficient procedural safeguards to minimize the
effects of the potential conflicts of interest inherent in any such
transaction. The fact that these procedures have been carried out in
connection with the Venture's proposed sale of the Palmdale System, together
with the fact that the transaction also is
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<PAGE>
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 Palmdale System and/or preparing a report concerning
the fairness of the proposed sale. While the directors of the General Partner
recognized that the interests of the General Partner and the limited partners
may not in all respects necessarily be the same, they recognized also that the
purchase price was determined in accordance with the terms of the Partnership
Agreement, that is, by averaging three separate independent appraisals of the
Palmdale System's fair market value. The members of the Board of Directors
relied on Section 2.3(b)(iv)(b) of the Partnership Agreement, which permits
the General Partner to purchase the Palmdale System. The members of the Board
of Directors reviewed and considered the appraisals and, based upon their
general knowledge of cable television system transactions undertaken by the
General Partner and its affiliates and by unaffiliated cable television
companies, concluded that the values for the Palmdale System determined by the
appraisers were fair and were within the industry norms for comparable
transactions. All 13 directors of the General Partner participated in the
March 10, 1998 meeting to discuss and vote on the Partnership's sale of the
Palmdale System to the General Partner. Each of Messrs. Glenn R. Jones, James
B. O'Brien, Josef J. Fridman, Robert Kearney, Siim A. Vanaselja, James J.
Krejci, William E. Frenzel, Donald L. Jacobs, Howard O. Thrall, Robert E.
Cole, Raphael M. Solot, Sanford Zisman and Robert B. Zoellick voted to approve
the transaction. No director of the General Partner raised any questions or
expressed any reservations about the fairness of the transaction to the
Venture, to its three constituent partnerships or to the limited partners of
the Partnership.
The General Partner determined that the Palmdale System would not be
marketed for sale to third party buyers and the General Partner did not
consider having the Venture sell the Palmdale System to any cable system
operator other than the General Partner (or one of its affiliates). It is
anticipated that if the proposed transaction is not consummated, the General
Partner's current management team will continue to manage the Palmdale System
on behalf of the Venture until such time as the Palmdale System could be sold.
No other alternatives have been or are being considered.
THE APPRAISALS
At regular intervals during the holding period, the General Partner obtained
appraisals of all of the Partnership's cable television systems so that the
General Partner could fulfill its obligation of reporting the Partnership's
asset values to trustees and custodians of qualified plans that own limited
partner interests in the Partnership. These appraised values also have been
reported to all investors in the quarterly and annual reports mailed to
limited partners with copies of the Partnership's periodic reports on Forms
10-Q and 10-K. The most recent appraisal of the Palmdale System done prior to
the General Partner's decision to buy the system from the Venture was done as
of July 31, 1997 by Strategis Financial Consulting, Inc., which valued the
Palmdale System as of such date at $136,518,000. This old appraisal was not
used by the General Partner's management in determining the sales price that
the General Partner would offer for the Palmdale System and it was not
considered by the General Partner's Board of Directors in making its fairness
determinations.
In determining the price that the General Partner would offer for the
Palmdale System, in January 1998 the General Partner retained Strategis
Financial Consulting, Inc., Bond & Pecaro, Inc. and Waller Capital Corporation
to prepare separate appraisals of the fair market value of the Palmdale System
as of December 31, 1997. Each of the appraisers were asked to determine the
cash price a willing buyer would give a willing seller, neither being under
any compulsion to buy or sell and both having reasonable knowledge of relevant
facts, in an arm's-length transaction to acquire the Palmdale System. Upon
receipt of the three appraisal reports, management of the General Partner
examined each of them and discussed among themselves the merits of the
appraisals' assumptions, methodologies and conclusions, and, based on their
experience in and knowledge of the cable television industry, they found each
of them to be fair and reasonable. The appraisal reports were then
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<PAGE>
submitted to the Board of Directors of the General Partner for review. As
disclosed above, the Board of Directors of the General Partner unanimously
approved the transaction based upon a price determined by averaging these
three appraisals.
The written appraisal reports are available for inspection and copying at
the offices of the General Partner during regular business hours by any
interested limited partner of the Partnership or by his or her authorized
representative. Copies of such appraisals will be mailed by the General
Partner to any interested limited partner or to his or her authorized
representative upon written request to the General Partner at the expense of
the requesting limited partner. Copies of these three appraisals also have
been publicly filed with the Securities and Exchange Commission and may be
inspected at the Commission's public reference facilities and at its World
Wide Web site.
The General Partner provided each of the appraisers with the same current
and historical profit and loss statements for the Palmdale System and with the
same current subscriber reports. The appraisers also gathered information
about the Palmdale System's subscribers, channel line-up, technology, cable
plant, penetration rates and the local economy from questionnaires that each
individual appraisal firm prepared and provided to the general manager of the
Palmdale System and from conversations with the Palmdale System's management
team. From this information, the appraisers used their independent analyses to
project cash flow, determine growth of homes passed, the Palmdale System's
future penetration and possible rate adjustments. The appraisals thus reflect
the application of the appraisers' expertise to the data about the Palmdale
System supplied by the General Partner.
The General Partner's $138,205,200 offer for the Palmdale System was based
on the three separate, independent appraisals of the Palmdale System prepared
by Strategis Financial Consulting, Inc., Bond & Pecaro, Inc. and Waller
Capital Corporation as of December 31, 1997. Strategis Financial Consulting,
Inc. concluded that the Palmdale System's overall fair market value as of
December 31, 1997 was $140,059,000. Bond & Pecaro, Inc. concluded that the
Palmdale System's overall fair market value as of December 31, 1997 was
$131,952,600. Waller Capital Corporation concluded that the Palmdale System's
overall fair market value as of December 31, 1997 was $142,604,000.
The General Partner believes that the three appraisals were current as of
March 10, 1998, the date that the General Partner's Board of Directors made
its fairness determination and the date on which the purchase and sale
agreement was executed. In the General Partner's view, the assumptions
regarding system operations and the cable television system marketplace
underlying the three appraisals have generally remained unchanged since the
date of the appraisals.
The Strategis Appraisal
Strategis Financial Consulting, Inc. ("Strategis") has served the
communications industry for nearly 30 years. Its team of financial,
engineering and managerial professionals devotes a substantial portion of its
time to the appraisal of cable television systems, cellular telephone systems,
paging systems, mobile radio and broadcast stations. Strategis was selected by
the General Partner to render an opinion as to the fair market value of the
Palmdale System in light of such overall qualifications. No limitations were
imposed with respect to the appraisal to be rendered by Strategis. The firm
was selected by the General Partner to prepare an independent appraisal of the
Palmdale System because of the General Partner's familiarity with the firm and
its good reputation in the cable television industry. Strategis has prepared
independent appraisals of other cable television systems owned and/or managed
by the General Partner. The principals of Strategis are not affiliated in any
way with the General Partner.
Strategis used five generally accepted cable television valuation methods
using the income approach to valuation in establishing the range of fair
market values of the Palmdale System as a going concern. The first method used
a multiple of 1997's operating income derived from comparable asset values of
privately held and publicly traded cable companies. The second method used a
lower multiple of the Palmdale System's December
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1997 operating income annualized. The third method applied a slightly lower
multiple of 1998's projected operating income. The fourth method was a
discounted net cash flow analysis in which a purchase price (estimated fair
market value) was calculated to achieve a target after-tax return on equity,
given particular operating and financing assumptions unique to the Palmdale
System's assets. The fifth method was a discounted cash flow analysis that
measured the net present value of the pre-tax operating cash flows (less
capital expenditures, plus the residual value of the Palmdale System) that
represent the return on total investment. For each valuation method, Strategis
established a "high" and a "low" estimated fair market value.
The first valuation method used a multiple of 1997's operating income of the
Palmdale System derived from comparable asset values of certain cable
companies. The cable companies used to generate baseline values for this
methodology included Adelphia Communications Corporation, Cablevision Systems
Corporation, Century Communications Corp., Comcast Corporation, Cox
Communications, C-TEC, EW Scripps, Grupo Televisa, Knight-Ridder, Media
General, TCA Cable TV, Inc., Telecommunications, Inc., Time Warner, United
International Holdings, US West MediaOne Group, the Washington Post and the
General Partner. Strategis determined, based upon its expertise and knowledge
of the cable television industry, a "low" multiple of 10 and a "high" multiple
of 11, concluding that a system comparable to the Palmdale System would be
unlikely to sell for less than 10 times its past year's operating income and
would be unlikely to sell for more than 11 times its past year's operating
income. These operating income multiples were determined based upon several
factors. First, the "pre-determined target returns on equity" developed in
connection with the fourth valuation method discussed below were examined for
the implied capitalization rate. The capitalization rate is the inverse of the
valuation multiple. The basic equation supporting a valuation multiple is a
fraction, with one being the numerator and the rate of return minus the growth
rate being the denominator. For the rates of return, Strategis refers to the
"predetermined (pre-tax) target returns on equity" calculated as follows:
12%/(l-.34) = 18.2%
14%/(l-.34) = 21.2%
For the rate of growth estimate, Strategis examined projected growth in the
Palmdale System's operating income over the projection term. The average
annual growth rate in operating cash flow is approximately 8 percent on
Strategis' model. The inverse of the capitalization rate implies multiples of:
<TABLE>
<S> <C> <C>
1
------------
(18.2%-8.0%) = 9.8 high
1
------------
(21.2%-8.0%) = 7.6 low
</TABLE>
These calculated multiples were then adjusted by Strategis based on its
experience in the cable television industry. According to Strategis, in its
judgment, the implied high and low multiples, if applied to trailing twelve
months operating cash flow, would not provide an adequate estimate of value
for a mature cable system such as the Palmdale System. The multiples
ultimately used by Strategis in its first valuation method, 10 and 11, as
adjusted from the capitalization rate approach, in Strategis' judgment
appropriately reflect the value of the Palmdale System. This method resulted
in an estimated fair market value ranging from a low of $135,746,480 to a high
of $149,321,128 for the Palmdale System.
The second valuation method used a lower multiple of the Palmdale System's
December 1997 operating income annualized. Strategis determined, again based
on its expertise and knowledge of the cable television industry, a "low"
multiple of 9.5 and a "high" multiple of 10.5, concluding that a system
comparable to the Palmdale System would be unlikely to sell for less than 9.5
times the dollar amount of its annualized current month's operating income and
would be unlikely to sell for more than 10.5 times the dollar amount of its
annualized current month's operating income. These multiples are slightly
lower than those used in the previous methodology because of the increased
risk and time factors involved in using current as compared to historical
information. This method resulted in an estimated fair market value ranging
from a low of $132,504,873 to a high of $146,452,754 for the Palmdale System.
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The third valuation method applied a slightly lower multiple of 1998's
projected operating income of the Palmdale System. For this valuation,
Strategis first estimated, through its own analyses of current financial and
operating data provided by the General Partner, 1998's operating income for
the Palmdale System. The projection of 1998's operating income for this third
valuation method is the sum derived by subtracting projected operating
expenses from projected revenues of the Palmdale System to be generated during
the first twelve months following the valuation date. Strategis projected
growth in residential service revenue based on previously established or
reasonably foreseeable patterns of growth in the marketplace and plant
facilities (homes passed); the subscriber base; the amount of programming to
be sold to subscribers and the rates charged for programming, associated
equipment rentals and service installations. Strategis projected revenue for
commercial accounts to increase at a steady but lower rate than residential
revenue, while advertising revenue was projected based on Strategis' estimates
of the long term potential growth for local advertising in the Palmdale
System's market. Operating expenses were projected by Strategis based on the
Palmdale System's actual historical expenses and Strategis' familiarity with
cable system operating expenses typical for a system of the Palmdale System's
size. Line item expenses within the technical-operations, general and
administrative, sales and marketing, and programming departments were examined
and projected based on their relationship to the number of subscribers or
plant miles, whichever was appropriate, and included a general inflation
component. Based on its expertise and knowledge of the cable television
industry, Strategis set a "low" multiple of 9 and a "high" multiple of 10
concluding that a system comparable to the Palmdale System would be unlikely
to sell for less than 9 times the system's projected operating income for the
following year and would be unlikely to sell for more than 10 times the
system's projected operating income for the following year. These multiples
are slightly lower than those used in the previous methodologies because of
the increased risk and time factors involved in using projected as compared to
historical and current information. This method resulted in an estimated fair
market value ranging from a low of $136,015,500 to a high of $151,128,333 for
the Palmdale System.
The fourth valuation method was a discounted net cash flow analysis in which
a purchase price (estimated fair market value) was calculated to achieve a
target after-tax return on equity given particular operating and financing
assumptions specific to the Palmdale System. This method involved the use of
projected operations for the Palmdale System and a pre-determined target
return on equity for a hypothetical buyer. Strategis used the Capital Asset
Pricing Model ("CAPM") as a guide in developing discount rates used in the
discounted cash flow model for the fourth valuation method. The CAPM was
developed to estimate the rate of return on equity that would be required by
investors to take on the risk of a given investment. Strategis used the CAPM
in conjunction with observations of actual market transactions and its
judgment. The following illustrates use of the CAPM and the support it
provided for the "pre-determined target return on equity" used to value the
Palmdale System.
To estimate a "pre-determined target return on equity" for the CAPM,
Strategis examined movements in stock prices over 1996 and 1997 of the same
cable television multiple system operators that it examined in determining the
multiples for the first valuation method discussed above. The movements in
individual stock prices were compared to movements in the stock market as a
whole, as indicated by the price of the Standard & Poor's 500 stock index. The
extent to which movements in a particular stock are related to movements in
the market overall is reflected in the stock's "beta." Strategis calculated
individual betas for the above-listed cable television multiple system
operators. Average and median betas for the entire group were then multiplied
by the "equity risk premium," which measures the additional return to equity
investors over and above the return to holders of non-equity investments. The
risk-free rate of investment is then added to determine the required equity
return of the investment. The equation is as follows:
Beta* (Equity Risk Premium) + Risk-Free Rate = Required Return on Equity
In doing this analysis, Strategis found that the average beta for the group
of companies it examined was 1.06 and that the median beta for this same group
of companies was 1.11. It determined that the equity risk premium was 12.7
percent based upon average annual premiums over 1988 to 1997 as calculated in
Ibbotson Associates' Stocks, Bonds, Bills and Inflation (SBBI) Yearbook 1998.
