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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _________ to _________.
Commission file number: 0-14689
JONES CABLE INCOME FUND 1-A, LTD.
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(Exact name of registrant as specified in its charter)
Colorado 84-1010416
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(State of Organization) (IRS Employer Identification No.)
P.O. Box 3309, Englewood, Colorado 80155-3309 (303) 792-3111
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(Address of principal executive office and Zip Code) (Registrant's telephone
no. including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited Partnership
Interests
Indicate by check mark whether the registrants, (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days:
Yes [X] No [_]
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Aggregate market value of the voting stock held by non-affiliates of the
registrant: N/A
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
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DOCUMENTS INCORPORATED BY REFERENCE: None
(28549)
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Information contained in this Form 10-K Report contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. All statements, other than statements of historical facts, included in
this Form 10-K Report that address activities, events or developments that the
Partnership or the General Partner expects, believes or anticipates will or may
occur in the future are forward-looking statements. These forward-looking
statements are based upon certain assumptions and are subject to a number of
risks and uncertainties. Actual results could differ materially from the
results predicted by these forward-looking statements.
PART I.
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ITEM 1. BUSINESS
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THE PARTNERSHIP. Jones Cable Income Fund 1-A, Ltd. (the "Partnership") is
a Colorado limited partnership that was formed pursuant to the public offering
of limited partnership interests in the Jones Cable Income Fund 1 Limited
Partnership Program (the "Program"), which was sponsored by Jones Intercable,
Inc. (the "General Partner"). Jones Cable Income Fund 1-B, Ltd. and Jones Cable
Income Fund 1-C, Ltd. are the other partnerships that were formed pursuant to
the Program. The Partnership was formed for the purpose of acquiring and
operating cable television systems. The Partnership currently owns the cable
television system serving the communities Owatonna and Glencoe, Minnesota (the
"System"). Prior to March 10, 1997, the Partnership owned the cable television
system serving the community of Milwaukie, Oregon (the "Milwaukie System").
A primary objective of the Partnership is to provide quarterly cash
distributions from operating cash flow to its partners. During 1996, the
Partnership declared such distributions totaling $808,080, which equates to $941
per $10,000 invested in the Partnership. The distributions, which were
principally from operating cash flow, were paid to limited partners during 1996,
except the fourth quarter distribution of $200,000, which was paid on February
15, 1997. The Partnership expects to continue quarterly distributions from
operating cash flow but anticipates that the amount of distributions will be
less due to the sale by the Partnership of its Milwaukie System. The General
Partner has agreed to defer its portion of cash distributions until the
Partnership is liquidated. Future distributions will be announced on a quarter-
by-quarter basis and no determination has been made regarding any specific level
of future distributions. The payment of quarterly operating cash flow
distributions may reduce the financial flexibility of the Partnership. See Item
7, Management's Discussion and Analysis of Financial Condition and Results of
Operations.
DISPOSITION OF CABLE TELEVISION SYSTEM. On March 11, 1997, the Partnership
sold the Milwaukie System to an unaffiliated party for a sales price of
$8,200,000, subject to normal closing adjustments. Because the sale of the
Milwaukie System did not represent the sale of all or substantially all of the
assets of the Partnership, no vote of the limited partners of the Partnership
was required to approve this sale. The Partnership repaid $2,550,000 of the
amount outstanding under the Partnership's credit facility, paid a brokerage fee
of 2.5 percent of the sales price, or $205,000, to The Jones Group, Ltd., a
subsidiary of the General Partner, for acting as a broker in this transaction
and will distribute the remainder of the net proceeds to the Partnership's
limited partners. Because the distributions to be made as a result of the sale
of the Milwaukie System together with all prior distributions made by the
Partnership do not total the amounts originally contributed to the Partnership
by the limited partners plus the 10 percent Liquidation Preference (as defined
in the limited partnership agreement), the General Partner will not receive any
general partner distribution on the sale of the Milwaukie System.
CABLE TELEVISION SERVICES. The System offers to subscribers various types
of programming, which include basic service, tier service, premium service, pay-
per-view programs and packages including several of these services at combined
rates.
Basic cable television service usually consists of signals of all four
national television networks, various independent and educational television
stations (both VHF and UHF) and certain signals received from satellites. Basic
service also usually includes programs originated locally by the system, which
may consist of music, news,
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weather reports, stock market and financial information and live or videotaped
programs of a public service or entertainment nature. FM radio signals are also
frequently distributed to subscribers as part of the basic service.
The System offers tier services on an optional basis to its subscribers. A
tier generally includes most of the cable networks such as Entertainment and
Sports Programming Network (ESPN), Cable News Network (CNN), Turner Network
Television (TNT), Family Channel, Discovery and others, and the cable television
operators buy tier programming from these networks. The System also offers a
package that includes the basic service channels and the tier services.
The System also offers premium services to subscribers, which consist of
feature films, sporting events and other special features that are presented
without commercial interruption. The cable television operators buy premium
programming from suppliers such as HBO, Showtime, Cinemax or others at a cost
based on the number of subscribers the cable operator serves. Premium service
programming usually is significantly more expensive than the basic service or
tier service programming, and consequently cable operators price premium service
separately when sold to subscribers.
The System also offers to subscribers pay-per-view programming. Pay-per-
view is a service that allows subscribers to receive single programs, frequently
consisting of motion pictures that have recently completed their theatrical
exhibitions and major sporting events, and to pay for such service on a program-
by-program basis.
REVENUES. Monthly service fees for basic, tier and premium services
constitute the major source of revenue for the System. At December 31, 1996,
the System's monthly basic service rates ranged from $9.10 to $10.16, monthly
basic and tier ("basic plus") service rates ranged from $21.85 to $21.91 and
monthly premium services ranged from $2.00 to $10.95 per premium service. In
addition, the Partnership earns revenues from the System's pay-per-view programs
and advertising fees. Related charges may include a nonrecurring installation
fee that ranges from $1.99 to $40.05; however, from time to time the System has
followed the common industry practice of reducing or waiving the installation
fee during promotional periods. Commercial subscribers such as hotels, motels
and hospitals are charged a nonrecurring connection fee that usually covers the
cost of installation. Except under the terms of certain contracts with
commercial subscribers and residential apartment and condominium complexes, the
subscribers are free to discontinue the service at any time without penalty.
For the year ended December 31, 1996, of the total fees received by the System,
basic service and tier service fees accounted for approximately 68% of total
revenues, premium service fees accounted for approximately 11% of total
revenues, pay-per-view fees were approximately 3% of total revenues, advertising
fees were approximately 6% of total revenues and the remaining 12% of total
revenues came principally from equipment rentals, installation fees and program
guide sales. The Partnership is dependent upon the timely receipt of service
fees to provide for maintenance and replacement of plant and equipment, current
operating expenses and other costs of the System.
FRANCHISES. The System is constructed and operated under non-exclusive,
fixed-term franchises or other types of operating authorities (referred to
collectively herein as "franchises") granted by local governmental authorities.
These franchises typically contain many conditions, such as time limitations on
commencement and completion of construction, conditions of service, including
the number of channels, types of programming and the provision of free service
to schools and certain other public institutions, and the maintenance of
insurance and indemnity bonds. The provisions of local franchises are subject
to federal regulation.
The Partnership holds four franchises for the System. These franchises
provide for the payment of fees to the issuing authorities and generally range
from 3% to 5% of the gross revenues of a cable television system. The 1984
Cable Act prohibits franchising authorities from imposing annual franchise fees
in excess of 5% of gross revenues and also permits the cable television system
operator to seek renegotiation and modification of franchise requirements if
warranted by changed circumstances.
The Partnership has never had a franchise revoked. The Company is
currently negotiating the renewal of two franchises that expire prior to
December 31, 1997. The General Partner has no reason to believe that such
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franchise will not be renewed in due course. The General Partner recently has
experienced lengthy negotiations with some franchising authorities for the
granting of franchise renewals. Some of the issues involved in recent renewal
negotiations include rate regulation, customer service standards, cable plant
upgrade or replacement and shorter terms of franchise agreements.
COMPETITION. Cable television systems currently experience competition
from several sources.
Broadcast Television. Cable television systems have traditionally competed
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with broadcast television, which consists of television signals that the viewer
is able to receive directly on his television without charge using an "off-air"
antenna. The extent of such competition is dependent in part upon the quality
and quantity of signals available by such antenna reception as compared to the
services provided by the local cable system. Accordingly, it has generally been
less difficult for cable operators to obtain higher penetration rates in rural
areas where signals available off-air are limited, than in metropolitan areas
where numerous, high quality off-air signals are often available without the aid
of cable television systems.
Traditional Overbuild. Cable television franchises are not exclusive, so
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that more than one cable television system may be built in the same area (known
as an "overbuild"), with potential loss of revenues to the operator of the
original cable television system. The General Partner has experienced overbuilds
in connection with certain systems that it has owned or managed for limited
partnerships, and currently there are overbuilds in the systems owned or managed
by the General Partner. Constructing and developing a cable television system
is a capital intensive process, and it is often difficult for a new cable system
operator to create a marketing edge over the existing system. Generally, an
overbuilder would be required to obtain franchises from the local governmental
authorities, although in some instances, the overbuilder could be the local
government itself. In any case, an overbuilder would be required to obtain
programming contracts from entertainment programmers and, in most cases, would
have to build a complete cable system, including headends, trunk lines and drops
to individual subscribers homes, throughout the franchise areas.
DBS. High-powered direct-to-home satellites have made possible the wide-
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scale delivery of programming to individuals throughout the United States using
small roof-top or wall-mounted antennas. Several companies began offering
direct broadcast satellite ("DBS") service over the last few years and
additional entrants are expected. Companies offering DBS service use video
compression technology to increase channel capacity of their systems to 100 or
more channels and to provide packages of movies, satellite network and other
program services which are competitive to those of cable television systems.
DBS cannot currently offer its subscribers local programming, although at least
one future DBS entrant is attempting to offer customers regional delivery of
local broadcast signals. In addition to emerging high-powered DBS competition,
cable television systems face competition from a major medium-powered satellite
distribution provider and several low-powered providers, whose service requires
use of much larger home satellite dishes. Not all subscribers terminate cable
television service upon acquiring a DBS system. The General Partner has
observed that there are DBS subscribers that also elect to subscribe to cable
television service in order to obtain the greatest variety of programming on
multiple television sets, including local programming not available through DBS
service. The ability of DBS service providers to compete successfully with the
cable television industry will depend on, among other factors, the ability of
DBS providers to overcome certain legal and technical hurdles and the
availability of equipment at reasonable prices.
Telephone. Federal cross-ownership restrictions historically limited entry
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by local telephone companies into the cable television business. The 1996
Telecommunications Act (the "1996 Telecom Act") eliminated this cross-ownership
restriction, making it possible for companies with considerable resources to
overbuild existing cable operators and enter the business. Several telephone
companies have begun seeking cable television franchises from local governmental
authorities and constructing cable television systems. Ameritech, one of the
seven regional Bell Operating Companies ("BOCs"), which provides telephone
service in a multi-state region including Illinois, has been the most active BOC
in seeking local cable franchises within its service area. It has already begun
cable service in Naperville, Illinois and has also obtained franchises for Glen
Ellyn and Vernon Hills, Illinois, all of which are currently served by cable
systems owned by three partnerships managed by the
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General Partner. The General Partner cannot predict at this time the extent of
telephone company competition that will emerge to owned or managed cable
television systems. The entry of telephone companies as direct competitors,
however, is likely to continue over the next several years and could adversely
affect the profitability and market value of the General Partner's owned and
managed systems. The entry of electric utility companies into the cable
television business, as now authorized by the 1996 Telecom Act, could have a
similar adverse effect.
Private Cable. Additional competition is provided by private cable
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television systems, known as Satellite Master Antenna Television (SMATV),
serving multi-unit dwellings such as condominiums, apartment complexes, and
private residential communities. These private cable systems may enter into
exclusive agreements with apartment owners and homeowners associations, which
may preclude operators of franchised systems from serving residents of such
private complexes. Private cable systems that do not cross public rights of way
are free from the federal, state and local regulatory requirements imposed on
franchised cable television operators. In some cases, the Partnership has been
unable to provide cable television service to buildings in which private
operators have secured exclusive contracts to provide video and telephony
services. The Partnership is interested in providing these same services, but
expects that the market to install and provide these services in multi-unit
buildings will continue to be highly competitive.
MMDS. Cable television systems also compete with wireless program
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distribution services such as multichannel, multipoint distribution service
("MMDS") systems, commonly called wireless cable, which are licensed to serve
specific areas. MMDS uses low-power microwave frequencies to transmit
television programming over-the-air to paying subscribers. The MMDS industry is
less capital intensive than the cable television industry, and it is therefore
more practical to construct MMDS systems in areas of lower subscriber
penetration. Wireless cable systems are now in direct competition with cable
television systems in several areas of the country, including the system in Pima
County, Arizona owned by the General Partner. Telephone companies have recently
acquired or invested in wireless companies, and may use MMDS systems to provide
services within their service areas in lieu of wired delivery systems.
Enthusiasm for MMDS has waned in recent months, however, as Bell Atlantic and
NYNEX have suspended their investment in two major MMDS companies. To date, the
Partnership has not lost a significant number of subscribers, nor a significant
amount of revenue, to MMDS operators competing with the Partnership's cable
television systems. A series of actions taken by the FCC, however, including
reallocating certain frequencies to the wireless services, are intended to
facilitate the development of wireless cable television systems as an
alternative means of distributing video programming. The FCC recently held
auctions for spectrum that will be used by wireless operators to provide
additional channels of programming over larger distances. In addition, an
emerging technology, Local Multipoint Distribution services ("LMDS"), could also
pose a significant threat to the cable television industry, if and when it
becomes established. LMDS, sometimes referred to as cellular television, could
have the capability of delivering more than 100 channels of video programming to
a subscriber's home. The potential impact, however, of LMDS is difficult to
assess due to the newness of the technology and the absence of any current fully
operational LMDS systems.
Cable television systems are also in competition, in various degrees with
other communications and entertainment media, including motion pictures and home
video cassette recorders.
REGULATION AND LEGISLATION
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The operation of cable television systems is extensively regulated by the
FCC, some state governments and most local governments. The new 1996 Telecom
Act alters the regulatory structure governing the nation's telecommunications
providers. It removes barriers to competition in both the cable television
market and the local telephone market. Among other things, it also reduces the
scope of cable rate regulation.
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The 1996 Telecom Act requires the FCC to undertake a host of implementing
rulemakings, the final outcome of which cannot yet be determined. Moreover,
Congress and the FCC have frequently revisited the subject of cable regulation.
Future legislative and regulatory changes could adversely affect the
Partnership's operations. This section briefly summarizes key laws and
regulations affecting the operation of the Partnership's cable systems and does
not purport to describe all present, proposed, or possible laws and regulations
affecting the Partnership.
Cable Rate Regulation. The 1992 Cable Act imposed an extensive rate
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regulation regime on the cable television industry. Under that regime, all
cable systems are subject to rate regulation, unless they face "effective
competition" in their local franchise area. Federal law now defines "effective
competition" on a community-specific basis as requiring either low penetration
(less than 30%) by the incumbent cable operator, appreciable penetration (more
than 15%) by competing multichannel video providers ("MVPs"), or the presence of
a competing MVP affiliated with a local telephone company.
Although the FCC rules control, local government units (commonly referred
to as local franchising authorities or "LFAs") are primarily responsible for
administering the regulation of the lowest level of cable -- the basic service
tier ("BST"), which typically contains local broadcast stations and public,
educational, and government ("PEG") access channels. Before an LFA begins BST
rate regulation, it must certify to the FCC that it will follow applicable
federal rules, and many LFAs have voluntarily declined to exercise this
authority. LFAs also have primary responsibility for regulating cable equipment
rates. Under federal law, charges for various types of cable equipment must be
unbundled from each other and from monthly charges for programming services.
The 1996 Telecom Act allows operators to aggregate costs for broad categories of
equipment across geographic and functional lines. This change should facilitate
the introduction of new technology.
The FCC itself directly administers rate regulation of any cable
programming service tiers ("CPST"), which typically contain satellite-delivered
programming. Under the 1996 Telecom Act, the FCC can regulate CPST rates only
if an LFA first receives at least two rate complaints from local subscribers and
then files a formal complaint with the FCC. When new CPST rate complaints are
filed, the FCC now considers only whether the incremental increase is justified
and will not reduce the previously established CPST rate.
Under the FCC's rate regulations, most cable systems were required to
reduce their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price cap scheme that allows for the
recovery of inflation and certain increased costs, as well as providing some
incentive for expanding channel carriage. The FCC has modified its rate
adjustment regulations to allow for annual rate increases and to minimize
previous problems associated with regulatory lag. Operators also have the
opportunity of bypassing this "benchmark" regulatory scheme in favor of
traditional "cost-of-service" regulation in cases where the latter methodology
appears favorable. Premium cable services offered on a per-channel or per-
program basis remain unregulated, as do affirmatively marketed packages
consisting entirely of new programming product. Federal law requires that the
BST be offered to all cable subscribers, but limits the ability of operators to
require purchase of any CPST before purchasing premium services offered on a
per-channel or per-program basis.
The 1996 Telecom Act sunsets FCC regulation of CPST rates for all systems
(regardless of size) on March 31, 1999. It also relaxes existing uniform rate
requirements by specifying that uniform rate requirements do not apply where the
operator faces "effective competition," and by exempting bulk discounts to
multiple dwelling units, although complaints about predatory pricing still may
be made to the FCC.
Cable Entry Into Telecommunications. The 1996 Telecom Act provides that no
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state or local laws or regulations may prohibit or have the effect of
prohibiting any entity from providing any interstate or intrastate
telecommunications service. States are authorized, however, to impose
"competitively neutral" requirements regarding universal service, public safety
and welfare, service quality, and consumer protection. State and local
governments also retain their authority to manage the public rights-of-way and
may require reasonable, competitively neutral compensation for management of the
public rights-of-way when cable operators provide telecommunications service.
The favorable pole attachment rates afforded cable operators under federal law
can
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be gradually increased by utility companies owning the poles (beginning in 2001)
if the operator provides telecommunications service, as well as cable service,
over its plant.
Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the FCC and state regulators. One critical
component of the 1996 Telecom Act to facilitate the entry of new
telecommunications providers (including cable operators) is the interconnection
obligation imposed on all telecommunications carriers. Review of the FCC's
initial interconnection order is now pending before the Eighth Circuit Court of
Appeals.
Telephone Company Entry Into Cable Television. The 1996 Telecom Act allows
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telephone companies to compete directly with cable operators by repealing the
historic telephone company/cable cross-ownership ban. Local exchange carriers
("LECs"), including the BOCs, can now compete with cable operators both inside
and outside their telephone service areas. Because of their resources, LECs
could be formidable competitors to traditional cable operators, and certain LECs
have begun offering cable service. As described above, the General Partner is
now witnessing the beginning of LEC competition in a few of its cable
communities.
Under the 1996 Telecom Act, a LEC providing video programming to
subscribers will be regulated as a traditional cable operator (subject to local
franchising and federal regulatory requirements), unless the LEC elects to
provide its programming via an "open video system" ("OVS"). To qualify for OVS
status, the LEC must reserve two-thirds of the system's activated channels for
unaffiliated entities.
Although LECs and cable operators can now expand their offerings across
traditional service boundaries, the general prohibition remains on LEC buyouts
(i.e., any ownership interest exceeding 10 percent) of co-located cable systems,
cable operator buyouts of co-located LEC systems, and joint ventures between
cable operators and LECs in the same market. The 1996 Telecom Act provides a
few limited exceptions to this buyout prohibition, including a carefully
circumscribed "rural exemption." The 1996 Telecom Act also provides the FCC
with the limited authority to grant waivers of the buyout prohibition (subject
to LFA approval).
Electric Utility Entry Into Telecommunications/Cable Television. The 1996
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Telecom Act provides that registered utility holding companies and subsidiaries
may provide telecommunications services (including cable television)
notwithstanding the Public Utilities Holding Company Act. Electric utilities
must establish separate subsidiaries, known as "exempt telecommunications
companies" and must apply to the FCC for operating authority. Again, because of
their resources, electric utilities could be formidable competitors to
traditional cable systems.
Additional Ownership Restrictions. The 1996 Telecom Act eliminates
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statutory restrictions on broadcast/cable cross-ownership (including broadcast
network/cable restrictions), but leaves in place existing FCC regulations
prohibiting local cross-ownership between co-located television stations and
cable systems. The 1996 Telecom Act also eliminates the three year holding
period required under the 1992 Cable Act's "anti-trafficking" provision. The
1996 Telecom Act leaves in place existing restrictions on cable cross-ownership
with SMATV and MMDS facilities, but lifts those restrictions where the cable
operator is subject to effective competition. In January 1995, however, the FCC
adopted regulations which permit cable operators to own and operate SMATV
systems within their franchise area, provided that such operation is consistent
with local cable franchise requirements.
Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a cable
system from devoting more than 40% of its activated channel capacity to the
carriage of affiliated national program services. A companion rule establishing
a nationwide ownership cap on any cable operator equal to 30% of all domestic
cable subscribers has been stayed pending further judicial review.
There are no federal restrictions on non-U.S. entities having an ownership
interest in cable television systems or the FCC licenses commonly employed by
such systems. Section 310(b)(4) of the Communications Act
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does, however, prohibit foreign ownership of FCC broadcast and telephone
licenses, unless the FCC concludes that such foreign ownership is consistent
with the public interest. BCI's investment in the General Partner could,
therefore, adversely affect any plan to acquire FCC broadcast or common carrier
licenses. The Partnership, however, does not currently plan to acquire such
licenses.
Must Carry/Retransmission Consent. The 1992 Cable Act contains broadcast
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signal carriage requirements that allow local commercial television broadcast
stations to elect once every three years between requiring a cable system to
carry the station ("must carry") or negotiating for payments for granting
permission to the cable operator to carry the station ("retransmission
consent"). Less popular stations typically elect "must carry," and more popular
stations typically elect "retransmission consent." Must carry requests can
dilute the appeal of a cable system's programming offerings, and retransmission
consent demands may require substantial payments or other concessions. Either
option has a potentially adverse affect on the Partnership's business.
Additionally, cable systems are required to obtain retransmission consent for
all "distant" commercial television stations (except for satellite-delivered
independent "superstations" such as WTBS). The constitutionality of the must
carry requirements has been challenged and is awaiting a decision from the U.S.
Supreme Court.
Access Channels. LFAs can include franchise provisions requiring cable
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operators to set aside certain channels for public, educational and governmental
access programming. Federal law also requires cable systems to designate a
portion of their channel capacity (up to 15% in some cases) for commercial
leased access by unaffiliated third parties. The FCC has adopted rules
regulating the terms, conditions and maximum rates a cable operator may charge
for use of the designated channel capacity, but use of commercial leased access
channels has been relatively limited. The FCC released revised rules in
February 1997 which mandate a modest rate reduction and could make commercial
leased access a more attractive option to third party programmers.
Access to Programming. To spur the development of independent cable
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programmers and competition to incumbent cable operators, the 1992 Cable Act
imposed restrictions on the dealings between cable operators and cable
programmers. Of special significance from a competitive business posture, the
1992 Cable Act precludes video programmers affiliated with cable companies from
favoring cable operators over competitors and requires such programmers to sell
their programming to other multichannel video distributors. This provision
limits the ability of vertically integrated cable programmers to offer exclusive
programming arrangements to cable companies.
Other FCC Regulations. In addition to the FCC regulations noted above,
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there are other FCC regulations covering such areas as equal employment
opportunity, subscriber privacy, programming practices (including, among other
things, syndicated program exclusivity, network program nonduplication, local
sports blackouts, indecent programming, lottery programming, political
programming, sponsorship identification, and children's programming
advertisements), registration of cable systems and facilities licensing,
maintenance of various records and public inspection files, frequency usage,
lockbox availability, antenna structure notification, tower marking and
lighting, consumer protection and customer service standards, technical
standards, and consumer electronics equipment compatibility. The FCC is
expected to impose new Emergency Alert System requirements on cable operators
this year. The FCC has the authority to enforce its regulations through the
imposition of substantial fines, the issuance of cease and desist orders and/or
the imposition of other administrative sanctions, such as the revocation of FCC
licenses needed to operate certain transmission facilities used in connection
with cable operations.
Two pending FCC proceedings of particular competitive concern involve
inside wiring and navigational devices. The former rulemaking is considering
ownership of cable wiring located inside multiple dwelling unit complexes. If
the FCC concludes that such wiring belongs to, or can be unilaterally acquired
by the complex owner, it will become easier for complex owners to terminate
service from the incumbent cable operator in favor of a new entrant. The latter
rulemaking is considering whether cable customers must be allowed to purchase
cable converters from third party vendors. If the FCC concludes that such
distribution is required, and does not make appropriate allowances for signal
piracy concerns, it may become more difficult for cable operators to combat
theft of service.
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Copyright. Cable television systems are subject to federal copyright
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licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
revenues to a federal copyright royalty pool (that varies depending on the size
of the system and the number of distant broadcast television signals carried),
cable operators can obtain blanket permission to retransmit copyrighted material
on broadcast signals. The possible modification or elimination of this
compulsory copyright license is the subject of continuing legislative review and
could adversely affect the Partnership's ability to obtain desired broadcast
programming. In addition, the cable industry pays music licensing fees to BMI
and is negotiating a similar arrangement with ASCAP. Copyright clearances for
nonbroadcast programming services are arranged through private negotiations.
State and Local Regulation. Cable television systems generally are
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operated pursuant to nonexclusive franchises granted by a municipality or other
state or local government entity in order to cross public rights-of-way.
Federal law now prohibits franchise authorities from granting exclusive
franchises or from unreasonably refusing to award additional franchises. Cable
franchises generally are granted for fixed terms and in many cases include
monetary penalties for non-compliance and may be terminable if the franchisee
fails to comply with material provisions.
The terms and conditions of franchises vary materially from jurisdiction to
jurisdiction. Each franchise generally contains provisions governing cable
operations, service rates, franchise fees, system construction and maintenance
obligations, system channel capacity, design and technical performance, customer
service standards, and indemnification protections. A number of states subject
cable television systems to the jurisdiction of centralized state governmental
agencies, some of which impose regulation of a character similar to that of a
public utility. Although LFAs have considerable discretion in establishing
franchise terms, there are certain federal limitations. For example, LFAs
cannot insist on franchise fees exceeding 5% of the system's gross revenues,
cannot dictate the particular technology used by the system, and cannot specify
video programming other than identifying broad categories of programming.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the franchise authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal. Similarly, if a franchise
authority's consent is required for the purchase or sale of a cable system or
franchise, such authority may attempt to impose more burdensome or onerous
franchise requirements in connection with a request for consent. Historically,
franchises have been renewed for cable operators that have provided satisfactory
services and have complied with the terms of their franchises.
GENERAL. The Partnership's business consists of providing cable television
services to a large number of customers, the loss of any one of which would have
no material effect on the Partnership's business. The System has had some
subscribers who later terminated the service. Terminations occur primarily
because people move to another home or to another city. In other cases, people
terminate on a seasonal basis or because they no longer can afford or are
dissatisfied with the service. The amount of past due accounts in the System is
not significant. The Partnership's policy with regard to past due accounts is
basically one of disconnecting service before a past due account becomes
material.
The Partnership does not depend to any material extent on the availability
of raw materials; it carries no significant amounts of inventory and it has no
material backlog of customer orders. The Partnership does not have any employees
because all properties are managed by employees of the General Partner. The
General Partner has engaged in research and development activities relating to
the provision of new services but the amount of the Partnership's funds expended
for such research and development has never been material.
Compliance with federal, state and local provisions that have been enacted
or adopted regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment has had no material
effect upon the capital expenditures, earnings or competitive position of the
Partnership.
9
<PAGE>
ITEM 2. PROPERTIES
-------------------
The Partnership acquired the Owatonna/Glencoe System in July 1986. The
following sets forth (i) the monthly basic plus service rates charged to
subscribers and (ii) the number of basic subscribers and pay units for the
System. The monthly basic service rates set forth herein represent, with
respect to systems with multiple headends, the basic service rate charged to the
majority of the subscribers within the system. In cable television systems,
basic subscribers can subscribe to more than one pay TV service. Thus, the
total number of pay services subscribed to by basic subscribers are called pay
units. As of December 31, 1996, the Owatonna/Glencoe System operated cable
plant passing approximately 11,300 homes, with an approximate 73% penetration
rate. Figures for numbers of subscribers, miles of cable plant and homes passed
are compiled from the General Partner's records and may be subject to
adjustments.
<TABLE>
<CAPTION>
At December 31,
----------------------
OWATONNA/GLENCOE SYSTEM 1996 1995 1994
- ----------------------- ---- ---- ----
<S> <C> <C> <C>
Monthly basic plus service rate $21.91 $20.91 $20.41
Basic subscribers 8,301 7,938 7,711
Pay units 4,503 4,150 3,895
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
--------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
None.
PART II.