Strategis also found that the risk-free rate
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<PAGE>
was 5.7 percent, which was the yield on intermediate term government bonds as
of December 1997. This statistic was derived from the SBBI Yearbook 1998. The
calculations are as follows:
(1.06* 12.7%) + 5.7% = 19.2% Required Return on Equity
(1.11* 12.7%) + 5.7% = 19.8% Required Return on Equity
Strategis then multiplied these rates by 1 minus the tax rate to calculate
the after-tax required return on equity rates as follows:
19.2%* (1-.34) = 12.7%
19.8%* (1-.34) = 13.1%
Based on Strategis' professional judgment, in Strategis' opinion these
calculations provide reasonable support for the use of 12% as the high and 14%
as the low after-tax "pre-determined target returns on equity."
Based on system information made available to Strategis by the General
Partner and on information generally available to Strategis about the cable
television industry, the firm made assumptions and projections of a variety of
factors that will affect future cash flow including housing growth, plant
mileage, growth in the number of subscribers for basic and pay television,
adjustments in subscriber rates, increases in operating expenses and capital
expenditures. Strategis also made specific assumptions concerning the capital
structure that a typical, prudent buyer might experience, as well as the
probable interest rates that would be applicable in connection with any debt
financing that might be incurred. Strategis did a "high" and a "low" analysis.
In its "high" analysis, Strategis projected that the Palmdale System's
revenues would grow from $31,973,938 in 1998 to $48,083,687 in 2004; that the
Palmdale System's operating expenses would grow from $16,861,105 in 1998 to
$24,309,734 in 2004; and that net loss of $5,124,946 in 1998 would decrease to
become net income of $3,198,756 in 2004. In Strategis' "low" analysis,
revenues and operating expenses are projected to increase to the same levels
by 2004, but net loss of $4,761,004 in 1998 is projected to become net income
of $3,456,717 in 2004. Strategis projected that the Palmdale System would add
approximately 14 to 23 miles of cable plant per year between 1998 and 2004,
resulting in growth of the Palmdale System's cable plant from 1,096 miles in
1997 to 1,237 miles in 2004. Strategis projected that the number of homes
passed by the Palmdale System would grow from 88,035 in 1997 to 98,282 in
2004. Strategis projected that basic subscribers would grow from 63,527 in
1997 to 75,344 in 2004. Strategis projected basic penetration of the Palmdale
System increasing from 73.2 percent in 1998 to 76.7 percent in 2004. Strategis
projected that premium television subscriptions would grow from 42,733 in 1997
to 47,668 in 2004. Strategis estimated that the Palmdale System would take
moderate rate increases between 1998 and 2004, with, for example, a 4 percent
increase in basic rates in 1998 and 1999 and 3 percent increases in basic
rates each year thereafter, and a 4 percent increase in expanded basic rates
in 1998 and 1999, and a 3 percent increase in such rates each year thereafter.
Strategis estimated that rate increases for pay television subscriptions would
average 1 percent per year after a 5 percent increase in 1998. Strategis
estimated that rate increases for pay-per-view showings, converter rentals and
installations would average 3 percent per year. These projections, if true,
would result in an increase in basic rates from $14.28 in 1998 to $17.14 in
2004, and an increase in the rates for the expanded basic tier from $12.80 in
1998 to $15.37 in 2004. As explained in the preceding paragraphs, the "low"
value was determined using a 14 percent return on equity and the "high" value
was determined using a 12 percent return on equity. This method resulted in an
estimated fair market value ranging from a low of $134,773,634 to a high of
$145,249,519 for the Palmdale System.
The fifth valuation method was a discounted cash flow analysis that measured
the net present value of the pre-tax operating cash flows (less capital
expenditures, plus the residual value of the Palmdale System) that represent
the return on the total investment rather than those that could result from an
assumed "purchase" with a pre-determined debt to equity ratio. The same set of
financial projections that the firm prepared and used in the fourth valuation
methodology were used for growth in subscribers, revenues, operating expenses
and capital expenditures. The projected pre-tax operating cash flows for the
Palmdale System, plus the last-year residual value of the Palmdale System less
capital expenditures, were discounted to the present time at an acceptable
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<PAGE>
current cost of money. This method indicated the present value of the future
pre-tax operating cash flows, using an acceptable discounted factor based on
the weighted average cost of money. The "high" value was determined using a
15.1 percent target return on investment and the "low" value was determined
using a 16.6 percent target return on investment. This method resulted in an
estimated fair market value ranging from a low of $132,642,183 to a high of
$142,642,182 for the Palmdale System.
Strategis' valuation methodologies resulted in differing values for the
Palmdale System. The reason for this is grounded in the basic approach that
the firm takes. The five different methods allow five different views of a
system's value. The first method looks at past performance, but allows nothing
for future performance. The second method looks at the system as it is as of
the date of the appraisal. The third method looks at the system's projected
operating income in the first year following the date of the appraisal. Both
discounted cash flow methods fully consider the future value of the system by
recognizing projected operating income and expenses, including capital
expenditures. Based upon all of the available information about a system being
appraised, the appraiser decides how to weight each of the five methods. The
final estimated fair market value is not a straight average of all of the
methods. Although the weighting is not shown in the appraisal report,
Strategis generally prefers the discounted cash flow methods since they
consider a broader range of factors that represent all sources of value,
present and future. Strategis accordingly generally gives greater
consideration to the discounted cash flow methods in its final judgment
concerning the fair market value of a cable television system. Strategis'
conclusions as to the range of values were based upon information and data
supplied by the General Partner, Strategis' onsite inspection of the Palmdale
System in January 1998, interviews with the Palmdale System's onsite
management team and general cable television industry information. The fair
market value appraisal of $140,059,000 reached by Strategis was based on the
various valuations generated by it, and Strategis' general knowledge and
expertise in the cable television industry.
As compensation for rendering an opinion as to the fair market value of the
Palmdale System, the General Partner paid Strategis a fee of $7,885. Such fee
was not contingent upon the conclusion reached by Strategis in its opinion. As
compensation for rendering opinions as to the fair market value of other cable
television systems owned and/or managed by the General Partner and its
affiliates, and completing the analysis of the allocations of purchase prices
between tangible and intangible assets for various cable television systems
owned and/or managed by the General Partner and its affiliates, Strategis has
received fees and expense reimbursements totaling $288,621 during the two
years ended December 31, 1997.
The Bond & Pecaro Appraisal
Bond & Pecaro, Inc. ("Bond & Pecaro") is a consulting firm specializing in
valuations, asset appraisals and related financial services for the
communications industry. The firm has appraised assets of more than 1,500
media properties. Bond & Pecaro was selected by the General Partner to render
an opinion as to the fair market value of the Palmdale System in light of such
overall qualifications and because of the firm's good reputation in the
industry. No limitations were imposed with respect to the appraisal to be
rendered by Bond & Pecaro. Bond & Pecaro has prepared independent appraisals
of other cable television systems owned and/or managed by the General Partner.
Bond & Pecaro also is serving as the General Partner's expert witness aiding
the General Partner in its defense of the litigation filed by limited partners
of Fund 12-D challenging the terms of the Venture's sale of the Tampa System
to a subsidiary of the General Partner. See "Special Factors, Legal
Proceedings." The principals of Bond & Pecaro are not affiliated in any way
with the General Partner.
Bond & Pecaro used both the income and the market methodologies to determine
the fair market value of the Palmdale System as of December 31, 1997. The firm
developed a discounted cash flow analysis to determine the value of the
Palmdale System based upon its economic potential. Bond & Pecaro noted that it
is generally accepted that the value of a telecommunications business such as
a cable television system lies in the fact that it is a "going concern." That
is, a cable system's value reflects the revenues and, ultimately, the after-
tax cash flow that the business may reasonably be expected to generate over a
period of years. The potential resale value of the business at the end of that
period is also an important factor in the valuation of such properties. Bond &
Pecaro noted that a number of factors contributed to going concern value,
including the formation of a business
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<PAGE>
plan, the construction of the system headend facility, the development of a
functional general, administrative and technical organization, the
establishment of a sales and marketing organization and the coordination of
all of these functions into a well-defined and efficient operating
organization. As described below, Bond & Pecaro's discounted cash flow model
incorporates variables such as capital expenditures, homes passed by the
system, basic penetration, paid penetration, system revenue projections,
anticipated system operating expenses and profits and various discount rates.
The variables in the analysis reflect historical system and market growth
trends as well as anticipated system performance and market conditions. The
capital expenditures provision reflects the amount of investment that Bond &
Pecaro projected will be required to expand and maintain a competitive cable
television business in the Palmdale, California area. Bond & Pecaro's
discounted cash flow projection period of ten years was deemed by the firm to
be an appropriate time horizon for the firm's analysis because cable operators
and investors typically expect to recover their investments within a ten-year
period. Thus, it was over this period that projections regarding market
demographics, system basic and pay penetration, and operating profit margins
were made by Bond & Pecaro. Bond & Pecaro looked at the ten year period to
project household growth in the Palmdale area, anticipated market penetration
percentages and system operating performance expectations in order to project
the Palmdale System's operating profits during the next ten years. The firm
deducted income taxes from the projected operating profits to determine after-
tax net income. Depreciation and amortization expenses were added back to the
after-tax income stream and projected capital expenditures were subtracted to
calculate the Palmdale System's net after-tax cash flow. Bond & Pecaro then
adjusted the stream of annual cash flow to present value using a discount rate
the firm deemed appropriate for the cable television industry. To determine
the Palmdale System's residual value at the end of the ten-year projection
period, Bond & Pecaro applied an operating cash flow multiple of 10 to the
system's 2007 operating cash flow projection. In Bond & Pecaro's opinion the
terminal value represents the hypothetical value of the system at the end of
the projection period and the net terminal value was discounted to present
value. The results of Bond & Pecaro's analysis indicated to the firm that the
value of the Palmdale System as of December 31, 1997 was $131,952,600. In
order to verify the results of the discounted cash flow analysis, as described
below, Bond & Pecaro also utilized a comparable sales approach, relying upon
an analysis of subscriber multiples. The results of this analysis supported
the firm's conclusions about valuation resulting from application of the
income approach.
Bond & Pecaro reported that the initial parameter upon which its discounted
cash flow projection was based was homes passed. Two factors affect the number
of homes passed: new plant construction and household growth. In preparing its
projection, Bond & Pecaro assumed that the number of households in the
Palmdale System's franchise area will increase at a rate equivalent to the
average growth projected for the areas served by the system as a whole, or
approximately 0.7 percent per year. Bond & Pecaro concluded that the basic
penetration rate would grow gradually over the 10-year projected period from
the current 72.4 percent to approximately 76.4 percent by 2007. The firm
projected that pay penetration of the Palmdale System will increase from a
level of 67.3 percent in December 1997 to approximately 90.3 percent by 2007.
Bond & Pecaro concluded that due to regulatory and competitive restrictions,
service rates for basic and expanded basic services are expected to grow with
inflation while premium channel service rates are expected to remain
relatively flat throughout the 10-year projected period. Bond & Pecaro
estimated that basic commercial and pay revenue will increase at a 10 percent
annual rate through 2007, that pay-per-view service revenue will increase at a
28.1 percent annual rate for the years 1998 through 2002 and at an 11 percent
annual rate thereafter, that commercial advertising revenue will increase at a
19.0 percent annual rate through 2002 and at a 10 percent annual rate
thereafter, and that annual installation revenue would remain constant during
the projection period. The firm concluded that equipment rental revenues as
well as other revenues also should increase by 9 percent annually through
2007. Bond & Pecaro concluded that total system revenues would increase from
$32,500,000 in 1998 to $57,600,000 in 2007. For purposes of its appraisal,
Bond & Pecaro assumed that the Palmdale System would maintain an operating
profit margin of 45.4 percent, which was the system's operating profit margin
in 1997. Bond & Pecaro used an estimated tax rate of 41.0 percent to project
the taxable income of the Palmdale System because the estimated rate reflects
the combined federal, state and local tax rates in effect on December 31,
1997. Depreciation expense for each year was determined using the MACRS
schedule for 5, 7, 15 and 39 year property based upon the reported cost of
fixed assets present at the Palmdale System. Subsequent annual capital
expenditures were
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<PAGE>
estimated to approximate 5 percent of the cost of the fixed assets of the
Palmdale System as of December 31, 1997. Supplemental provisions were made to
incorporate projections of capital expenditures associated with the conversion
to digital television.
Bond & Pecaro then determined the net after-tax cash flow for the Palmdale
System. After taxes were subtracted from the system's taxable income, non-cash
depreciation expenses were added back to net income to yield after-tax cash
flow. From the after-tax cash flow, the provision for subsequent capital
expenditures was deducted to calculate the net after-tax cash flows. Bond &
Pecaro used a discount rate of 12 percent to calculate the present value of
the net after-tax cash flows. In order to account for the risks associated
with investments in the cable television industry and in the Palmdale System
in particular, Bond & Pecaro added a premium to a base discount rate to
develop the 12 percent rate employed in its analysis. Bond & Pecaro then
applied a multiplier of 10 to the Palmdale System's 2007 operating cash flow.
Bond & Pecaro's appraisal noted that multiples used in the valuation of cable
television systems of a type similar to the Palmdale System range from 8 to 12
times operating cash flow, depending on market conditions and a system's
profit potential. Bond & Pecaro noted also that exceptional circumstances will
warrant multiples outside of this range. The appraisal report indicated that
the selected multiple of 10 was used to estimate the value of the system at
the end of the investment period. According to Bond & Pecaro, this multiple
reflects the state of the market for cable television systems as of December
31, 1997, tempered by the economic conditions of the system's franchise
service area, the uncertainty introduced by re-regulation of the cable
television industry and the prospects for increased competition from wireless
cable companies and direct broadcast satellite operators. The 10-year
discounted cash flow projection of Bond & Pecaro yielded a value of
$131,952,600 for the Palmdale System.
In order to correlate this statistical valuation with the realities of the
marketplace, Bond & Pecaro analyzed the sale of five comparable cable
television systems that took place in 1997. The sales examined by Bond &
Pecaro were selected based upon their comparability to the Palmdale System.
The five cable television system transactions examined by Bond & Pecaro were:
(i) the sale of the Palo Alto, California cable television system by one
unaffiliated cable television system operator to another for a sales price of
$54,100,000 or a price per subscriber of $2,042, (ii) the sale of the
Independence, Missouri cable television system by one of the General Partner's
managed partnerships to a subsidiary of the General Partner for a sales price
of $171,200,000 or a price per subscriber of $2,004, (iii) the sale of the
Phoenix, Arizona cable television system by one unaffiliated cable television
system operator to another for a sales price of $77,000,000 or a price per
subscriber of $2,131, (iv) the sale of the Evansville, Indiana cable
television system by one unaffiliated cable television system operator to
another for a sales price of $131,000,000 or a price per subscriber of $2,098,
and (v) the sale of the Brigham, Utah cable television system by one
unaffiliated cable television system operator to another for a sales price of
$125,000,000 or a price per subscriber of $2,160. Bond & Pecaro determined
that the average price per subscriber paid for the five comparable cable
television systems sales was approximately $2,087. As noted above, Bond &
Pecaro's discounted cash flow model concluded that the Palmdale System's
overall fair market value was $131,952,600. This $131,952,600 value reflects a
price of approximately $2,077 per subscriber, which Bond & Pecaro judged to be
consistent with prevailing subscriber multiples of comparable sales in 1997.
A representative of Bond & Pecaro consulted with system management regarding
market factors and system-specific issues that impacted the value of the
system's tangible and intangible assets. Specific data provided by the system
and the General Partner included historical audited financial statements,
operating statistical summaries, system technical data, market demographic
data and related materials. Other sources consulted in the preparation of the
appraisal included industry factbooks, government publications and similar
reference materials. Bond & Pecaro also relied upon information furnished by
the Palmdale System's management relating to the age, condition and adequacy
of the system's physical plant.
As compensation for rendering an opinion as to the fair market value of the
Palmdale System, the General Partner paid Bond & Pecaro a fee of $10,375. Such
fee was not contingent upon the conclusions reached by Bond & Pecaro in its
opinion. As compensation for rendering opinions as to the fair market value of
other cable television systems owned and/or managed by the General Partner and
its affiliates, Bond & Pecaro has received fees totaling $17,098 during the
two years ended December 31, 1997.
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<PAGE>
The Waller Appraisal
Waller Capital Corporation ("Waller") is a firm specializing in financial
services and asset appraisals for the telecommunications industry. Waller was
selected by the General Partner to render an opinion as to the fair market
value of the Palmdale System in light of its overall qualifications and
because of the firm's good reputation in the cable television industry. No
limitations were imposed with respect to the appraisals to be rendered by
Waller. Waller has prepared independent appraisals of other cable television
systems owned and/or managed by the General Partner. Neither Waller nor any of
its representatives have any active or contemplated direct interest in the
General Partner, in any of its managed partnerships or in any of its
affiliates, except for incidental shareholdings in the General Partner, which
is a publicly traded company.
In arriving at its opinion as to the fair market value of the Palmdale
System, Waller utilized audited and unaudited financial statements, visited
the Palmdale System, met with the management of the General Partner to discuss
the Palmdale System's business, current operations and prospects, analyzed
published financial and operating information and prospects, analyzed
published financial and operating information considered by Waller to be
comparable or related to the Palmdale System, and made other financial
studies, analysis and investigations as Waller deemed appropriate. Waller
indicated in its report that the primary purpose of its valuation was to
arrive at the fair market value of the Palmdale System, with fair market value
defined as the amount at which a property would change hands between a willing
buyer and a willing seller when neither is acting under compulsion and when
both have reasonable knowledge of the relevant facts. The valuation was
determined on a cash-for-assets basis.
Numerous elements, both quantitative and qualitative, were factored into
Waller's valuation. Waller concluded that the Palmdale System has attractive
demographics with, for example, average household income in the area served by
the system being significantly higher than the national average. Waller also
noted that due to the technical profile of the largest employers in the
Palmdale area (aerospace and defense), the residents of the area are also
highly educated. The firm further noted that the Palmdale area has experienced
substantial growth in households, with the area's households expected to grow
over 3 percent per year from 1997 to 2000. Waller also concluded that the
technical condition of the system at 550 Mhz capacity will be sufficient for
the Palmdale market for the near future. On the negative side, Waller noted
that while there is no current wireless competition to the Palmdale System,
there exists the potential of wireless competition due to the Palmdale area's
flat geography. Waller also noted that the local economy, while increasingly
diversified, still is heavily dependent on the aerospace and defense
industries and a downturn in either of these industries could negatively
impact system revenues.
The general methodology of Waller's appraisal was to evaluate the discounted
cash flow stream generated by the Palmdale System over a ten-year period (1998
to 2007), applying all relevant market and economic factors. Waller's ten-year
projections were prepared using information provided by the General Partner
together with Waller's industry estimates. Waller developed its projections
through on-sight due diligence, a review of the Palmdale System's 1998
operating budget prepared by the General Partner, other operating and
subscriber data and projections and demographic data relating to the Palmdale
System's service area. A sale was assumed to occur in the tenth year (2007) of
the discounted cash flow model. The cash flow sales multiple selected
reflected the long-term prospects for cash flow growth and the cash flow
quality of the Palmdale System. The multiple selected also accounted for the
presumed technical condition of the Palmdale System at 2007. The multiple
selected was applied against the full tenth year cash flow. Waller's analysis
utilized a discount rate of 14 percent derived from Waller's weighted average
cost of capital ("WACC") model. The discount rate was commensurate with a
probable buyer's capital structure, operating risk and other factors
associated with the operations of the Palmdale System. The discount rate used
was consistent with the WACCs for an average cable buyer, private or public,
and adjusted for certain factors such as size, liquidity, leverage and risk
associated with a typical cable system buyer. The cable companies used to
generate the WACC model were Adelphia Communications Corporation, Comcast
Corporation, Cox Communications, Century Communications Corp., Cablevision
Systems Corporation, TCA Cable TV, Inc., Telecommunications, Inc., Time Warner
and US West MediaOne Group.
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<PAGE>
Like Strategis and Bond & Pecaro, Waller developed its discounted cash flow
model based upon its own assumptions about the Palmdale System. Waller
projected that homes passed growth would be approximately 1.5 percent per year
over the ten year projection period, growing from 88,380 homes passed in 1998
to 102,048 homes passed in 2007. Waller projected that system plant miles
would grow from 1,020 in 1998 to 1,177 in 2007. Waller concluded that
subscriber growth would range from 1.3 percent to 3.2 percent in any
particular year, with growth generally averaging 1.5 percent per year and
that, as a result, subscribers would grow from 66,285 in 1998 to 78,577 in
2007. Waller projected growth in the number of pay units generally averaging
1 percent per year during the ten year projection period, with pay units
increasing from 44,391 in 1998 to 48,550 in 2007. Waller also examined growth
in rates charged to subscribers, concluding that basic service rates would
increase at approximately 4 percent per year, growing from $26.92 in 1998 to
$38.32 in 2007. Waller concluded that rates for pay programming would increase
approximately 2 percent per year, with rates increasing from $7.62 in 1998 to
$9.11 in 2007. Waller concluded that total system revenue would increase from
$33,046,000 in 1998 to $53,193,000 in 2007, with growth in basic service
revenues the primary reason for such increase. Waller also included that total
operating expenses would grow from $17,628,000 in 1998 to $29,769,000 in 2007.
Because Waller concluded that expenses would increase at a slightly higher
rate than revenue, Waller concluded that the Palmdale System's cash flow would
grow less dramatically, from $15,418,000 in 1998 to $23,424,000 in 2007.
Waller's analysis was further supported by comparable system sales. Waller
examined specific transactions to determine if an appropriate multiple of cash
flow could be derived from current market information. Waller examined
multiples from announced and completed cable television transactions in 1996
and 1997, relying upon data from transactions executed by Waller, from Paul
Kagan & Associates, Inc. and from general industry information sources. Waller
acknowledged that comparable sales data is difficult to generalize from
because of the variability of factors such as system size, growth prospects,
penetration, location, demographics, technical system condition and franchise
terms, which information often is not publicly available. Given these
limitations, Waller is of the opinion that comparable sales data offers only
an approximation of factors that help devise a fair market value and is used
as a reasonableness test of the discounted cash flow approach to value.
For its comparable system sales analysis, Waller examined transactions
involving cable television systems of similar size and characteristics to the
Palmdale System. Waller examined five transactions that occurred in 1996 and
eleven transactions that occurred in 1997. The five cable television system
transactions examined by Waller from 1996 were: (i) the sale of the Long
Beach, California cable television system by one unaffiliated cable television
system operator to another for a sales price of $150,000,000 or a price per
subscriber of $2,143, (ii) the sale a Minnesota system by one unaffiliated
cable television system operator to another for a sales price of $124,000,000
or a price per subscriber of $1,667, (iii) the sale of the Walnut Valley,
California cable television system by the General Partner to an unaffiliated
cable television system operator for a sales price of $104,000,000 or a price
per subscriber of $1,763, (iv) the sale of the Fort Collins, Colorado cable
television system by one unaffiliated cable television system operator to
another for a sales price of $54,000,000 or a price per subscriber of $1,800,
and (v) the sale of the Yorba Linda, California cable television system by one
of the General Partner's managed partnerships to an unaffiliated cable
television system operator for a sales price of $36,000,000 or a price per
subscriber of $2,118. The eleven 1997 cable television system transactions
examined by Waller were: (i) the sale of the Rockford, Illinois cable
television system by one unaffiliated cable television system operator to
another for a sales price of $97,000,000 or a price per subscriber of $1,492,
(ii) the sale of the Phoenix, Arizona cable television system by one
unaffiliated cable television system operator to another for a sales price of
$77,000,000 or a price per subscriber of $2,131, (iii) the sale of the
Hickory, North Carolina cable television system by one unaffiliated cable
television system operator to another for a sales price of $69,000,000 or a
price per subscriber of $1,957, (iv) the sale of the Palo Alto, California
cable television system by one unaffiliated cable television system operator
to another for a sales price of $54,100,000 or a price per subscriber of
$2,042, (v) the sale of the Dagsboro, Delaware cable television system by one
unaffiliated cable television system operator to another for a sales price of
$43,000,000 or a price per subscriber of $1,471, (vi) the sale of the Boone,
North Carolina cable television system by one unaffiliated cable television
system operator to another for a sales price of $35,000,000 or a price per
subscriber of $1,852, (vii) the sale of cable television system serving a
portion
24
<PAGE>
of Dallas, Texas by one unaffiliated cable television system operator to
another for a sales price of $35,000,000 or a price per subscriber of $1,601,
(viii) the sale of several small systems in Connecticut and New Hampshire by
one unaffiliated cable television system operator to another for a sales price
of $30,000,000 or a price per subscriber of $1,954, (ix) the sale of the
Auburn, New York cable television system by one unaffiliated cable television
system operator to another for a sales price of $28,000,000 or a price per
subscriber of $1,958, (x) the sale of the Pelzer, South Carolina cable
television system by one unaffiliated cable television system operator to
another for a sales price of $27,000,000 or a price per subscriber of $1,283,
and (xi) the sale of the Kauai, Hawaii cable television system by one
unaffiliated cable television system operator to another for a sales price of
$24,000,000 or a price per subscriber of $2,065. Waller determined that the
average price per subscriber paid for the comparable cable television system
sales was approximately $1,810 and a cash flow multiple of 9.5. Waller
concluded that this comparable sales analysis supported and validated Waller's
discounted cash flow analysis, which resulted in an aggregate value for the
Palmdale System of $2,179 per subscriber and a 10.5 times 1997 cash flow
multiple, because the Palmdale System is of better quality than the average
comparable system sold.
Based on its various analyses and investigations of the Palmdale System,
Waller concluded that the fair market value of the Palmdale System as of
December 31, 1997 was $142,604,000.
As compensation for rendering an opinion as to the fair market value of the
Palmdale System, the General Partner paid Waller a fee of $15,212. Such fee
was not contingent upon the conclusion reached by Waller in its opinion.
Waller received no fees from the General Partner and its affiliates during the
two years ended December 31, 1997.
COSTS OF THE TRANSACTION
The following is a reasonably itemized estimate of all expenses incurred or
to be incurred in connection with the proposed sale of the Palmdale System,
all of which will be paid by the General Partner, including without limitation
the cost of soliciting the votes of the holders of limited partnership
interests:
<TABLE>
<S> <C>
Filing fees $ 2,488
Legal fees $10,000
Accounting fees $10,000
Appraisal fees $33,473
Printing costs $80,000
Postage and miscellaneous costs $20,000
</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 March 10, 1998 (the "Purchase and Sale Agreement") by and between the
Venture as seller and the General Partner as purchaser, the Venture agreed to
sell the Palmdale System to the General Partner or to a subsidiary of the
General Partner. The General Partner has assigned its rights and obligations
as purchaser to Jones Communications of California, Inc., an indirect wholly
owned subsidiary. The purchaser intends to finance the acquisition of the
Palmdale System using cash on hand and borrowings available under credit
facilities dated as of October 29, 1996 among Jones Cable Holdings II, Inc.,
as the borrower, and several lenders, including The Bank of Nova Scotia,
NationsBank of Texas, N.A. and Societe Generale as the managing agents. The
maximum amount available under the credit facilities is $600 million. One $300
million facility reduces quarterly beginning March 31, 2000 through the final
maturity date of December 31, 2005 and the lenders' revolving commitment under
the other $300 million facility terminates on October 27, 1998, at which time
any outstanding borrowings convert to a term loan payable in semi-annual
installments commencing June 30, 2001 with a final maturity date of December
31, 2005. Interest on amounts outstanding under the credit facilities varies
from the "base rate," which generally approximates the prime rate, to the base
rate plus 1/4 percent or LIBOR plus 1/2 percent to 1 1/4 percent depending on
certain financial covenants. The effective interest rate on the $290,000,000
outstanding at June 30, 1998 was 6.18 percent. The credit facilities are
secured by a pledge of the stock of all of the subsidiaries of the borrower.
25
<PAGE>
Jones Communications of California, Inc. is a wholly owned subsidiary of Jones
Cable Holdings II, Inc., which in turn is a wholly owned subsidiary of the
General Partner.
Based upon amounts estimated as of June 30, 1998, the aggregate cost of the
acquisition of the Palmdale System to the purchaser, including working capital
adjustments, will be approximately $139,605,890. Amounts borrowed by the
purchaser to acquire the Palmdale System will be repaid from cash generated by
the operations of the Palmdale System and other systems owned by Jones Cable
Holdings II, Inc. and from other sources of funds, including possible future
refinancings.