--------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
-------------------------------------------------
AND RELATED SECURITY HOLDER MATTERS
-----------------------------------
While the Partnership is publicly held, there is no public market for the
limited partnership interests, and it is not expected that a market will develop
in the future. As of February 14, 1997, the number of equity security holders
in the Partnership was 984.
10
<PAGE>
Item 6. Selected Financial Data
- --------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 4,971,826 $4,589,457 $4,294,257 $4,111,369 $3,855,621
Depreciation and Amortization 835,374 787,556 882,035 832,444 726,340
Operating Income 496,883 461,529 299,402 333,627 420,856
Net Income (Loss) 109,405 131,482 93,845 195,588 290,566
Net Income (Loss) per Limited Partnership Unit 6.37 7.66 5.47 11.39 16.92
Distributions per Limited Partnership Unit 47.06 47.06 57.65 60.59 57.65
Weighted Average Number of
Limited Partnership Units Outstanding 17,000 17,000 17,000 17,000 17,000
General Partner's Deficit (84,796) (77,810) (71,045) (62,083) (53,637)
Limited Partners' Capital (Deficit) (1,163,006) (471,317) 198,516 1,085,609 1,921,977
Total Assets 4,610,684 4,691,823 4,755,245 4,903,310 5,113,305
Debt 5,296,610 4,606,827 3,584,706 3,310,501 2,683,562
General Partner Advances - 39,725 483,487 20,529 19,356
</TABLE>
11
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
-------------
JONES CABLE INCOME FUND 1-A, LTD.
---------------------------------
The following discussion of Jones Cable Income Fund 1-A, Ltd.'s (the
"Partnership") financial condition and results of operations contains, in
addition to historical information, forward-looking statements that are based
upon certain assumptions and are subject to a number of risks and uncertainties.
The Partnership's actual results may differ significantly from the results
predicted in such forward-looking statements.
FINANCIAL CONDITION
- -------------------
It is the General Partner's publicly announced policy that it intends to
liquidate its managed limited partnerships, including the Partnership, as
opportunities for sales of partnership cable television systems arise in the
marketplace over the next several years. In accordance with the General
Partner's policy, the Partnership has sold its cable television system serving
the community of Milwaukie, Oregon (the "Milwaukie System"). No specific dates
or terms have yet been set for the sale of the Partnership's Owatonna and
Glencoe, Minnesota cable television system (the "Owatonna/Glencoe System").
On March 11, 1997, the Partnership sold its Milwaukie System to an
unaffiliated party for a sales price of $8,200,000, subject to normal working
capital closing adjustments. The Partnership repaid $3,200,000 of the amount
outstanding under its credit facility, paid a brokerage fee of 2.5 percent of
the sales price, or $205,000, to The Jones Group, Ltd., a subsidiary of the
General Partner, for acting as a broker in this transaction, and will distribute
the remainder of the net sales proceeds to the Partnership's limited partners.
Because the distributions to be made on the sale of the Milwaukie System
together with all prior distributions made by the Partnership do not total the
amounts originally contributed to the Partnership by the limited partners plus
the liquidation preference as set forth in the partnership agreement, the
General Partner will not receive any general partner distribution on the sale of
the Milwaukie System. Because the sale of the Milwaukie System did not
represent the sale of all or substantially all of the assets of the Partnership,
no vote of the limited partners of the Partnership was required to approve the
sale. The Partnership will continue to own and operate its Owatonna/Glencoe
System.
For the year ended December 31, 1996, the Partnership generated net cash
from operating activities totaling $801,933, which is available to fund capital
expenditures and non-operating costs. The Partnership expended approximately
$677,000 on capital improvements during 1996. Of these expenditures,
approximately 34 percent related to service drops to subscribers' homes,
approximately 16 percent was for the purchase of vehicles and approximately 15
percent related to the purchase of converters. The remainder of the
expenditures related to various enhancements in each of the Partnership's
systems. Funding for these expenditures was provided primarily by borrowings
under the Partnership's credit facility. Anticipated capital expenditures in
the Partnership's Owatonna/Glencoe System for 1997 total approximately $358,000.
Of this total approximately 41 percent is for construction of service drops to
subscribers' homes, approximately 14 percent is for the purchase of premium
service converters and approximately 10 percent is for headend equipment. The
remainder of the expenditures are for various enhancements in the Partnership's
Owatonna/Glencoe System. These capital expenditures are necessary to maintain
the value of the Partnership's Owatonna/Glencoe System. Funding for these
expenditures is expected to be provided by cash generated from operations and
borrowings under the Partnership's revolving credit facility.
The Partnership is a party to a $6,500,000 revolving credit facility. The
revolving credit period expires December 31, 1997, at which time the outstanding
balance converts to a term loan with a final maturity of December 31, 2003.
The balance outstanding on the Partnership's credit facility at December 31,
1996 was $5,200,000, leaving $1,300,000 available to fund capital expenditures.
As a result of the sale of the Milwaukie System on March 11, 1997, the
Partnership repaid $3,200,000 of the then-outstanding balance of its credit
facility. Interest on outstanding principal amounts on the credit facility is
computed at the Partnership's option of the London Interbank Offered Rate plus
1-1/4 percent or the Prime Rate plus 1/4 percent. The effective interest rates
on amounts outstanding as of December 31, 1996 and 1995 were 6.81 percent and
7.24 percent, respectively.
The General Partner believes that cash flow from operations and available
borrowings under the Partnership's credit facility will be sufficient to fund
capital expenditures and other liquidity needs of the Partnership's
Owatonna/Glencoe System in 1997.
12
<PAGE>
A primary objective of the Partnership is to provide quarterly cash
distributions from operating cash flow to its partners. During 1996, the
Partnership declared such distributions totaling $808,080, which equates to $941
per $10,000 invested in the Partnership. The distributions, which were
principally from operating cash flow, were paid to limited partners during 1996,
except the fourth quarter distribution of $200,000, which was paid on February
15, 1997. The Partnership expects to continue quarterly distributions from
operating cash flow but anticipates that the amount of distributions will be
less due to the sale by the Partnership of its Milwaukie System. The General
Partner has agreed to defer its portion of cash distributions until the
Partnership is liquidated. Future distributions will be announced on a quarter-
by-quarter basis and no determination has been made regarding any specific level
of future distributions. The payment of quarterly operating cash flow
distributions may reduce the financial flexibility of the Partnership.
RESULTS OF OPERATIONS
- ---------------------
1996 compared to 1995-
Revenues of the Partnership increased $382,369, or approximately 8 percent,
to $4,971,826 in 1996 compared to $4,589,457 for the comparable 1995 period.
The increase in revenues was primarily due to basic service rate increases and
an increase in the number of basic subscribers. Basic service rate increases
accounted for approximately 43 percent of the increase in revenues and an
increase in the number of basic subscribers accounted for approximately 39
percent of the increase in revenues for the year ended December 31, 1996. The
number of basic subscribers increased by 575, or approximately 4 percent, to
13,898 subscribers at year end December 31, 1996 from 13,323 subscribers at year
end December 31, 1995. No other individual factor significantly affected the
increase in revenues.
Operating expenses consist primarily of costs associated with the operation
and administration of the Partnership'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 increased $279,778, or approximately 10 percent, to
$3,042,526 in 1996 from $2,762,748 in 1995. Operating expenses represented 61
percent and 60 percent of the revenues in 1996 and 1995, respectively. The
increase in operating expenses was primarily due to increases in programming
costs. No other individual factor significantly affected the increase in
operating expenses.
Management fees and allocated overhead from Jones Intercable, Inc.
increased $19,419, or approximately 3 percent, to $597,043 in 1996 from $577,624
in 1995. This increase was primarily a result of the increase in revenues, upon
which such management fees and allocations are based.
Depreciation and amortization increased $47,818, or approximately 6
percent, to $835,374 in 1996 from $787,556 in 1995. This increase in
depreciation and amortization expense was attributable to capital additions in
1996.
Operating income increased $35,354, or approximately 8 percent, to $496,883
in 1996 from $461,529 in 1995. This increase was due to the increase in
revenues exceeding the increases in operating expenses, management fees and
allocated overhead from the General Partner and depreciation and amortization
expenses.
The cable television industry generally measures the financial performance
of a cable television system in terms of operating income before depreciation
and amortization. This measure is not intended to be a substitute or
improvement upon the items disclosed on the financial statements, rather it is
included because it is an industry standard. Operating income before
depreciation and amortization increased $83,172, or approximately 7 percent, to
$1,332,257 in 1996 from $1,249,085 in 1995. This increase was due to the
increase in revenues exceeding the increases in operating expenses and
management fees and allocated overhead from the General Partner.
Interest expense increased $21,505, or approximately 6 percent, to $356,864
in 1996 from $335,359 in 1995 due to higher outstanding balances on interest
bearing obligations.
Net income decreased $22,077, or approximately 17 percent, to $109,405 in
1996 from $131,482 in 1995 due to the factors discussed above.
13
<PAGE>
1995 compared to 1994-
Revenues of the Partnership increased $295,200, or approximately 7 percent,
to $4,589,457 in 1995 from $4,294,257 in 1994. The increase in revenues was
primarily the result of increases in the number of basic subscribers and premium
subscriptions. Since December 31, 1994, the Partnership's cable systems added
401 basic subscribers, increasing to 13,323 basic subscribers at December 31,
1995 from 12,922 basic subscribers at December 31, 1994. The number of premium
subscriptions totaled 7,807 at December 31, 1995 compared to 6,986 at December
31, 1994, an increase of 821, or approximately 11 percent. Increases in
advertising revenues accounted for approximately 10 percent of the increase in
revenues. No other individual factor significantly affected the increase in
revenues.
Operating expenses increased $218,339, or approximately 9 percent, to
$2,762,748 in 1995 from $2,544,409 in 1994. Operating expense represented 60
percent and 59 percent of the revenues in 1995 and 1994, respectively. The
increase in operating expenses was primarily the result of increases in
advertising sales costs and increases in programming costs. No other individual
factor significantly affected the increase in operating expenses.
Management fees and allocated overhead from the General Partner increased
$9,213, or approximately 2 percent, to $577,624 in 1995 from $568,411 in 1994
due to the increase in revenues, upon which such fees are based.
Depreciation and amortization expense decreased $94,479, or approximately
11 percent, to $787,556 in 1995 from $882,035 in 1994. This decrease was due to
the maturation of the Partnership's intangible asset base.
Operating income increased $162,127, or approximately 54 percent, to
$461,529 in 1995 from $299,402 in 1994. This increase was due to the increase
in revenues and the decrease in depreciation and amortization expense exceeding
the increases in operating expenses and management fees and allocated overhead
from the General Partner.
Operating income before depreciation and amortization increased $67,648, or
approximately 6 percent, to $1,249,085 in 1995 from $1,181,437 in 1994. This
increase was due to the increase in revenues exceeding the increases in
operating expenses and management fees and allocated overhead from the General
Partner.
Interest expense increased $121,326, or approximately 57 percent, to
$335,359 in 1995 from $214,033 in 1994 due to higher outstanding balances on
interest bearing obligations.
Net income increased $37,637, or approximately 40 percent, to $131,482 in
1995 from $93,845 in 1994 due to the factors discussed above.
14
<PAGE>
Item 8. Financial Statements
- -----------------------------
JONES CABLE INCOME FUND 1-A, LTD.
---------------------------------
FINANCIAL STATEMENTS
--------------------
AS OF DECEMBER 31, 1996 AND 1995
--------------------------------
INDEX
-----
Page
----
Report of Independent Public Accountants 16
Balance Sheets 17
Statements of Operations 19
Statements of Partners' Capital (Deficit) 20
Statements of Cash Flows 21
Notes to Financial Statements 22
15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Partners of Jones Cable Income Fund 1-A, Ltd.:
We have audited the accompanying balance sheets of JONES CABLE INCOME
FUND 1-A, LTD. (a Colorado limited partnership) as of December 31, 1996 and
1995, and the related statements of operations, partners' capital (deficit) and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the General Partner's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Jones Cable Income
Fund 1-A, Ltd. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 12, 1997.
16
<PAGE>
JONES CABLE INCOME FUND 1-A, LTD.
---------------------------------
(A Limited Partnership)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
December 31,
--------------------------
ASSETS 1996 1995
------ ----------- -----------
<S> <C> <C>
CASH $ 42,929 $ 28,199
TRADE RECEIVABLES, less allowance for doubtful
receivables of $11,125 and $5,875 at December 31, 1996
and 1995, respectively 119,661 128,240
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 9,022,869 10,237,855
Less- accumulated depreciation (4,794,646) (5,995,702)
----------- -----------
4,228,223 4,242,153
Franchise costs and other intangible assets, net of
accumulated amortization of $723,631 and $654,163 at
December 31, 1996 and 1995, respectively 187,369 256,837
----------- -----------
Total investment in cable television properties 4,415,592 4,498,990
DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 32,502 36,394
----------- -----------
Total assets $ 4,610,684 $ 4,691,823
=========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
17
<PAGE>
JONES CABLE INCOME FUND 1-A, LTD.
---------------------------------
(A Limited Partnership)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
December 31,
-------------------------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) 1996 1995
------------------------------------------- ----------- -----------
<S> <C> <C>
LIABILITIES:
Debt $ 5,296,610 $ 4,606,827
General Partner advances - 39,725
Trade accounts payable and accrued liabilities 320,020 347,836
Accrued distribution to limited partners 200,000 200,000
Subscriber prepayments 41,856 46,562
----------- -----------
- -
Total liabilities 5,858,486 5,240,950
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 8)
PARTNERS' DEFICIT:
General Partner-
Contributed capital 1,000 1,000
Accumulated deficit (3,487) (4,581)
Distributions (82,309) (74,229)
----------- -----------
(84,796) (77,810)
----------- -----------
Limited Partners-
Net contributed capital
(17,000 units outstanding at
December 31, 1996 and 1995) 7,288,694 7,288,694
Accumulated deficit (302,700) (411,011)
Distributions (8,149,000) (7,349,000)
----------- -----------
(1,163,006) (471,317)
----------- -----------
Total liabilities and partners' deficit $ 4,610,684 $ 4,691,823
=========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
18
<PAGE>
JONES CABLE INCOME FUND 1-A, LTD.
---------------------------------
(A Limited Partnership)
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES $4,971,826 $4,589,457 $4,294,257
COSTS AND EXPENSES:
Operating expenses 3,042,526 2,762,748 2,544,409
Management fees and allocated overhead
from General Partner 597,043 577,624 568,411
Depreciation and amortization 835,374 787,556 882,035
---------- ---------- ----------
OPERATING INCOME 496,883 461,529 299,402
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (356,864) (335,359) (214,033)
Other, net (30,614) 5,312 8,476
---------- ---------- ----------
Total other income (expense) (387,478) (330,047) (205,557)
---------- ---------- ----------
NET INCOME $ 109,405 $ 131,482 $ 93,845
========== ========== ==========
ALLOCATION OF NET INCOME:
General Partner $ 1,094 $ 1,315 $ 938
========== ========== ==========
Limited Partners $ 108,311 $ 130,167 $ 92,907
========== ========== ==========
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 6.37 $ 7.66 $ 5.47
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 17,000 17,000 17,000
========== ========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
19
<PAGE>
JONES CABLE INCOME FUND 1-A, LTD.
---------------------------------
(A Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
-----------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994
----------- --------- ----------
<S> <C> <C> <C>
GENERAL PARTNER:
Balance, beginning of year $ (77,810) $ (71,045) $ (62,083)
Distributions (8,080) (8,080) (9,900)
Net income for year 1,094 1,315 938
----------- --------- ----------
Balance, end of year $ (84,796) $ (77,810) $ (71,045)
=========== ========= ==========
LIMITED PARTNERS:
Balance, beginning of year $ (471,317) $ 198,516 $1,085,609
Distributions (800,000) (800,000) (980,000)
Net income for year 108,311 130,167 92,907
----------- --------- ----------
Balance, end of year $(1,163,006) $(471,317) $ 198,516
=========== ========= ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
20
<PAGE>
JONES CABLE INCOME FUND 1-A, LTD.
---------------------------------
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 109,405 $ 131,482 $ 93,845
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 835,374 787,556 882,035
Decrease (increase) in trade receivables 8,579 (57,967) (12,528)
Increase in deposits, prepaid expenses and
deferred charges (79,178) (47,660) (40,149)
Increase (decrease) in trade accounts payable and
accrued liabilities and subscriber prepayments (32,522) 69,817 10,827
Increase (decrease) in advances from
General Partner (39,725) (443,762) 462,958
--------- ---------- ----------
Net cash provided by operating activities 801,933 439,466 1,396,988
--------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (676,986) (676,674) (659,229)
--------- ---------- ----------
Net cash used in investing activities (676,986) (676,674) (659,229)
--------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 740,941 1,063,834 309,987
Repayment of debt (51,158) (41,713) (35,782)
Cash flow distributions to limited partners (800,000) (800,000) (980,000)
Decrease in accrued distributions to
limited partners - (35,000) (15,000)
--------- ---------- ----------
Net cash provided by (used in)
financing activities (110,217) 187,121 (720,795)
--------- ---------- ----------
Increase (decrease) in cash 14,730 (50,087) 16,964
Cash, beginning of year 28,199 78,286 61,322
--------- ---------- ----------
Cash, end of year $ 42,929 $ 28,199 $ 78,286
========= ========== ==========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 356,864 $ 301,059 $ 216,327
========= ========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
21
<PAGE>
JONES CABLE INCOME FUND 1-A, LTD.
---------------------------------
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(1) ORGANIZATION AND PARTNERS' INTERESTS
------------------------------------
Formation and Business
----------------------
Jones Cable Income Fund 1-A, Ltd. (the "Partnership"), a Colorado
limited partnership, was formed on June 2, l986, under a public program
sponsored by Jones Intercable, Inc. ("Intercable"). The Partnership was formed
to acquire, develop and operate cable television systems. Intercable is the
"General Partner" and manager of the Partnership. The General Partner and its
subsidiaries also own and operate cable television systems. In addition, the
General Partner manages cable television systems for other limited partnerships
for which it is general partner and, also, for other affiliated entities. The
Partnership owns the cable television systems serving the communities of
Milwaukie, Oregon (the "Milwaukie System") and Owatonna and Glencoe, Minnesota
(the "Owatonna/Glencoe System").
Sale of Cable Television System
-------------------------------
On March 11, 1997, the Partnership sold its Milwaukie System to an
unaffiliated party for a sales price of $8,200,000, subject to normal working
capital closing adjustments. The Partnership repaid $3,200,000 of the amount
outstanding under its credit facility, paid a brokerage fee of 2.5 percent of
the sales price, or $205,000, to The Jones Group, Ltd., a subsidiary of the
General Partner, for acting as a broker in this transaction, and will distribute
the remainder of the net sales proceeds to the Partnership's limited partners.
Because the distributions to be made on the sale of the Milwaukie System
together with all prior distributions made by the Partnership do not total the
amounts originally contributed to the Partnership by the limited partners plus
the liquidation preference as set forth in the partnership agreement, the
General Partner will not receive any general partner distribution on the sale of
the Milwaukie System. Because the sale of the Milwaukie System did not
represent the sale of all or substantially all of the assets of the Partnership,
no vote of the limited partners of the Partnership was required to approve the
sale. The Partnership will continue to own and operate its Owatonna/Glencoe
System.
The pro forma effect of the sale of the Milwaukie System on the results
of the Partnership's operations for the years ended December 31, 1996 and 1995,
assuming the transaction had occurred at the beginning of the year, is presented
in the following unaudited tabulation:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
------------------------------------
Pro Forma
As Reported Adjustments Pro Forma
----------- ------------ ----------
<S> <C> <C> <C>
Revenues $4,971,826 $(2,006,174) $2,965,652
========== =========== ==========
Operating Income $ 496,883 $ (202,208) $ 294,675
========== =========== ==========
Net Income $ 109,405 $ (17,665) $ 91,740
========== =========== ==========
For the Year Ended December 31, 1995
------------------------------------
Pro Forma
As Reported Adjustments Pro Forma
----------- ----------- ----------
Revenues $4,589,457 $(1,815,093) $2,774,364
========== =========== ==========
Operating Income $ 461,529 $ (229,920) $ 231,609
========== =========== ==========
Net Income $ 131,482 $ (42,597) $ 88,885
========== =========== ==========
</TABLE>
22
<PAGE>
Contributed Capital
-------------------
The capitalization of the Partnership is set forth in the accompanying
statements of partners' capital (deficit). No limited partner is obligated to
make any additional contribution to partnership capital.
The General Partner purchased its interest in the Partnership by
contributing $1,000 to partnership capital.
All profits and losses of the Partnership are allocated 99 percent to the
limited partners and 1 percent to the General Partner, except for income or gain
from the sale or disposition of cable television properties, which will be
allocated to the partners based upon the formula set forth in the Partnership
Agreement.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Accounting Records
------------------
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting principles.
The Partnership's tax returns are also prepared on the accrual basis.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partner's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Purchase Price Allocation
-------------------------
The Partnership's acquisitions were accounted for as purchases with the
purchase price allocated as follows: first, to the fair value of net tangible
assets acquired; second, to the value of subscriber lists and franchise costs;
and third, to costs in excess of interests in net assets purchased. Brokerage
fees paid to an affiliate of the General Partner and additional acquisition
costs were allocated to intangible assets based upon the relative value of these
assets at acquisition. Other system acquisition costs were capitalized and
included in the cost of distribution systems.
Property, Plant and Equipment
-----------------------------
Depreciation of property, plant and equipment is provided using the
straight-line method over the following estimated service lives:
Cable distribution systems 5 - 15 years
Equipment and tools 5 years
Office furniture and equipment 5 - 15 years
Buildings 10 - 20 years
Vehicles 3 years
Replacements, renewals and improvements are capitalized and maintenance
and repairs are charged to expense as incurred.
Property, plant and equipment and the corresponding accumulated
depreciation are written off as certain assets become fully depreciated and are
no longer in service.
Intangible Assets
-----------------
Costs assigned to franchises and cost in excess of interests in net
assets purchased are being amortized using the straight-line method over the
following remaining estimated useful lives:
Franchise costs 1 - 2 years
Cost in excess of interests in net assets purchased 30 years
Revenue Recognition
-------------------
Subscriber prepayments are initially deferred and recognized as revenue
when earned.
23
<PAGE>
Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to the 1996
presentation.
(3) TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
----------------------------------------------------
Management Fees, Distribution Ratios and Reimbursements
-------------------------------------------------------
The General Partner manages the Partnership and receives a fee for its
services equal to 5 percent of the gross revenues of the Partnership, excluding
revenues from the sale of cable television systems or franchises. Management
fees charged during the years ended December 31, 1996, 1995 and 1994 were
$248,591, $229,473 and $214,713, respectively.
Any partnership distributions made from cash flow (defined as cash
receipts derived from routine operations, less debt principal and interest
payments and cash expenses) are allocated 99 percent to the limited partners and
1 percent to the General Partner. Distributions resulting from the sale or
refinancing of a system or upon dissolution of the Partnership will be made as
follows: first, to the limited partners in an amount which together with all
prior distributions, other than those made regularly from cash flow, will equal
their initial capital contribution; second, payment to the limited partners of a
liquidation preference equal to a 10 percent cumulative return on their initial
capital contribution, reduced by all prior distributions from cash flow; and the
balance, 75 percent to the limited partners and 25 percent to the General
Partner.
The Partnership 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 Partnership. Such services, and their related costs, are necessary to the
operations of the Partnership and would have been incurred by the Partnership if
it was a stand alone entity. Allocations of personnel costs are based primarily
on actual time spent by employees of the General Partner with respect to each
partnership managed. Remaining expenses are allocated based on the pro rata
relationship of the Partnership's revenues to the total revenues of all systems
owned or managed by the General Partner and certain of its subsidiaries.
Systems owned by the General Partner and all other systems owned by partnerships
for which Intercable is the general partner are also allocated a proportionate
share of these expenses. The General Partner believes that the methodology used
in allocating overhead and administrative expenses is reasonable. Amounts
allocated to the Partnership by the General Partner for overhead and
administrative expenses during the years ended December 31, 1996, 1995 and 1994
were $348,452, $348,151 and $353,698, respectively.
Payments to/from Affiliates for Programming Services
----------------------------------------------------
The Partnership receives programming from Superaudio, Jones Education
Company, Great American Country, Inc. and Product Information Network, all of
which are affiliates of the General Partner.
Payments to Superaudio totaled $8,547, $7,517 and $7,598 in 1996, 1995 and
1994, respectively. Payments to Jones Education Company totaled $24,134,
$14,558 and $8,496 in 1996, 1995 and 1994, respectively. Payments to Great
American Country, Inc., which initiated service in 1996, totaled $10,356 in
1996.
The Partnership receives a commission from Product Information Network
based on a percentage of advertising revenues and number of subscribers.
Product Information Network, which initiated service in 1994, paid commissions
to the Partnership totaling $12,306, $8,015 and $2,403 in 1996, 1995 and 1994,
respectively.
(4) DISTRIBUTIONS FROM CASH FLOW
----------------------------
One of the primary objectives of the Partnership is to provide quarterly
cash distributions to its partners. Such cash returns are generated primarily
from the net proceeds of payments by cable television subscribers for the cable
television services provided by the Partnership. For the years ended December
31, 1996, 1995 and 1994, the Partnership declared cash distributions totaling
$808,080, $808,080 and $989,900, respectively. The General Partner has agreed
to defer its portion of cash distributions until the Partnership is liquidated.
As of December 31, 1996, $82,309 had been deferred. All declared limited
partner distributions had been paid as of December 31, 1996, except for $200,000
which was paid on February 15, 1997. The Partnership expects to continue
quarterly distributions from operating cash flow but
24
<PAGE>
anticipates that the amount of distributions will be less due to the sale by the
Partnership of its Milwaukie System. Future distributions will be announced on a
quarter-by-quarter basis and no determination has been made regarding any
specific level of future distributions.
(5) PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment as of December 31, 1996 and 1995, consisted
of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
------------ -------------
<S> <C> <C>
Cable distribution systems $ 7,771,101 $ 8,697,212
Equipment and tools 457,819 589,739
Office furniture and equipment 306,160 366,391
Buildings 114,920 110,963
Vehicles 222,869 323,550
Land 150,000 150,000
----------- -----------
9,022,869 10,237,855
Less- accumulated depreciation (4,794,646) (5,995,702)
----------- -----------
$ 4,228,223 $ 4,242,153
=========== ===========
(6) DEBT
----
Debt consists of the following: December 31,
--------------------------
1996 1995
----------- -----------
Lending institutions-
Revolving credit agreement $ 5,200,000 $ 4,500,000
Capital lease obligations 96,610 106,827
----------- -----------
$ 5,296,610 $ 4,606,827
=========== ===========
</TABLE>
The Partnership is a party to a $6,500,000 revolving credit facility. The
revolving credit period expires December 31, 1997, at which time the outstanding
balance converts to a term loan with a final maturity of December 31, 2003.
The balance outstanding on the Partnership's credit facility at December 31,
1996 was $5,200,000, leaving $1,300,000 available to fund capital expenditures.
As a result of the sale of the Milwaukie System on March 11, 1997, the
Partnership repaid $3,200,000 of the then-outstanding balance of its credit
facility. Interest on outstanding principal amounts on the credit facility is
computed at the Partnership's option of the London Interbank Offered Rate plus
1-1/4 percent or the Prime Rate plus 1/4 percent. The effective interest rates
on amounts outstanding as of December 31, 1996 and 1995 were 6.81 percent and
7.24 percent, respectively.
Installments due on debt principal for the five years ending December
31, 2001 and thereafter, respectively, are $28,983, $548,983, $678,983,
$789,661, $1,040,000 and $2,210,000. At December 31, 1996, substantially all of
the Partnership's assets secured the above indebtedness.
At December 31, 1996, the carrying amount of the Partnership's long-term
debt did not differ significantly from the estimated fair value of the financial
instruments. The fair value of the Partnership's long-term debt is estimated
based on the discounted amount of future debt service payments using rates of
borrowing for a liability of similar risk.
(7) INCOME TAXES
------------
Income taxes have not been recorded in the accompanying financial
statements because they accrue directly to the partners. The federal and state
income tax returns of the Partnership are prepared and filed by the General
Partner.
The Partnership tax returns, the qualification of the Partnership as
such for tax purposes, and the amount of distributable partnership income or
loss are subject to examination by federal and state taxing authorities. If
such examinations result in changes with respect to the
25
<PAGE>
Partnership's qualification as such, or in changes with respect to the
Partnership's recorded income or loss, the tax liability of the General and
limited partners would likely be changed accordingly.
Taxable loss reported to the partners is different from that reported in
the statements of operations due to the difference in depreciation recognized
under generally accepted accounting principles and the expense allowed for tax
purposes under the Modified Accelerated Cost Recovery System (MACRS). There are
no other significant differences between taxable loss and the net loss reported
in the statements of operations.
(8) COMMITMENTS AND CONTINGENCIES
-----------------------------
The Partnership rents office and other facilities under various long-
term lease arrangements. Rent paid under such lease agreements totaled $32,053,
$30,791 and $30,063, respectively, for the years ended December 31, 1996, 1995
and 1994. Minimum commitments under operating leases for each of the five years
in the period ending December 31, 2001, and thereafter are as follows:
1997 $28,312
1998 21,234
1999 -
2000 -
2001 -
Thereafter -
-------
$49,546
=======
(9) SUPPLEMENTARY PROFIT AND LOSS INFORMATION
-----------------------------------------
Supplementary profit and loss information for the respective periods is
presented below:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Maintenance and repairs $ 52,991 $ 39,605 $ 36,769
======== ======== ========
Taxes, other than income and payroll taxes $ 24,169 $ 26,032 $ 26,921
======== ======== ========
Advertising $ 68,935 $ 63,026 $ 50,447
======== ======== ========
Depreciation of property, plant and equipment $764,106 $717,338 $691,171
======== ======== ========
Amortization of intangible assets $ 71,268 $ 70,218 $190,864
======== ======== ========
</TABLE>
26
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
---------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
PART III.
---------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------
The Partnership itself has no officers or directors. Certain information
concerning the directors and executive officers of the General Partner is set
forth below. Directors of the General Partner serve until the next annual
meeting of the General Partner and until their successors shall be elected and
qualified.
<TABLE>
<S> <C> <C>
Glenn R. Jones 67 Chairman of the Board and Chief Executive Officer
Derek H. Burney 57 Vice Chairman of the Board
James B. O'Brien 47 President and Director
Ruth E. Warren 47 Group Vice President/Operations
Kevin P. Coyle 45 Group Vice President/Finance
Christopher J. Bowick 41 Group Vice President/Technology
George H. Newton 62 Group Vice President/Telecommunications
Raymond L. Vigil 50 Group Vice President/Human Resources
Cynthia A. Winning 45 Group Vice President/Marketing
Elizabeth M. Steele 45 Vice President/General Counsel/Secretary
Larry W. Kaschinske 37 Vice President/Controller
Robert E. Cole 64 Director
William E. Frenzel 68 Director
Donald L. Jacobs 58 Director
James J. Krejci 55 Director
John A. MacDonald 43 Director
Raphael M. Solot 63 Director
Howard O. Thrall 49 Director
Siim A. Vanaselja 40 Director
Sanford Zisman 57 Director
Robert B. Zoellick 43 Director
</TABLE>
Mr. Glenn R. Jones has served as Chairman of the Board of Directors and
Chief Executive Officer of the General Partner since its formation in 1970, and
he was President from June 1984 until April 1988. Mr. Jones is the sole
shareholder, President and Chairman of the Board of Directors of Jones
International, Ltd. He is also Chairman of the Board of Directors of the
subsidiaries of the General Partner and of certain other affiliates of the
General Partner. Mr. Jones has been involved in the cable television business
in various capacities since 1961, is a member of the Board of Directors and the
Executive Committee of the National Cable Television Association. Additionally,
Mr. Jones is a member of the Board of Governors for the American Society for
Training and Development, and a member of the Board of Education Council of the
National Alliance of Business. Mr. Jones is also a founding member of the James
Madison Council of the Library of Congress. Mr. Jones has been the recipient of
several awards including the Grand Tam Award in 1989, the highest award from the
Cable Television Administration and Marketing Society; the President's Award
from the Cable Television Public Affairs Association in recognition of Jones
International's educational efforts through Mind Extension University (now
Knowledge TV); the Donald G. McGannon Award for the advancement of minorities
and women in cable from the United Church of Christ Office of Communications;
the STAR Award from American Women in Radio and Television, Inc. for exhibition
of a commitment to the issues and concerns of women in television and radio; the
Cableforce 2000 Accolade awarded by Women in Cable in recognition of the General
Partner's innovative employee programs; the Most Outstanding Corporate
Individual Achievement Award from the International Distance Learning Conference
for his contributions to distance education; the Golden Plate Award from the
American Academy of Achievement for his advances in distance education; the Man
of the Year named by the
27
<PAGE>
Denver chapter of the Achievement Rewards for College Scientists; and in 1994
Mr. Jones was inducted into Broadcasting and Cable's Hall of Fame.
Mr. Derek H. Burney was appointed a Director of the General Partner in
December 1994 and Vice Chairman of the Board of Directors on January 31, 1995.
Mr. Burney joined BCE Inc., Canada's largest telecommunications company, in
January 1993 as Executive Vice President, International. He has been the
Chairman of Bell Canada International Inc., a subsidiary of BCE, since January
1993 and, in addition, has been Chief Executive Officer of BCI since July 1993.
Prior to joining BCE, Mr. Burney served as Canada's ambassador to the United
States from 1989 to 1992. Mr. Burney also served as chief of staff to the Prime
Minister of Canada from March 1987 to January 1989 where he was directly
involved with the negotiation of the U.S. - Canada Free Trade Agreement. In July
1993, he was named an Officer of the Order of Canada. Mr. Burney is also a
director of Bell Cablemedia plc, Mercury Communications Limited, Videotron
Holdings plc, Tele-Direct (Publications) Inc., Teleglobe Inc., Bimcor Inc.,
Maritime Telegraph and Telephone Company, Limited, Moore Corporation Limited,
Northbridge Programming Inc. and certain subsidiaries of Bell Canada
International.
Mr. James B. O'Brien, the General Partner's President, joined the General
Partner in January 1982. Prior to being elected President and a Director of the
General Partner in December 1989, Mr. O'Brien served as a Division Manager,
Director of Operations Planning/Assistant to the CEO, Fund Vice President and
Group Vice President/Operations. Mr. O'Brien was appointed to the General
Partner's Executive Committee in August 1993. As President, he is responsible
for the day-to-day operations of the cable television systems managed and owned
by the General Partner. Mr. O'Brien is a board member of Cable Labs, Inc., the
research arm of the U.S. cable television industry. He also serves as Vice
Chairman and a director of the Cable Television Administration and Marketing
Association and as a director and a member of the Executive Committee of the
Walter Kaitz Foundation, a foundation that places people of ethnic minority
groups in positions with cable television systems, networks and vendor
companies.
Ms. Ruth E. Warren joined the General Partner in August 1980 and has served
in various operational capacities, including system manager and Fund Vice
President, since then. Ms. Warren was elected Group Vice President/Operations
of the General Partner in September 1990.
Mr. Kevin P. Coyle joined The Jones Group, Ltd. in July 1981 as Vice
President/Financial Services. In September 1985, he was appointed Senior Vice
President/Financial Services. He was elected Treasurer of the General Partner
in August 1987, Vice President/Treasurer in April 1988 and Group Vice
President/Finance and Chief Financial Officer in October 1990.
Mr. Christopher J. Bowick joined the General Partner in September 1991 as
Group Vice President/Technology and Chief Technical Officer. Previous to
joining the General Partner, Mr. Bowick worked for Scientific Atlanta's
Transmission Systems Business Division in various technical management
capacities since 1981, and as Vice President of Engineering since 1989.
Mr. George H. Newton joined the General Partner in January 1996 as Group
Vice President/Telecommunications. Prior to joining the General Partner, Mr.
Newton was President of his own consulting business, Clear Solutions, and since
1994 Mr. Newton has served as a Senior Advisor to Bell Canada International.
From 1990 to 1993, Mr. Newton served as the founding Chief Executive Officer and
Managing Director of Clear Communications, New Zealand, where he established an
alternative telephone company in New Zealand. From 1964 to 1990, Mr. Newton
held a wide variety of operational and business assignments with Bell Canada
International.
Mr. Raymond L. Vigil joined the General Partner in June 1993 as Group Vice
President/Human Resources. Previous to joining the General Partner, Mr. Vigil
served as Executive Director of Learning with USWest. Prior to USWest, Mr.
Vigil worked in various human resources posts over a 14-year term with the IBM
Corporation.
Ms. Cynthia A. Winning joined the General Partner as Group Vice
President/Marketing in December 1994. Previous to joining the General Partner,
Ms. Winning served since 1994 as the President of PRS Inc.,
28
<PAGE>
Denver, Colorado, a sports and event marketing company. From 1979 to 1981 and
from 1986 to 1994, Ms. Winning served as the Vice President and Director of
Marketing for Citicorp Retail Services, Inc., a provider of private-label credit
cards for ten national retail department store chains. From 1981 to 1986, Ms.
Winning was the Director of Marketing Services for Daniels & Associates cable
television operations, as well as the Western Division Marketing Director for
Capital Cities Cable. Ms. Winning also serves as a board member of Cities in
Schools, a dropout intervention/prevention program.
Ms. Elizabeth M. Steele joined the General Partner in August 1987 as Vice
President/General Counsel and Secretary. From August 1980 until joining the
General Partner, Ms. Steele was an associate and then a partner at the Denver
law firm of Davis, Graham & Stubbs, which serves as counsel to the General
Partner.
Mr. Larry Kaschinske joined the General Partner in 1984 as a staff
accountant in the General Partner's former Wisconsin Division, was promoted to
Assistant Controller in 1990, named Controller in August 1994 and was elected
Vice President/Controller in June 1996.
Mr. Robert E. Cole was appointed a Director of the General Partner in March
1996. Mr. Cole is currently self-employed as a partner of First Variable
Insurance Marketing and is responsible for marketing to National Association of
Securities Dealers, Inc. firms in northern California, Oregon, Washington and
Alaska. From 1993 to 1995, Mr. Cole was the Director of Marketing for Lamar
Life Insurance Company; from 1992 to 1993, Mr. Cole was Senior Vice President of
PMI Inc., a third party lender serving the special needs of Corporate Owned Life
Insurance (COLI) and from 1988 to 1992, Mr. Cole was the principal and co-
founder of a specialty investment banking firm that provided services to finance
the ownership and growth of emerging companies, productive assets and real
property. Mr. Cole is a Certified Financial Planner and a former United States
Naval Aviator.
Mr. William E. Frenzel was appointed a Director of the General Partner in
April 1995. Mr. Frenzel has been a Guest Scholar since 1991 with the Brookings
Institution, a research organization located in Washington D. C. Until his
retirement in January 1991, Mr. Frenzel served for twenty years in the United
States House of Representatives, representing the State of Minnesota, where he
was a member of the House Ways and Means Committee and its Trade Subcommittee,
the Congressional Representative to the General Agreement on Tariffs and Trade
(GATT), the Ranking Minority Member on the House Budget Committee and a member
of the National Economic Commission. Mr. Frenzel also served in the Minnesota
Legislature for eight years. He is a Distinguished Fellow of the Tax
Foundation, Vice Chairman of the Eurasia Foundation, a Board Member of the U.S.-
Japan Foundation, the Close-Up Foundation, Sit Mutual Funds and Chairman of the
Japan-America Society of Washington.
Mr. Donald L. Jacobs was appointed a Director of the General Partner in
April 1995. Mr. Jacobs is a retired executive officer of TRW. Prior to his
retirement, he was Vice President and Deputy Manager of the Space and Defense
Sector; prior to that appointment, he was the Vice President and General Manager
of the Defense Systems Group and prior to his appointment as Group General
Manager, he was President of ESL, Inc., a wholly owned subsidiary of TRW.
During his career, Mr. Jacobs served on several corporate, professional and
civic boards.
Mr. James J. Krejci was President of the International Division of
International Gaming Technology, International headquartered in Reno, Nevada,
until March 1995. Prior to joining IGT in May 1994, Mr. Krejci was Group Vice
President of Jones International, Ltd. and was Group Vice President of the
General Partner. He also served as an officer of subsidiaries of Jones
International, Ltd. until leaving the General Partner in May 1994. Mr. Krejci
has been a Director of the General Partner since August 1987.
29
<PAGE>
Mr. John A. MacDonald was appointed a Director of the General Partner in
November 1995. Mr. MacDonald is Executive Vice President of Business
Development and Chief Technology Officer of Bell Canada International Inc.
Prior to joining Bell Canada in November 1994, Mr. MacDonald was President and
Chief Executive Officer of The New Brunswick Telephone Company, Limited, a post
he had held since March of that year. Prior to March 1994, Mr. MacDonald was
with NBTel for 17 years serving in various capacities, including Market Planning
Manager, Corporate Planning Manager, Manager of Systems Planning and Development
and General Manager, Chief Engineer and General Manager of Engineering and
Information Systems and Vice President of Planning. Mr. MacDonald was the
former Chairman of the New Brunswick section of the Institute of Electrical and
Electronic Engineers and also served on the Federal Government's Information
Highway Advisory Council. Mr. MacDonald is Chairman of MediaLinx Interactive
Inc. and Stentor Canadian Network Management and is presently a Governor of the
Montreal Exchange. He also serves on the Board of Directors of Tele-Direct
(Publications) Inc., Bell-Northern Research, Ltd., SRCI, Bell Sygma, Canarie
Inc., and is a member of the University of New Brunswick Venture Campaign
Cabinet.
Mr. Raphael M. Solot was appointed a Director of the General Partner in
March 1996. Mr. Solot is an attorney and has practiced law for 31 years with an
emphasis on franchise, corporate and partnership law and complex litigation.
Mr. Howard O. Thrall was appointed a Director of the General Partner in
March 1996. Mr. Thrall had previously served as a Director of the General
Partner from December 1988 to December 1994. Mr. Thrall is Senior Vice
President-Corporate Development for First National Net, Inc., a leading service
provider for the mortgage banking industry, and he heads First National Net's
Washington, D.C. regional office. From September 1993 to July 1996, Mr. Thrall
has served as Vice President of Sales, Asian Region, for World Airways, Inc.
headquartered at the Washington Dulles International Airport. From 1984 until
August 1993, Mr. Thrall was with the McDonnell Douglas Corporation, where he
concluded as a Regional Vice President, Commercial Marketing with the Douglas
Aircraft Company subsidiary. Mr. Thrall is also an active management and
international marketing consultant, having completed assignments with McDonnell
Douglas Aerospace, JAL Trading, Inc., Technology Solutions Company, Cheong Kang
Associated (Korea), Aero Investment Alliance, Inc. and Western Real Estate
Partners, among others.
Mr. Siim A. Vanaselja was appointed a Director of the General Partner in
August 1996. Mr. Vanaselja joined BCE Inc., Canada's largest telecommunications
company, in February 1994 as Assistant Vice-President, International Taxation.
In June 1994, he was appointed Assistant Vice-President and Director of
Taxation, and in February 1995, Mr. Vanaselja was appointed Vice-President,
Taxation. On August 1, 1996, Mr. Vanaselja was appointed the Chief Financial
Officer of Bell Canada International Inc., a subsidiary of BCE Inc. Prior to
joining BCE Inc. and since August 1989, Mr. Vanaselja was a partner in the
Toronto office of KPMG Peat Marwick Thorne. Mr. Vanaselja has been a member of
the Institute of Chartered Accountants of Ontario since 1982 and is a member of
the Canadian Tax Foundation, the Tax Executives Institute and the International
Fiscal Association.
Mr. Sanford Zisman was appointed a director of the General Partner in June
1996. Mr. Zisman is a member of the law firm, Zisman & Ingraham, P.C. of
Denver, Colorado and has practiced law for 31 years, with an emphasis on tax,
business and estate planning and probate administration. Mr. Zisman currently
serves as a member of the Board of Directors of Saint Joseph Hospital, the
largest hospital in Colorado, and he has served as Chairman of the Board,
Chairman of the Finance Committee and Chairman of the Strategic Planning
Committee of the hospital. Since 1992, he has also served on the Board of
Directors of Maxim Series Fund, Inc., a subsidiary of Great-West Life Assurance
Company.
Mr. Robert B. Zoellick was appointed a Director of the General Partner in
April 1995. Mr. Zoellick is Executive Vice President for Housing and Law of
Fannie Mae, a federally chartered and stockholder-owned corporation that is the
largest housing finance investor in the United States. From August 1992 to
January 1993, Mr. Zoellick served as Deputy Chief of Staff of the White House
and Assistant to the President. From May 1991 to August 1992, Mr. Zoellick
served concurrently as the Under Secretary of State for Economic and
Agricultural Affairs and as Counselor of the Department of State, a post he
assumed in March 1989. From 1985 to 1988, Mr. Zoellick served at the Department
of Treasury in a number of capacities, including Counselor to the Secretary.
Mr. Zoellick received the Alexander Hamilton and Distinguished Service Awards,
highest honors of the Departments of Treasury and State, respectively. The
German Government awarded him the Knight Commanders Cross for his work on
Germany unification. Mr. Zoellick currently serves on the boards of Alliance
Capital, Said
30
<PAGE>
Holdings, the Council on Foreign Relations, the Congressional Institute, the
German Marshall Fund of the U.S., the European Institute, the National Bureau of
Asian Research, the American Council on Germany, the American Institute for
Contemporary German Studies and the Overseas Development Council.
ITEM 11. EXECUTIVE COMPENSATION
--------------------------------
The Partnership has no employees; however, various personnel are required
to operate the Manitowoc System. Such personnel are employed by the General
Partner and, pursuant to the terms of the limited partnership agreement of the
Partnership, the cost of such employment is charged by the General Partner to
the Partnership as a direct reimbursement item. See Item 13.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
----------------------------------------------------------------------
As of March 4, 1997, no person or entity owned more than 5 percent of the
limited partnership interests of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
The General Partner and its affiliates engage in certain transactions with
the Partnership. The General Partner believes that the terms of such
transactions are generally as favorable as could be obtained by the Partnership
from unaffiliated parties. This determination has been made by the General
Partner in good faith, but none of the terms were or will be negotiated at
arm's-length and there can be no assurance that the terms of such transactions
have been or will be as favorable as those that could have been obtained by the
Partnership from unaffiliated parties.
TRANSACTIONS WITH THE GENERAL PARTNER
The General Partner charges a management fee, and the General Partner is
reimbursed for certain allocated overhead and administrative expenses. These
expenses represent the salaries and benefits paid to corporate personnel, rent,
data processing services and other corporate facilities costs. Such personnel
provide engineering, marketing, administrative, accounting, legal and investor
relations services to the Partnership. Allocations of personnel costs are based
primarily on actual time spent by employees of the General Partner with respect
to each partnership managed. Remaining expenses are allocated based on the pro
rata relationship of the Partnership'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 also advances funds and charges interest on the balance
payable. The interest rate charged approximates the General Partner's weighted
average cost of borrowing.
TRANSACTIONS WITH AFFILIATES
Jones Education Company ("JEC") is owned 63% by Jones International, Ltd.
("International"), an affiliate of the General Partner, 9% by Glenn R. Jones,
12% by Bell Canada International Inc. ("BCI") and 16% by the General Partner.
JEC operates two television networks, JEC Knowledge TV and Jones Computer
Network. JEC Knowledge TV provides programming related to computers and
technology; business, careers and finance; health and wellness; and global
culture and languages. Jones Computer Network provides programming focused
primarily on computers and technology. JEC sells its programming to certain
cable television systems owned or managed by the General Partner.
31
<PAGE>
The Great American Country network provides country music video programming
to certain cable television systems owned or managed by the General Partner.
This network is owned and operated by Great American Country, Inc., a subsidiary
of Jones International Networks, Ltd., an affiliate of International.
Jones Galactic Radio, Inc. is a company now owned by Jones International
Networks, Ltd., an affiliate of International. Superaudio, a joint venture
between Jones Galactic Radio, Inc. and an unaffiliated entity, provides
satellite programming to certain cable television systems owned or managed by
the General Partner.
The Product Information Network Venture (the "PIN Venture") is a venture
among a subsidiary of Jones International Networks, Ltd., an affiliate of
International, and two unaffiliated cable system operators. The PIN Venture
operates the Product Information Network ("PIN"), which is a 24-hour network
that airs long-form advertising generally known as "infomercials." The PIN
Venture generally makes incentive payments of approximately 60% of its net
advertising revenue to the cable systems that carry its programming. Most of
the General Partner's owned and managed systems carry PIN for all or part of
each day. Revenues received by the Partnership from the PIN Venture relating to
the Partnership's owned cable television systems totaled approximately $12,306
for the year ended December 31, 1996.
The charges to the Partnership for related party transactions are as
follows for the periods indicated:
<TABLE>
<CAPTION>
Jones Cable Income Fund 1-A, Ltd. For the Year Ended December 31,
- --------------------------------- -------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Management fees $248,591 $229,473 $214,713
Allocation of expenses 348,452 348,151 353,698
Interest expense 0 37,498 11,769
Amount of notes and advances outstanding 0 39,725 483,487
Highest amount of notes and advances outstanding 39,725 776,291 483,487
Programming fees:
Jones Education Company 24,134 14,558 8,496
Great American Country 10,356 0 0
Superaudio 8,547 7,517 7,598
</TABLE>
32
<PAGE>
PART IV.
--------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
-------------------------------------------------------------------------
(a)1. See index to financial statements for a list of financial statements
and exhibits thereto filed as a part of this report.
3. The following exhibits are filed herewith:
4.1 Limited Partnership Agreement of Jones Cable Income Fund 1-A, Ltd. (1)
10.1.1 Copy of a franchise and related documents thereto granting a community
antenna television franchise for the City of Glencoe, Minnesota. (1)
10.1.2 Copy of a franchise and related documents thereto granting a community
antenna television franchise for the Township of Glencoe, Minnesota.
(2)
10.1.3 Copy of a franchise and related documents thereto granting a community
antenna television franchise for the City of Owatonna, Minnesota. (1)
10.1.4 Copy of a franchise and related documents thereto granting a community
antenna television franchise for the Township of Owatonna, Minnesota.
(2)
10.1.5 Copy of a franchise and related documents thereto granting a community
antenna television franchise for the City of Milwaukie, Oregon. (1)
10.2.1 Revolving Credit and Term Loan Agreement dated 7/21/95 between Jones
Cable Income Fund 1-A, Ltd. and Colorado National Bank.
10.2.3 Asset Purchase Agreement dated November 8, 1996 between TCI
Cablevision of Georgia, Inc. and Jones Cable Income Fund 1-A, Ltd.
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
_______
(1) Incorporated by reference from Registrant's Report on Form 10-K for
the fiscal year ended December 31, 1986.
(2) Incorporated by reference from Registrant's Report on Form 10-K for
the fiscal year ended December 31, 1992.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
JONES CABLE INCOME FUND 1-A, LTD.
a Colorado limited partnership
By: Jones Intercable, Inc.
By: /s/ Glenn R. Jones
-----------------------------------------
Glenn R. Jones
Chairman of the Board and Chief
Dated: March 24, 1997 Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Glenn R. Jones
-----------------------------------------
Glenn R. Jones
Chairman of the Board and Chief
Executive Officer
Dated: March 24, 1997 (Principal Executive Officer)
By: /s/ Kevin P. Coyle
-----------------------------------------
Kevin P. Coyle
Group Vice President/Finance
Dated: March 24, 1997 (Principal Financial Officer)
By: /s/ Larry Kaschinske
-----------------------------------------
Larry Kaschinske
Vice President/Controller
Dated: March 24, 1997 (Principal Accounting Officer)
By: /s/ James B. O'Brien
-----------------------------------------
James B. O'Brien
Dated: March 24, 1997 President and Director
By: /s/ Derek H. Burney
-----------------------------------------
Derek H. Burney
Dated: March 24, 1997 Director
By: /s/ Robert E. Cole
-----------------------------------------
Robert E. Cole
Dated: March 24, 1997 Director
34
<PAGE>
By: /s/ William E. Frenzel
-----------------------------------------
William E. Frenzel
Dated: March 24, 1997 Director
By: /s/ Donald L. Jacobs
-----------------------------------------
Donald L. Jacobs
Dated: March 24, 1997 Director
By: /s/ James J. Krejci
-----------------------------------------
James J. Krejci
Dated: March 24, 1997 Director
By: _________________________________________
John A. MacDonald
Dated: March 24, 1997 Director
By: Raphael M. Solot
-----------------------------------------
Raphael M. Solot
Dated: March 24, 1997 Director
By: _________________________________________
Howard O. Thrall
Dated: March 24, 1997 Director
By: /s/ Siim A. Vanaselja
-----------------------------------------
Siim A. Vanaselja
Dated: March 24, 1997 Director
By: /s/ Sanford Zisman
-----------------------------------------
Sanford Zisman
Dated: March 24, 1997 Director
By: /s/ Robert B. Zoellick
-----------------------------------------
Robert B. Zoellick
Dated: March 24, 1997 Director
35
<PAGE>
EXECUTION COPY
================================================================================
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
TCI CABLEVISION OF GEORGIA, INC.
AND
JONES CABLE INCOME FUND 1-A, LTD.
DATED AS OF
NOVEMBER 8, 1996
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 1. Definitions.......................................................... 1
1.1 Affiliate....................................................... 1
1.2 Assets.......................................................... 1
1.3 Basic Service................................................... 1
1.4 Business........................................................ 1
1.5 Business Day.................................................... 2
1.6 Closing......................................................... 2
1.7 Encumbrance..................................................... 2
1.8 Environmental Law............................................... 2
1.9 Equipment....................................................... 2
1.10 Equivalent Basic Subscribers (or EBSs).......................... 2
1.11 Expanded Basic Service.......................................... 3
1.12 GAAP............................................................ 3
1.13 Governmental Authority.......................................... 3
1.14 Governmental Permits............................................ 3
1.15 Hazardous Substances............................................ 3
1.16 Intangibles..................................................... 4
1.17 Knowledge....................................................... 4
1.18 Legal Requirement............................................... 4
1.19 Losses.......................................................... 4
1.20 Pay TV.......................................................... 4
1.21 Permitted Encumbrances.......................................... 4
1.22 Person.......................................................... 4
1.23 Real Property................................................... 4
1.24 Required Consents............................................... 5
1.25 Seller Contracts................................................ 5
1.26 Service Area.................................................... 5
1.27 System.......................................................... 5
1.28 Taxes........................................................... 5
1.29 Other Definitions............................................... 5
Section 2. Sale of Assets....................................................... 6
Section 3. Consideration........................................................ 6
3.1 Base Purchase Price.............................................. 6
3.2 Adjustments to Base Purchase Price............................... 6
3.3 Determination of Adjustments..................................... 7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <S>
3.4 Allocation of Consideration..................................... 8
Section 4. Assumed Liabilities and Excluded Assets.............................. 8
4.1 Assignment and Assumption....................................... 8
4.2 Excluded Assets................................................. 8
Section 5. Representations and Warranties of Seller............................. 9
5.1 Organization and Qualification.................................. 9
5.2 Authority and Validity.......................................... 9
5.3 No Conflict; Required Consents.................................. 9
5.4 Assets.......................................................... 10
5.5 Governmental Permits............................................ 10
5.6 Seller Contracts................................................ 10
5.7 Real Property................................................... 11
5.8 Environmental Matters........................................... 11
5.9 Compliance with Legal Requirements.............................. 12
5.10 Patents, Trademarks and Copyrights.............................. 13
5.11 Financial Statements............................................ 14
5.12 Absence of Certain Changes...................................... 14
5.13 Legal Proceedings............................................... 14
5.14 Tax Returns; Other Reports...................................... 14
5.15 Employment Matters.............................................. 15
5.16 Systems Information............................................. 15
5.17 Bonds........................................................... 16
5.18 Finders and Brokers............................................. 16
Section 6. Buyer's Representations and Warranties............................... 16
6.1 Organization and Qualification.................................. 16
6.2 Authority and Validity.......................................... 16
6.3 No Conflicts; Required Consents................................. 17
6.4 Finders and Brokers............................................. 17
6.5 Legal Proceedings............................................... 17
Section 7. Additional Covenants................................................. 17
7.1 Access to Premises and Records.................................. 17
7.2 Continuity and Maintenance of Operations; Financial Statements.. 18
7.3 Employee Matters................................................ 19
7.4 Leased Vehicles; Other Capital Leases........................... 20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
7.5 Required Consents; Estoppel Certificates........................ 20
7.6 Title Commitments and Surveys................................... 21
7.7 HSR Notification................................................ 21
7.8 No Shopping..................................................... 22
7.9 Lien and Judgment Searches...................................... 22
7.10 Transfer Taxes.................................................. 22
7.11 Distant Broadcast Signals....................................... 22
7.12 Guaranty........................................................ 22
7.13 Letter to Programmers........................................... 22
7.14 Updated Schedules............................................... 23
7.15 Use of Names and Logos.......................................... 23
7.16 Subscriber Billing Services..................................... 23
7.17 Satisfaction of Conditions...................................... 23
7.18 Confidentiality and Publicity................................... 23
7.19 Bulk Transfers.................................................. 24
7.20 Environmental Reports........................................... 24
7.21 Board Approvals................................................. 24
Section 8. Conditions Precedent.................................................. 24
8.1 Conditions to the Obligations of Buyer and Seller............... 24
8.2 Conditions to the Obligations of Buyer.......................... 25
8.3 Conditions to Obligations of Seller............................. 26
8.4 Waiver of Conditions............................................ 26
Section 9. Closing............................................................... 26
9.1 The Closing; Time and Place..................................... 26
9.2 Seller's Delivery Obligations................................... 26
9.3 Buyer's Delivery Obligations.................................... 28
Section 10. Termination........................................................... 28
10.1 Termination Events.............................................. 28
10.2 Effect of Termination........................................... 29
Section 11. Survival of Representations and Warranties; Indemnification........... 29
11.1 Survival of Representations and Warranties....................... 29
11.2 Indemnification by Seller........................................ 30
11.3 Indemnification by Buyer......................................... 30
11.4 Third Party Claims............................................... 31
11.5 Limitations on Indemnification - Seller.......................... 32
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <S>
Page
----
11.6 Limitations on Indemnification - Buyer.......................... 32
Section 12. Miscellaneous......................................................... 32
12.1 Parties Obligated and Benefited................................. 32
12.2 Notices......................................................... 33
12.3 Attorneys' Fees................................................. 34
12.4 Waiver.......................................................... 34
12.5 Captions........................................................ 34
12.6 Choice of Law................................................... 34
12.7 Terms........................................................... 34
12.8 Rights Cumulative............................................... 34
12.9 Further Actions................................................. 34
12.10 Time............................................................ 35
12.11 Late Payments................................................... 35
12.12 Counterparts.................................................... 35
12.13 Entire Agreement................................................ 35
12.14 Severability.................................................... 35
12.15 Construction.................................................... 35
12.16 Expenses........................................................ 35
12.17 Risk of Loss; Condemnation...................................... 36
</TABLE>
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
- --------
A - Bill of Sale
B - Assignment and Assumption of Contracts
C - Assignment of Leases
D - Guaranty
E - Letter to Programmers
F - FIRPTA Affidavit
G - Opinion of Seller's Counsel
H - Opinion of Buyer's Counsel
SCHEDULES
- ---------
1.9 - Owned Equipment and Vehicles
4.2 - Excluded Assets
5.3 - Required Consents
5.4 - Encumbrances to Be Discharged Prior to Closing
5.5 - Governmental Permits
5.6 - Seller Contracts
5.7 - Real Property
5.8 - Environmental Matters
5.9 - Cost of Service Filings
5.11 - Financial Statements
5.13 - Proceedings and Judgments
5.14 - Tax Matters
5.15 - Employee Matters
5.16 - The Business/Systems Information (including Rate Schedule)
5.17 - Bonds
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
This Asset Purchase Agreement ("Agreement") is made as of November 8,
1996, by and between TCI Cablevision of Georgia, Inc., a Georgia corporation
("Buyer"), and Jones Cable Income Fund 1-A, Ltd., a Colorado limited partnership
("Seller").