The closing of the sale will occur on a date upon which the Venture and the
purchaser mutually agree. It is anticipated that the closing will occur in the
fourth quarter of 1998. Because the closing is conditioned upon, among other
things, the approval of the limited partners of the Venture's three
constituent partnerships and the consent of governmental franchising
authorities and other third parties, there can be no assurance that the
proposed sale will occur. If all conditions precedent to the purchaser's
obligation to close are not eventually satisfied or waived, the purchaser's
obligation to purchase the Palmdale System will terminate.
THE PALMDALE SYSTEM
The assets to be acquired consist primarily of the real and personal,
tangible and intangible assets of the Venture's Palmdale System. The purchaser
will purchase all of the tangible assets of the Palmdale System, including,
among other things, the headend equipment, underground and aboveground cable
distribution systems, towers, earth satellite receive stations, and furniture
and fixtures of the Palmdale System. The purchaser also will acquire certain
of the intangible assets of the Palmdale System, including, among other
things, all of the franchises, leases, agreements, permits, licenses and other
contracts and contract rights of the Palmdale System. Also included in the
sale are any parcels of real estate owned by the Palmdale System, the
subscriber accounts receivable of the Palmdale System and all of the Palmdale
System's engineering records, files, schematics, maps, reports, promotional
graphics, marketing materials and reports filed with federal, state and local
regulatory agencies. Certain of the Palmdale System's assets will be retained
by the Venture, including cash or cash equivalents on hand and in banks,
certain insurance policies and rights and claims thereunder, and any federal
or state income tax refunds to which the Venture may be entitled.
SALES PRICE
Subject to the customary working capital closing adjustments described
below, the sales price for the Palmdale System is $138,205,200. The sales
price will be reduced by any accounts payable and accrued expenses and vehicle
lease obligations existing on the closing date. The sales price will be
increased by any accounts receivable existing on the closing date. The sales
price for the Palmdale System also will be adjusted as of the closing date
with respect to all items of income and expense associated with the operation
of the Palmdale System. This adjustment will reflect, in accordance with
generally accepted accounting principles, that all expenses and income
attributable to the period on or after the closing date are for the account of
the purchaser and those prior to the closing date are for the account of the
seller. While these adjustments may have the effect of increasing or
decreasing the sales price, any adjustment is not expected to be material.
Please see Note 5 of the Notes to Unaudited Pro Forma Financial Statements for
a detailed accounting of the estimated closing adjustments.
CONDITIONS TO CLOSING
The purchaser's obligations under the Purchase and Sale Agreement are
subject to the following conditions: (a) the Venture shall have obtained all
material consents and approvals from governmental authorities and third
parties with whom the Venture has contracted that are necessary for the
transfer of the Palmdale System, (b) all representations and warranties of the
Venture shall be true and correct in all material respects as of the closing
date and (c) termination or expiration of the statutory waiting period
applicable to the Purchase and Sale Agreement and the transactions
contemplated thereby under the Hart-Scott-Rodino Antitrust Improvements Act
26
<PAGE>
of 1976, as amended (the "HSR Act"). The Venture must obtain the consents of
the four franchising authorities to the transfer of the Palmdale System's
cable franchises. The Venture and the General Partner have filed all documents
required to obtain the consents of the franchising authorities to the transfer
of the Palmdale System's cable franchises. It is anticipated that the Venture
will not experience any significant difficulty in obtaining the necessary
consents and approvals to the currently proposed sale. If, however, the
Venture fails to obtain certain non-material consents and approvals of third
parties with whom the Palmdale System has contracted, the purchaser likely
will waive this condition to closing. In such circumstances, the purchaser
would agree to indemnify the Venture for any liabilities incurred in
connection with a closing without prior receipt of all necessary consents.
The Venture's obligations under the Purchase and Sale Agreement are subject
to the following conditions: (a) the receipt of the purchase price for the
Palmdale System, (b) the limited partners of the Partnership, Fund 12-C and
Fund 12-D shall have approved the Venture's sale of the Palmdale System to the
purchaser on the terms and conditions of the Purchase and Sale Agreement and
(c) the statutory waiting periods applicable to the Purchase and Sale
Agreement and the transactions contemplated thereby under the HSR Act shall
have terminated or shall have expired.
FEDERAL AND STATE INCOME TAX CONSEQUENCES
The purpose of the following discussion of the income tax consequences of
the proposed transaction is to inform the limited partners of the Partnership
of the federal and state income tax consequences to the Partnership and to its
partners arising from the proposed sale of the Palmdale System. These tax
consequences are expected to be incurred in 1998, the year in which the sale
is expected to close. The tax information included herein was prepared by the
tax department of the General Partner. The tax information is taken from tax
data compiled by the General Partner in its role as the Partnership's tax
administrator and is not based upon the advice or formal opinion of counsel.
The tax discussion that follows is merely intended to inform the limited
partners of factual information and should not be considered tax advice.
PARTNERSHIP ALLOCATION OF GAIN FROM SALE
Section 5.3 of the Partnership Agreement specifies that Partnership
distributions of cable television system net sale proceeds shall be allocated
100 percent to limited partners until they have received a return of their
initial capital contributions and thereafter such distributions will be made
75 percent to the limited partners and 25 percent to the General Partner.
Because limited partners have already received distributions in an amount in
excess of the capital they initially contributed to the Partnership, all of
the net proceeds from the sale of the Palmdale System distributed to the
Partnership will be allocated 75 percent to the limited partners and 25
percent to the General Partner.
The allocation of gain from the sale of the Palmdale System will be
allocated 75 percent to the limited partners and 25 percent to the General
Partner in accordance with Section 5.2 of the Partnership Agreement. This
allocation follows the underlying economic gain of the partners and hence
satisfies the "substantial economic effect" test enacted in IRC Section 704(b)
regarding special partnership allocations.
Application of the allocation provisions of Section 5.2 ensures that the
limited partners' net sum of allocable partnership loss and income during the
Partnership's life will equal the net economic gain realized from their
investment in the Partnership. The estimated allocable limited partner income
from the Palmdale System sale reported below incorporates the application of
the special partnership allocation rules of Section 5.2.
PROJECTED 1998 TAX RESULTS
By the expected date of the Palmdale System's sale in 1998, most of the
limited partners will have received certain tax benefits from their investment
in the Partnership. Assuming maximum federal income tax rates and
27
<PAGE>
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 Palmdale System will result in a partnership gain for
federal income tax purposes. The amount of this gain allocated to limited
partners will be approximately $8,100,278. The General Partner estimates that
$6,620,026 ($119 per $1,000 invested) of this gain will be treated as ordinary
income. This amount of ordinary income results from the recapture of
depreciation on personal property under IRC Section 1245. The General Partner
estimates that the remainder of the gain, $1,480,252 ($27 per $1,000
invested), will be treated as long term capital gain under IRC Section 1231.
No significant passive loss carryforwards from the Partnership should be
available to offset these gain allocations.
Assuming the 31 percent rate applies to ordinary income and the 20 percent
rate applies to long term capital gain income, as a result of the sale of the
Palmdale System, a limited partner will be subject to federal income taxes of
$42 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.
SECONDARY MARKET PURCHASERS
Limited partners that have more recently acquired their partnership
interests in the limited partnership secondary market and/or through limited
tender offers will have allocable income from the sale in the amounts reported
above. Because the Partnership does not have an IRC Section 754 election in
effect, the purchase of a limited partnership interest in the Partnership
places the new investor in the same position as the limited partner from whom
the interest was purchased. However, the new investor will not have the prior
investor's passive loss carryforwards or tax basis in the Partnership.
Newer investors in the Partnership will likely have a greater reportable net
taxable income from the sale of the Palmdale System than investors who have
held their limited partnership interests for a longer period of time. Also,
recent investors will not have their net tax basis in their partnership
interests reflected on their annual Schedule K-1. Such limited partners must
track their tax basis by adjusting their original cost by allocable income or
loss and partnership distributions. Their adjusted tax basis will be pertinent
in the year when they sell their limited partnership interests or when the
Partnership is liquidated.
TAX WITHHOLDING ON SALE PROCEEDS
Limited partners who are non-resident aliens or foreign corporations
("foreign persons") are subject to a withholding tax on their share of the
Partnership's income from the sale of the Palmdale System. The withholding
rates are 39.6 percent for individual partners and 35 percent for corporate
partners. The tax withheld will be remitted to the Internal Revenue Service
and the foreign person will receive a credit on their U.S. tax return for the
amount of the tax withheld by the Partnership. The tax withheld will be
treated as a distribution to the limited partner.
The sale of the Palmdale System will require certain limited partners to
report their income to the State of California. The General Partner is
required by California law to withhold 7 percent of each domestic non-resident
partner's allocable income from the sale of the Palmdale System and 9.3
percent of each foreign non-resident partner's allocable income from the sale
of the Palmdale System. This withholding requirement does not apply to
residents of the State of California or to tax-exempt entities such as trusts
and IRAs. This withholding process will require affected limited partners to
file non-resident income tax returns in the State of California for 1998. The
General Partner anticipates that most limited partners will likely receive a
refund from this reporting process. Detailed California reporting instructions
and blank forms will be provided to affected limited partners in their 1998
annual tax reporting package, which will be mailed to limited partners in
March 1999.
28
<PAGE>
CERTAIN INFORMATION ABOUT THE PARTNERSHIP
AND THE GENERAL PARTNER
The General Partner acquires, develops and operates cable television systems
for itself and for its managed limited partnerships. Based on the number of
basic subscribers served by the General Partner's owned and managed cable
television systems, the General Partner is one of the larger cable television
system operators in the United States serving in excess of one million basic
subscribers. The principal executive offices of the Partnership and the
General Partner are located at 9697 East Mineral Avenue, Englewood, Colorado
80112, and their telephone number is (303) 792-3111.
The limited partnership interests of the Partnership are registered pursuant
to Section 12(g) of the Exchange Act. As such, the Partnership currently is
subject to the informational reporting requirements of the Exchange Act and,
in accordance therewith, is obligated to file periodic reports, proxy
statements and other information with the Commission relating to its business,
financial condition and other matters. Reports and other information filed by
the Partnership can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the following regional offices of the Commission: 7 World
Trade Center, Suite 1300, New York, New York 10048 and Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The
Commission also maintains a World Wide Web site that contains reports, proxy
statements and information statements of registrants (including the
Partnership) that file electronically with the Commission at
http://www.sec.gov. The Partnership's registration and reporting requirements
under the Exchange Act will be terminated upon the dissolution of the
Partnership, which is expected to occur soon after the sale of the Venture's
Palmdale System.
The General Partner also is subject to the informational filing requirements
of the Exchange Act and, in accordance therewith, files periodic reports,
proxy statements and other financial information with the Securities and
Exchange Commission relating to its business, financial condition and other
matters. Information, as of particular dates, concerning the General Partner's
directors and officers, their compensation, options granted to them, the
principal holders of the General Partner's securities and any material
interest of such persons in transactions with the General Partner is required
to be disclosed in certain documents filed with the Commission. Such reports,
proxy statements and other information may be inspected at the above-listed
public reference facilities maintained by the Commission and at the
Commission's World Wide Web site. Copies of such materials may be obtained
upon payment of the Commission's prescribed charges by writing to the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C.
20549.
The name, business address and principal occupation and employment for the
past five years of each of the directors and executive officers of the General
Partner are set forth in Schedule 1 to this Proxy Statement. To the best
knowledge of any of the persons listed on Schedule 1 hereto, except as
disclosed on such schedule, no persons listed on such schedule beneficially
own any limited partnership interests in the Partnership.
Except as disclosed herein, neither the General Partner nor, to the best of
its knowledge, any of the persons listed on Schedule 1 hereto, has any
contract, arrangement, understanding or relationship with any other person
with respect to any limited partnership interest of the Partnership,
including, but not limited to, any contract, arrangement, understanding or
relationship concerning the transfer or the voting of any of such interests,
joint ventures, loan or option arrangements, puts or calls, guaranties of
loans, guaranties against loss or the giving or withholding of proxies.
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.
29
<PAGE>
The purchase price for the Palmdale System was determined in accordance with
the provisions of the Partnership Agreement but the proposed sale of the
Palmdale System by the Venture to one of the General Partner's subsidiaries
was not negotiated at arm's-length and thus there can be no assurance that the
terms of such transaction have been or will be as favorable as those that
could have been obtained by the Venture from an unaffiliated purchaser.
The General Partner charges the Venture a management fee relating to the
General Partner's management of the Venture's cable television systems, and
the Venture reimburses the General Partner for certain allocated overhead and
administrative expenses in accordance with the terms of the Partnership
Agreement. These expenses consist primarily of salaries and benefits paid to
corporate personnel, rent, data processing services and other facilities
costs. Such personnel provide engineering, marketing, administrative,
accounting, legal and investor relations services to the Venture. Allocations
of personnel costs are based primarily on actual time spent by employees of
the General Partner with respect to cable television systems managed. Systems
owned by the General Partner and its subsidiaries and all other systems owned
by partnerships for which Jones Intercable, Inc. or one of its subsidiaries is
the general partner are also allocated a proportionate share of these
expenses. No duplicate management or other fees or reimbursements are charged
to the Partnership.
The General Partner from time to time also advances funds to the Venture and
charges interest on the balances payable by the Venture. The interest rate
charged the Venture approximates the General Partner's weighted average cost
of borrowing.
Knowledge TV, Inc. is an affiliate of the General Partner that owns and
operates Knowledge TV, a network that provides programming related to
computers and technology; business, careers and finance; health and wellness;
and global culture and languages. Knowledge TV, Inc. sells its programming to
the cable television systems owned by the Venture.
Jones Computer Network, Ltd., an affiliate of the General Partner, operated
the television network Jones Computer Network. This network provided
programming focused primarily on computers and technology. Jones Computer
Network sold its programming to the cable television systems owned by the
Venture. Jones Computer Network terminated its programming in April 1997.
The Great American Country network provides country music video programming
to the cable television systems owned by the Venture. This network is owned
and operated by Great American Country, Inc., a subsidiary of Jones
International Networks, Ltd., an affiliate of the General Partner.
Jones Galactic Radio, Inc. is a company owned by Jones International
Networks, Ltd., an affiliate of the General Partner, Superaudio, a joint
venture between Jones Galactic Radio, Inc. and an unaffiliated entity,
provides satellite programming to the cable television systems owned by the
Venture.
The Product Information Network Venture (the "PIN Venture") is a venture
among a subsidiary of Jones International Networks, Ltd., an affiliate of the
General Partner, and two unaffiliated cable system operators. The PIN Venture
operates the Product Information Network ("PIN"), which is a 24-hour network
that airs long-form advertising generally known as "infomercials." The PIN
Venture generally makes incentive payments of approximately 60 percent of its
net advertising revenue to the cable systems that carry its programming. The
Venture's systems carry PIN for all or part of each day. Revenues received by
the Venture from the PIN Venture relating to the Venture's owned cable
television systems totaled $136,878 for the six months ended June 30, 1998 and
$199,997 for the year ended December 31, 1997.
The programming fees paid by the Venture to Knowledge TV, Inc., Jones
Computer Network, Ltd., Great American Country and Superaudio (collectively,
the "affiliated programming providers") are governed by the terms of the
various master programming agreements entered into by and between the General
Partner and each of the affiliated programming providers. Generally, with
respect to most video programming services, cable operators pay to programmers
a monthly license fee per subscriber that is based on a number of factors,
including
30
<PAGE>
the perceived value of the programming, the size of the cable operator and the
level of distribution of the programming service within the cable operator's
systems and the other terms and conditions under which the programming is
provided. The General Partner negotiates master programming agreements with
each programming network distributed on any of its owned or managed cable
systems. The Venture pays the same per subscriber rate for all of its
programming, including the programming provided by affiliates of the General
Partner, as the General Partner pays for the programming it provides on cable
television systems that it owns itself, i.e., the General Partner does not
receive any markup for programming provided to the Venture under its master
programming agreements. The master programming agreements entered into by and
between the General Partner and the affiliated programming providers were
negotiated by officers of the General Partner with representatives of the
affiliated programming providers.
The charges to the Venture for related party transactions were as follows
for the periods indicated:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS
ENDED FOR THE YEAR ENDED
JUNE 30, 1998 DECEMBER 31,
------------- --------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C> <C>
Management fees................. $2,153,953 $4,133,751 $4,118,188 $5,069,985
Allocation of expenses.......... 2,481,309 4,615,841 5,491,265 7,183,663
Interest expense................ 0 0 0 220,743
Amount of notes and advances
outstanding.................... 0 0 0 4,198,739
Highest amount of notes and
advances outstanding........... 0 0 0 4,574,572
Programming fees:
Knowledge TV, Inc. ........... 71,936 131,277 126,665 145,598
Jones Computer Network, Ltd. . 0 85,543 248,044 283,339
Great American Country........ 67,921 131,863 141,753 0
Superaudio.................... 63,802 118,032 116,710 135,861
</TABLE>
31
<PAGE>
USE OF PROCEEDS FROM PALMDALE SYSTEM SALE
The following is a brief summary of the Venture's estimated use of proceeds
and of the Partnership's estimated use of its portion of the proceeds from the
Venture's sale of the Palmdale System. All of the following selected financial
information is based upon amounts as of June 30, 1998 and certain estimates of
liabilities at closing. Final results may differ from these estimates. A more
detailed discussion of the financial consequences of the sale of the Palmdale
System is set forth below under the caption "Unaudited Pro Forma Financial
Information." All limited partners are encouraged to review carefully the
unaudited pro forma financial statements and notes thereto.
If the holders of a majority of limited partnership interests of the three
partnerships that comprise the Venture approve the proposed sale of the
Palmdale System and the transaction is closed, the Venture will repay all of
its outstanding indebtedness, which, with accrued interest, is estimated to
total approximately $51,922,252, and then the approximately $87,581,654 net
sale proceeds will be distributed to the three constituent partnerships of the
Venture in proportion to their ownership interests in the Venture. The
Partnership will receive 9 percent of the net sale proceeds, estimated to
total approximately $8,039,628. Pursuant to the terms of the Partnership
Agreement, the $8,039,628 distribution will be allocated 75 percent to the
limited partners ($6,029,721) and 25 percent to the General Partner
($2,009,907). The Partnership will distribute the $6,029,721 to its limited
partners of record as of the closing date of the sale of the Palmdale System.
The estimated uses of the sale proceeds are as follows:
<TABLE>
<S> <C>
Contract Sales Price of the Palmdale System.................... $138,205,200
Add:Estimated Net Closing Adjustments.......................... 1,400,690
Less:Repayment of Debt Plus Accrued Interest................... (51,922,252)
Cash Retained for Working Capital Purposes.............. (101,984)
------------
Cash Available for Distribution to Joint Venturers........ 87,581,654
Cash Distributed to Fund 12-C and Fund 12-D............... (79,542,026)
------------
Cash Available for Distribution by the Partnership........ $ 8,039,628
============
Limited Partners' Share (75%)............................. $ 6,029,721
============
General Partner's Share (25%)............................. $ 2,009,907
============
</TABLE>
Based upon financial information available at June 30, 1998, below is an
estimate of all cash distributions that will have been made to limited
partners after the distribution of the proceeds from the sale of the Palmdale
System is completed.
<TABLE>
<S> <C>
Summary of Estimated Cash Distributions to Limited Partners:
Return of Limited Partners' Initial Capital on the 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 Proceeds on the 1996 Sale of the
Venture's Tampa System...................................... 3,787,000
Limited Partners' Share of Proceeds on the 1998 Sale of the
Venture's Albuquerque System................................ 8,605,856
Limited Partners' Share of Proceeds on the 1998 Sale of the
Venture's Palmdale System................................... 6,029,721
------------
Total Estimated Cash Received by Limited Partners............ $114,501,952
============
Total Cash Received per $1,000 of Limited Partnership
Capital..................................................... $ 2,062
============
Total Cash Received per $500 Limited Partnership Interest ... $ 1,031
============
</TABLE>
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<PAGE>
Based on financial information available at June 30, 1998, the following
table presents the estimated results of the Partnership when the Venture has
completed the sale of the Palmdale System:
<TABLE>
<S> <C>
Dollar Amount Raised....................................... $ 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...................................... $ (1,189)
--from recapture....................................... $ 2,082
Capital Gain (Loss).................................... $ 174
Cash Distributions to Investors
Source (on GAAP basis)
--investment income.................................... $ 1,062
--return of capital.................................... $ 1,000
Source (on cash basis)
--sales................................................ $ 2,062
</TABLE>
33
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF CABLE TV FUND 12-B, LTD.
The following unaudited pro forma financial statements assume that as of
June 30, 1998, the Venture had sold the Palmdale System. The sales price for
the Palmdale System is $138,205,200. The funds available to the Venture from
the sale of the Palmdale System, adjusting for the estimated net closing
adjustments, are expected to total approximately $139,605,890. Such funds will
be used to repay all of the Venture's indebtedness and to distribute
$87,581,654 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 $8,039,628
from such distribution. Pursuant to the terms of the Partnership Agreement,
the $8,039,628 distribution will be allocated 75 percent to the limited
partners ($6,029,721) and 25 percent to the General Partner ($2,009,907). The
limited partner distribution of $6,029,721 represents $54 for each $500
limited partnership interest or $108 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 JUNE 30, 1998 AND CERTAIN ESTIMATES OF LIABILITIES AT CLOSING.
FINAL RESULTS MAY DIFFER FROM SUCH INFORMATION.
34
<PAGE>
CABLE TV FUND 12-B, LTD.
UNAUDITED PRO FORMA BALANCE SHEET
JUNE 30, 1998
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
----------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Distribution receivable from cable
television joint venture................. $8,605,856 $ (566,228) $8,039,628
----------- ----------- ----------
Total Assets.......................... $ 8,605,856 $ (566,228) $8,039,628
=========== =========== ==========
LIABILITIES AND PARTNERS' CAPITAL
(DEFICIT)
Liabilities:
Loss in excess of investment in cable
television joint venture............... $ 759,610 $ (759,610) $ --
Accrued distribution to limited
partners............................... 8,605,856 (2,576,135) 6,029,721
Accrued distribution to General Partner. -- 2,009,907 2,009,907
----------- ----------- ----------
Total Liabilities..................... 9,365,466 (1,325,838) 8,039,628
----------- ----------- ----------
Partners' Capital (Deficit):
General Partner......................... 326,334 (326,334) --
Limited Partners........................ (1,085,944) 1,085,944 --
----------- ----------- ----------
Total Partners' Capital (Deficit)..... (759,610) 759,610 --
----------- ----------- ----------
Total Liabilities and Partners' Capital
(Deficit).............................. $ 8,605,856 $ (566,228) $8,039,628
=========== =========== ==========
</TABLE>
The accompanying notes to unaudited pro forma financial statements are
an integral part of this unaudited pro forma balance sheet.
35
<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 LOSS OF CABLE TELEVISION
JOINT VENTURE................................ $(440,479) $440,479 $ --
--------- -------- ------
NET LOSS ..................................... $(440,479) $440,479 $ --
========= ======== ======
NET LOSS PER LIMITED PARTNERSHIP INTEREST..... $ (3.93) $ --
========= ======
</TABLE>
The accompanying notes to unaudited pro forma financial statements are an
integral part of this unaudited pro forma statement.
36
<PAGE>
CABLE TV FUND 12-B, LTD.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
----------- ------------ ---------
<S> <C> <C> <C>
OTHER EXPENSES ........................... $ (55,348) 55,348 $ --
EQUITY IN NET INCOME OF CABLE TELEVISION
JOINT VENTURE............................ $13,307,001 $(13,307,001) $ --
----------- ------------ ------
NET INCOME ............................... $13,251,653 $(13,251,653) $ --
=========== ============ ======
NET INCOME PER LIMITED PARTNERSHIP
INTEREST................................. $ 88.83 $ --
=========== ======
</TABLE>
The accompanying notes to unaudited pro forma financial statements are an
integral part of this unaudited pro forma statement.
37
<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 Palmdale System and the resulting
estimated distributions to be received by the Partnership.
2) The Venture sold the Albuquerque System for $222,683,739 on June 30,
1998. Such funds were used to repay indebtedness and to distribute
$125,000,000 to the three constituent partnerships of the Venture pursuant to
the percentage ownership interests in the Venture of each partnership. The
Partnership received $11,474,475 from such distribution. Pursuant to the terms
of the Partnership Agreement, the Partnership allocated 75 percent to the
limited partners ($8,605,856) and 25 percent to the General Partner
($2,868,619).
3) The unaudited pro forma balance sheet of the Partnership assumes that the
Venture had sold the Palmdale System for $138,205,200 as of March 31, 1998.
The unaudited pro forma statements of operations of the Partnership assume
that the Venture had sold the Palmdale System as of January 1, 1997.
4) The Partnership will receive $8,039,628 from the Venture. Pursuant to the
terms of the Partnership Agreement, the $8,039,628 distribution will be
allocated 75 percent to the limited partners ($6,029,721) and 25 percent to
the General Partner ($2,103,100). The limited partner distribution of
$6,029,721 represents $54 for each $500 limited partnership interest or $108
for each $1,000 invested in the Partnership.
5) The estimated gain recognized from the sale of the Palmdale System and
corresponding estimated distribution to limited partners as of June 30, 1998
has been computed as follows:
GAIN ON SALE OF ASSETS:
<TABLE>
<S> <C>
Contract sales price............................................. $138,205,200
Less: Net book value of investment in cable television properties
at June 30, 1998........................................... (38,077,176)
------------
Gain on sale of assets........................................... $100,128,024
============
Partnership's share of gain on sale of assets.................... $ 9,191,753
============
DISTRIBUTIONS TO PARTNERS:
Contract sales price............................................. $138,205,200
Add:Trade receivables, net....................................... 1,215,808
Prepaid expenses................................................. 1,522,880
Less:Accrued liabilities......................................... (1,207,525)
Subscriber prepayments........................................... (130,473)
------------
Adjusted cash received .......................................... 139,605,890
Less:Outstanding debt plus accrued interest to third parties..... (51,922,252)
Add:Cash retained for working capital purposes................... (101,984)
------------
Cash available for distribution to joint venturers............... 87,581,654
Cash distributed to Fund 12-C and Fund 12-D...................... 79,542,026
------------
Cash available for distribution by the Partnership............... $ 8,039,628
============
Limited Partners' share (75%).................................... $ 6,029,721
============
General Partner's share (25%).................................... $ 2,009,907
============
</TABLE>
38
<PAGE>
AVAILABLE INFORMATION
The Partnership's Annual Report on Form 10-K/A No.1 for the fiscal year
ended December 31, 1997 and the Partnership's Quarterly Reports on Form 10-Q
for the fiscal quarters ended March 31, 1998 and June 30, 1998 are being
mailed to the limited partners of the Partnership together with this Proxy
Statement. Copies of the three independent appraisals of the fair market value
of the Palmdale System and copies of the Purchase and Sale Agreement between
the Venture and the General Partner have been publicly filed with the
Securities and Exchange Commission and may be inspected at the Commission's
public reference facilities and at its World Wide Web site, and such documents
also are available to each limited partner of the Partnership upon written
request to Elizabeth M. Steele, Secretary, Jones Intercable, Inc., 9697 East
Mineral Avenue, Englewood, Colorado 80112. Copies of these documents will be
provided at the expense of the requesting limited partner.
A Rule 13e-3 Transaction Statement furnishing certain additional information
with respect to the transaction described herein has been jointly filed by the
Partnership and the General Partner with the Securities and Exchange
Commission. This document may be inspected at the Commission's public
reference facilities and at its World Wide Web site.
INCORPORATION BY REFERENCE
The following documents, which have been filed by the Partnership with the
Securities and Exchange Commission pursuant to the requirements of the
Exchange Act, are hereby incorporated by reference: (i) the Partnership's
Annual Report on Form 10-K/A No. 1 for the fiscal year ended December 31,
1997, (ii) the Partnership's Current Report on Form 8-K dated March 10, 1998,
(iii) the Partnership's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1998 and (iv) the Partnership's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1998.
39
<PAGE>
SCHEDULE 1
EXECUTIVE OFFICERS AND DIRECTORS OF THE GENERAL PARTNER
Set forth below is the name, residence or business address, present
principal occupation or employment and five-year employment history of the
executive officers and directors of the General Partner. Also set forth is the
aggregate number of limited partnership interests of the Partnership
beneficially owned by each such person. The present principal occupation of
each executive officer of the General Partner is as an executive officer of
the General Partner. The Partnership has no officers or employees. All persons
listed except for Messrs. Fridman, Kearney and Vanaselja are citizens of the
United States. Messrs. Fridman, Kearney and Vanaselja are citizens of Canada.