RECITALS
--------
Seller is engaged in the business of providing cable television
service to subscribers in and around the Service Area. Buyer desires to
purchase and Seller desires to sell substantially all the assets of Seller used
or useful in connection with that business.
AGREEMENT
---------
In consideration of the above recitals and the mutual agreements
stated in this Agreement, the parties agree as follows:
SECTION 1. DEFINITIONS.
In addition to terms defined elsewhere in this Agreement, the
following capitalized terms, when used in this Agreement, will have the meanings
set forth below:
1.1 Affiliate. With respect to any Person, any other Person
---------
controlling, controlled by or under common control with such Person, with
"control" for such purpose meaning the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities or voting interests,
by contract or otherwise.
1.2 Assets. All properties, privileges, rights, interests and
------
claims, real and personal, tangible and intangible, of every type and
description that are owned, leased, held, used or useful in the Business in
which Seller has any right, title or interest or in which Seller acquires any
right, title or interest on or before the Closing Date, including Governmental
Permits, Intangibles, Seller Contracts, Equipment, Real Property and deposits
relating to the Business that are held by third parties for the account of
Seller or for security for Seller's performance of its obligations, but
excluding any Excluded Assets.
1.3 Basic Service. The lowest tier of service offered to
-------------
subscribers of a System.
1.4 Business. The cable television business conducted by Seller
--------
on the date of this Agreement through one or more Systems, as described on
SCHEDULE 5.16.
<PAGE>
1.5 Business Day. Any day other than Saturday, Sunday or a day on which
------------
banking institutions in Denver, Colorado are required or authorized to be
closed.
1.6 Closing. The consummation of the transactions contemplated by this
-------
Agreement, as described in SECTION 9, the date of which is referred to as the
Closing Date.
1.7 Encumbrance. Any security interest, security agreement, financing
-----------
statement filed with any Governmental Authority, conditional sale or other title
retention agreement, any lease, consignment or bailment given for purposes of
security, any mortgage, lien, indenture, pledge, option, encumbrance, adverse
interest, constructive trust or other trust, claim, attachment, exception to or
defect in title or other ownership interest (including but not limited to
reservations, rights of entry, possibilities of reverter, encroachments,
easements, rights-of-way, restrictive covenants, leases and licenses) of any
kind, which constitutes an interest in or claim against property, whether
arising pursuant to any Legal Requirement, Governmental Permit, Seller Contract
or otherwise.
1.8 Environmental Law. Any Legal Requirement relating to pollution or
-----------------
protection of public health, safety or welfare or the environment, including
those relating to emissions, discharges, releases or threatened releases of
Hazardous Substances into the environment (including ambient air, surface water,
ground water or land), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Substances.
1.9 Equipment. All electronic devices, trunk and distribution coaxial and
---------
optical fiber cable, amplifiers, power supplies, conduit, vaults and pedestals,
grounding and pole hardware, subscriber's devices (including converters,
encoders, transformers behind television sets and fittings), headend hardware
(including origination, earth stations, transmission and distribution system),
test equipment, vehicles and other tangible personal property owned, leased,
used or held for use in the Business, the principal items of which are described
on SCHEDULE 1.9 (and with respect to leased Equipment, on SCHEDULE 5.6).
1.10 Equivalent Basic Subscribers (or EBSs). An active customer for Basic
--------------------------------------
Service either in a single household, a commercial establishment or in a multi-
unit dwelling (including a hotel unit); provided, however, that the number of
customers in a multi-unit dwelling or commercial establishment that obtain
service on a "bulk-rate" basis will be determined on a System by System basis by
dividing the gross bulk-rate billings for Basic Service and Expanded Basic
Service (but not billings from a la carte tiers or premium services,
installation or other non-recurring charges, converter rental or from any outlet
or connection other than the first outlet or connection or from any pass-through
charge for sales taxes, line-itemized franchise fees, fees charged by the FCC
and the like), attributable to such multi-unit dwelling or commercial
establishment during the most recent billing period ended prior to the date of
calculation (but excluding billings in excess of a single month's charge) by the
rate charged at the time of determination to individual households for the
highest level of Basic Service and Expanded Basic Service offered by such
System, such rate not to be less than the rate for such System set forth on
SCHEDULE 5.16 (excluding a la carte tiers or premium services, installation or
other non-recurring charges, converter rental, pass-through charges for sales
2
<PAGE>
taxes, line-itemized franchise fees charged by the FCC and the like). For
purposes of this definition, an "active customer" will mean any person,
commercial establishment or multi-unit dwelling at any given time that is paying
for and receiving Basic Service from the System who has an account that is not
more than 60 days past due (except for past due amounts of $5 or less, provided
such account is otherwise current). For purposes of this definition, an "active
customer" does not include any person, commercial establishment or multi-unit
dwelling that as of the date of calculation has not paid in full the charges for
at least one month of the services ordered or any subscriber whose service is
pending disconnection for any reason. For purposes of this definition, the
number of days past due of a customer account will be determined from the first
day of the period for which the applicable billing relates.
1.11 Expanded Basic Service. Any video programming provided over a cable
----------------------
television system, regardless of service tier other than (a) Basic Service, (b)
any new product tier and (c) video programming offered on a per channel or per
program basis.
1.12 GAAP. Generally accepted accounting principles as in effect from time
----
to time in the United States of America.
1.13 Governmental Authority. The United States of America, any state,
----------------------
commonwealth, territory or possession of the United States of America and any
political subdivision or quasi-governmental authority of any of the same,
including any court, tribunal, department, commission, board, bureau, agency,
county, municipality, province, parish or other instrumentality of any of the
foregoing.
1.14 Governmental Permits. All franchises, approvals, authorizations,
--------------------
permits, licenses, easements, registrations, qualifications, leases, variances
and similar rights obtained with respect to the Business or Assets from any
Governmental Authority, including those set forth on SCHEDULE 5.5.
1.15 Hazardous Substances. Any pollutant, contaminant, chemical,
--------------------
industrial, toxic, hazardous or noxious substance or waste which is regulated by
any Governmental Authority, including (a) any petroleum or petroleum compounds
(refined or crude), flammable substances, explosives, radioactive materials or
any other materials or pollutants which pose a hazard or potential hazard to the
Real Property or to Persons in or about the Real Property or cause the Real
Property to be in violation of any laws, regulations or ordinances of federal,
state or applicable local governments, (b) asbestos or any asbestos-containing
material of any kind or character, (c) polychlorinated biphenyls ("PCBs"), as
regulated by the Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq., (d)
-- ----
any materials or substances designated as "hazardous substances" pursuant to the
Clean Water Act, 33 U.S.C. (S) 1251 et seq., (e) "economic poison," as defined
-- ----
in the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. (S) 135 et
--
seq., (f) "chemical substance," "new chemical substance" or "hazardous chemical
- ---
substance or mixture" pursuant to the Toxic Substances Control Act, 15 U.S.C.
(S) 2601 et seq., (g) "hazardous substances" pursuant to the Comprehensive
-- ----
Environmental Response, Compensation, and Liability Act, 42 U.S.C. (S) 9601 et
--
seq. and (h)
- ----
3
<PAGE>
"hazardous waste" pursuant to the Resource Conservation and Recovery Act, 42
U.S.C. (S) 6901 et seq.
-- ----
1.16 Intangibles. All intangible assets, including subscriber lists,
-----------
accounts receivable, claims (excluding any claims relating to Excluded Assets),
patents, copyrights and goodwill, if any, owned, used or held for use in the
Business.
1.17 Knowledge. The actual knowledge of a particular matter of one or more
---------
of the executive officers of a Person or the general manager or one or more of
the managers of such Person's Systems.
1.18 Legal Requirement. Applicable common law and any statute, ordinance,
-----------------
code, or other law, rule, regulation, order, technical or other written standard
or procedure enacted, adopted or applied by any Governmental Authority,
including judicial decisions applying common law or interpreting any other Legal
Requirement.
1.19 Losses. Any claims, losses, liabilities, damages, penalties, costs
------
and expenses, including interest that may be imposed in connection therewith,
expenses of investigation, reasonable fees and disbursements of counsel and
other experts, and the cost to any Person making a claim or seeking
indemnification under this Agreement with respect to funds expended by such
Person by reason of the occurrence of any event with respect to which
indemnification is sought.
1.20 Pay TV. Premium programming services selected by and sold to
------
subscribers on a per channel or per program basis.
1.21 Permitted Encumbrances. The following Encumbrances: (a) liens
----------------------
securing Taxes, assessments and governmental charges not yet due and payable,
(b) any zoning law or ordinance or any similar Legal Requirement, (c) any right
reserved to any Governmental Authority to regulate the affected property and (d)
as to Real Property interests, any Encumbrance reflected in the public records
and that does not individually or in the aggregate interfere with the right or
ability to own, use or operate the Real Property or to convey good, marketable
and indefeasible fee simple title to such Real Property, provided that
"Permitted Encumbrances" will not include any Encumbrance which could prevent or
inhibit in any way the conduct of the business of the affected System and
provided further that classification of any Encumbrance as a "Permitted
Encumbrance" will not affect any liability Seller may have for such Encumbrance,
including pursuant to any indemnity obligation under this Agreement.
1.22 Person. Any natural person, corporation, partnership, trust,
------
unincorporated organization, association, limited liability company,
Governmental Authority or other entity.
1.23 Real Property. All assets held by Seller related to the Business
-------------
consisting of realty, including appurtenances, improvements and fixtures located
on such realty, and any other interests in real property, including fee
interests, leasehold interests and easements, wire crossing
4
<PAGE>
permits, rights of entry (except agreements related to multiple dwelling units)
described on SCHEDULE 5.7.
1.24 Required Consents. All franchises, licenses, authorizations,
-----------------
approvals and consents required under Governmental Permits, Seller Contracts or
otherwise for (a) Seller to transfer the Assets and the Business to Buyer, (b)
Buyer to conduct the Business and to own, lease, use and operate the Assets at
the places and in the manner in which the Business is conducted as of the date
of this Agreement and on the Closing Date and (c) Buyer to assume and perform
the Governmental Permits, Seller Contracts and the other Assumed Liabilities.
1.25 Seller Contracts. All contracts and agreements, other than
----------------
Governmental Permits and those relating to Real Property, pertaining to the
ownership, operation and maintenance of the Assets or the Business or used or
held for use in the Business, as described on SCHEDULE 5.6 or, in the case of
contracts and agreements relating to Real Property, on SCHEDULE 5.7.
1.26 Service Area. The area in which Seller operates the Business,
------------
specifically in and around the City of Milwaukie, Oregon.
1.27 System. A complete cable television reception and distribution system
------
operated in the conduct of the Business, consisting of one or more headends,
subscriber drops and associated electronic and other equipment, and which is, or
is capable of being without modification, operated as an independent system
without interconnections to other systems. Any systems which are interconnected
or which are served in total or in part by a common headend will be considered a
single System.
1.28 Taxes. All levies and assessments of any kind or nature imposed by
-----
any Governmental Authority, including all income, sales, use, ad valorem, value
added, franchise, severance, net or gross proceeds, withholding, payroll,
employment, excise or property taxes and levies or assessments related to
unclaimed property, together with any interest thereon and any penalties,
additions to tax or additional amounts applicable thereto.
1.29 Other Definitions. The following terms are defined in the Sections
-----------------
indicated:
Term Section
---- -------
Action 11.4
Antitrust Division 7.7
Assumed Liabilities 4.1
Base Purchase Price 3.1
Buyer Damages 11.5
Closing Date 1.6
Code 5.15.2
Cost of Service Election 5.9.4
Due Diligence Deadline 10.1.4
Employee Benefit Plans 5.15.2
5
<PAGE>
ERISA 5.15.1
Excluded Assets 4.2
FCC 5.5
Final Adjustments Report 3.3.2
Financial Statements 5.11
FTC 7.7
HSR Act 7.7
Indemnified Party 11.4
Indemnifying Party 11.4
Intercable 5.2
1992 Cable Act 5.9.4
Preliminary Adjustments Report 3.3.1
Rate Regulation Documents 5.9.4
Seller Damages 11.6
Survival Period 11.1
Taking 12.17.2
Transaction Documents 5.2
SECTION 2. SALE OF ASSETS.
Subject to the terms and conditions set forth in this Agreement, at
the Closing, Seller will sell to Buyer, and Buyer will purchase from Seller, all
of Seller's rights, titles and interests in, to and under the Assets. Except as
otherwise specifically provided in this Agreement, all the Assets are intended
to be transferred to Buyer, whether or not described in the Schedules.
SECTION 3. CONSIDERATION.
3.1 Base Purchase Price. Buyer will pay to Seller total cash
---------------
consideration of $8,200,000 (the "Base Purchase Price"), subject to adjustment
as provided in SECTIONS 3.2 and 3.3. Such consideration will be paid at Closing
by wire transfer of immediately available funds pursuant to wire instructions
delivered by Seller to Buyer no later than two Business Days prior to the
Closing Date.
3.2 Adjustments to Base Purchase Price. The Base Purchase Price will
----------------------------------
be adjusted as follows:
3.2.1 Reduced by an amount equal to $1,485 multiplied by the
positive difference between (a) 5,523 and (b) the number of EBSs as of the
Closing Date;
3.2.2 Adjustments on a pro rata basis as of the Closing Date will
be made for all prepaid expenses (but only to the extent the full benefit
thereof will be realizable by Buyer within 12 months after the Closing Date),
accrued expenses (including real and personal property Taxes and the economic
value of all accrued vacation time permitted by Buyer's policies to be taken
after the Closing Time by Seller's System employees hired by Buyer), prepaid
income, subscriber prepayments and accounts receivable related to the Business,
all as determined in accordance with
6
<PAGE>
GAAP consistently applied, and to reflect the principle that all expenses and
income attributable to the Business for the period prior to the Closing Date are
for the account of Seller, and all expenses and income attributable to the
Business for the period on and after the Closing Date are for the account of
Buyer. Seller will receive no credit for any accounts receivable (a) resulting
from cable service sales any portion of which is 60 days or more past due as of
the Closing Date, (b) from subscribers whose accounts are inactive or whose
service is pending disconnection for any reason as of the Closing Date or (c)
resulting from advertising sales any portion of which is 120 days or more past
due as of the Closing Date.
3.2.3 Buyer's account will be credited for the amount of all advance
payments to, or funds of third parties on deposit with, Seller as of the Closing
Date, relating to the Business, including advance payments and deposits by
subscribers served by the Business for converters, encoders, decoders, cable
television service and related sales, and the liability therefor will be assumed
by Buyer.
3.3 Determination of Adjustments. Preliminary and final adjustments to
----------------------------
the Base Purchase Price will be determined as follows:
3.3.1 Not later than a date Seller reasonably believes is at least 10
Business Days prior to the expected Closing Date, Seller will deliver to Buyer a
report (the "Preliminary Adjustments Report"), certified as to completeness and
accuracy by Seller, showing in detail the preliminary determination of the
adjustments referred to in SECTION 3.2, which are calculated as of the Closing
Date (or as of any other date agreed by the parties) and any documents
substantiating the adjustments proposed in the Preliminary Adjustments Report.
The Preliminary Adjustments Report will include a complete list of subscribers,
a detailed calculation of the number of Equivalent Basic Subscribers and a
schedule setting forth advance payments made to or by Seller and deposits made
by Seller, as well as accounts receivable information relating to the Business
(showing sums due and their respective aging as of the Closing Date). Seller
also will furnish to Buyer its billing report for the most current period as of
the Closing Date. Following receipt of such Preliminary Adjustments Report and
supporting information, Buyer will have five Business Days to review such
Preliminary Adjustments Report and supporting information and to notify Seller
of any disagreements with Seller's estimates. If Buyer provides a notice of
disagreement with Seller's estimates of the adjustments referred to in SECTION
3.2 within such five Business Day period, Buyer and Seller will negotiate in
good faith to resolve any such dispute and to reach an agreement prior to the
Closing Date on such estimated adjustments as of the Closing Date. The basis
for determining the Base Purchase Price to be paid at Closing will be (a) the
estimate so agreed upon by Buyer and Seller or (b) if no notice of disagreement
is provided, or if such notice is provided but the parties do not reach such an
agreement prior to the Closing Date, the estimate of such adjustments set forth
in the Preliminary Adjustments Report.
3.3.2 Within 90 days after the Closing, Seller will deliver to
Buyer a report (the "Final Adjustments Report"), similarly certified by Seller,
showing in detail the final determination of all adjustments which were not
calculated as of the Closing Date and containing any corrections to the
Preliminary Adjustments Report, together with any documents substantiating the
adjustments proposed in the Final Adjustments Report. Buyer will provide Seller
with reasonable
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access to all records which Buyer has in its possession and which are necessary
for Seller to prepare the Final Adjustments Report.
3.3.3 Within 30 days after receipt of the Final Adjustments Report,
Buyer will give Seller written notice of Buyer's objections, if any, to the
Final Adjustments Report. If Buyer makes any such objection, the parties will
agree on the amount, if any, which is not in dispute within 30 days after
Seller's receipt of Buyer's notice of objections to the Final Adjustments
Report. Any disputed amounts will be determined within 120 days after the
Closing Date by the accounting firm of Price Waterhouse, whose determination
will be conclusive. Seller and Buyer will bear equally the fees and expenses
payable to such firm in connection with such determination. The payment required
after such determination will be made by the responsible party by wire transfer
of immediately available funds to the other party within three Business Days
after the final determination.
3.4 Allocation of Consideration. The consideration payable by Buyer
---------------------------
under this Agreement will be allocated among the Assets as set forth in a
schedule to be prepared not later than 180 days after the Closing Date (or April
1 of the year following the Closing Date if earlier) by an independent appraiser
with significant experience in the cable television industry. Such appraiser
will be selected by the mutual agreement of Buyer and Seller within 30 days
after the date of this Agreement, and the fees of such appraiser will be shared
equally by Buyer and Seller. Buyer and Seller agree to be bound by the
allocation and will not take any position inconsistent with such allocation and
will file all returns and reports with respect to the transactions contemplated
by this Agreement, including all federal, state and local Tax returns, on the
basis of such allocation.
SECTION 4. ASSUMED LIABILITIES AND EXCLUDED ASSETS.
4.1 Assignment and Assumption. Seller will assign, and Buyer will assume
-------------------------
and after the Closing will pay, discharge and perform the following (the
"Assumed Liabilities"): (a) Seller's obligations to subscribers of the Business
for (i) subscriber deposits held by Seller as of the Closing Date and which are
refundable, in the amount for which Buyer received credit under SECTION 3.2,
(ii) subscriber advance payments held by Seller as of the Closing Date for
services to be rendered by a System after the Closing Date, in the amount for
which Buyer received credit under SECTION 3.2 and (iii) the delivery of cable
television service to subscribers of the Business after the Closing Date; and
(b) obligations accruing and relating to periods after the Closing Date under
Governmental Permits listed on SCHEDULE 5.5 (to the extent that such
Governmental Permits are transferrable) and Seller Contracts. Buyer will not
assume or have any responsibility for any liabilities or obligations of Seller
other than the Assumed Liabilities. In no event will Buyer assume or have any
responsibility for any liabilities or obligations associated with the Excluded
Assets.
4.2 Excluded Assets. The Excluded Assets, which will be retained by
---------------
Seller, will consist of the following: (a) programming contracts, retransmission
consent agreements and pole attachment agreements (except for those set forth on
SCHEDULE 5.6); (b) Employee Benefit Plans; (b) insurance policies and rights and
claims thereunder (except as otherwise provided in SECTION 12.17); (c) bonds,
letters of credit, surety instruments and other similar items; (d) cash and cash
equivalents and notes receivable; (e) Seller's trademarks, trade names, service
marks, service names, logos and similar proprietary rights (subject to Buyer's
rights under SECTION 7.5); (f) Seller's
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rights under any agreement governing or evidencing an obligation of Seller for
borrowed money; (g) Seller Contracts for subscriber billing and equipment; (h)
Seller's rights under any contract, license, authorization, agreement or
commitment other than those creating or evidencing Assumed Liabilities; and (i)
the assets described on SCHEDULE 4.2.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants to Buyer, as of the date of this
Agreement and as of the Closing, as follows:
5.1 Organization and Qualification. Seller is a limited
------------------------------
partnership duly organized, validly existing and in good standing under the laws
of the State of Colorado and has all requisite partnership power and authority
to own, lease and use the Assets owned, leased or used by it and to conduct the
Business as it is currently conducted. Seller is duly qualified to do business
and is in good standing under the laws of each jurisdiction in which the
ownership, leasing or use of the Assets owned, leased or used by it or the
nature of Seller's activities makes such qualification necessary, except in any
such jurisdiction where the failure to be so qualified and in good standing
would not have a material adverse effect on the Business, the Assets or the
Systems or on the ability of Seller to perform its obligations under this
Agreement.
5.2 Authority and Validity. Seller has all requisite partnership
----------------------
power and authority to execute and deliver, to perform its obligations under,
and to consummate the transactions contemplated by, this Agreement and all other
documents and instruments to be executed and delivered in connection with the
transactions contemplated by this Agreement (collectively, the "Transaction
Documents") to which Seller is a party. Subject to approval by the Board of
Directors of Jones Intercable, Inc. ("Intercable"), the sole general partner of
Seller, the execution and delivery by Seller of, the performance by Seller of
its obligations under, and the consummation by Seller of the transactions
contemplated by, this Agreement and the Transaction Documents to which Seller is
a party have been duly and validly authorized by all necessary action by or on
behalf of Seller. This Agreement has been, and when executed and delivered by
Seller the Transaction Documents will be, duly and validly executed and
delivered by Seller and the valid and binding obligations of Seller, enforceable
against Seller in accordance with their terms, except as the same may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
now or hereafter in effect relating to the enforcement of creditors' rights
generally or by principles governing the availability of equitable remedies.
5.3 No Conflict; Required Consents. Except for the Required
------------------------------
Consents, all of which are listed on SCHEDULE 5.3, the execution and delivery by
Seller, the performance of Seller under, and the consummation of the
transactions contemplated by, this Agreement and the Transaction Documents to
which Seller is a party do not and will not: (a) violate any provision of the
partnership agreement or certificate of limited partnership of Seller; (b)
violate any Legal Requirement; (c) require any consent, approval or
authorization of, or filing of any certificate, notice, application, report or
other document with any Governmental Authority or other Person; or (d) (i)
violate or result in a breach of or default under (without regard to
requirements of notice, lapse of time, or elections of any Person, or any
combination thereof), (ii) permit or result in the
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termination, suspension or modification of, (iii) result in the acceleration of
(or give any Person the right to accelerate) the performance of Seller under, or
(iv) result in the creation or imposition of any Encumbrance under any Seller
Contract or any other instrument evidencing any of the Assets or by which Seller
or any of its assets is bound or affected, except for purposes of this clause
(d) such violations, conflicts, breaches, defaults, terminations, suspensions,
modifications, and accelerations as would not, individually or in the aggregate,
have a material adverse effect on any System, the Business or Seller, the
validity, binding effect or enforceability of this Agreement or on the ability
of Seller to perform its obligations under this Agreement or the Transaction
Documents to which Seller is a party.
5.4 Assets. Seller has exclusive, good and marketable title to (or, in
------
the case of Assets that are leased, valid leasehold interests in) the Assets
(other than Real Property, as to which the representations and warranties in
SECTION 5.7 apply). The Assets are free and clear of all Encumbrances, except
(a) Permitted Encumbrances and (b) Encumbrances described on SCHEDULE 5.4, all
of which will be terminated, released or, in the case of rights of refusal
listed on SCHEDULE 5.4, waived, as appropriate, at or prior to the Closing.
Except as described on SCHEDULE 5.6, none of the Equipment is leased by Seller
from any other Person. All the Equipment is in good operating condition and
repair (ordinary wear and tear excepted). Except for items included in the
Excluded Assets, the Assets constitute all the assets necessary to permit Buyer
to (i) conduct the Business and to operate the Systems substantially as they are
being conducted and operated on the date of this Agreement and in compliance in
all material respects with all Legal Requirements, Governmental Permits and
Seller Contracts and (ii) perform all the Assumed Liabilities.
5.5 Governmental Permits. All Governmental Permits are listed on SCHEDULE
--------------------
5.5. Complete and correct copies of all Governmental Permits have been
delivered by Seller to Buyer. Each Governmental Permit is in full force and
effect and Seller is not and, to Seller's Knowledge, the other party thereto is
not, in breach or default of any material terms or conditions thereunder and is
valid under all applicable Legal Requirements according to its terms. There is
no legal action, governmental proceeding or investigation, pending or, to
Seller's Knowledge threatened, to terminate, suspend or modify any Governmental
Permit and Seller is in compliance with the material terms and conditions of all
the Governmental Permits and with other material applicable requirements of all
Governmental Authorities (including the Federal Communications Commission
("FCC") and the Register of Copyrights) relating to the Governmental Permits,
including all requirements for notification, filing, reporting, posting and
maintenance of logs and records. As of the date of this Agreement, to Seller's
Knowledge, no third party has been granted or has applied for a cable television
franchise or is providing or intending to provide cable television services in
any of the communities or unincorporated areas currently served by the Business.
5.6 Seller Contracts. All Seller Contracts (other than those constituting
----------------
Excluded Assets) are described on SCHEDULE 5.6 or 5.7. Complete and correct
copies of all Seller Contracts have been delivered by Seller to Buyer. Each
Seller Contract is in full force and effect and constitutes the valid, legal,
binding and enforceable obligation of Seller and Seller is not and to
Seller's Knowledge each other party thereto is not, in breach or default of any
material terms or conditions thereunder.
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5.7 Real Property.
-------------
5.7.1 All the Assets consisting of Real Property interests are
described on SCHEDULE 5.7. Except as otherwise disclosed on SCHEDULE 5.7, Seller
holds good, marketable and indefeasible fee simple title to the Real Property
shown as being owned by Seller on SCHEDULE 5.7 and the valid and enforceable
right to use and possess such Real Property, subject only to the Permitted
Encumbrances. Seller has valid and enforceable leasehold interests in Real
Property shown as being leased by Seller on SCHEDULE 5.7 and, with respect to
other Real Property not owned or leased by Seller, Seller has the valid and
enforceable right to use all such other Real Property pursuant to the easements,
licenses, rights-of-way or other rights described on SCHEDULE 5.7, subject only
to Permitted Encumbrances. Except for routine repairs, all of the material
improvements, leasehold improvements and the premises of the Real Property are
in good condition and repair and are suitable for the purposes used. The current
use and occupancy of the Real Property do not constitute nonconforming uses
under any applicable zoning Legal Requirements.