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Glenn R. Jones Mr. Jones has served as Chairman of the Board of 0
c/o Jones Intercable, Directors and Chief Executive Officer of the
Inc. 9697 E. Mineral General Partner since its formation in 1970. He
Avenue Englewood, CO served as President of the General Partner from
80112 1984 to 1988. Mr. Jones has been involved in
the cable television business in various
capacities since 1961.
Robert E. Cole Mr. Cole was appointed a Director of the General 0
c/o Jones Intercable, Partner in March 1996. Mr. Cole is currently
Inc. self-employed as a partner of First Variable
9697 E. Mineral Avenue Insurance Marketing and is responsible for
Englewood, CO 80112 marketing to National Association of Securities
Dealers, Inc. firms in northern California,
Oregon, Washington and Alaska. From 1993 to
1995, Mr. Cole was the director of marketing
for Lamar Life Insurance Company; from 1992 to
1993, Mr. Cole was senior vice president of PMI
Inc., a third party lender serving the special
needs of corporate owned life insurance (COLI);
and from 1988 to 1992, Mr. Cole was the
principal of a specialty investment banking
firm that provided services to finance the
ownership and growth of emerging companies,
productive assets and real property.
Kevin P. Coyle Mr. Coyle, Group Vice President/Finance of the 0
c/o Jones Intercable, General Partner, has been the General Partner's
Inc. 9697 E. Mineral Chief Financial Officer since 1990. Mr. Coyle
Avenue Englewood, CO has been an associate of the finance department
80112 of the General Partner since 1981.
William E. Frenzel Mr. Frenzel was appointed a Director of the 0
1775 Massachusetts General Partner in April 1995. He has been a
Avenue, NW Guest Scholar since 1991 with the Brookings
Washington, DC 20036 Institution, a research organization located in
Washington, DC. Until his retirement in January
1991, Mr. Frenzel served for twenty years in
the United States House of Representatives.
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Josef J. Fridman Mr. Fridman was appointed a director of the 0
c/o BCI Telecom Holding Inc. General Partner in February 1998. He is senior
1000 rue de la vice-president, law and corporate secretary of
Gauchetiere Bureau 1100 BCE Inc. Mr. Fridman joined Bell Canada, a
Montreal (PQ) wholly owned subsidiary of BCE Inc., in 1969,
Canada H3B 4Y8 and he has held increasingly senior positions
with Bell Canada and BCE Inc. since such time.
He has held his current position since 1991.
Donald L. Jacobs Mr. Jacobs was appointed a Director of the 0
60435 Tekampe Road General Partner in April 1995. Mr. Jacobs is a
Bend, OR 97702 retired executive officer of TRW. Prior to his
retirement in 1992, he was Vice President and
Deputy Manager of the Space and Defense Sector;
prior to that appointment, he was the Vice
President and General Manager of the Defense
Systems Group; and prior to that appointment,
he was President of ESL, Inc., a subsidiary of
TRW.
Larry Kaschinske Mr. Kaschinske has been the Controller and Chief 0
c/o Jones Intercable, Accounting Officer of the General Partner since
Inc. 9697 E. Mineral 1994. Mr. Kaschinske has been an associate of
Avenue Englewood, CO the finance department of the General Partner
80112 since 1984.
Robert Kearney Mr. Kearney was appointed a Director of the 0
c/o BCI Telecom Holding General Partner in July 1997. Mr. Kearney is a
Inc. retired executive officer of Bell Canada. Prior
1000 rue de la to his retirement in December 1993, Mr. Kearney
Gauchetiere was the President and Chief Executive Officer
Bureau 1100 of Bell Canada. He served as Chairman of BCE
Montreal (PQ) Canadian Telecom Group in 1994 and as Deputy
Canada H3B 4Y8 Chairman of BCI Management Limited in 1995.
James J. Krejci Mr. Krejci has been a Director of the General 0
3100 Arapahoe Avenue Partner since 1987. Mr. Krejci is President and
Boulder, CO 80303 CEO of Imagelink Technologies, Inc., a
privately financed company with leading
technology in the desktop or personal computer
videoconferencing market. Prior to joining
Imagelink Technologies in July 1996, he was the
President of the International Division of
International Gaming Technology headquartered
in Reno, Nevada. Prior to joining International
Gaming Technology in May 1994, Mr. Krejci had
been a Group Vice President of the General
Partner since 1987.
James B. O'Brien Mr. O'Brien has been President and a Director of 0
c/o Jones Intercable, the General Partner since 1989 and a member of
Inc. the Executive Committee of the General
9697 E. Mineral Avenue Partner's Board of Directors since 1993.
Englewood, CO 80112 Mr. O'Brien has been with the General Partner
since 1982 in various operational management
positions.
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Raphael M. Solot Mr. Solot was appointed a Director of the 0
501 South Cherry Street General Partner in March 1996. Mr. Solot is an
Denver, CO 80222 attorney in private practice. He has practiced
law for 34 years with an emphasis on franchise,
corporate and partnership law and complex
litigation.
Cheryl M. Sprague Ms. Sprague joined the General Partner as Group 0
c/o Jones Intercable, Vice President/Human Resources in November
Inc. 1997. Prior to November 1997 and since December
9697 E. Mineral Avenue 1995, Ms. Sprague served as Director, Human
Englewood, CO 80112 Resources for Westmoreland Coal Company. From
October 1993 to December 1995, Ms. Sprague
served as President of Peak Executive
Resources. From April 1992 to October 1993, Ms.
Sprague was Vice President, Human Resources for
Penrose-St. Francis Healthcare System.
Elizabeth M. Steele Ms. Steele joined the General Partner in 1987 as 0
c/o Jones Intercable, Vice President/General Counsel and Secretary.
Inc. Prior to that time, Ms. Steele was a partner at
9697 E. Mineral Avenue Davis, Graham & Stubbs, a Denver, Colorado law
Englewood, CO 80112 firm that serves as counsel to the General
Partner.
Howard O. Thrall Mr. Thrall was appointed a director of the 0
c/o Jones Intercable, General Partner in March 1996 and he had
Inc. previously served as a director of the General
9697 E. Mineral Avenue Partner from December 1988 to December 1994.
Englewood, CO 80112 Mr. Thrall is now a management and
international marketing consultant. From
September 1993 through July 1996, Mr. Thrall
served as Vice President of Sales, Asian
Region, for World Airways, Inc. From 1984 until
August 1993, Mr. Thrall was with the McDonnell
Douglas Corporation, where he was a Regional
Vice President, Commercial Marketing with the
Douglas Aircraft Company subsidiary.
Siim A. Vanaselja Mr. Vanaselja was appointed a Director of the 0
c/o BCI Telecom Holding General Partner in August 1996. Mr. Vanaselja
Inc. joined BCE Inc., Canada's largest
1000 rue de la telecommunications company, in February 1994
Gauchetiere and he has served in various capacities with
Bureau 1100 that company and its subsidiaries since that
Montreal (PQ) time. He currently serves as Executive Vice
Canada H3B 4Y8 President and Chief Financial Officer of Bell
Canada International Inc. and Vice President of
BCI Telecom Holding Inc., BCE Inc.
subsidiaries. Prior to joining BCE Inc., Mr.
Vanaselja was a partner in the Toronto office
of KPMG Peat Marwick Thorne.
Ruth E. Warren Ms. Warren has been Group Vice 0
c/o Jones Intercable, President/Operations of the General Partner
Inc. since 1990. Ms. Warren has been with the
9697 E. Mineral Avenue General Partner in various operational
Englewood, CO 80112 management positions since 1980.
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Cynthia A. Winning Ms. Winning joined the General Partner as Group 0
c/o Jones Intercable, Vice President/Marketing in December 1994.
Inc. Prior to joining the General Partner, Ms.
9697 E. Mineral Avenue Winning served in 1994 as the President of PRS
Englewood, CO 80112 Inc., a Denver, Colorado sports and event
marketing company. From 1979 to 1981 and from
1986 to 1994, Ms. Winning served as the Vice
President and Director of Marketing for
Citicorp Retail Services, Inc.
Sanford Zisman Mr. Zisman was appointed a Director of the 0
3773 Cherry Creek North Drive- General Partner in June 1996. Mr. Zisman is a
Denver, CO 80209 principal in the law firm Zisman & Ingraham,
P.C. of Denver, Colorado. He has practiced law
for 32 years, with an emphasis on tax, business
and estate planning and probate administration.
Robert L. Zoellick Mr. Zoellick was appointed a Director of the 0
3900 Wisconsin General Partner in April 1995. Mr. Zoellick is
Avenue, NW the John M. Olin Professor at the U.S. Naval
Washington, DC 20016 Academy for the 1997-1998 term. From 1993
through 1997, he was an Executive Vice
President at Fannie Mae, a federally chartered
and stockholder-owned corporation that is the
largest housing finance investor in the United
States. From August 1992 to January 1993, Mr.
Zoellick served as Deputy Chief of Staff of the
White House and Assistant to the President.
From May 1991 to August 1992, Mr. Zoellick
served concurrently as the Under Secretary of
State for Economic and Agricultural Affairs and
as Counselor of the Department of State, a post
he assumed in March 1989. From 1985 to 1988,
Mr. Zoellick served at the Department of
Treasury in a number of capacities, including
Counselor to the Secretary.
</TABLE>
S-4
<PAGE>
[LOGO OF JONES INTERCABLE 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
Palmdale, California cable television system to Jones Communications of
California, Inc., an indirect wholly owned subsidiary of Jones Intercable,
Inc., for a sales price of $138,205,200 in cash, subject to normal closing
adjustments, pursuant to the terms and conditions of that certain Purchase and
Sale Agreement dated as of March 10, 1998, as follows:
[_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS
(YOU MUST SIGN ON THE REVERSE SIDE OF THIS PROXY CARD FOR YOUR VOTE TO COUNT.)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED LIMITED PARTNER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE PROPOSED SALE TRANSACTION.
PLEASE SIGN EXACTLY AS NAME
APPEARS ON LABEL.
DATED: ______________________, 1998
___________________________________
Beneficial Owner Signature
(Investor)
___________________________________
Authorized Trustee/Custodian
Signature
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
<PAGE>
[LOGO OF JONES INTERCABLE, INC. APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE PARTNERSHIP BY THE GENERAL PARTNER
The undersigned Limited Partner of Cable TV Fund 12-B, Ltd., a Colorado
limited partnership, hereby votes on the sale of Cable TV Fund 12-BCD Venture's
Palmdale, California cable television system to Jones Communications of
California, Inc., an indirect wholly owned subsidiary of Jones Intercable,
Inc., for a sales price of $138,205,200 in cash, subject to normal closing
adjustments, pursuant to the terms and conditions of that certain Purchase and
Sale Agreement dated as of March 10, 1998, as follows:
[_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS
(YOU MUST SIGN ON THE REVERSE SIDE OF THIS PROXY CARD FOR YOUR VOTE TO COUNT.)
<PAGE>
- -------------------------------------------------------------------------------
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED LIMITED PARTNER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE PROPOSED SALE TRANSACTION.
ALL OWNERS MUST SIGN EXACTLY AS
NAME(S) APPEAR ON LABEL.
When limited partnership
interests are held by more than
one person, all owners must sign.
When signing as attorney, as
executor, administrator, trustee
or guardian, please give full
title as such. If a corpo-ration,
please sign in full corporation
name by autho-rized officer. If a
partnership, please sign in
partnership name by authorized
person.
DATED: ______________________, 1998
___________________________________
Signature - Investor 1
___________________________________
Signature - Investor 2
___________________________________
Signature - Investor 3
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99(D)(5)
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1998.
-------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______ to ______.
Commission File Number: 0-13807
CABLE TV FUND 12-B, LTD.
- --------------------------------------------------------------------------------
Exact name of registrant as specified in charter
Colorado #84-0969999
- --------------------------------------------------------------------------------
State of organization I.R.S. employer I.D. #
9697 East Mineral Avenue, P.O. Box 3309, Englewood, Colorado 80155-3309
------------------------------------------------------------------------
Address of principal executive office
(303) 792-3111
----------------------------------
Registrant's telephone number
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
<PAGE>
CABLE TV FUND 12-B, LTD.
------------------------
(A Limited Partnership)
UNAUDITED BALANCE SHEETS
------------------------
June 30, December 31,
ASSETS 1998 1997
------ ---------- ------------
CASH $ - $ 55,348
---------- -----------
RECEIVABLES:
Distribution receivable from Joint Venture 8,605,856 -
---------- -----------
Total assets $8,605,856 $ 55,348
========== ===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
-------------------------------------------
LIABILITIES:
Loss in excess of investment in cable
television joint venture $ 759,610 $ 2,592,136
Accrued distributions 8,605,856 -
---------- -----------
Total liabilities 9,365,466 2,592,136
---------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partner-
Contributed capital 1,000 1,000
Distributions (17,651,494) (14,782,875)
Accumulated earnings 17,976,828 14,588,142
---------- -----------
326,334 (193,733)
---------- -----------
Limited Partners-
Net contributed capital (111,035 units
outstanding at June 30, 1998 and
December 31, 1997) 47,645,060 47,645,060
Distributions (108,485,693) (99,879,837)
Accumulated earnings 59,754,689 49,891,722
------------- -----------
(1,085,944) (2,343,055)
------------- -----------
Total liabilities and
partners' capital (deficit) $ 8,605,856 $ 55,348
============= ===========
The accompanying notes to unaudited financial statements
are an integral part of these unaudited balance sheets.
2
<PAGE>
CABLE TV FUND 12-B, LTD.
------------------------
(A Limited Partnership)
UNAUDITED STATEMENTS OF OPERATIONS
----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------- --------------------------
1998 1997 1998 1997
----------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
OTHER, NET $ (55,348) $ - $ (55,348) $ -
EQUITY IN NET INCOME (LOSS) OF CABLE
TELEVISION JOINT VENTURE $13,432,172 $ (58,072) $ 13,307,001 $ (146,260)
----------- ---------- ------------ ----------
NET INCOME (LOSS) $13,376,824 $ (58,072) $ 13,251,653 $ (146,260)
=========== ========== ============ ==========
ALLOCATION OF NET INCOME (LOSS):
General Partner $ 3,389,938 $ (581) $ 3,388,686 $ (1,463)
=========== ========== =========== ==========
Limited Partners $ 9,986,886 $ (57,491) $ 9,862,967 $ (144,797)
=========== ========== =========== ==========
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $ 89.94 $ (.51) $ 88.83 $ (1.30)
=========== ========== =========== ==========
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 111,035 111,035 111,035 111,035
=========== ========== =========== ==========
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these statements.
3
<PAGE>
CABLE TV FUND 12-B. LTD.
------------------------
(A Limited Partnership)
UNAUDITED STATEMENTS OF CASH FLOWS
----------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
--------------------------
1998 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 13,251,653 $ (146,260)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Equity in net (income) loss of cable television
joint venture (13,307,001) 146,260
------------ -----------
Net cash used in operating activities (55,348) -
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distribution from cable television venture 11,474,475 -
Increase in distribution receivable from Joint Venture (8,605,856) -
------------ -----------
Net cash provided by investing activities 2,868,619 -
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to Limited Partners (8,605,856) -
Distribution to General Partner (2,868,619) -
Increase in accrued distribution to limited partners 8,605,856 -
------------ -----------
Net cash used in financing activities (2,868,619) -
------------ -----------
Decrease in cash (55,348) -
Cash, beginning of period 55,348 55,348
------------ -----------
Cash, end of period $ - $ 55,348
============ ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ - $ -
============ ===========
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited statements.
4
<PAGE>
CABLE TV FUND 12-B, LTD.
------------------------
(A Limited Partnership)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
---------------------------------------
(1) This Form 10-Q is being filed in conformity with the SEC requirements for
unaudited financial statements and does not contain all of the necessary
footnote disclosures required for a complete presentation of the Balance Sheets
and Statements of Operations and Cash Flows in conformity with generally
accepted accounting principles. However, in the opinion of management, this data
includes all adjustments, consisting only of normal recurring accruals,
necessary to present fairly the financial position of Cable TV Fund 12-B, Ltd.
("Partnership") at June 30, 1998 and December 31, 1997 and its results of
operations for the three and six month periods ended June 30, 1998 and 1997 and
its cash flows for the six month periods ended June 30, 1998 and 1997. Results
of operations for these periods are not necessarily indicative of results to be
expected for the full year.
The Partnership owns no properties directly. The Partnership owns a 9
percent interest in Cable TV Fund 12-BCD Venture (the "Venture"). The Venture
owns and operates the cable television systems serving certain areas in and
around Palmdale, California (the "Palmdale System"). As discussed below, the
Venture's cable television system serving the areas in and around Albuquerque,
New Mexico (the "Albuquerque System") was sold on June 30, 1998.
(2) Jones Intercable, Inc. (the "General Partner"), a publicly held Colorado
corporation, manages the Venture and receives a fee for its services equal to 5
percent of the gross revenues of the Venture, excluding revenues from the sale
of cable television systems or franchises. Management fees paid by the Venture
to the General Partner during the three and six month periods ended June 30,
1998 attributable to the Partnership's 9 percent interest in the Venture were
$101,745 and $197,733, respectively, compared to $97,027 and $187,501,
respectively, for the comparable periods in 1997.
The Venture reimburses the General Partner for certain allocated overhead
and administrative expenses. These expenses represent the salaries and related
benefits paid for corporate personnel, rent, data processing services, and other
corporate facilities costs. Such personnel provide engineering, marketing,
administrative, accounting, legal and investor relations services to the
Venture. Such services, and their related costs, are necessary to the operation
of the Venture and would have been incurred by the Venture if it was a stand
alone entity. Allocations of personnel costs are primarily based on actual time
spent by employees of the General Partner with respect to each entity managed.
Remaining expenses are allocated based on the pro rata relationship of the
Venture's revenues to the total revenues of all systems owned or managed by the
General Partner and certain of its subsidiaries. Systems owned by the General
Partner and all other systems owned by partnerships for which Jones Intercable,
Inc. is the general partner are also allocated a proportionate share of these
expenses. The General Partner believes that the methodology used in allocating
overhead and administrative expenses is reasonable. Amounts charged the Venture
by the General Partner for allocated overhead and administrative expenses during
the three and six month periods ended June 30, 1998 attributable to the
Partnership's 9 percent interest in the Venture were $123,288 and $227,784,
respectively, compared to $96,664 and $218,804, respectively, for the comparable
periods in 1997.
See Note 4 for disclosure of the total management fees and allocated
overhead and administrative expenses paid by the Venture.
(3) On June 30, 1998, the Venture sold the Albuquerque System to the General
Partner. The sales price of the Albuquerque System was $222,963,267, subject to
normal working capital closing adjustments. This price represented the average
of three separate, independent appraisals of the fair market value of the
Albuquerque System.
Upon the sale of the Albuquerque System, the Venture repaid its outstanding
Senior Notes balance of $41,544,890 plus accrued interest, plus a make whole
premium of $1,332,823 and, pursuant to an amendment to the Venture's credit
facility, the Venture distributed $125,000,000 to the three constituent
partnerships of the Venture in proportion to their ownership interests in the
Venture. The remaining proceeds were used to repay a portion of the outstanding
balance and accrued interest on its credit facility. The Partnership received
$11,474,475, or 9 percent of the $125,000,000 distribution, which the
Partnership distributed to its partners of record as of the closing date of the
sale of the Albuquerque System. This distribution was made in July 1998. The
limited partners of the Partnership, as a group, received $8,605,856 and the
General Partner received $2,868,619. Such distribution represents $77.50 for
each $500 limited partnership interest, or $155 for each $1,000 invested in the
Partnership.
5
<PAGE>
In March 1998, the Venture entered into a purchase and sale agreement to
sell the Palmdale System to the General Partner for a sales price of
$138,205,200, subject to customary closing adjustments. This sales price
represents the average of three separate independent appraisals of the fair
market value of the Palmdale System. The closing of this sale is subject to a
number of conditions, including the approval of the holders of a majority of the
limited partnership interests in each of the three partnerships that comprise
the Venture and necessary governmental and other third party consents. The
General Partner is conducting a vote of the limited partners on the sale of the
Palmdale System in the third quarter of 1998. Closing is expected to occur in
the fourth quarter of 1998.
Upon consummation of the proposed sale of the Palmdale System based upon
financial information as of June 30, 1998, the Venture will settle working
capital adjustments, repay all of its remaining indebtedness, which totaled
approximately $51,922,000, and then the Venture will distribute the remaining
sale proceeds of $87,581,654 to the three constituent partnerships of the
Venture in proportion to their ownership interests in the Venture. The
Partnership will receive approximately $8,039,628, or 9 percent of the
$87,581,654 distribution, which the Partnership will distribute to its partners
of record as of the closing date of the sale of the Palmdale System. This
distribution is expected to be made before year end 1998. Because the limited
partners will have already received distributions in an amount in excess of the
capital initially contributed to the Partnership by the limited partners, taking
into account the distribution to the limited partners from the sale of the
Albuquerque System, the net proceeds from the Palmdale System's sale will be
distributed 75 percent to the limited partners ($6,029,721) and 25 percent to
the General Partner ($2,009,907). Limited partners will receive $54 for each
$500 limited partnership interest, or $108 for each $1,000 invested in the
Partnership, from the Partnership's portion of the net proceeds of the Palmdale
System's sale. Since the Palmdale System will represent the only remaining asset
of the Venture, the Venture and the Partnership will be liquidated and dissolved
after the sale of the Palmdale System.
Taking into account the distributions from the sale of the Albuquerque
System and the proposed sale of the Palmdale System, together with all prior
distributions, the General Partner expects that the Partnership's limited
partners will receive $1,031 for each $500 limited partnership interest, or
$2,062 for each $1,000 invested in the Partnership, at the time the Partnership
is liquidated and dissolved.
(4) Summarized financial information regarding the Venture is presented below.
UNAUDITED BALANCE SHEETS
------------------------
<TABLE>
<CAPTION>
ASSETS June 30, 1998 December 31, 1997
------ ------------- -----------------
<S> <C> <C>
Cash and accounts receivable $ 123,309,778 $ 6,199,348
Investment in cable television properties 38,077,176 112,612,075
Other assets 1,522,880 5,458,081
------------- -------------
Total assets $ 162,909,834 $ 124,269,504
============= =============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Debt $ 51,922,252 $ 144,308,462
Payables and accrued liabilities 118,220,873 7,150,772
Partners' contributed capital 135,490,944 135,490,944
Accumulated deficit 37,275,765 (107,680,674)
Distributions (180,000,000) (55,000,000)
------------- -------------
Total liabilities and partners' capital $ 162,909,834 $ 124,269,504
============= =============
</TABLE>
6
<PAGE>
UNAUDITED STATEMENTS OF OPERATIONS
----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
---------------------------- ---------------------------
1998 1997 1998 1997
-------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Revenues $ 22,166,611 $21,138,684 $ 43,079,053 $40,849,909
Operating expenses 12,159,234 11,733,343 23,667,531 22,687,208
Management fees and
allocated overhead
from General Partner 2,451,333 2,109,915 4,635,262 4,425,981
Depreciation and
amortization 6,166,414 4,866,372 12,024,948 9,664,919
------------ ----------- ------------ -----------
Operating income 1,389,630 2,429,054 2,751,312 4,071,801
Interest expense, net (2,740,730) (2,729,243) (5,415,956) (5,420,505)
Gain on sale of cable
television system 147,792,730 - 147,792,730 -
Other, net (121,563) (332,410) (171,647) (244,544)
------------ ----------- ------------ -----------
Net income (loss) $146,319,953 $ (632,599) $144,956,439 $(1,593,248)
============ =========== ============ ===========
</TABLE>
Management fees paid to Jones Intercable, Inc. by the Venture totaled
$1,108,331 and $2,153,953, respectively, for the three and six month periods
ended June 30, 1998, and $1,056,934 and $2,042,495, respectively, for the
comparable periods in 1997. Reimbursements for overhead and administrative
expenses paid to Jones Intercable, Inc. by the Venture totaled $1,343,002 and
$2,481,309, respectively, for the three and six month periods ended June 30,
1998, and $1,052,981 and $2,383,486, respectively, for the comparable periods in
1997.
(5) The pro forma effect of the sale of the Albuquerque System on the results
of the Venture's operations for the six months ended June 30, 1998 and 1997,
assuming the transaction had occurred on January 1, 1997, are presented in the
following tabulations.
<TABLE>
<CAPTION>
For the Six Months Ended June 30, 1998
-----------------------------------------
Unaudited
Pro Forma Pro Forma
As Reported Adjustments Balance
------------ -------------- -----------
<S> <C> <C> <C>
REVENUES $ 43,079,053 $ (27,681,131) $15,397,922
============ ============= ===========
OPERATING INCOME (LOSS) $ 2,751,312 $ (1,054,815) $ 1,696,497
============ ============= ===========
CONSOLIDATED INCOME (LOSS) $144,956,439 $(145,181,031) $ (224,592)
============ ============= ===========
</TABLE>
7
<PAGE>
For the Six Months Ended June 30, 1997
----------------------------------------
<TABLE>
<CAPTION>
Unaudited
Pro Forma Pro Forma
As Reported Adjustments Balance
------------ ------------- -----------
<S> <C> <C> <C>
REVENUES $40,849,909 $(26,253,572) $14,596,337
=========== ============ ===========
OPERATING INCOME (LOSS) $ 4,071,801 $ (2,024,920) $ 2,046,881
=========== ============ ===========
CONSOLIDATED INCOME (LOSS) $(1,593,248) $ 1,736,551 $ 143,303
=========== ============ ===========
</TABLE>
8
<PAGE>
CABLE TV FUND 12-B, LTD.
------------------------
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
On June 30, 1998, the Venture sold the Albuquerque System to the General
Partner. The sales price of the Albuquerque System was $222,963,267, subject to
normal working capital adjustments. This price represented the average of three
separate independent appraisals of the fair market value of the Albuquerque
System.
Upon the sale of the Albuquerque System, the Venture repaid its outstanding
Senior Notes balance of $41,544,890 plus accrued interest, plus a make whole
premium of $1,332,823 and, pursuant to an amendment to the Venture's credit
facility, the Venture distributed $125,000,000 to the three constituent
partnerships of the Venture in proportion to their ownership interests in the
Venture. The remaining proceeds were used to repay a portion of the outstanding
balance and accrued interest on its credit facility. The Partnership received
$11,474,475, or 9 percent of the $125,000,000 distribution, which the
Partnership distributed to its partners of record as of the closing date of the
sale of the Albuquerque System. This distribution was made in July 1998. The
limited partners of the Partnership, as a group, received $8,605,856 and the
General Partner received $2,868,619. Such distribution represents $77.50 for
each $500 limited partnership interest, or $155 for each $1,000 invested in the
Partnership.
In March 1998, the Venture entered into a purchase and sale agreement to
sell the Palmdale System to the General Partner for a sales price of
$138,205,200, subject to customary closing adjustments. This sales price
represents the average of three separate independent appraisals of the fair
market value of the Palmdale System. The closing of this sale is subject to a
number of conditions, including the approval of the holders of a majority of the
limited partnership interests in each of the three partnerships that comprise
the Venture and necessary governmental and other third party consents. The
General Partner is conducting a vote of the limited partners on the sale of the
Palmdale System in the third quarter of 1998. Closing is expected to occur in
the fourth quarter of 1998.
Upon consummation of the proposed sale of the Palmdale System based upon
financial information as of June 30, 1998, the Venture will settle working
capital adjustments, repay all of its remaining indebtedness, which totaled
approximately $51,922,000, and then the Venture will distribute the remaining
sale proceeds of $87,581,654 to the three constituent partnerships of the
Venture in proportion to their ownership interests in the Venture. The
Partnership will receive approximately $8,039,628, or 9 percent of the
$87,581,654 distribution, which the Partnership will distribute to its partners
of record as of the closing date of the sale of the Palmdale System. This
distribution is expected to be made before year end 1998. Because the limited
partners will have already received distributions in an amount in excess of the
capital initially contributed to the Partnership by the limited partners, taking
into account the distribution to the limited partners from the sale of the
Albuquerque System, the net proceeds from the Palmdale System's sale will be
distributed 75 percent to the limited partners ($6,029,721) and 25 percent to
the General Partner ($2,009,907). Limited partners will receive $54 for each
$500 limited partnership interest, or $108 for each $1,000 invested in the
Partnership, from the Partnership's portion of the net proceeds of the Palmdale
System's sale. Since the Palmdale System will represent the only remaining asset
of the Venture, the Venture and the Partnership will be liquidated and dissolved
after the sale of the Palmdale System.