5.7.2 The documents delivered by Seller to Buyer as evidence of
each Seller Contract that is a lease of Real Property constitute the entire
agreement with the landlord in question. There are no leases or other
agreements, oral or written, granting to any Person other than Seller the right
to occupy or use any Real Property, except as described on SCHEDULE 5.7. All
easements, rights-of-way and other rights appurtenant to, or which are necessary
for Seller's current use of, any Real Property are valid and in full force and
effect, and Seller has not received any notice with respect to the termination,
breach or impairment of any of those rights. Each parcel of Real Property, any
improvements constructed thereon and their current use (a) has access to and
over all public streets, or private streets for which Seller has a valid right
of ingress and egress, (b) conforms in its current use and occupancy to all
zoning requirements without reliance upon a variance issued by a Governmental
Authority or a classification of the parcel in question as a nonconforming use,
and (c) conforms in all material respects in its use to all restrictive
covenants, if any, or other Encumbrances affecting all or part of such parcel.
5.8 Environmental Matters.
---------------------
5.8.1 The Real Property currently complies in all material respects
with and, to Seller's Knowledge, has previously been operated in compliance in
all material respects with, all Environmental Laws. Seller has not directly or
indirectly (a) generated, released, stored, used, treated, handled, discharged
or disposed of any Hazardous Substances at, on, under, in or about, or in any
other manner affecting, any Real Property, (b) transported any Hazardous
Substances to or from any Real Property or (c) undertaken or caused to be
undertaken any other activities relating to the Real Property which could
reasonably give rise to any liability under any Environmental Law, and, to
Seller's Knowledge, no other present or previous owner, tenant, occupant or user
of any Real Property or any other Person has committed or suffered any of the
foregoing. To Seller's Knowledge, (i) no release of Hazardous Substances outside
the Real Property has entered or threatens to enter any Real Property, nor (ii)
is there any pending or threatened claim based on Environmental Laws which
arises from any condition of the land surrounding any Real Property. No
litigation based on Environmental Laws which relates to any Real Property or any
operations on conditions on it (A) has
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been asserted or conducted in the past or is currently pending against or with
respect to Seller or, to Seller's Knowledge, any other Person, or (B) to
Seller's Knowledge is threatened or contemplated.
5.8.2 To Seller's Knowledge, other than as described on SCHEDULE
5.8, (a) no aboveground or underground storage tanks are currently or have been
located on any Real Property, (b) no Real Property has been used at any time as
a gasoline service station or any other facility for storing, pumping,
dispensing or producing gasoline or any other petroleum products or wastes and
(c) no building or other structure on any Real Property contains asbestos-
containing material.
5.8.3 Seller has provided Buyer with complete and correct copies of
(a) all studies, reports, surveys or other materials in Seller's possession or,
to Seller's Knowledge to which it has access, relating to the presence or
alleged presence of Hazardous Substances at, on or affecting the Real Property,
(b) all notices or other materials in Seller's possession or, to Seller's
Knowledge to which it has access, that were received from any Governmental
Authority having the power to administer or enforce any Environmental Laws
relating to current or past ownership, use or operation of the Real Property or
activities at the Real Property and (c) all materials in Seller's possession or,
to Seller's Knowledge to which it has access, relating to any litigation or
allegation by any Person concerning any Environmental Law.
5.9 Compliance with Legal Requirements.
----------------------------------
5.9.1 The ownership, leasing and use of the Assets as they are
currently owned, leased and used and the conduct of the Business and the
operation of the Systems as they are currently conducted and operated do not
violate or infringe, in any material respect, any Legal Requirements currently
in effect (other than the Legal Requirements described in SECTION 5.9.4, as to
which the provisions of SECTION 5.9.4 will apply). Seller has received no notice
of any violation by Seller or the Business of any Legal Requirement applicable
to the Business or the Systems as currently conducted, and to Seller's
Knowledge, there is no basis for the allegation of any such a violation.
5.9.2 A valid request for renewal has been duly and timely filed
under Section 626 of the Cable Communications Policy Act of 1984 with the proper
Governmental Authority with respect to applicable Governmental Permits with
franchising authorities that have expired prior to, or will expire within 36
months after, the date of this Agreement.
5.9.3 Seller has complied, and the Business is in compliance, in all
material respects, with the specifications set forth in Part 76, Subpart K of
the rules and regulations of the FCC, Section 111 of the U.S. Copyright Act of
1976 and the applicable rules and regulations thereunder and the applicable
rules and regulations of the U.S. Copyright Office, the Register of Copyrights,
the Copyright Royalty Tribunal and the Communications Act of 1934, including
provisions of any thereof pertaining to signal leakage, to utility pole make
ready and to grounding and bonding of cable television systems (in each case as
the same is currently in effect), and all other applicable Legal Requirements
relating to the construction, maintenance, ownership and operation of the
Assets, the Systems and the Business.
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5.9.4 Notwithstanding the foregoing, to Seller's Knowledge, each
System is in compliance in all material respects with the provisions of the
Cable Television Consumer Protection and Competition Act of 1992 and the FCC
rules and regulations promulgated thereunder (the "1992 Cable Act") as such
Legal Requirements relate to the operation of the Business; provided, however,
that Seller does not hereby make any representation about rates charged to
subscribers, other than the representation regarding the rates charged to
subscribers set forth below. Seller has complied in all material respects with
the must carry and retransmission consent provisions of the 1992 Cable Act.
Seller has used reasonable good faith efforts to establish rates charged to
subscribers, effective since September 1, 1993, that are or were allowable under
the 1992 Cable Act and any authoritative interpretation thereof now or then in
effect, whether or not such rates are or were subject to regulation at that date
by any Governmental Authority, including any local franchising authority and/or
the FCC, unless such rates were not subject to regulation pursuant to a specific
exemption from rate regulation contained in the 1992 Cable Act other than the
failure of any franchising authority to have been certified to regulate rates.
Notwithstanding the foregoing, Seller makes no representation or warranty that
the rates charged to subscribers (a) are allowable under any rules and
regulations of the FCC or any authoritative interpretation thereof, or (b) would
be allowable under any rules and regulations of the FCC or any authoritative
interpretation thereof promulgated after the date of the Closing. Seller has
delivered to Buyer complete and correct copies of all FCC Forms 393, 1200, 1205,
1210, 1215, 1220, 1225, 1235 and 1240 filed with respect to the Systems and
copies of all other FCC Forms filed by Seller and of all correspondence with any
Governmental Authority relating to rate regulation generally or specific rates
charged to subscribers with respect to the Systems, including copies of any
complaints filed with the FCC with respect to any rates charged to subscribers
of the Systems, and any other documentation supporting an exemption from the
rate regulation provisions of the 1992 Cable Act claimed by Seller with respect
to any of the Systems (collectively, "Rate Regulation Documents"). As of the
date of this Agreement, Seller has received no notice from any Governmental
Authority with respect to an intention to enforce customer service standards
pursuant to the 1992 Cable Act and Seller has not agreed with any Governmental
Authority to establish customer service standards that exceed the customer
service standards promulgated pursuant to the 1992 Cable Act. In addition,
Seller has also delivered to Buyer documentation for each of the Systems in
which the franchising authority has not certified to regulate rates as of the
date of this Agreement showing a determination of allowable rates using a
benchmark methodology. Except as described in SCHEDULE 5.9, Seller has not made
any election with respect to any cost of service proceeding conducted in
accordance with Part 76.922 of Title 47 of the Code of Federal Regulations or
any similar proceeding (a "Cost of Service Election") with respect to any of the
Systems.
5.10 Patents, Trademarks and Copyrights. Seller has timely and accurately
----------------------------------
made all requisite filings and payments with the Register of Copyrights with
respect to the Business. Seller has delivered to Buyer complete and correct
copies of all current reports and filings, and all reports and filings for the
past three years, made or filed pursuant to copyright rules and regulations with
respect to the Business. Seller does not possess any patent, patent right,
trademark or copyright material to the operation of the Business and Seller is
not a party to any license or royalty agreement with respect to any patent,
trademark or copyright except for licenses respecting program material and
obligations under the Copyright Act of 1976 applicable to cable television
systems generally. The Business and the System have been operated in such a
manner so as not to violate or infringe upon
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the rights of, or give rise to any rightful claim of any Person for copyright,
trademark, service mark, patent, license, trade secret infringement or the like.
5.11 Financial Statements. A correct copy of the unaudited financial
--------------------
statements for the Systems as of September 30, 1996, including an unaudited
income statement and balance sheet which fairly present the financial condition
of the Systems, is attached as SCHEDULE 5.11 (collectively, the "Financial
Statements"). At the date of the Financial Statements, Seller had no liability
or obligation, whether accrued, absolute, fixed or contingent (including
liabilities for Taxes or unusual forward or long-term commitments), required by
GAAP to be reflected or reserved against therein that were not fully reflected
or reserved against on the balance sheet included in the Financial Statements,
other than liabilities included in current liabilities, and none of which was or
would be material to the Business.
5.12 Absence of Certain Changes. Since September 30, 1996 (a) Seller has
--------------------------
not incurred any obligation or liability (contingent or otherwise), except
normal trade or business obligations incurred in the ordinary course of
business, the performance of which would be reasonably likely, individually or
in the aggregate, to have a material adverse effect on the financial condition
or results of operations of the Business, (b) there has been no material adverse
change (except any change affecting the United States cable industry as a whole,
including any change arising from (i) legislation, litigation, rulemaking or
regulation or (ii) competition caused by or arising from other multiple channel
distribution services) in the business, condition (financial or otherwise) or
liabilities of the Business, and (c) the Business has been conducted only in the
ordinary course of business.
5.13 Legal Proceedings. Except as set forth in SCHEDULE 5.13: (a) there
-----------------
is no claim, investigation or litigation pending or, to Seller's Knowledge,
threatened, by or before any Governmental Authority or private arbitration
tribunal against Seller which, if adversely determined, would materially
adversely affect the financial condition or operations of the Business, the
Systems, the Assets or the ability of Seller to perform its obligations under
this Agreement, or which, if adversely determined, would result in the
modification, revocation, termination, suspension or other limitation of any of
the Governmental Permits, Seller Contracts or leases or other documents
evidencing the Real Property; and (b) there is not in existence any judgment
requiring Seller to take any action of any kind with respect to the Assets or
the operation of the Systems, or to which Seller (with respect to the Systems),
the Systems or the Assets are subject or by which they are bound or affected.
5.14 Tax Returns; Other Reports. Seller has duly and timely filed in
--------------------------
correct form all federal, state and local Tax returns and all other Tax reports
required to be filed by Seller and has timely paid all Taxes which have become
due and payable, whether or not shown on any such report or return, the failure
of which to be filed or paid could adversely affect the Assets or result in the
imposition of an Encumbrance upon the Assets, except such amounts as are being
contested diligently and in good faith and are not in the aggregate material.
Except as specifically identified on SCHEDULE 5.14, Seller has received no
notice of, nor does Seller have any Knowledge of, any deficiency, assessment or
audit, or proposed deficiency, assessment or audit from any taxing Governmental
Authority which could affect or result in the imposition of an Encumbrance upon
the Assets.
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5.15 Employment Matters.
------------------
5.15.1 SCHEDULE 5.15 contains a complete and correct list of names and
positions of all employees of Seller engaged in the Business as of the date set
forth in such SCHEDULE. Seller has no employment agreements, either written or
oral, with any employee of the Business. Seller has complied in all material
respects with applicable Legal Requirements relating to the employment of labor,
including WARN, the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), continuation coverage requirements with respect to group health
plans, and those relating to wages, hours, collective bargaining, unemployment
insurance, worker's compensation, equal employment opportunity, age and
disability discrimination, immigration control and the payment and withholding
of Taxes.
5.15.2 Each "employee benefit plan" or "multiemployer plan" (as those
terms are defined in ERISA) with respect to which Seller or any ERISA Affiliate
(as defined in ERISA) of Seller has any liability is set forth on SCHEDULE 5.15
(the "Employee Benefit Plans"). Neither Seller nor its ERISA Affiliates nor any
Employee Benefit Plan is in material violation of any provision of ERISA. No
"reportable event," as defined in Section 4043 of ERISA, has occurred and is
continuing with respect to any Employee Benefit Plan. No "prohibited
transaction," within the meaning of Section 406 of ERISA, has occurred with
respect to any such Employee Benefit Plan, and no "accumulated funding
deficiency" or "withdrawal liability" (both as defined in Section 302 of ERISA)
exists with respect to any such Employee Benefit Plan. After the Closing, Buyer
will not be required, under ERISA, the Internal Revenue Code of 1986, as amended
(the "Code") or any collective bargaining agreement, to establish, maintain or
continue any Employee Benefit Plan currently maintained by Seller or any of its
ERISA Affiliates.
5.15.3 Seller is not a party to any collective bargaining agreements and
Seller has not recognized or agreed to recognize and has no duty to bargain with
any labor organization or collective bargaining unit. There are not pending any
unfair labor practice charges against Seller, any demand for recognition or any
other request or demand from a labor organization for representative status with
respect to any Person employed by Seller. To Seller's Knowledge, its employees
are not engaged in organizing activity with respect to any labor organization.
Seller has no employment agreement, either written or oral, express or implied,
that would require Buyer to employ any Person after the Closing Date.
5.16 Systems Information. SCHEDULE 5.16 sets forth a materially true and
-------------------
accurate description of the following information relating to the Business as of
the most recent monthly report generated by Seller in the ordinary course of
business containing the information required to prepare such SCHEDULE (provided
that such date is no earlier than two months prior to the date of this
Agreement):
(a) the approximate number of miles of plant included in the Assets;
(b) the number of subscribers and EBS's served by the Systems for each
Franchise;
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(c) the approximate number of single family homes and residential
dwelling units passed by the Systems;
(d) a description of basic and optional or tier services
available from the Systems, the rates charged by Seller for each and the number
of subscribers and subscriber equivalents receiving each optional or tier
service;
(e) the stations and signals carried by the Systems and the
channel position of each such signal and station; and
(f) the cities, towns, villages, townships, boroughs and counties
served by the Systems.
5.17 Bonds. Except as set forth on SCHEDULE 5.17, as of the date of
-----
this Agreement, there are no franchise, construction, fidelity, performance, or
other bonds or letters of credit posted by Seller in connection with its
operation or ownership of any of the Systems or Assets.
5.18 Finders and Brokers. Seller has not employed any financial
-------------------
advisor, broker or finder or incurred any liability for any financial advisory,
brokerage, finder's or similar fee or commission in connection with the
transactions contemplated by this Agreement for which Buyer could be liable.
SECTION 6. BUYER'S REPRESENTATIONS AND WARRANTIES.
To induce Seller to enter into this Agreement, Buyer represents and
warrants to Seller, as of the date of this Agreement and as of the Closing, as
follows:
6.1 Organization and Qualification. Buyer is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Georgia and has all requisite corporate power and authority to own, lease and
use the assets owned, leased or used by it and to conduct its business as it is
currently conducted. Buyer is duly qualified to do business and is in good
standing under the laws of each jurisdiction in which the ownership, leasing or
use of the assets owned, leased or used by it or the nature of Buyer's
activities makes such qualification necessary, except in any such jurisdiction
where the failure to be so qualified and in good standing would not have a
material adverse effect on Buyer or on the ability of Buyer to perform its
obligations under this Agreement.
6.2 Authority and Validity. Buyer has all requisite corporate power
----------------------
and authority to execute and deliver, to perform its obligations under, and to
consummate the transactions contemplated by, this Agreement and the Transaction
Documents to which Buyer is a party. The execution and delivery by Buyer of, the
performance by Buyer of its obligations under, and the consummation by Buyer of
the transactions contemplated by, this Agreement and the Transaction Documents
to which Buyer is a party have been duly and validly authorized by all necessary
action by or on behalf of Buyer. This Agreement has been, and when executed and
delivered by Buyer the Transaction Documents will be, duly and validly executed
and delivered by Buyer and the valid and binding obligations of Buyer,
enforceable against Buyer in accordance with their terms, except as the
16
<PAGE>
same may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws now or hereafter in effect relating to the
enforcement of creditors' rights generally or by principles governing the
availability of equitable remedies.
6.3 No Conflicts; Required Consents. Except for the Required
-------------------------------
Consents, the execution and delivery by Buyer, the performance of Buyer under,
and the consummation of the transactions contemplated by, this Agreement and the
Transaction Documents to which Buyer is a party do not and will not (a) violate
any provision of the charter or bylaws of Buyer, (b) violate any Legal
Requirement, (c) require any consent, approval or authorization of, or filing of
any certificate, notice, application, report or other document with any
Governmental Authority or other Person or (d) (i) violate or result in a breach
of or constitute a default under (without regard to requirements of notice,
lapse of time or elections of any Person or any combination thereof), (ii)
permit or result in the termination, suspension, modification of, (iii) result
in the acceleration of (or give any Person the right to accelerate) the
performance of Buyer under, or (iv) result in the creation or imposition of any
Encumbrance under, any instrument or other agreement to which Buyer is a party
or by which Buyer or any of its assets is bound or affected, except for purposes
of this clause (d) such violations, conflicts, breaches, defaults, terminations,
suspensions, modifications and accelerations as would not, individually or in
the aggregate, have a material adverse effect on the validity, binding effect or
enforceability of this Agreement or on the ability of Buyer to perform its
obligations under this Agreement or the Transaction Documents to which it is a
party.
6.4 Finders and Brokers. Buyer has not employed any financial
-------------------
advisor, broker or finder or incurred any liability for any financial advisory,
brokerage, finder's or similar fee or commission in connection with the
transactions contemplated by this Agreement for which Seller could be liable.
6.5 Legal Proceedings. There are no claims, actions, suits,
-----------------
proceedings or investigations pending or, to Buyer's Knowledge, threatened, by
or before any Governmental Authority, or any arbitrator, by or against or
affecting or relating to Buyer which, if adversely determined, would restrain or
enjoin the consummation of the transactions contemplated by this Agreement or
declare unlawful the transactions or events contemplated by this Agreement or
cause any of such transactions to be rescinded.
SECTION 7. ADDITIONAL COVENANTS.
7.1 Access to Premises and Records. Between the date of this
------------------------------
Agreement and the Closing Date, Seller will give Buyer and its counsel,
accountants and other representatives full access during normal business hours
upon reasonable notice to all the premises and books and records of the Business
and to all the Assets and to the System personnel and will furnish to Buyer and
such representatives all such documents, financial information, and other
information regarding the Business and the Assets as Buyer from time to time
reasonably may request; provided that no such investigation will affect or limit
the scope of any of Seller's representations, warranties, covenants and
indemnities in this Agreement or any Transaction Document or limit liability for
any breach of any of the foregoing.
17
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7.2 Continuity and Maintenance of Operations; Financial Statements.
--------------------------------------------------------------
Except as Buyer may otherwise consent in writing, between the date of this
Agreement and the Closing:
7.2.1 Seller will conduct the Business and operate the Systems only in
the usual, regular and ordinary course consistent with past practices (including
making budgeted capital expenditures and fulfilling installation requests) and
will use commercially reasonable efforts to (a) preserve its current business
intact, including preserving existing relationships with franchising
authorities, suppliers, customers and others having business dealings with
Seller relating to the Business unless Buyer requests otherwise, (b) keep
available the services of its employees and agents providing services in
connection with the Business and (c) continue making marketing, advertising and
promotional expenditures with respect to the Business consistent with past
practices.
7.2.2 Seller will maintain the Assets in good repair, order and
condition (ordinary wear and tear excepted), will maintain equipment and
inventory at historical levels consistent with past practices, will maintain in
full force and effect, policies of insurance with respect to the Business in
such amounts and with respect to such risks as customarily maintained by
operators of cable television systems of the size and geographic location as the
Systems and will maintain its books, records and accounts in the usual, regular
and ordinary manner on a basis consistent with past practices. Seller will not
itself, and will not permit any of its officers, directors, shareholders, agents
or employees to, pay any of Seller's subscriber accounts receivable (other than
for their own residences) prior to the Closing Date. Seller will continue to
implement its procedures for disconnection and discontinuance of service to
subscribers whose accounts are delinquent in accordance with those in effect on
the date of this Agreement.
7.2.3 Except as specified in Section 7.2.5, without the prior approval
of Buyer, Seller will not (a) change the rate charged for Basic Service,
Expanded Basic Service or Pay TV or add, delete, retier or repackage any
programming services except to the extent required under the 1992 Cable Act or
any other Legal Requirement, provided however if Seller changes such rates in
order to so comply, Seller will provide Buyer with copies of any FCC forms (even
if not filed with any Governmental Authority) that Seller used to determine that
the new rates were allowable, (b) make any Cost of Service Election with respect
to any of the Systems, (c) sell, transfer or assign any portion of the Assets
other than sales in the ordinary course of business or permit the creation of
any Encumbrance on any Asset other than a Permitted Encumbrance or any
Encumbrance which will be released at or prior to Closing, (d) modify in any
material respect, terminate, suspend or abrogate any Governmental Permits,
Seller Contracts or any other contract or agreement (other than those
constituting Excluded Assets), (e) enter into any contract or commitment or
incur any indebtedness or other liability or obligation of any kind relating to
any System or the Business involving an expenditure in excess of $25,000, other
than contracts or commitments which are cancellable on 30 days' notice or less
without penalty, (f) take or omit to take any action that would result in any of
its representations or warranties in this Agreement or in any Transaction
Document not being true and correct when made or as of the Closing, (g) engage
in any marketing, subscriber installation or collection practices that are
inconsistent with past practices, or (h) enter into any agreement with or
commitment to any competitive access providers with respect to the Systems.
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7.2.4 Seller promptly will deliver to Buyer true and complete copies of
monthly and quarterly financial statements and operating reports and any reports
with respect to the operations of the Business prepared by or for Seller at any
time between the date of this Agreement and the Closing Date. All financial
statements so delivered will be prepared in accordance with GAAP on a basis
consistent with the Financial Statements.
7.2.5 Seller will give or cause to be given to Buyer as soon as
reasonably possible but in any event no later than 5 Business Days prior to the
date of submission to the appropriate Governmental Authority, copies of all Rate
Regulation Documents prepared with respect to any of the Systems, and Seller
will make a good faith effort to address any specific concerns raised by Buyer
with respect to such documents. Seller will cause its "Operator Selected Rate
for Projected Period" as shown on line 110 of the FCC Form 1240 to go into
effect in the System on February 1, 1997.
7.2.6 Seller will duly and timely file a valid notice of renewal under
Section 626 of the Cable Communications Policy Act of 1984 with the appropriate
Governmental Authority with respect to all cable television franchises of the
Business that will expire within 36 months after any date between the date of
this Agreement and the Closing Date.
7.2.7 Seller will promptly notify Buyer of any fact, circumstance,
event or action by it or otherwise (a) which, if known at the date of this
Agreement, would have been required to be disclosed in or pursuant to this
Agreement or (b) the existence, occurrence or taking of which would result in
any of Seller's representations and warranties in this Agreement or any
Transaction Document not being true, complete and correct when made or at the
Closing, and, with respect to clause (b) use its best efforts to remedy the
same.
7.3 Employee Matters.
----------------
7.3.1 Buyer will have no obligation to employ or offer employment to
any of the employees of Seller. As of the Closing Date, Seller will terminate
the employment of all its employees who were employed incidental to the conduct
of the Business whose employment will not continue with Seller after the Closing
and will promptly pay to all such employees all compensation, including
salaries, commissions, bonuses, deferred compensation, severance, insurance,
pensions, profit sharing, vacation (except for accrued vacation included in the
adjustments pursuant to SECTION 3.2), sick pay and other compensation or
benefits to which they are entitled for periods prior to the Closing, including
all amounts, if any, payable on account of the termination of their employment.
Seller agrees to cooperate in all reasonable respects with Buyer to allow Buyer
to evaluate and interview employees of the Business to make hiring decisions.
Such cooperation will include but not be limited to allowing Buyer to contact
employees during work time and, with the consent of the employee, making
personnel records available. Buyer will give Seller written notice on or before
January 10, 1997 of the name of all employees of the System to whom Buyer
desires to offer employment on and after the Closing Date (subject to
satisfaction of Buyer's conditions for employment). Seller will not, without the
prior written consent of Buyer, change the compensation or benefits of any
employees of the Business except in accordance with past practice.
19
<PAGE>
7.3.2 All claims and obligations under, pursuant to or in connection
with any welfare, medical, insurance, disability or other employee benefit plans
of Seller or arising under any Legal Requirement affecting employees of Seller
incurred on or before the Closing Date or resulting or arising from events or
occurrences occurring or commencing on or before the Closing Date will remain
the responsibility of Seller, whether or not such employees are hired by Buyer
after the Closing.
7.3.4 Seller will remain solely responsible for, and will indemnify
and hold harmless Buyer from and against all Losses arising from or with respect
to, all salaries and all severance, vacation (except for accrued vacation
included in the adjustments pursuant to SECTION 3.2), medical, sick, holiday,
continuation coverage and other compensation or benefits to which Seller's
employees (whether or not hired by Buyer) may be entitled as a result of their
employment by Seller prior to the Closing, the termination of their employment
prior to the Closing, the consummation of the transactions contemplated hereby
or pursuant to any applicable Legal Requirement (including without limitation
WARN) or otherwise relating to their employment prior to the Closing.
7.3.4 Nothing in this Agreement will require Buyer to assume any
collective bargaining agreement between Seller and any labor organization.
7.4 Leased Vehicles; Other Capital Leases. Seller will pay the remaining
-------------------------------------
balances on any leases for vehicles or capital leases included in the Equipment
and will deliver title to such vehicles and other Equipment free and clear of
all Encumbrances (other than Permitted Encumbrances) to Buyer at the Closing.
7.5 Required Consents; Estoppel Certificates.
----------------------------------------
7.5.1 Seller will use commercially reasonable efforts to obtain in
writing, as promptly as possible and at its expense, all the Required Consents
and any other consent, authorization or approval required to be obtained by
Seller in connection with the transactions contemplated by this Agreement, in
form and substance reasonably satisfactory to Buyer and deliver to Buyer copies
of such Required Consents and such other consents, authorizations or approvals
promptly after they are obtained by Seller. Such Required Consents will be
proposed in a form that provides confirmation from the third party of the
continued existence of and the absence of defaults under the applicable Seller
Contract or Governmental Permit. Buyer will cooperate with Seller to obtain all
Required Consents, but Buyer will not be required to accept or agree or accede
to any modifications or amendments to, or changes in, or the imposition of any
condition to the transfer to Buyer of (in each case other than inconsequential
matters with no adverse effect on Buyer), any Seller Contract or Governmental
Permit that are not acceptable to Buyer in its sole discretion. Notwithstanding
the foregoing, Seller will complete, execute and deliver to the appropriate
Governmental Authority, the FCC Forms 394 prepared by Buyer with respect to each
franchise as to which such Form 394 is required within two Business Days after
it receives each such Form 394 from Buyer.
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7.5.2 Seller will use commercially reasonable efforts to obtain for
each lease that has not been recorded in the public records, execution of a
document suitable for recording in the public records and sufficient after
recording to constitute a memorandum of lease.
7.6 Title Commitments and Surveys.
-----------------------------
7.6.1 After the execution of this Agreement, Buyer will order at
Seller's expense (a) commitments for owner's title insurance policies on all
Real Property owned by Seller and on easements which provide access to each such
parcel of real property, (b) commitments for lessee's title insurance policies
for all Real Property leased by Seller which is used for headend or tower sites
and on easements which provide access to each such site and (c) an ALTA survey
(including such items on Table A of the Minimum Standard Detail Requirements and
Classifications thereto that Buyer in its reasonable judgment determines are
desirable or necessary) on each parcel of Real Property for which a title
insurance policy is to be obtained. The title commitments will evidence a
commitment to issue an ALTA title insurance policy insuring good, marketable and
indefeasible fee simple title or leasehold interest, in the case of Leased Real
Property, if applicable) to each parcel of such Real Property, subject only to
Permitted Encumbrances, for such amount as Buyer directs and will contain no
exceptions except for items which in Buyer's reasonable opinion do not adversely
affect (other than in an immaterial way as to any individual parcel) the good,
marketable and indefeasible title to or Buyer's access or quiet use or enjoyment
of such Real Property in the manner the Real Property is presently used or in
the normal conduct of the Business. At the Closing, Seller will cause Buyer to
receive, at Seller's expense, title commitments redated to the date and time of
Closing. In the event Seller has not eliminated or caused to be eliminated all
unacceptable exceptions from such policies or commitments prior to Closing, and
Buyer elects to proceed with the Closing, Buyer will be entitled to
indemnification with respect to such exceptions as provided in SECTION 11.2.
7.6.2 Title insurance policies on all Real Property in such amounts as
Buyer directs will be delivered to Buyer at Seller's expense within 30 days
after the Closing Date evidencing title to the Real Property vested in Buyer
consistent with the commitments delivered at the Closing pursuant to SECTION
7.6.1.