Taking into account the distributions from the sale of the Albuquerque
System and the proposed sale of the Palmdale System, together with all prior
distributions, the General Partner expects that the Partnership's limited
partners will receive $1,031 for each $500 limited partnership interest, or
$2,062 for each $1,000 invested in the Partnership, at the time the Partnership
is liquidated and dissolved.
For the six months ended June 30, 1998, the Venture generated net cash from
operating activities totaling $9,423,869, which was available to fund capital
expenditures and non-operating costs. Capital expenditures for the Venture
totaled $10,199,452 for the six months ended June 30, 1998. Capital
expenditures in the Albuquerque System totaled $7,136,952. Of the Albuquerque
System's capital expenditures, approximately 41 percent was for service drops to
subscribers' homes, approximately 27 percent was for cable plant extensions
related to new homes passed and the remainder was for other capital expenditures
to maintain the value of the Albuquerque System until it was sold. Capital
9
<PAGE>
expenditures in the Palmdale System totaled $3,062,500. Of the Palmdale
System's capital expenditures, approximately 47 percent was for service drops to
subscribers' homes, approximately 17 percent was for cable plant extensions
related to new homes passed and the remainder was for other capital expenditures
to maintain the value of the Palmdale System until it is sold. These capital
expenditures were funded primarily from cash generated from operations and
borrowings from the Venture's credit facility. Budgeted capital expenditures
for the Palmdale System for the remainder of 1998 are approximately $1,842,200,
of which approximately 35 percent is for service drops to subscribers' homes,
approximately 20 percent is for cable plant extensions related to new homes
passed and the remainder is for other capital expenditures to maintain the value
of the Palmdale System. Depending upon the timing of the closing of the sale of
the Palmdale System, the Venture will make only the portion of the 1998 budgeted
capital expenditures scheduled to be made during the Venture's continued
ownership of the Palmdale System. Funding for these expenditures is expected to
be provided by cash on hand, cash generated from operations and borrowings from
the Venture's credit facility. The Venture is obligated to conduct its business
in the ordinary course until the Palmdale System is sold.
On June 30, 1998, in conjunction with the sale of the Albuquerque System,
the Senior Notes' balance of $41,544,890 plus accrued interest was repaid in
full together with a make whole premium of $1,332,823.
Pursuant to an amendment that became effective on the date of the
Albuquerque sale, the Venture repaid $54,000,000 on its credit facility, and the
commitment was reduced to $55,000,000. The balance outstanding on the Venture's
credit facility at June 30, 1998 was $51,630,620, leaving $3,369,380 available
for future needs. At the Venture's option, the credit facility will be payable
in full on December 31, 2000, or will convert to a term loan that matures on
December 31, 2005 payable in consecutive quarterly amounts. Upon the sale of
the Palmdale System, the Venture will repay the then-outstanding balance of the
credit facility. Interest on the credit facility is at the Venture's option of
the London Interbank Offered Rate plus 1.125 percent, the Prime Rate plus .125
percent, or the Certificate of Deposit Rate plus 1.25 percent. The effective
interest rates on amounts outstanding on the Venture's credit facility as of
June 30, 1998 and 1997 were 6.81 percent and 7.01 percent, respectively.
The Venture has sufficient sources of capital available through its ability
to generate cash from operations and borrowings under its credit facility to
meet its presently anticipated needs until the Palmdale System is sold.
The Year 2000 issue is the result of many computer programs being written
such that they will malfunction when reading a year of "00." This problem could
cause system failure or miscalculations causing disruptions of business
processes.
The General Partner has initiated an assessment of its computer
applications to determine the extent of the problem. Based on this assessment,
the General Partner has determined that the majority of its computer
applications supporting business processes, including accounting and billing,
are designed to handle the Year 2000 appropriately.
The General Partner is currently focusing its efforts on the impact of the
Year 2000 issue on service delivery. The General Partner has established an
internal team to address this issue. The General Partner is identifying and
testing all date-sensitive equipment involved in delivering service to the
Venture's customers. In addition, the General Partner will assess the Venture's
options regarding repair or replacement of affected equipment during this
testing. The General Partner believes that the financial impact will not be
material.
10
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Results of operations of the Albuquerque System and the Palmdale System for
the three and six months ended June 30, 1998 and 1997, respectively, are
summarized below:
<TABLE>
<CAPTION>
For the Three Months Ended June 30:
Albuquerque System
----------------------------------------------------------------------
1998 1997 Inc/(Dec) % Inc/(Dec)
------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C>
Revenues $14,201,062 $13,505,138 $ 695,924 5%
Operating expenses 7,644,600 7,494,692 149,908 2%
----------- ----------- -----------
Operating cash flow 6,556,462 6,010,446 546,016 9%
Management fees and allocated
overhead from Jones Intercable, Inc. 1,570,128 1,347,937 222,191 16%
Depreciation and amortization 4,400,613 3,508,144 892,469 25%
----------- ----------- -----------
Operating income $ 585,721 $ 1,154,365 $ (568,644) (49%)
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Palmdale System
-----------------------------------------------------------------------
1998 1997 Inc/(Dec) % Inc/(Dec)
------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 7,965,549 $ 7,633,546 $ 332,003 4%
Operating expenses 4,514,634 4,238,651 275,983 7%
----------- ----------- -----------
Operating cash flow 3,450,915 3,394,895 56,020 2%
Management fees and allocated
overhead from Jones Intercable, Inc. 881,205 761,978 119,227 16%
Depreciation and amortization 1,765,801 1,358,228 407,573 30%
----------- ----------- -----------
Operating income $ 803,909 $ 1,274,689 $ (470,780) (37%)
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Total
----------------------------------------------------------------------
1998 1997 Inc/(Dec) % Inc/(Dec)
------------ ------------ -------------- ------------------
<S> <C> <C> <C> <C>
Revenues $22,166,611 $21,138,684 $ 1,027,927 5%
Operating expenses 12,159,234 11,733,343 425,891 4%
----------- ----------- -----------
Operating cash flow 10,007,377 9,405,341 602,036 6%
Management fees and allocated
overhead from Jones Intercable, Inc. 2,451,333 2,109,915 341,418 16%
Depreciation and amortization 6,166,414 4,866,372 1,300,042 27%
----------- ----------- -----------
Operating income $ 1,389,630 $ 2,429,054 $(1,039,424) (43%)
=========== =========== ===========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended June 30:
Albuquerque System
------------------------------------------------------------------
1998 1997 Inc/(Dec) % Inc/(Dec)
----------- ------------ ----------------- -------------
<S> <C> <C> <C> <C>
Revenues $27,681,131 $26,253,572 $ 1,427,559 5%
Operating expenses 15,048,723 14,451,399 597,324 4%
----------- ----------- -----------
Operating cash flow 12,632,408 11,802,173 830,235 7%
Management fees and allocated
overhead from Jones Intercable, Inc. 2,978,588 2,843,781 134,807 5%
Depreciation and amortization 8,599,005 6,933,472 1,665,533 24%
----------- ----------- -----------
Operating income $ 1,054,815 $ 2,024,920 $ (970,105) (48%)
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Palmdale System
-------------------------------------------------------------------
1998 1997 Inc/(Dec) % Inc/(Dec)
------------ ----------- ----------------- -------------
<S> <C> <C> <C> <C>
Revenues $15,397,922 $14,596,337 $ 801,585 5%
Operating expenses 8,618,808 8,235,809 382,999 5%
----------- ----------- -----------
Operating cash flow 6,779,114 6,360,528 418,586 7%
Management fees and allocated
overhead from Jones Intercable, Inc. 1,656,674 1,582,200 74,474 5%
Depreciation and amortization 3,425,943 2,731,447 694,496 25%
----------- ----------- -----------
Operating income $ 1,696,497 $ 2,046,881 $ (350,384) (17%)
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Total
-------------------------------------------------------------------
1998 1997 Inc/(Dec) % Inc/(Dec)
----------- ----------- ----------------- --------------
<S> <C> <C> <C> <C>
Revenues $43,079,053 $40,849,909 $ 2,229,144 5%
Operating expenses 23,667,531 22,687,208 980,323 4%
----------- ----------- -----------
Operating cash flow 19,411,522 18,162,701 1,248,821 7%
Management fees and allocated
overhead from Jones Intercable, Inc. 4,635,262 4,425,981 209,281 5%
Depreciation and amortization 12,024,948 9,664,919 2,360,029 24%
----------- ----------- -----------
Operating income $ 2,751,312 $ 4,071,801 $(1,320,489) (32%)
=========== =========== ===========
</TABLE>
Revenues in the Albuquerque System and the Palmdale System increased
$1,027,927, or approximately 5 percent, to $22,166,611 for the three months
ended June 30, 1998 from $21,138,684 for the comparable period in 1997.
Revenues increased $2,229,144, or approximately 5 percent, to $43,079,053 for
the six months ended June 30, 1998 from $40,849,909 for the comparable period in
1997. These increases in revenues were due primarily to basic service rate
increases and an increase in basic subscribers. Basic service rate increases
accounted for approximately 63 percent and 68 percent of the increase in
revenues for the three and six months ended June 30, 1998. The increase in the
number of basic subscribers accounted for approximately 24 percent and 27
percent of the increases in revenues for the three and six months ended June 30,
1998. Basic subscribers increased 2,549 subscribers, or approximately 2
percent, to 178,872
12
<PAGE>
subscribers for the six months ended June 30, 1998, from 176,323 subscribers for
the comparable period in 1997. No other individual factor significantly affected
the increase in revenues.
Operating expenses consist primarily of costs associated with the operation
and administration of the Venture's cable television systems. The principal
cost components are salaries paid to system personnel, programming expenses,
professional fees, subscriber billing costs, rent for leased facilities, cable
system maintenance expenses and marketing expenses.
Operating expenses in the Albuquerque System and the Palmdale System
increased $425,891, or approximately 4 percent, to $12,159,234 for the three
months ended June 30, 1998 from $11,733,343 for the comparable period in 1997.
Operating expenses increased $980,323, or approximately 4 percent, to
$23,667,531 for the six months ended June 30, 1998 from $22,687,208 for the
comparable period in 1997. The increases in operating expenses were primarily
due to increases in programming costs and advertising sales costs. No other
individual factor contributed significantly to the increase in operating
expenses. Operating expenses represented 55 percent of revenues for the three
and six months ended June 30, 1998 and 56 percent of revenues for the three and
six months ended June 30, 1997.
The cable television industry generally measures the financial performance
of a cable television system in terms of operating cash flow (revenues less
operating expenses). This measure is not intended to be a substitute or
improvement upon the items disclosed on the financial statements, rather it is
included because it is an industry standard. Operating cash flow increased
$602,036, or approximately 6 percent, to $10,007,377 for the three months ended
June 30, 1998 from $9,405,341 for the comparable period in 1997. Operating cash
flow increased $1,248,821, or approximately 7 percent, to $19,411,522 for the
six months ended June 30, 1998 from $18,162,701 for the comparable period in
1997. These increases were due to the increases in revenues exceeding the
increases in operating expenses.
Management fees and allocated overhead from the General Partner increased
$341,418, or approximately 16 percent, to $2,451,333 for the three months ended
June 30, 1998 from $2,109,915 for the comparable period in 1997. This increase
was primarily due to the timing of certain expenses allocated from Jones
Intercable, Inc. Management fees and allocated overhead from the General
Partner increased $209,281, or approximately 5 percent, to $4,635,262 for the
six months ended June 30, 1998 from $4,425,981 for the comparable period in
1997. This increase was primarily due to the increases in revenues, upon which
such management fees and allocations are based.
Depreciation and amortization expense increased $1,300,042, or
approximately 27 percent, to $6,166,414 for the three months ended June 30, 1998
from $4,866,372 for the comparable period in 1997. Depreciation and
amortization expense increased $2,360,029, or approximately 24 percent, to
$12,024,948 for the six months ended June 30, 1998 from $9,664,919 for the
comparable period in 1997. These increases were due to a change in the
estimated lives of certain assets.
The Venture's operating income decreased $1,039,424, or approximately 43
percent, to $1,389,630 for the three months ended June 30, 1998 from $2,429,054
for the comparable period in 1997. The Venture's operating income decreased
$1,320,489, or approximately 32 percent, to $2,751,312, for the six months ended
June 30, 1998 compared to $4,071,801 for the comparable period in 1997. These
decreases were due to the increases in management fees and allocated overhead
from the General Partner and depreciation and amortization expense exceeding the
increases in cash flow.
Interest expense increased $11,601 to $2,740,844 for the three months ended
June 30, 1998 from $2,729,243 for the comparable period in 1997. Interest
expense decreased $4,549 to $5,415,956 for the six months ended June 30, 1998
from $5,420,505 for the comparable period in 1997.
The Venture recognized a gain of $147,792,730 related to the sale of the
Albuquerque System in June 1998. No similar gain was recognized in the first
six months of 1997.
The Venture reported net income of $110,533,019 for the three months ended
June 30, 1998 compared to a net loss of $477,878 for the comparable period in
1997. The Venture reported net income of $109,502,993 for the six months ended
June 30, 1998 compared to a net loss of $1,203,571 for the comparable period in
1997. These changes were primarily due to the gain on the sale of the
Albuquerque System.
13
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The sale of the Albuquerque System was subject to the approval of the holders of
a majority of the limited partnership interests of the Partnership. Limited
partners of record at the close of business on March 15, 1998 were entitled to
notice of, and to participate in, this vote of limited partners. Following are
the results of the vote of the limited partners for the Albuquerque System sale:
<TABLE>
<CAPTION>
No. of
Interests
Entitled Approved Against Abstained Did Not Vote
to Vote No. % No. % No. % No. %
--------- ------ ----- ---- --- ---- --- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Albuquerque System Sale 111,035 66,468 59.9 828 .8 1,031 .9 42,708 38.4
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27) Financial Data Schedule
b) Reports on Form 8-K
Report on Form 8-K dated June 30, 1998 reported that on June 30,
1998, the Venture sold the Albuquerque System for a sales price of
$222,963,267 to Jones Communications of New Mexico, Inc., an indirect
subsidiary of Jones Intercable, Inc., the General Partner.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CABLE TV FUND 12-B, LTD.
BY: JONES INTERCABLE, INC.
General Partner
By: /S/ Kevin P. Coyle
-------------------------------
Kevin P. Coyle
Group Vice President/Finance
(Principal Financial Officer)
Dated: August 12, 1998
15