7.7 HSR Notification. As soon as practicable after the execution of this
----------------
Agreement, but in any event no later than 30 days after such execution, Seller
and Buyer will each complete and file, or cause to be completed and filed, any
notification and report required to be filed under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"); and each such
filing will request early termination of the waiting period imposed by the HSR
Act. The parties will use their reasonable best efforts to respond as promptly
as reasonably practicable to any inquiries received from the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
(the "Antitrust Division") for additional information or documentation and to
respond as promptly as reasonably practicable to all inquiries and requests
received from any other Governmental Authority in connection with antitrust
matters. The parties will use their respective reasonable best efforts to
overcome any objections which may be raised by the FTC, the Antitrust Division
or any other Governmental Authority having jurisdiction over antitrust matters.
Notwithstanding the foregoing, Buyer will not be required to make any
significant change in the operations or activities of the business (or any
material assets employed therein) of Buyer or any of
21
<PAGE>
its Affiliates, if Buyer determines in good faith that such change would be
materially adverse to the operations or activities of the business (or any
material assets employed therein) of Buyer or any of its Affiliates having
significant assets, net worth, or revenue. Notwithstanding anything to the
contrary in this Agreement, if Buyer or Seller, in its sole opinion, considers a
request from a governmental agency for additional data and information in
connection with the HSR Act to be unduly burdensome, such party may terminate
this Agreement by giving written notice to the other. Within 10 days after
receipt of a statement therefor, Seller will reimburse Buyer for one-half of the
filing fees payable by Buyer in connection with Buyer's filing under the HSR
Act.
7.8 No Shopping. None of Seller, its shareholders or any agent or
-----------
representative of any of them will, during the period commencing on the date of
this Agreement and ending with the earlier to occur of the Closing or the
termination of this Agreement, directly or indirectly (a) solicit or initiate
the submission of proposals or offers from any Person for, (b) participate in
any discussions pertaining to or (c) furnish any information to any Person other
than Buyer relating to, any direct or indirect acquisition or purchase of all or
any portion of the Assets.
7.9 Lien and Judgment Searches. Not more than 20 nor fewer than 10
--------------------------
days prior to the expected Closing Date, Seller, at its expense, will provide
Buyer with (a) the results of a lien search conducted by a professional search
company of records in the offices of the secretaries of state in each state and
county clerks in each county where there exist tangible Assets, and in the state
and county where Seller's principal offices are located, including copies of all
financing statements or similar notices or filings (and any continuation
statements) discovered by such search company and (b) the results of a search of
the dockets of the clerk of each federal and state court sitting in the city,
county or other applicable political subdivision where the principal office or
any material assets of Seller may be located, with respect to judgments, orders,
writs or decrees against or affecting Seller or any of the Assets.
7.10 Transfer Taxes. Any state or local sales, use, transfer, Taxes or
--------------
fees or any other charge (including filing fees) imposed by any Governmental
Authority arising from or payable by reason of the transfer of any of the Assets
pursuant to this Agreement will be paid one-half by Buyer and one-half by
Seller.
7.11 Distant Broadcast Signals. Unless otherwise restricted or
-------------------------
prohibited by any Governmental Authority or applicable Legal Requirement, if
requested by Buyer, Seller will delete prior to the Closing Date any distant
broadcast signals which Buyer determines will result in unacceptable liability
on the part of Buyer for copyright payments with respect to continued carriage
of such signals after the Closing.
7.12. Guaranty. At the Closing, Seller will cause Intercable to sign
--------
and deliver to Buyer, a Guaranty in the form of EXHIBIT D.
7.13 Letter to Programmers. On or before the Closing Date, Seller will
---------------------
transmit a letter in the form of EXHIBIT E to all programmers from which Seller
purchases programming for the Systems and provide Buyer with a copy of each such
letter.
22
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7.14 Updated Schedules. Not later than 10 Business Days after signing
-----------------
of this Agreement Seller will deliver to Buyer all Schedules to this Agreement
to the extent not attached at the time of signing. Not later than ten Business
Days prior to the expected Closing Date, Seller will deliver to Buyer revised
copies of all Schedules to this Agreement which will have been updated and
marked to show any changes occurring between the date of this Agreement and the
date of delivery; provided, however, that for purposes of Seller's
representations and warranties and covenants in this Agreement, all references
to the Schedules will mean the version of the Schedules attached to this
Agreement on the date of signing or the date of initial delivery in accordance
with the first sentence of this Section (if later), and provided further that if
the effect of any such updates to Schedules is to disclose any one or more
additional properties, privileges, rights, interests or claims as Assets, Buyer,
at or before Closing, will have the right (to be exercised by written notice to
Seller) to cause any one or more of such items to be designated as and deemed to
constitute Excluded Assets for all purposes under this Agreement.
7.15 Use of Names and Logos. For a period of 90 days after the Closing
----------------------
Date, Buyer will be entitled to use all trademarks, trade names, service marks,
service names, logos and similar proprietary rights of Seller and all
derivations and abbreviations of such name and related marks to the extent
incorporated in or on the Assets transferred to it at the Closing.
Notwithstanding the foregoing, Buyer will not be required to remove or
discontinue using any such trade name or mark that is affixed to converters or
other items in or to be used in subscriber homes or properties, or as are used
in a similar fashion making such removal or discontinuation impracticable for
Buyer.
7.16 Subscriber Billing Services. Seller will provide to Buyer, upon
---------------------------
request, on terms and conditions reasonably satisfactory to each party, access
to and the right to use its billing system computers, software and related fixed
assets in connection with the Systems acquired by Buyer for a period of up to 90
days following the Closing to allow for conversion of existing billing
arrangements ("Transitional Billing Services"); provided however that Buyer will
not be required to pay Seller more than Seller's actual cost of providing such
service. Buyer will notify Seller at least 10 days prior to the expected
Closing Date as to whether it desires Transitional Billing Services from Seller.
7.17 Satisfaction of Conditions. Each party will use its best efforts
--------------------------
to satisfy, or to cause to be satisfied, the conditions to the obligations of
the other party to consummate the transactions contemplated by this Agreement,
as set forth in SECTION 8, provided that Buyer will not be required to agree to
any increase in the amount payable with respect to, or any modification that
makes more burdensome in any material respect, any of the Assumed Liabilities.
7.18 Confidentiality and Publicity. Neither party will issue any press
-----------------------------
release or make any other public announcement or any oral or written statements
to Seller's employees concerning this Agreement or the transactions contemplated
hereby except as required by applicable Legal Requirements, without the prior
written consent of the other party. Each party will hold, and will cause its
employees, consultants, advisors and agents to hold the terms of this Agreement
in confidence; provided that (a) such party may use and disclose such
information once it has become publicly disclosed (other than by such party in
breach of its obligations under this Section) or which rightfully has come into
the possession of such party (other than from the other party) and (b) to the
23
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extent that such party may be compelled by Legal Requirements to disclose
any of such information, but the party proposing to disclose such information
will first notify and consult with the other party concerning the proposed
disclosure, to the extent reasonably feasible. Each party also may disclose
such information to employees, consultants, advisors, agents and actual or
potential lenders whose knowledge is necessary to facilitate the consummation of
the transactions contemplated by this Agreement. The obligation by either party
to hold information in confidence pursuant to this Section will be satisfied if
such party exercises the same care with respect to such information as it would
exercise to preserve the confidentiality of its own similar information.
7.19 Bulk Transfers. Buyer waives compliance by Seller with Legal
--------------
Requirements relating to bulk transfers applicable to the transactions
contemplated hereby.
7.20 Environmental Reports. Within 60 days after the execution of
---------------------
this Agreement, Seller will, at its expense, obtain and deliver to Buyer for
each parcel of Real Property owned or leased by Seller a current Phase I
Environmental Site Assessment ("Environmental Report") prepared by a nationally
known environmental engineering firm reasonably satisfactory to Buyer in
accordance with ASTM Standard E 1527-93 and certified to Buyer. Each
Environmental Report will include, in addition to the process described in E
1527-93, such soil and groundwater sampling and other testing as will enable the
environmental engineers to determine if Hazardous Substances are detected and to
provide an estimate of the cost to remove and dispose of the Hazardous
Substances or otherwise remediate the property in accordance with all applicable
Environmental Laws.
7.21 Board Approvals. On or before the Due Diligence Deadline, the
---------------
Board of Directors of Buyer and the Board of Directors of Intercable will have
been presented with resolutions for the approval of the transactions
contemplated hereby on behalf of Buyer and Seller, and will have approved or
disapproved the same.
SECTION 8. CONDITIONS PRECEDENT
8.1 Conditions to the Obligations of Buyer and Seller. The
-------------------------------------------------
obligations of each party to consummate the transactions contemplated by this
Agreement are subject to the satisfaction, at or before the Closing, of the
following, which may be waived by the parties to the extent permitted by
applicable Legal Requirements:
8.1.1 HSR Act Filings. All filings required under the HSR Act
---------------
have been made and the applicable waiting period has expired or been earlier
terminated without the receipt of any objection or the commencement or threat of
any litigation by a Governmental Authority of competent jurisdiction to restrain
the consummation of the transactions contemplated by this Agreement.
8.1.2 Absence of Litigation. No action, suit or proceeding is
---------------------
pending or threatened by or before any Governmental Authority and no Legal
Requirement has been enacted, promulgated or issued or become or deemed
applicable to any of the transactions contemplated by this Agreement by any
Governmental Authority, which would (a) prohibit Buyer's ownership or operation
of all or a material portion of any System, the Business or the Assets, (b)
compel Buyer to
24
<PAGE>
dispose of or hold separate all or a material portion of any System, the
Business or the Assets as a result of any of the transactions contemplated by
this Agreement, (c) if determined adversely to Buyer's interest, materially
impair the ability of Buyer to realize the benefits of the transactions
contemplated by this Agreement (including the ability to acquire the Systems
pursuant to a like-kind exchange under Section 1031 of the Code) or have a
material adverse effect on the right of Buyer to exercise full rights of
ownership of the Systems or (d) prevent or make illegal the consummation of any
transactions contemplated by this Agreement.
8.2 Conditions to the Obligations of Buyer. The obligations of Buyer
--------------------------------------
to consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or before the Closing, of the following conditions, which may
be waived by Buyer to the extent permitted by applicable Legal Requirements:
8.2.1 Representations and Warranties. All representations and
------------------------------
warranties of Seller in this Agreement and any Transaction Document are, if
specifically qualified by materiality, true and correct in all respects and, if
not so qualified, are true and correct in all material respects, in each case on
and as of the Closing Date with the same effect as if made at and as of the
Closing Date, except for changes permitted or contemplated by this Agreement.
8.2.2 Performance of Agreements. Seller has performed in all
-------------------------
material respects all obligations and agreements and complied in all material
respects with all covenants and conditions in this Agreement and any Transaction
Document to be performed or complied with by Seller at or before the Closing.
8.2.3 Deliveries. Seller has delivered the items and documents
----------
required to be delivered by it pursuant to this Agreement, including those
required under SECTION 9.2.
8.2.4 Consents. Seller has delivered to Buyer evidence, in form
--------
and substance satisfactory to Buyer, that all of the Required Consents marked
with an asterisk on SCHEDULE 5.3 have been obtained or given (or deemed to have
been given) and are in full force and effect.
8.2.5 Retransmission Consent; Programming. With respect to any
-----------------------------------
retransmission consent agreements for broadcast signals carried on the Systems
that are included as part of the Excluded Assets, all required retransmission
consents for continued carriage of such broadcast signals will have been
obtained on terms and conditions reasonably acceptable to Buyer.
8.2.6 Environmental Matters. The Environmental Reports delivered
---------------------
to Buyer pursuant to SECTION 7.20 and any other environmental audits or
assessments conducted with respect to the Assets do not indicate the existence
of any conditions that could reasonably be expected to give rise to a material
risk of liability.
8.2.7 No Material Adverse Change. There has not been any material
--------------------------
adverse change in the Business, the Assets or the Systems since the date of this
Agreement other than any change arising out of general economic conditions in
the United States or any change affecting the
25
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United States cable television industry as a whole, including any change arising
from (a) legislation, litigation, rulemaking or regulation or (b) competition
caused by or arising from other multiple channel distribution services.
8.2.8 EBS. As of the Closing Date, the Business has no fewer
---
than 5,250 EBSs.
8.3 Conditions to Obligations of Seller. The obligations of
-----------------------------------
Seller to consummate the transactions contemplated by this Agreement are subject
to the satisfaction by Seller at or before the Closing, of the following, which
may be waived by Seller, to the extent permitted by applicable Legal
Requirements:
8.3.1 Representations and Warranties. All representations
------------------------------
and warranties of Buyer contained in this Agreement and any Transaction Document
are, if specifically qualified by materiality, true and correct in all respects
and, if not so qualified, are true and correct in all material respects, in each
case on and as of the Closing Date with the same effect as if made on and as of
the Closing Date, except for changes permitted or contemplated by this
Agreement.
8.3.2 Performance of Agreements. Buyer has performed in all
-------------------------
material respects all obligations and agreements, and complied in all material
respects with all covenants and conditions in this Agreement and any Transaction
Document to be performed or complied with by Buyer at or before the Closing.
8.3.3 Deliveries. Buyer has delivered the items and
----------
documents required to be delivered by it pursuant to this Agreement, including
those required under SECTION 9.3.
8.3.4 EBS. As of the Closing Date, either (a) the Business
---
has no fewer than 5,250 EBSs or (b) Buyer has waived its right to an adjustment
pursuant to SECTION 3.2.1 except to the extent of the adjustment applicable if
the number of EBSs were 5,250.
8.4 Waiver of Conditions. Any party may waive in writing any or
--------------------
all of the conditions to its obligations under this Agreement.
SECTION 9. CLOSING.
9.1 The Closing; Time and Place. The Closing will be held on a
---------------------------
date specified by Buyer (upon three Business Days prior notice to Seller) that
is within 15 days after all conditions to the Closing contained in this
Agreement (other than those based on acts to be performed at the Closing) have
been satisfied or waived. The Closing will be held at 10:00 a.m. local time at
Buyer's counsel's office located at 633-17th Street, Suite 3000, Denver,
Colorado 80202, or at such place and time as Buyer and Seller may agree.
9.2 Seller's Delivery Obligations. At the Closing, Seller will
-----------------------------
deliver (or cause to be delivered) to Buyer the following:
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(a) a Bill of Sale in the form attached as EXHIBIT A;
(b) a special warranty deed in a form reasonably acceptable to Buyer
(and complying with applicable state laws) with respect to each parcel of owned
Real Property, duly executed and acknowledged and in recordable form, warranting
to defend title to such Real Property against all persons claiming by, through
or under Seller, subject only to Permitted Encumbrances, and in form sufficient
to permit the title company to issue the title policy described in SECTION 7.6.1
to Buyer with respect to such Real Property;
(c) an Assignment and Assumption of Contracts in the form attached
as EXHIBIT B;
(d) one or more Assignments of Leases in the form attached as
EXHIBIT C and, if requested by Buyer, short forms or memoranda of such
Assignments in recordable form;
(e) any memorandum of lease obtained by Seller pursuant to
SECTION 7.5(b);
(f) a Guaranty signed by Intercable in the form attached as
EXHIBIT D;
(g) an affidavit of Seller, under penalty of perjury, that Seller is
not a "foreign person" (as defined in the Foreign Investment in Real Property
Tax Act and applicable regulations) and that Buyer is not required to withhold
any portion of the consideration payable under this Agreement under the
provisions of such Act in the form attached as EXHIBIT F;
(h) motor vehicle title certificates and such other transfer
instruments as Buyer may deem necessary or advisable to transfer the Assets to
Buyer and to perfect Buyer's rights in the Assets;
(i) the opinion of Elizabeth Steele, Esq., counsel for Seller, dated
the Closing Date, in the form set forth in EXHIBIT G;
(j) evidence satisfactory to Buyer that all Encumbrances affecting
any of the Assets (other than Permitted Encumbrances) have been terminated and
released;
(k) the title insurance commitments described in SECTION 7.6.1;
(l) a certificate, dated the Closing Date, signed by the President
or any Vice President of Intercable, stating that to his or her knowledge, the
conditions set forth in SECTIONS 8.2.1, 8.2.2 and 8.2.8 are satisfied; and
(m) such other documents as Buyer may reasonably request in
connection with the transactions contemplated by this Agreement.
27
<PAGE>
9.3 Buyer's Delivery Obligations. At the Closing, Buyer will deliver
----------------------------
(or cause to be delivered) to Seller the following:
(a) the Base Purchase Price required to be paid at the
Closing, as adjusted in accordance with this Agreement;
(b) a Bill of Sale in the form attached as EXHIBIT A;
(c) an Assignment and Assumption of Contracts in the form
attached as EXHIBIT B;
(d) a certificate, dated the Closing Date, signed by an
executive officer of Buyer, stating that to his or her knowledge, the conditions
set forth in SECTIONS 8.3.1 and 8.3.2, are satisfied;
(e) an opinion of Mary S. Willis, Esq., counsel to Buyer,
dated the Closing Date, in the form set forth in EXHIBIT H; and
(f) such other documents as Seller may reasonably request in
connection with the transactions contemplated by this Agreement.
SECTION 10. TERMINATION.
10.1 Termination Events. This Agreement may be terminated and the
------------------
transactions contemplated by this Agreement may be abandoned:
10.1.1 At any time by the mutual written agreement of Buyer
and Seller;
10.1.2 By either party at any time, if the other is in
material breach or default of any of its covenants, agreements or other
obligations in this Agreement or in any Transaction Document, or if any of its
representations in this Agreement or in any Transaction Document is not true in
all material respects when made or when otherwise required by this Agreement or
any Transaction Document to be true and such breach or default or failure to be
true is not cured or waived prior to Closing;
10.1.3 By either party upon written notice to the other, if
Closing has not occurred on or before March 12, 1997, for any reason other than
a material breach or default by such party of its respective covenants,
agreements or other obligations under this Agreement, or any of its
representations this Agreement not being true and accurate in all material
respects when made or when otherwise required by this Agreement to be true and
accurate in all material respects;
10.1.4 By Buyer, within 35 days after the date Buyer
acknowledges receipt of substantially all of the Schedules to this Agreement
that are not attached at the time of signing and all of the due diligence
materials requested by Buyer from Seller (such 35th day, or if it is not a
Business Day, the next Business Day that follows being referred to as the "Due
Diligence Deadline"),
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<PAGE>
which acknowledgment will be given by Buyer in writing promptly after such
receipt, if either (a) the results and findings of Buyer's investigation of the
Business and the Assets are not satisfactory in Buyer's sole discretion or (b)
all board of director approvals are not obtained by Buyer (for any reason) on or
before the Due Diligence Deadline;
10.1.5 By Seller, on or before the Due Diligence Deadline,
if Intercable has not approved the transactions contemplated by this Agreement
(for any reason) on or before such date; or
10.1.6 As otherwise provided in this Agreement.
10.2 Effect of Termination. If this Agreement is terminated
---------------------
pursuant to SECTION 10.1, all obligations of the parties under this Agreement
will terminate, except for the obligations set forth in SECTIONS 7.18 and 12.16.
Termination of this Agreement pursuant to SECTIONS 10.1.2 OR 10.1.3 will not
limit or impair any remedies that any party may have with respect to a breach or
default by the other of its covenants, agreements or obligations under this
Agreement. Buyer will have no liability in any event upon exercise of its right
to terminate pursuant to SECTION 10.1.4. Seller will have no liability in any
event upon exercise of its right to terminate pursuant to SECTION 10.1.5.
SECTION 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.
11.1 Survival of Representations and Warranties. The
------------------------------------------
representations and warranties of Seller in this Agreement and in the
Transaction Documents to be delivered by Seller pursuant to this Agreement will
survive until the first anniversary of the Closing Date, except that (a) all
such representations and warranties with respect to any federal, state or local
Taxes, rates, Environmental Law, ERISA, employment matters or copyright matters
will survive until 60 days after the expiration of the applicable statute of
limitations (including any extensions) for such federal, state or local Taxes,
rates, Environmental Law, ERISA, employment matters or copyright matters,
respectively and (b) the representations and warranties as to ownership of the
Assets in SECTION 5.4, SECTION 5.7.1 and in the deed or deeds delivered with
respect to Real Property will survive the Closing and the delivery of such deeds
and will continue in full force and effect without limitation. The
representations and warranties of Buyer in this Agreement and in the Transaction
Documents to be delivered by Buyer pursuant to this Agreement will survive until
the first anniversary of the Closing Date. The periods of survival of the
representations and warranties prescribed by this SECTION 11.1 are referred to
as the "Survival Period." The liabilities of the parties under their respective
representations and warranties will expire as of the expiration of the
applicable Survival Period; provided, however, that such expiration will not
include, extend or apply to any representation or warranty, the breach of which
has been asserted by Buyer in a written notice to Seller before such expiration
or about which Seller has given Buyer written notice before such expiration
indicating that facts or conditions exist that, with the passage of time or
otherwise, can reasonably be expected to result in a breach (and describing such
potential breach in reasonable detail). The covenants and agreements of the
parties in this Agreement (that are by their terms intended to be performed
after Closing) and in the Transaction Documents to be delivered by Seller
29
<PAGE>
or Buyer pursuant to this Agreement, will survive the Closing and will continue
in full force and effect without limitation.
11.2 Indemnification by Seller. Seller will indemnify and hold
-------------------------
harmless Buyer and its shareholders and its and their respective Affiliates, and
the shareholders, directors, officers, employees, agents, successors and assigns
and any Person claiming by or through any of them, as the case may be, from and
against:
(a) all Losses resulting from or arising out of (i) any breach
of any representation or warranty made by Seller in this Agreement or in the
Transactions Documents delivered by Seller, (ii) any breach of any covenant,
agreement or obligation of Seller contained in this Agreement or in the
Transaction Documents delivered by Seller, (iii) any act or omission of Seller
with respect to, or any event or circumstance related to, the ownership or
operation of the Assets or the conduct of the Business, which act, omission,
event or circumstance occurred or existed prior to or at the Closing Date,
without regard to whether a claim with respect to such matter is asserted before
or after the Closing Date, including any matter described on SCHEDULE 5.13, (iv)
any liability or obligation not included in the Assumed Liabilities, (v) any
title defect Seller fails to eliminate as an exception from a title insurance
commitment referred to in SECTION 7.7.1, (vi) any claim that the transactions
contemplated by this Agreement violates WARN, or any similar state or local law
or any bulk transfer or fraudulent conveyance laws of any jurisdiction, (vii)
the presence, generation, removal or transportation of a Hazardous Substance on
or from any of the Real Property prior to the Closing Date, including the costs
of removal or clean-up of such Hazardous Substance and other compliance with the
provisions of any Environmental Laws (whether before or after Closing), or
(viii) any rate refund ordered by any Governmental Authority for periods prior
to the Closing Date; and
(b) all claims, actions, suits, proceedings, demands, judgments,
assessments, fines, interest, penalties, costs and expenses (including
settlement costs and reasonable legal, accounting, experts' and other fees,
costs and expenses) incident or relating to or resulting from any of the
foregoing.
In the event that an indemnified item arises under both clause (a)(i)
and under one or more of clauses (a)(ii) through (a)(viii) of this SECTION 11.2,
Buyer's rights to pursue its claim under clauses (a)(ii) through (a)(viii), as
applicable, will exist notwithstanding the expiration of the Survival Period
applicable to such claim under clause (a)(i).
11.3 Indemnification by Buyer. Buyer will indemnify and hold
------------------------
harmless Seller and Seller's shareholders, directors, officers, employees,
agents, successors and assigns, and any Person claiming by or through any of
them, as the case may be, from and against:
(a) all Losses resulting from or arising out of (i) any breach
of any representation or warranty made by Buyer in this Agreement or in the
Transaction Documents delivered by Buyer, (ii) any breach of any covenant,
agreement or obligation of Buyer contained in this Agreement or in the
Transaction Documents delivered by Buyer or (iii) the failure by Buyer to
perform any of its obligations in respect of the Assumed Liabilities; and
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(b) all claims, actions, suits, proceedings, demands,
judgments, assessments, fines, interest, penalties, costs and expenses
(including settlement costs and reasonable legal, accounting, experts' and other
fees, costs and expenses) incident or relating to or resulting from any of the
foregoing.
In the event that an indemnified item arises under both clause (a)(i) and under
one or more of clauses (a)(ii) or (a)(iii) of this SECTION 11.3, Seller's rights
to pursue its claim under clauses (a)(ii) or (a)(iii), as applicable, will exist
notwithstanding the expiration of the Survival Period applicable to such claim
under clause (a)(i).
11.4 Third Party Claims. Promptly after the receipt by any party of
------------------
notice of any claim, action, suit or proceeding by any Person who is not a party
to this Agreement (collectively, an "Action"), which Action is subject to
indemnification under this Agreement, such party (the "Indemnified Party") will
give reasonable written notice to the party from whom indemnification is claimed
(the "Indemnifying Party"). The Indemnified Party will be entitled, at the sole
expense and liability of the Indemnifying Party, to exercise full control of the
defense, compromise or settlement of any such Action unless the Indemnifying
Party, within a reasonable time after the giving of such notice by the
Indemnified Party, (a) admits in writing to the Indemnified Party the
Indemnifying Party's liability to the Indemnified Party for such Action under
the terms of this SECTION 11, (b) notifies the Indemnified Party in writing of
the Indemnifying Party's intention to assume such defense, (c) provides evidence
reasonably satisfactory to the Indemnified Party of the Indemnifying Party's
ability to pay the amount, if any, for which the Indemnified Party may be liable
as a result of such Action and (d) retains legal counsel reasonably satisfactory
to the Indemnified Party to conduct the defense of such Action. The other party
will cooperate with the party assuming the defense, compromise or settlement of
any such Action in accordance with this Agreement in any manner that such party
reasonably may request. If the Indemnifying Party so assumes the defense of any
such Action, the Indemnified Party will have the right to employ separate
counsel and to participate in (but not control) the defense, compromise or
settlement of the Action, but the fees and expenses of such counsel will be at
the expense of the Indemnified Party unless (i) the Indemnifying Party has
agreed to pay such fees and expenses, (ii) any relief other than the payment of
money damages is sought against the Indemnified Party or (iii) the Indemnified
Party will have been advised by its counsel that there may be one or more
defenses available to it which are different from or additional to those
available to the Indemnifying Party, and in any such case that portion of the
fees and expenses of such separate counsel that are reasonably related to
matters covered by the indemnity provided in this SECTION 11 will be paid by the
Indemnifying Party. No Indemnified Party will settle or compromise any such
Action for which it is entitled to indemnification under this Agreement without
the prior written consent of the Indemnifying Party, unless the Indemnifying
Party has failed, after reasonable notice, to undertake control of such Action
in the manner provided in this SECTION 11.4. No Indemnifying Party will settle
or compromise any such Action (A) in which any relief other than the payment of
money damages is sought against any Indemnified Party or (B) in the case of any
Action relating to the Indemnified Party's liability for any Tax, if the effect
of such settlement would be an increase in the liability of the Indemnified
Party for the payment of any Tax for any period beginning after the Closing
Date, unless the Indemnified Party consents in writing to such compromise or
settlement.
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11.5 Limitations on Indemnification - Seller. Seller will not be
---------------------------------------
liable for indemnification arising solely under SECTION 11.2(a)(i) for (a) any
Losses of or to Buyer or any other person entitled to indemnification from
Seller or (b) any claims, actions, suits, proceedings, demands, judgments,
assessments, fines, interest, penalties, costs and expenses (including
settlement costs and reasonable legal, accounting, experts' and other fees,
costs and expenses) incidental or relating to or resulting from any of the
foregoing (the items described in clauses (a) and (b) collectively being
referred to for purposes of this SECTION 11.5 as "Buyer Damages") unless the
amount of Buyer Damages for which Seller would, but for the provisions of this
SECTION 11.5, be liable exceeds, on an aggregate basis, $50,000, in which case
Seller will be liable for all such Buyer Damages, which will be due and payable
within 15 days after Seller's receipt of a statement therefor.
11.6 Limitations on Indemnification - Buyer. Buyer will not be
--------------------------------------
liable for indemnification arising solely under SECTION 11.3(a)(i) for (a) any
Losses of or to Seller or any other person entitled to indemnification from
Buyer or (b) any claims, actions, suits, proceedings, demands, judgments,
assessments, fines, interest, penalties, costs and expenses (including
settlement costs and reasonable legal, accounting, experts' and other fees,
costs and expenses) incidental or relating to or resulting from any of the
foregoing the items described in clauses (a) and (b) collectively being referred
to for purposes of this SECTION 11.6 as "Seller Damages") unless the amount of
Seller Damages for which Buyer would, but for the provisions of this SECTION
11.6, be liable exceeds, on an aggregate basis, $50,000, in which case Buyer
will be liable for all such Seller Damages, which will be due and payable within
15 days after Buyer's receipt of a statement therefor.
SECTION 12. MISCELLANEOUS.
12.1 Parties Obligated and Benefited. Subject to the limitations
-------------------------------
set forth below, this Agreement will be binding upon the parties and their
respective assigns and successors in interest and will inure solely to the
benefit of the parties and their respective assigns and successors in interest,
and no other Person will be entitled to any of the benefits conferred by this
Agreement. Without the prior written consent of the other party, neither party
may assign any of its rights under this Agreement or delegate any of its duties
under this Agreement, except as described in the following sentence. Seller
agrees that Buyer will have the right to assign its right to purchase the Assets
under this Agreement to Norwest Bank Colorado, National Association, acting as a
Qualified Intermediary (as such term is used in Treas. Reg. Section 1.1031(k)-
1(g)(4), and that this Agreement constitutes notice to Seller of such
assignment, which assignment Buyer will make effective immediately prior to
Closing (provided no such assignment will relieve Buyer of any obligations under
this Agreement).
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12.2 Notices. Any notice, request, demand, waiver or other
-------
communication required or permitted to be given under this Agreement will be in
writing and will be deemed to have been duly given only if delivered in person
or by first class, prepaid, registered or certified mail, or sent by courier or,
if receipt is confirmed, by telecopier:
To Buyer at:
c/o Tele-Communications, Inc.
5619 DTC Parkway
Englewood Colorado 80111
Attention: William R. Fitzgerald
Telecopy: (303) 488-3219
With a copy similarly addressed to the attention of Legal
Department, and
With a copy to:
Sherman & Howard LLC
633 Seventeenth Street
Denver, Colorado 80202
Attention: Arlene S. Bobrow, Esq.
Telecopy: (303) 298-0940
To Seller at:
c/o Jones Intercable, Inc.
9697 East Mineral Avenue
Englewood, Colorado 80112
Attention: President
Telecopy: (303) 799-1644
With a copy similarly addressed to the attention of Legal
Department.
Any party may change the address to which notices are required to be sent by
giving notice of such change in the manner provided in this SECTION 12.2. All
notices will be deemed to have been received on the date of delivery, which in
the case of deliveries by telecopier will be the date of the sender's
confirmation, or on the third Business Day after mailing in accordance with this
Section, except that any notice of a change of address will be effective only
upon actual receipt.
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12.3 Attorneys' Fees. In the event of any action or suit based upon or
---------------
arising out of any alleged breach by any party of any representation, warranty,
covenant or agreement contained in this Agreement, the prevailing party will be
entitled to recover reasonable attorneys' fees and other costs of such action or
suit from the other party.
12.4 Waiver. This Agreement or any of its provisions may not be waived
------
except in writing. The failure of any party to enforce any right arising under
this Agreement on one or more occasions will not operate as a waiver of that or
any other right on that or any other occasion.
12.5 Captions. The captions of this Agreement are for convenience
--------
only and do not constitute a part of this Agreement.
12.6 CHOICE OF LAW. THIS AGREEMENT AND THE RIGHTS OF THE PARTIES UNDER
-------------
IT WILL BE GOVERNED BY AND CONSTRUED IN ALL RESPECTS IN ACCORDANCE WITH THE LAWS
OF THE STATE OF COLORADO, WITHOUT REGARD TO THE CONFLICTS OF LAWS RULES OF
COLORADO.
12.7 Terms. Terms used with initial capital letters will have the
-----
meanings specified, applicable to both singular and plural forms, for all
purposes of this Agreement. The word "include" and derivatives of that word are
used in this Agreement in an illustrative sense rather than limiting sense.
12.8 Rights Cumulative. All rights and remedies of each of the parties
-----------------
under this Agreement will be cumulative, and the exercise of one or more rights
or remedies will not preclude the exercise of any other right or remedy
available under this Agreement or applicable law.
12.9 Further Actions. Seller and Buyer will execute and deliver to the
---------------
other, from time to time at or after the Closing, for no additional
consideration and at no additional cost to the requesting party, such further
assignments, certificates, instruments, records, or other documents, assurances
or things as may be reasonably necessary to give full effect to this Agreement
and to allow each party fully to enjoy and exercise the rights accorded and
acquired by it under this Agreement.
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12.10 Time. Time is of the essence under this Agreement. If the last
----
day permitted for the giving of any notice or the performance of any act
required or permitted under this Agreement falls on a day which is not a
Business Day, the time for the giving of such notice or the performance of such
act will be extended to the next succeeding Business Day.
12.11 Late Payments. If either party fails to pay the other any
-------------
amounts when due under this Agreement, the amounts due will bear interest from
the due date to the date of payment at the annual rate publicly announced from
time to time by The Bank of New York as its prime rate (the "Prime Rate") plus
2%, adjusted as and when changes in the Prime Rate are made.
12.12 Counterparts. This Agreement may be executed in counterparts,
------------
each of which will be deemed an original.
12.13 Entire Agreement. This Agreement (including the Schedules and
----------------
Exhibits referred to in this Agreement, which are incorporated in and constitute
a part of this Agreement) and the Transaction Documents contain the entire
agreement of the parties and supersedes all prior oral or written agreements and
understandings with respect to the subject matter. This Agreement may not be
amended or modified except by a writing signed by the parties.
12.14 Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable will be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining rights
of the Person intended to be benefitted by such provision or any other
provisions of this Agreement.
12.15 Construction. This Agreement has been negotiated by Buyer and
------------
Seller and their respective legal counsel, and legal or equitable principles
that might require the construction of this Agreement or any provision of this
Agreement against the party drafting this Agreement will not apply in any
construction or interpretation of this Agreement.
12.16 Expenses. Except as otherwise expressly provided in this
--------
Agreement, each party will pay all of its expenses, including attorneys' and
accountants' fees, in connection with the negotiation of this Agreement, the
performance of its obligations and the consummation of the transactions
contemplated by this Agreement.
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12.17 Risk of Loss; Condemnation.
--------------------------
12.17.1 Seller will bear the risk of any loss or damage to the
Assets resulting from fire, theft or other casualty (except reasonable wear and
tear) at all times prior to the Closing. If any such loss or damage is
sufficiently substantial so as to preclude or prevent resumption of normal
operations of any material portion of a System or the replacement or restoration
of the lost or damaged property within 30 days from the occurrence of the event
resulting in such loss or damage, Seller will immediately notify Buyer in
writing of that fact and Buyer, at any time within 10 days after receipt of such
notice, may elect by written notice to Seller either (a) to waive such defect
and proceed toward consummation of the transaction in accordance with terms of
this Agreement or (b) terminate this Agreement. If Buyer elects to so terminate
this Agreement, Buyer and Seller will stand fully released and discharged of any
and all obligations under this Agreement. If Buyer elects to consummate the
transactions contemplated by this Agreement notwithstanding such loss or damage
and does so, there will be no adjustment in the consideration payable to Seller
on account of such loss or damage but all insurance proceeds payable as a result
of the occurrence of the event resulting in such loss or damage (to the extent
not used to replace or restore such lost or damaged property) will be delivered
by Seller to Buyer, or the rights to such proceeds will be assigned by Seller to
Buyer if not yet paid over to Seller.
12.17.2 If, prior to the Closing, any part of or interest in the
Assets is taken or condemned as a result of the exercise of the power of eminent
domain, or if a Governmental Authority having such power informs Seller or Buyer
that it intends to condemn all or any part of or interest in the Assets (such
event being called, in either case, a "Taking"), and such Taking involves a
material part of or interest in the Assets, then Buyer may terminate this
Agreement. If Buyer does not elect or have the right to terminate this
Agreement, then (a) Buyer will have the sole right, in the name of Seller, if
Buyer so elects, to negotiate for, claim, contest and receive all damages with
respect to the Taking, (b) Seller will be relieved of its obligation to convey
to Buyer the Assets or interests that are the subject of the Taking, (c) at the
Closing Seller will assign to Buyer all of Seller's rights to all damages
payable with respect to such Taking and will pay to Buyer all damages previously
paid to Seller with respect to the Taking and (d) following the Closing, Seller
will give Buyer such further assurances of such rights and assignment with
respect to the taking as Buyer may from time to time reasonably request.
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<PAGE>
REVOLVING CREDIT AND TERM LOAN AGREEMENT
----------------------------------------
THIS AGREEMENT, made this 2lst day of July, 1995, by and between JONES CABLE
INCOME FUND 1-A, LTD., a Colorado limited partnership with offices at 9697 East
Mineral Avenue, Englewood, Colorado 80112 (the "Borrower"), and COLORADO
NATIONAL BANK, a national banking association with offices at 918 17th Street,
Denver, Colorado 80202 (the "Bank").
WITNESSETH
WHEREAS, Borrower owns certain cable television franchises, related contract
rights and operating cable television properties and systems in and around the
City of Owatonna, Minnesota, the City of Glencoe, Minnesota, Glencoe Township,
Minnesota, the Town of Owatonna, Minnesota, and Milwaukie, Oregon (as defined
below, the "Systems");
WHEREAS, pursuant to a Revolving Credit and Term Loan Agreement dated as of
September 28, 1992, between Bank and Borrower (the "1992 Loan Agreement"),
Borrower is currently indebted to Bank in the principal amount of $3,500,000,
plus accrued interest (the "1992 Loan");
WHEREAS, the 1992 Loan is evidenced by a promissory note in the face amount of
$3,500,000.00 (the "1992 Note") and secured by a Security Agreement and other
collateral documents (the "1992 Collateral Documents");
WHEREAS, Borrower desires to borrow $6,500,000 for the purpose of refinancing
existing debt and obtaining working capital; and
WHEREAS, Bank is willing to lend $6,500,000 to Borrower subject to the terms and
conditions hereof;
NOW, THEREFORE, in consideration of the premises and the agreements hereinafter
set forth, and intending to be legally bound hereby, the parties hereby agree as
follows:
1. DEFINITIONS. When used in this Agreement, the following terms shall have
-----------
the meaning set forth below; financial and accounting terms used in the
following definitions or elsewhere in this Agreement, except as otherwise
provided herein, shall be defined in accordance with generally accepted
accounting principles consistently applied.
1.1 "Advance Request Form" shall mean the certificate to be delivered by
--------------------
Borrower to Bank as a condition of each advance of the Loan pursuant to
Paragraph 2.6 hereof and in the form of Exhibit A attached hereto.
---------
<PAGE>
1.2 "Agreement" shall mean this Agreement and all the exhibits hereto, as
---------
amended from time to time.
1.3 "Annualized Operating Cash Flow" as of the last day of the fiscal
------------------------------
quarter of Borrower shall mean four (4) times the sum of Borrower's
Operating Cash Flow, Management Fees and Home Office Allocations for such
fiscal quarter.
1.4 "Bank" shall mean Colorado National Bank, a national banking association
and its successors and assigns.
1.5 "Basic Rate" shall mean the minimum standard monthly fees and charges
----------
for "basic service" (as such term is commonly understood in the cable
television industry) charged to Basic Subscribers.
1.6 "Basic Subscribers" shall mean the subscribers in the Systems who are
-----------------
(a) currently receiving cable television signals supplied by Borrower; (b)
have commenced payment for such signals at the Basic Rate or the Expanded
Basic Rate, directly or indirectly, under subscriptions with Borrower; and
(c) are not sixty (60) or more days delinquent in payments as determined
on a contractual basis. In the case of commercial buildings, such as
hotels or motels, or in the case of multiple residential dwellings, such
as apartment houses and multifamily homes, which do not obtain reduced
bulk service rates, each separate guest unit or dwelling unit receiving
services shall be counted as one subscriber. The number of subscribers in
a commercial building or in a multiple residential dwelling which does
obtain a reduced bulk service rate shall be obtained by dividing (a> the
aggregate dollar amount of monthly subscribers' fees paid on account of
such commercial building or multiple residential dwelling for basic
service by (b) the applicable Basic Rate for the System in which such
building or dwelling is located. Except for discounts to senior citizens
less than 20% of the otherwise applicable rate, residential households
(other than a multiple residential dwelling) paying for services on a
discounted basis or under any form of deferred payment arrangement shall
not be included.
1.7 "Borrower" shall mean Jones Cable Income Fund 1-A, Ltd., a Colorado
--------
limited partnership.
1.8 "Capital Lease" shall mean capital leases and subleases as defined in the
-------------
Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 13, dated November, 1976.
1.9 "Cash Flow Available for Distribution" for any fiscal year shall mean the
--------------------------------------
Operating Cash Flow for such year less
-2-
<PAGE>
Management Fees, Home Office Allocations, Debt Service and income taxes
for such year.
1.10 "Commitment" shall mean the maximum aggregate principal amount which Bank
----------
has agreed to advance under Section 2.1 hereof.
1.11 "Communications Act" shall mean the Federal Communications Act of 1934,
------------------
as amended, and the rules and regulations promulgated thereunder, as from
time to time in effect.
1.12 "Copyright Act" shall mean Title 17 of the United States Code, as amended,
-------------
and the rules and regulations promulgated thereunder, as from time to time
in effect.
1.13 "Debt Service" shall mean, for any period for which such sum is being
------------
computed, the sum of all principal and interest payments due on Funded
Debt during such period.
1.14 "Depreciation" shall mean for any fiscal quarter of Borrower, the sum of
------------
all Borrower's depreciation and amortization expenses for such quarter, as
determined in accordance with GAAP.
1.15 "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
-----
as amended, and the rules and regulations promulgated thereunder, or from
time to time in effect.
1.16 "ERISA Affiliate" shall mean any employer, whether or not incorporated,
---------------
which is considered a single employer with Borrower under Titles I, II, or
IV of ERISA.
1.17 "Event of Default" shall have the meaning set forth in Section 7.1 below.
----------------
1.18 "Expanded Basic Rate" shall mean the minimum standard monthly fees and
-------------------
charges for "expanded basic service" (as such term is commonly understood
in the cable television industry) charged to Basic Subscribers.
1.19 "FCC" shall mean the Federal Communications Commission.
---
1.20 "Funded Debt" shall mean, at any time as of which such sum is being
-----------
computed, the sum of all of Borrower's principal indebtedness for (a)
borrowed money other than trade indebtedness or accrued liabilities
incurred in the normal and ordinary course of business for value received,
(b) Capital Leases, and (c) installment purchases of real or personal
property.
1.21 "GAAP" shall mean generally accepted accounting principles as from time to
----
time in effect, consistently applied, which shall include the official
interpretations thereof by the Financial Accounting Standards Board.
-3-
<PAGE>
1.22 "Gross Operating Revenues" shall mean, for any period for which such sum
------------------------
is being computed, the sum of all payments made to Borrower by subscribers
in the Systems, and all other revenues and receipts realized by Borrower
from the operation of its businesses during such period.
1.23 "Home Office Allocations" shall mean, for any period for which such
-----------------------
sum is being computed, the amount of reimbursement payable by Borrower to
Jones for general overhead and administrative expenses pursuant to
Section 4.2 of the Partnership Agreement during such period.
1.24 "Jones" shall mean Jones Intercable, Inc., a Colorado corporation which
-----
is the sole general partner of Borrower.
1.25 "Loan" shall mean the outstanding principal balance of indebtedness
----
advanced under the Commitment.
1.26 "Local Authorities" shall mean individually and collectively the
-----------------
Minnesota and Oregon state and local authorities which govern cable
television systems.
1.27 "Management Fees" shall mean for any period for which such sum is being
---------------
computed the amount of management fees payable by Borrower to Jones
pursuant to Section 4.1 of the Partnership Agreement.
1.28 "Net Income" shall mean for any fiscal quarter of Borrower, Borrower's
----------
net profit after taxes for such quarter, as determined in accordance with
GAAP.
1.29 "Note" shall mean Borrower's promissory note evidencing Borrower's
----
indebtedness to Bank under the Loan, in the form attached hereto as
Exhibit B.
---------
1.30 "Operating Cash Flow" shall mean, for any fiscal quarter of Borrower,
-------------------
the sum of the following items for such quarter: (a) Net Income,
(b) income taxes, (c) Depreciation, and (d) interest expense of Borrower,
less any non-cash gains or income of Borrower determined in accordance
with GAAP.
1.31 "Partnership Agreement" shall mean the Certificate of Limited Partnership
---------------------
of Borrower dated June 2, 1986, as amended by Amendment No. 1 dated
April 14, 1988, and as it may be amended from time to time, by and among
Jones, as general partner, and certain other parties identified therein,
as limited partners.
1.32 "Restricted Payments" shall mean redemptions, repurchases, dividends and
-------------------
distributions of any kind in respect of partnership interests in Borrower.
-4-
<PAGE>
1.33 "Subordination Agreement" shall mean the Subordination Agreement of even
-----------------------
date herewith executed by Jones in favor of Bank.
1.34 "Subsidiary" shall mean any corporation of which the Borrower, directly
----------
or indirectly, owns more than 50% of any class or classes of securities.
1.35 "Systems" shall mean collectively Borrower's cable television franchises,
properties and systems in and around the City of Milwaukie, Oregon, and in
and around the City of Owatonna, Minnesota, the Town of Owatonna,
Minnesota, the City of Glencoe, Minnesota, and Glencoe Township,
Minnesota, each as more particularly described in Exhibit C hereto.
---------
1.36 "Termination Date" shall mean the earlier of December 31, 1997 or the date
----------------
on which the Commitment is terminated pursuant to Section 2.7 hereof.
2. LOAN.
----
2.1 The Facility. From time to time prior to the Termination Date and subject
------------
to the terms and conditions herein, Bank will loan funds to Borrower and
Borrower may repay at the office of Bank specified above and reborrow
under a revolving loan facility in an aggregate principal amount not to
exceed at any time outstanding the sum of Six Million Five Hundred
Thousand Dollars ($6,500,000).
2.2 Promissory Note. The indebtedness of Borrower to Bank under the Loan will
---------------
be evidenced by a Note executed by Borrower in favor of Bank in the form
of Exhibit B hereto. The original principal amount of the Note will be the
amount of the Commitment; provided, however, that notwithstanding the face
amount of the Note, Borrower's liability under the Note shall be limited
at all times to its actual indebtedness, principal and interest and fees,
then outstanding hereunder and thereunder.
2.3 Use of Proceeds. Funds advanced under the Loan may be used for any
---------------
purposes not prohibited by this Agreement.
2.4 Repayment.
---------
(a) The aggregate outstanding principal balance of the Loan on the
Termination Date (the "Termination Balance") shall be due and payable
in consecutive quarterly installment payments on the last day of each
calendar quarter commencing March 31, 1998, and ending on
December 31, 2003. The four quarterly payments due in each calendar
year shall be in equal
-5-
<PAGE>
amounts and shall total the percentage of the Termination Balance set
forth below for each year.
<TABLE>
<CAPTION>
Percentage of
Year Termination Balance
---- -------------------
<S> <C>
1998 10.0%
1999 12.5%
2000 15.0%
2001 20.0%
2002 20.0%
2003 22.5%
</TABLE>
(b) Notwithstanding the preceding portion of this Paragraph 2.4, in the
event that Bank shall have terminated the Commitment upon the
occurrence of any Event of Default hereunder, the aggregate
outstanding balance of the Note shall be due and payable on the date
of Bank's declaration of the Event of Default and termination of the
Commitment.
2.5 Interest. The Loan shall bear interest on the outstanding principal
--------
amount thereof in accordance with the following provisions:
(a) Definitions. As used herein, the following words and terms shall
-----------
have the meanings specified below:
(i) "Adjusted Libor Rate" shall mean the Libor Rate plus one
-------------------
and one-quarter percent (1 1/4%) per annum.
(ii) "Adjusted Reference Rate" shall mean the Reference Rate,
-----------------------
such rate to change when and as the Reference Rate
changes, plus one quarter of one percent (1/4%) per annum.
(iii) "Business Day" shall mean any day not a Saturday, Sunday
------------
or public holiday under the laws of the State of Colorado
on which banks are open for the transaction of business.
(iv) "Business Day in London" shall mean a day on which banks
----------------------
in London are open for the transaction of business.
(v) "Interest Period" shall mean, with respect to the Adjusted
---------------
Libor Rate, a period of one (1), two (2), three (3) or
six (6) months' duration as Borrower may elect; provided,
however, that (a) if any Interest Period would otherwise
end on a day which shall not be a Business Day in London,
such Interest Period shall be extended to the next
-6-
<PAGE>
succeeding Business Day in London, subject to clauses
(c) and (d) below; (b) interest shall accrue from and
including the first day of each Interest Period to, but
excluding, the day on which any Interest Period expires;
(c) any Interest Period which would otherwise end on a day
which is not a Business Day in London shall extend to the
next succeeding Business Day in London unless such
Business Day falls in another calendar month, in which
case such Interest Period shall end on the next preceding
Business Day in London; and (d) any Interest Period which
begins on the last Business Day of a calendar month (or on
a day for which there is no corresponding day to the
calendar month at the end of the Interest Period) shall
end on the last Business Day of a calendar month.
(vi) "Libor Rate" shall mean the rate per annum (rounded
----------
upwards, if necessary, to the next 1/16 of 1%) pursuant
to the following formula:
LIBOR Rate
Libor Rate = --------------------------
1 - Reserve Percentage
For purposes hereof, "LIBOR Rate" shall mean, for any
----------
Interest Period, as applied to a Portion, the arithmetic
average of the rates of interest per annum (rounded
upwards, if necessary to the next 1/16 of 1%) at which
Bank is offered deposits of United States dollars in the
London Interbank Market on or about 9:00 a.m. Denver time
two (2) Business Days prior to the commencement of such
Interest Period in amounts substantially equal to such
Portion of the outstanding principal amount of the Loan as
to which Borrower may elect the Adjusted Libor Rate to be
applicable and with a maturity of comparable duration to
the Interest Period selected by Borrower.
(vii) "Portion" shall mean a portion of a Loan as to which a
-------
specific interest rate and, except in the case of a
Portion bearing interest at the Adjusted Reference Rate,
Interest Period, has been elected by Borrower.
(viii) "Reference Rate" shall mean the rate of interest which has
--------------
been publicly announced
-7-
<PAGE>
by First Bank National Association in Minneapolis,
Minnesota ("FNBA"), from time to time, as its "Reference
Rate", which may be a rate at, above or below the rate or
rates at which Bank or FNBA lends to other parties.
(ix) "Reserve" shall mean for any day that reserve (expressed
-------
as a decimal) which may be applicable to Bank on such day,
as prescribed by the Board of Governors of the Federal
Reserve System (or any successor or any other banking
authority to which Bank is subject including any board or
governmental or administrative agency of the United States
or any other jurisdiction to which Bank is subject), for
determining the maximum reserve requirement (including
without limitation any basic, supplemental, marginal or
emergency reserves) for (i) Bank's negotiable non-personal
time deposits in United States dollars of $100,000 or more
with maturities of comparable duration to the Interest
Period elected by Borrower, (ii) deposits of United States
dollars in a non-United States office or an international
banking facility of Bank used to fund a Portion of the
Loan subject to the Adjusted Libor Rate, (iii) any loan
made with the proceeds of the deposits described in (ii)
above, (iv) the principal amount of or interest on the
Loan subject to the Adjusted Libor Rate, or (v) funds
transferred from a non-United States office or an
international banking facility of Bank to its United
States office.
(x) "Reserve Percentage" shall mean, for any day, that
------------------
percentage (expressed as a decimal) to which Bank is
subject (whether or not actually incurred by Bank) on such
day, as prescribed by the Board of Governors of the
Federal Reserve System (or any successor or any other
banking authority to which Bank is subject, including any
board or governmental or administrative agency of the
United States or any other jurisdiction to which Bank is
subject), for determining the reserve requirement
(including without limitation any basic, supplemental,
marginal or emergency reserves) for Bank's negotiable,
non-personal time deposits in United States dollars of
$l00,000 or more with maturities of comparable duration to
-8-
<PAGE>
the Interest Period selected by Borrower. The Libor Rate
shall be adjusted on and as of the effective day of any
change in the Reserve Percentage.
(b) Interest on Loan. At Borrower's election in accordance with the
----------------
provisions of Paragraph 2.5(c) below, the Loan or any Portion
thereof, shall bear interest at either one of the following rates:
(i) the Adjusted Libor Rate or (ii) the Adjusted Reference Rate. Any
portion of the Loan for which Borrower has not made an election,
pursuant to Section 2.5(c) below, shall bear interest at the Adjusted
Reference Rate.
(c) Procedure for Determining Interest Periods and Rates of Interest.
----------------------------------------------------------------
(i) If Borrower anticipates that it may elect the Adjusted Libor
Rate to be applicable to a new advance of the Commitment or
to a Portion which was subject to such rate during an
expiring Interest Period or which was subject to the Adjusted
Reference Rate, Borrower must notify Bank at least two (2)
Business Days prior to such new advance and/or the
commencement of the proposed Interest Period of the rate(s)
which Borrower anticipates it may elect to be applicable to
such new advance or Portion and the duration of the proposed
Interest Period(s). If Borrower anticipates that it may
elect the Adjusted Libor Rate to be applicable to such new
advance or Portion of the Loan, Borrower must request a
quotation of such rate(s) prior to 11:00 a.m. Denver time two
(2) Business Days in London as to the Adjusted Libor Rate,
prior to such advance and/or the commencement of the proposed
Interest Period, and if Borrower desires to elect such
rate(s), Borrower must accept such quotation of the Adjusted
Libor Rate no later than 1:00 p.m. Denver time on the date
such quotation is given by Bank. If Borrower does not provide
the applicable notice for the Adjusted Libor Rate, then
Borrower shall be deemed to have requested that the Adjusted
Reference Rate shall apply to any Portion which was subject
to the rate of interest applicable during an expiring
Interest Period and to any new advance of the Commitment
until Borrower shall have given proper notice of a change in
or
-9-
<PAGE>
determination of the rate of interest in accordance with this
Paragraph 2.5(c).
(ii) Borrower shall not request, and Bank shall not be required to
provide, an indication or quotation with respect to a
specified rate of interest for a Portion in an amount less
than $100,000 for an Adjusted Libor Rate. Borrower shall not
elect more than three (3) different Portions (other than a
Portion bearing interest at the Adjusted Reference Rate) to
be applicable to the Loan
(iii) Upon an election of the Adjusted Libor Rate made by Borrower
pursuant to subparagraph (c) (i) above, such rate shall apply
to the applicable Portion of the Loan unless Bank is unable
to obtain the necessary funding for such rate, in which event
Bank will so notify Borrower and interest will accrue at the
Adjusted Reference Rate.
(d) Payment and Calculation of Interest. With respect to Portions of the
-----------------------------------
Loan which bear interest at the Adjusted Libor Rate, Borrower shall
pay interest upon the expiration of the Interest Period for each
Portion; with respect to Portions of the Loan which bear interest at
the Adjusted Reference Rate, Borrower shall pay interest with respect
to each outstanding Portion of the Loan on a quarterly basis on the
last day of each calendar quarter, commencing with September 30, 1995
and continuing on the last day of each March, June, September and
December thereafter until maturity and thereafter upon demand. If
any Event of Default shall occur and be continuing, and the Loan is
not paid when due, each of the Adjusted Libor Rate and the Adjusted
Reference Rate shall be increased by two percent (2%) per annum (but
not in excess of the maximum rate allowed by applicable law) and
interest shall be payable at the relevant rate on the Loan or each
Portion thereof until the Loan has been paid in full. Interest shall
be calculated in accordance with the provisions of Paragraph 2.5(b)
on the basis of the actual number of days elapsed over a year of, (i)
with respect to Portions of the Loan bearing interest at the Adjusted
Libor Rate, three hundred sixty (360) days, and (ii) with respect to
Portions of the Loan bearing interest at the Adjusted Reference Rate,
three hundred sixty-five (365) days, or three hundred sixty-six (366)
days, as the case may be.
-10-
<PAGE>
(e) Reserves. If at any time the Loan or any Portion of the Loan
--------
outstanding hereunder is subject to the Adjusted Libor Rate, and Bank
is subject to and incurs a Reserve, Borrower hereby agrees to pay
within five (5) Business Days of demand thereof from time to time, as
billed by Bank, such additional amount as is necessary to reimburse
Bank for its costs in maintaining such Reserve. Such amount shall be
computed by taking into account the cost incurred by Bank in
maintaining such Reserve in an amount equal to the Portion on which
such Reserve is incurred. The determination by Bank of such costs
incurred shall be prima facie evidence of the correctness of the fact
and amount of such additional cost.
(f) Special Provisions Applicable to Adjusted Libor Rate. The following
-----------------------------------------------------
special provisions shall apply to the Adjusted Libor Rate:
(i) Change of Libor Rates. The Adjusted Libor Rate may be
---------------------
automatically adjusted by Bank on a prospective basis to take
into account the additional or increased cost of maintaining
any necessary reserves for Eurodollar deposits or increased
costs due to changes in applicable law occurring subsequent
to the commencement of the then applicable Interest Period,
including but not limited to changes in tax laws (except
corporate income tax laws) and changes in the reserve
requirements imposed by the Board of Governors of the Federal
Reserve System (or any successor), including the Reserve
Percentage but excluding the Reserve, that increase the cost
to Bank of funding the Loan or a Portion thereof bearing
interest at the Adjusted Libor Rate. Bank shall give Borrower
notice of such a determination and adjustment and Borrower
may, by notice to Bank (a) require Bank to furnish to
Borrower a statement setting forth the basis for adjusting
such Adjusted Libor Rate and the method for determining the
amount of such adjustment; and/or (b) repay the Portion of
the Loan with respect to which such adjustment is made
pursuant to the requirements of Paragraph 2.8 hereof.
(ii) Unavailability of Eurodollar Funds. In the event that
----------------------------------
Borrower shall have requested a quotation of the Adjusted
Libor Rate in accordance with Paragraph 2.5(c) hereof and
Bank shall have reasonably determined that
-11-
<PAGE>
Eurodollar deposits equal to the amount of the principal of
the Loan, or a Portion thereof, and for the Interest Period
specified are unavailable or that the Adjusted Libor Rate
will not adequately and fairly reflect the cost of making or
maintaining the principal amount of the Loan specified by
Borrower during the Interest Period specified or that by
reason of circumstances affecting Eurodollar markets,
adequate and reasonable means do not exist for ascertaining
an Adjusted Libor Rate applicable to the specified Interest
Period, Bank shall promptly give notice of such determination
to Borrower that the Adjusted Libor Rate is not available. A
determination by Bank hereunder shall be prima facie evidence
of the correctness of the fact.
(iii) Illegality. In the event that it becomes unlawful for Bank
----------
to maintain Eurodollar liabilities sufficient to fund any
Portion of the Loan subject to the Adjusted Libor Rate, then
Bank shall immediately notify Borrower thereof and Bank's
obligations hereunder to advance funds or maintain the Loan
or a Portion thereof at the Adjusted Libor Rate shall be
suspended until such time as Bank may again cause the
Adjusted Libor Rate to be applicable to any Portion of the
outstanding principal balance of the Loan and any Portion
shall then be subject to the Adjusted Reference Rate.
(g) Minimizing Additional Cost. To the extent reasonably possible, Bank
--------------------------
will use its best efforts to minimize any additional costs which may
arise under either subparagraphs (e) or (f) above.
2.6 Advances. In addition to the notice required under Paragraph 2.5(c) hereof
--------
with respect to interest rate elections, Borrower shall give Bank at least
one (1) Business Day's prior notice, in case of an Adjusted Reference Note
advance, and two (2) Business Days' prior notice, in case of an Adjusted
Libor Rate advance, of each requested new advance under the Commitment,
such request to be confirmed in writing and received by Bank within five
(5) Business Days after the date of the advance by delivering to Bank an
Advance Request Form certified by the President, Group Vice
President/Finance or Treasurer of Jones, in the form attached hereto as
Exhibit A, containing the following information and representations, which
must be true and correct as of the date of the requested advance:
-12-
<PAGE>
(a) the aggregate amount of the requested advance, which shall be in
multiples of $25,000 or, if less, the unborrowed balance of the
Commitment for a Portion subject to the Adjusted Reference Rate,
and of not less than $100,000, for a Portion subject to the
Adjusted Libor Rate;
(b) confirming the interest rate(s) Borrower has elected to apply to
the new advance and, if more than one interest rate has been
elected, the amount of the Portion as to which each interest rate
shall apply; and
(c) representations that (i) the representations and warranties set
forth in Section 3 hereof are true and correct; (ii) no Event of
Default hereunder, or event which with the passage of time or the
giving of notice or both would constitute an Event of Default
hereunder, has occurred and is then continuing; and (iii) there
has been no material adverse change in Borrower's financial
condition or business since the date hereof.
2.7 Reduction and Termination of Commitment. Borrower shall have the
---------------------------------------
right at any time and from time to time, upon three (3) Business
Days' prior written notice to Bank, to reduce the amount of the
Commitment in whole or in part without penalty or premium, provided
that on the effective date of such reduction, Borrower shall make a
prepayment of the Loan in an amount, if any, by which the aggregate
outstanding principal balance of the Loan exceeds the amount of the
Commitment as then so reduced, together with accrued interest on the
amount so prepaid; provided that in the event of such a prepayment of
a Portion of the Loan upon which interest is determined by reference
to the Adjusted Libor Rate prior to the end of the applicable
Interest Period, Borrower shall reimburse Bank for any costs and
expenses incurred by Bank on account of such prepayment, including
but not limited to funding costs. Bank shall have the right to
terminate the Commitment at any time, in its discretion and upon
notice to Borrower, upon the occurrence of any Event of Default
hereunder. Any termination or reduction of the Commitment shall be
permanent, and the Commitment cannot thereafter be restored or
increased without the written consent of Bank.
2.8 Prepayment.
----------
(a) Subject to the provision of subsection (b) below, Borrower may
prepay the outstanding principal balance under the Loan at any
time without premium or penalty, and prepayments prior to the
Termination Date shall not reduce the Commitment and may be
reborrowed. Prepayments made on or after the
-13-
<PAGE>
Termination Date may not be reborrowed and shall be applied to
the payments due in the inverse order of maturities. To the
extent applied to principal, partial prepayments shall be
applied first to any Portion bearing interest at the Adjusted
Reference Rate, with any remaining amounts of the prepayment to
then be applied to any Portion(s) bearing interest at the
Adjusted Libor Rate. Except for a prepayment required to be made
by Borrower pursuant to paragraph 2.8 (b) hereof, prepayments
shall be in multiples of $25,000, but not less than $100,000 if
subject to the Adjusted Libor Rate. Borrower shall notify Bank
at least one (1) Business Day in advance of such prepayment
(b) If a Portion of the Loan upon which interest is determined by
reference to the Adjusted Libor Rate is repaid or prepaid other
than at the end of the applicable Interest Period (including
repayment or prepayment by reason of acceleration or otherwise),
Borrower shall reimburse Bank for any costs and expenses
incurred by Bank on account of such repayment or prepayment,
including but not limited to funding costs.
2.9 Payments in Available Funds. All payments and prepayments shall be
---------------------------
made by Borrower at the offices of Bank specified above no later
than 2:00 p.m. Denver time and in immediately available funds.
2.10 Fees. Borrower shall pay Bank a fee upon execution of this
----
Agreement equal to one-half percent (1/2%) of the difference between
$6,500,000 and the outstanding principal amount of the 1992 Loan on
the date of Closing. In addition, from the date hereof through the
Termination Date, Borrower shall pay Bank a commitment fee at the
rate of one-fourth percent (1/4%) per annum on the unborrowed
portion of the Commitment, which shall be payable at the offices of
the Bank specified above, quarterly, in arrears as billed by Bank.
The commitment fee shall be calculated on the basis of the actual
number of days elapsed over a year of three hundred sixty-five (365)
days or three hundred sixty-six (366) days, if applicable, and shall
be payable on the last day of each March, June, September and
December, commencing September 30, 1995.
2.11 Collateral. The repayment of all of Borrower's indebtedness to Bank
----------
shall be secured by first priority security interests (the "Security
Interests") in all real estate, fixtures, accounts, equipment,
inventory and general intangibles (such terms having the meanings
given them in the Colorado Uniform Commercial Code) including all of
the cable television franchises relating to the Systems, now owned
or hereafter acquired by Borrower, and
-14-
<PAGE>
in all proceeds thereof (the "Collateral"). Borrower reaffirms all
of the 1992 Collateral Documents and agrees that they shall secure
Borrower's indebtedness to the Bank hereunder. In addition, the
Security Interests shall be created and perfected by mortgages,
deeds of trust, collateral assignments, security agreements, UCC
financing statements, and any other collateral documents deemed
necessary or advisable by Bank in its sole discretion, each in form
satisfactory to Bank, duly executed by Borrower (the "Collateral
Documents"). Hereafter, Borrower shall from time to time execute
and deliver to Bank such other documents in form and substance
satisfactory Bank, and perform such other acts, as Bank may
reasonably request, to perfect and maintain valid Security Interests
in the Collateral.
3. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants as
------------------------------
follows:
3.1 Organization and Good Standing. Borrower is a limited partnership
------------------------------
duly formed and validly existing under the laws of the State of
Colorado; and Borrower has the partnership power and authority to
carry on its business as now conducted and is qualified to do
business in Minnesota, Oregon and in all other states in which the
nature of its activities or the character of its properties requires
such qualification; provided, however, that Borrower shall not be
required to qualify in those jurisdictions where the failure to so
qualify would not have a material adverse effect on Borrower or its
assets.
3.2 Power and Authority; Validity of Agreement. Borrower has the
------------------------------------------
partnership power and authority under Colorado law and under its
Partnership Agreement to enter into and perform this Agreement, the
Note and all other agreements, documents and actions required
hereunder; and all actions (partnership, corporate or otherwise)
necessary or appropriate for the execution and performance by
Borrower of this Agreement, the Note and all other agreements,
documents and actions required hereunder have been taken, and, upon
their execution, the same will constitute the valid and binding
obligations of Borrower to the extent it is a party thereto,
enforceable in accordance with their terms, and the Collateral
Documents will create first priority security interests in the
Collateral contemplated in Paragraph 2.11 hereof in favor of Bank.
3.3 No Violation of Laws or Agreements. The making and performance of
----------------------------------
this Agreement, the Note and the other documents, agreements and
actions required of Borrower hereunder will not violate any
provisions of any law or regulation, federal, state or local, or the
Partnership Agreement or result in any breach or violation of, or
-15-
<PAGE>
constitute a default under, any material agreement by which Borrower
or its property may be bound, other than those agreements shown on
Exhibit C as requiring consent for the granting of a security
interest for which consent has not yet been obtained.
3.4 Systems. Borrower owns the Systems described in Exhibit C attached
-------
hereto, which sets forth a description of the franchises, locations
and Basic Subscriber counts of the Systems on the date hereof and as
supplemented by reports delivered to Bank pursuant to Paragraph 5.4
hereof, a general description of the property and assets comprising
the Systems, including any property leased from others and including
the locations of all such property and assets, including, without
limitation, headend and office facilities, and the record owners of
such locations and descriptions of any leases covering Borrower's
lease of any of such property, assets or locations from others.
3.5 Material Contracts. Borrower is neither a party to nor in any
------------------
manner obligated under any contracts material to its business except
the franchise and other agreements identified on Exhibit C hereto,
and there exists no material default under any of such contracts.
3.6 Compliance. Borrower is in compliance in all material respects with
----------
all applicable laws and regulations, federal, state and local
(including without limitation those administered by the Local
Authorities and the FCC), material to the conduct of its business
and operations; Borrower possesses all the franchises, permits,
licenses, certificates of compliance and approval and grants of
authority described on Exhibit C hereto, necessary or required in
the conduct of its business, and the same are valid, binding,
enforceable and subsisting without any material defaults thereunder
and are not subject to any proceedings or claims opposing the
issuance, development or use thereof or contesting the validity
thereof; and no approvals, waivers or consents, governmental
(federal, state or local), or non-governmental, other than the
consents set forth on Exhibit C, under the terms of contracts or
otherwise, are required by reason of or in connection with its
execution and performance of this Agreement, the Note and all other
agreements, documents and actions required hereunder.
3.7 Litigation. There are no actions, suits, proceedings or claims
----------
which are pending or, to the best of its knowledge or information,
threatened against Borrower which, if adversely resolved, would
materially adversely affect either of its financial condition or
business.
3.8 Title to Assets. Borrower has good and marketable title to all of
---------------
its properties and assets free and clear of any
-16-
<PAGE>
liens and encumbrances except for liens of the type permitted under
Section 6.5 hereof, and all such assets are in good order and repair,
ordinary wear and tear excepted, and fully covered by the insurance
required under Paragraph 5.6.
3.9 Partnership Interests. The percentage of general partnership interest
---------------------
in Borrower is accurately set forth on Exhibit C attached hereto; all
partnership interests in Borrower are validly existing and the creation
and sale thereof are in compliance with all applicable federal and
state securities and other applicable laws; and Jones is the sole
general partner of Borrower.
3.10 Financial Information. All information furnished to Bank concerning
---------------------
the financial condition of Borrower, including Borrower's annual
financial statement for the period ended December 31, 1994, and
Borrower's unaudited statement for the period ended March 31, 1995,
copies of which have been furnished to Bank, have been prepared in
accordance with GAAP and fairly present the financial condition of
Borrower as of the dates and for the period covered and include all
liabilities of any kind of Borrower and there have been no material
adverse changes in the financial condition or business of Borrower from
the date of such statements to the date hereof.
3.11 Taxes and Assessments. Borrower has filed all required tax returns or
---------------------
has filed for extensions of time for the filing thereof, and has paid
all applicable federal, state and local taxes, other than taxes not yet
due or which may be paid hereafter without penalty, and has no
knowledge of any deficiency or additional assessment in connection
therewith not provided for in the financial statements required
hereunder.
3.12 Indebtedness. Other than trade indebtedness and accrued liabilities
------------
incurred in the normal and ordinary course of business for value
received, Borrower has no presently outstanding indebtedness or
obligations including contingent obligations and obligations under
leases of property from others, except the indebtedness and obligations
described in Exhibit C hereto and in Borrower's financial statements
which have been furnished to Bank.
3.13 Management Agreements. Borrower is a party to no management or
---------------------
consulting agreements for the provision of services to Borrower.
3.14 Investments. Borrower has no Subsidiaries or investments in or loans
-----------
to any other individuals or business entities.
-17-
<PAGE>
3.15 ERISA. Neither Borrower nor any ERISA Affiliate has established or
-----
maintained, or has ever made or been obligated to make contributions
to, any pension or employee benefit plan (a "Plan") covered by ERISA or
any multi-employer plan as defined in Section 4001 of ERISA.
3.16 Fees and Commissions. Borrower owes no fees or commissions of any
--------------------
kind, and knows of no claims for any fees or commissions, in connection
with Borrower's obtaining the Commitment or the Loan from Bank,
excepting those provided herein.
3.17 No Extension of Credit for Securities. Neither Borrower nor Jones is
-------------------------------------
now, nor at any time has it been engaged principally, or as one of its
important activities, in the business of extending credit for the
purpose of purchasing or carrying any securities.
3.18 Hazardous Wastes. Substances and Petroleum Products.
---------------------------------------------------
(a) Borrower (i) has received all permits and filed all notifications
necessary to carry on its businesses under, and (ii) is otherwise
in compliance in all material respects with, all federal, state or
local laws and regulations governing the control, removal, spill,
release or discharge of hazardous or toxic wastes, substances and
petroleum products, including without limitation as provided in
the provisions of the regulations under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
the Resource Conservation and Recovery Act of 1976, and the
Federal Water Pollution Control Act Amendments of 1972 (all of the
foregoing enumerated and non-enumerated statutes, including
without limitation any applicable state or local statutes,
collectively the "Environmental Control Statutes").
(b) Borrower has not given any written or oral notice to the
Environmental Protection Agency ("EPA") or any state or local
agency with regard to any actual or imminently threatened removal,
spill, release or discharge of hazardous or toxic wastes,
substances or petroleum products on properties owned or leased by
Borrower or in connection with the conduct of its business and
operations (an "Event").
(c) Borrower has not received notice that it is potentially
responsible for costs of clean-up of any actual or imminently
threatened spill, release or discharge of hazardous or toxic
wastes or substances or petroleum products pursuant to any
Environmental Control Statute.
-18-
<PAGE>
4. CONDITIONS. The obligation of Bank to make the advances of the Loan
----------
shall be subject to Bank's receipt of the following documents, each in
form and substance satisfactory to Bank:
4.1 Promissory Note and Collateral Documents. The Note and such Collateral
----------------------------------------
Documents as may be specified by Bank under Paragraph 2.11, each duly
executed by Borrower.
4.2 Authorization Documents. A certified copy of the resolution of the
-----------------------
Board of Directors of Jones authorizing Borrower's execution and full
performance of this Agreement, the Note and all other documents and
actions required hereunder, and an incumbency certificate setting forth
the officers of Jones.
4.3 Opinion of Counsel. Opinion letters from counsel for Borrower and
------------------
Jones covering, with such exceptions and qualifications as may be
satisfactory to Bank, the representations and warranties set forth in
Section 3 hereof.
4.4 Insurance. Certificates of insurance and evidence showing Bank as an
---------
additional insured with respect to all of Borrower's fire, casualty,
liability and other insurance covering its respective property and
business.
4.5 Franchises and Approvals. Copies of all Borrower's franchises,
------------------------
certificates of compliance and approvals and material related
contracts, licenses and permits necessary or required in connection
with the Systems.
4.6 Subordination Agreement. A Subordination Agreement executed by
-----------------------
Jones, in form acceptable to Bank, together with appropriate certified
board resolutions and legal opinions as required by Bank.
4.7 Advance Request. As a condition to the first advance and each
---------------
subsequent advance of any of the Loan, the Advance Request Form
required under Paragraph 2.6 hereof, and any other documents or
information reasonably required by Bank in connection therewith.
4.8 Partnership Agreement. A copy of the Partnership Agreement, as
----------------------
amended to the date hereof.
4.9 Other Documents. Such additional documents as Bank may reasonably
---------------
request.
5. AFFIRMATIVE COVENANTS. Borrower covenants and agrees that so long as
---------------------
the Commitment of Bank to Borrower or any indebtedness of Borrower to
Bank is outstanding:
-19-
<PAGE>
5.1 Existence and Good Standing. Borrower will preserve and maintain its
---------------------------
existence as a Colorado limited partnership and its good standing in
Colorado, Minnesota and Oregon and all other states in which the nature
of its activities and the character of its properties requires such
qualifications; provided, however, that Borrower shall not be required
to qualify in those jurisdictions where the failure to so qualify would
not have a material adverse effect on Borrower or its assets. Borrower
will preserve the validity of all its franchises, licenses, permits,
certificates of compliance or grants of authority material to the
conduct of its business.
5.2 Quarterly Financial Statements and Subscriber Reports. Borrower will
-----------------------------------------------------
furnish Bank within seventy-five (75) days of the end of each quarterly
fiscal period hereafter (a) unaudited quarterly financial statements,
including a balance sheet, an income statement, a statement of cash
flow, and the information required to apply the criteria prescribed in
Paragraphs 5.13 and 5.14 hereof, prepared in accordance with GAAP,
together with a certificate executed by the President, Group Vice
President/Finance or Treasurer of Jones stating that the financial
statements fairly present the financial condition of Borrower as of the
date and for the periods covered and that as of the date of such
certificate there has not been any violation of any provision of this
Agreement or the happening of any Event of Default or any event which
with the giving of notice or the passage of time, or both, would
constitute an Event of Default hereunder; and (b) a report, in form and
substance satisfactory to Bank, covering the Systems and showing (i)
the number of Basic Subscribers at the beginning and at the end of such
quarter, and (ii) any other information reasonably requested by Bank.
5.3 Annual Financial Statements. Borrower will furnish Bank within one
---------------------------
hundred and thirty-five (135) days after the close of each fiscal year
commencing with fiscal 1995 with audited annual financial statements,
including the financial statements and information required under
Paragraph 5.2 hereof, which financial statements shall be prepared in
accordance with GAAP and shall be fully certified by a nationally
recognized independent certified public accounting firm.
5.4 Disclosures to Partners. To the extent not already provided for in
-----------------------
Paragraphs 5.2 and 5.3 above, Borrower will furnish to Bank a copy of
all information material to Borrower or its financial condition sent to
Borrower's limited partners from time to time, within ten (10) days
after the date any such information is sent to the limited partners.
-20-
<PAGE>
5.5 Books and Records. Borrower will keep and maintain satisfactory and
-----------------
adequate books and records of account in accordance with generally
accepted accounting practices and principles consistently applied and
make or cause the same to be made available to Bank or its agents or
nominees at any reasonable time upon reasonable notice for inspection
and to make extracts thereof.
5.6 Insurance. Borrower will keep and maintain all of its property and
---------
assets in good order and repair, ordinary wear and tear excepted, and
fully covered by insurance with reputable and financially sound
insurance companies against such hazards and in such amounts as is
customary in the industry, under policies requiring the insurer to
furnish reasonable notice to Bank and opportunity to cure any non-
payment of premiums prior to termination of coverage; and, as required
above, furnish Bank with certificates of such insurance and cause Bank
to be named as an additional insured thereof.
5.7 Litigation. Borrower will notify Bank in writing immediately of the
----------
institution of any litigation, the commencement of any administrative
proceedings, the happening of any event or the assertion or threat of
any claim which could materially or adversely affect its business,
operations or financial condition, or the occurrence of any Event of
Default hereunder or an event which with the passage of time or the
giving of notice or both would constitute an Event of Default
hereunder.
5.8 Taxes. Borrower will pay and discharge all taxes, assessments or
-----
other governmental charges or levies imposed on it or any of its
property or assets prior to the date on which any penalty for non-
payment or late payment is incurred, unless the same are currently
being contested in good faith by appropriate proceedings.
5.9 Costs and Expenses. Borrower will pay or reimburse Bank for all out-
------------------
of-pocket costs and expenses including all reasonable attorneys' fees
and disbursements relating to the filing of any Collateral Documents to
create and perfect the Security Interests or which Bank may pay or
incur in connection with the preparation and review of this Agreement,
all waivers, consents and amendments in connection therewith and all
other documentation related thereto and the making of the Loan
hereunder; and Borrower will pay or reimburse Bank for all costs and
expenses which Bank may pay or incur in connection with the collection
or enforcement of the same.
5.10 Compliance. Borrower will comply in all material respects with all
----------
local, state and federal laws and regulations applicable to its
business including, without limitation, Environmental Control Statutes,
the Communications Act and
-21-
<PAGE>
all laws and regulations of the FCC and the Local Authorities, the
provisions and requirements of all franchises, permits, certificates of
compliance and approval issued by regulatory authorities and other like
grants of authority held by Borrower, and the requirements of the
Copyright Act; and Borrower will notify Bank immediately in detail of
any actual or alleged material failure to comply with or perform, or
any actual or alleged material breach, violation or default under, any
such laws or regulations or under the terms of any of such franchises
or grants of authority, or of the occurrence or existence of any facts
or circumstances which with the passage of time, the giving of notice
or otherwise could create such a breach, violation or default or could
occasion the termination of any of such franchises or grants of
authority.
5.11 ERISA. Borrower will comply in all respects with the provisions of
-----
ERISA to the extent applicable to any employee benefit plan. Borrower
will comply in all respects with the provisions of ERISA to the extent
applicable to any Plan maintained for any of Borrower's or a
Subsidiary's employees; not incur any accumulated funding deficiency
(within the meaning of ERISA and the regulations thereunder) or any
liability to the Pension Benefit Guaranty Corporation ("PBGC"); not
permit any "reportable event" (as defined in ERISA) or other event to
occur which may indicate that its Plans are not sound or which may be
the basis for PBGC to assert a liability against it or which may result
in the imposition of a lien on its properties or assets; and notify
Bank in writing promptly after it has come to the attention of Borrower
of the assertion or threat of any "reportable event," the existence of
any "reportable threat" or other event which may indicate that a Plan
is not sound or may be the basis for PBGC to assert a liability against
it or impose a lien on Borrower's properties or assets.
5.12 Other Information. Borrower will provide Bank with any other documents
-----------------
and information, financial or otherwise, reasonably requested by Bank
from time to time.
5.13 Funded Debt to Annualized Operating Cash Flow. Borrower will maintain
---------------------------------------------
as of the last day of each fiscal quarter of Borrower a ratio of Funded
Debt to Annualized Operating Cash Flow at the last day of such fiscal
quarter not to exceed 4.0:1 through December 31, 1997, and 3.0:1
thereafter.
5.14 Debt Service Coverage Ratio. Borrower will maintain as of the last day
---------------------------
of each fiscal quarter of Borrower a ratio of (a) Operating Cash Flow
for such quarter to (b) Debt Service for such quarter, which will not
be less than 1.50:1 at all times.
-22-
<PAGE>
6. NEGATIVE COVENANTS. So long as the Commitment or any indebtedness of
------------------
Borrower to Bank remains outstanding hereunder, Borrower covenants and
agrees that without Bank's prior written consent, Borrower will not:
6.1 Borrowings. Borrow any monies except borrowings from Bank hereunder,
----------
borrowings permitted by Paragraph 6.2 and subordinated debt
subordinated to the Loan pursuant to the Subordination Agreement.
6.2 Additional Indebtedness. Create any additional indebtedness other
-----------------------
than (a) trade indebtedness in the normal and ordinary course of
business for value received, (b) indebtedness to Jones for Management
Fees and Home Office Allocations or loans or advances subordinated to
the Loan pursuant to the Subordination Agreement, and (c) other
indebtedness, not exceeding, in the aggregate, $200,000, pursuant to
capital leases, purchase money obligations and other obligations
incurred in the normal course of Borrower's business.
6.3 Guaranties. Guarantee or assume or agree to become liable in any way
----------
for, either directly or indirectly, any additional indebtedness or
liability of others except (a) to endorse checks or drafts in the
ordinary course of business and (b) to perform its indemnification
obligations pursuant to Section 9.6 of the Partnership Agreement.
6.4 Loans. Make any loans or advances to others except Borrower may make
-----
loans and advances to employees, subcontractors and suppliers in the
ordinary course of business not to exceed $100,000 in the aggregate
principal amount outstanding at any time.
6.5 Liens and Encumbrances. Create, permit or suffer the creation of any
----------------------
liens, security interests, or any other encumbrances on any of its
property, real or personal, except (a) liens arising in favor of
sellers or lessors for indebtedness and obligations incurred to
purchase or lease fixed or capital assets permitted under Paragraph
6.2(c) hereof, provided, however, that such liens are limited to the
indebtedness and obligations created thereunder and the assets
purchased or leased pursuant thereto; (b) liens for taxes, assessments
or other governmental charges, federal, state or local, which are then
being currently contested in good faith by appropriate proceedings,
(c) pledges or deposits to secure obligations under workmen's
compensation, unemployment insurance or social security laws or similar
legislation, (d) deposits to secure performance or payment bonds,bids,
tenders, contracts, leases, franchises or public and statutory
obligations required in the ordinary course of
-23-
<PAGE>
business, (e) deposits to secure surety, appeal or custom bonds
required in the ordinary course of business, (f) liens to secure
judgments not in excess of $250,000 so long as they are being currently
contested in good faith by appropriate proceedings and execution
thereon has been stayed, and (g) liens in favor of Bank.
6.6 Restricted Payments. Make any Restricted Payments, provided, however,
-------------------
that, so long as there exists no Event of Default under this Agreement
and Borrower is otherwise in compliance with the terms and covenants of
this Agreement (and such payment, together with any payments permitted
to be made pursuant to Paragraph 6.9 hereof, will not create an Event
of Default), for each of the years 1995 through 1997, Borrower may make
distributions to partners not exceeding in the aggregate the lesser of
$1,250,000 or Cash Flow Available for Distribution for such year.
Thereafter, no distributions shall be made.
6.7 Transfer of Assets; Liquidation. Sell, lease, transfer or otherwise
-------------------------------
dispose of any part or amount of its assets, real or personal, or
discontinue or liquidate any substantial part of its operations or
business, other than (a) any such transaction in the normal and
ordinary course of business for value received, and (b) a sale of one
of the three Systems, provided that both, prior to, and after giving
effect to such sale, no Event of Default, or event which with the
notice or passage of time would become an Event an Default, exists. In
connection with such sale, Borrower shall prepay that portion of
principal necessary to remain in compliance with the covenants set
forth in Sections 5.13 and 5.14 hereof. The Commitment shall be
permanently reduced by the amount of any principal payment made
pursuant to this Section 6.7(b).
6.8 Acquisitions and Investments. Purchase or otherwise acquire any part
----------------------------
or amount of the capital stock or assets of, or make any investments
in, any other firm or corporation; or enter into any new business
activities or ventures not directly related to its present business; or
merge or consolidate with or into any other firm or corporation; or
create any subsidiary corporations; except Borrower may invest in or
purchase readily marketable direct obligations of the United States of
America, certificates of deposit issued by commercial banks of
recognized standing operating in the United States of America and prime
commercial paper.
6.9 Management Fees and Home Office Allocations. Make any payments of or
-------------------------------------------
accrue (a) Management Fees for any fiscal quarter of Borrower in an
amount greater than five percent (5%) of Borrower's Gross Operating
Revenues for such quarter, or (b) Home Office Allocations for any
fiscal quarter of Borrower in an amount greater than twenty-five
-24-
<PAGE>
percent (25%) of Borrower's Gross Operating Revenues for such quarter.
Borrower shall not make any payment of or accrue Home Office
Allocations which are not either (i) overhead and administrative
expenses directly attributable to the management or operation of the
Borrower by Jones or (ii) Borrower's proportionate share of general
overhead and administrative expenses incurred by Jones in the
management of all of the partnerships of which Jones is the manager.
Notwithstanding the foregoing, so long as there exists no Event of
Default under this Agreement and Borrower is otherwise in compliance
with the terms and covenants of this Agreement (and such payment,
together with any payments made pursuant to this Paragraph 6.9 and
Paragraph 6.6 hereof, will not create an Event of Default), deferred
Management Fees and Home Office Allocations (including any interest
related thereto, at an interest rate not to exceed Jones' weighted
average cost of borrowing) may be paid in any fiscal quarter. Except as
described above, any Management Fees and Home Office Allocations
accrued but unpaid for any fiscal quarter shall be deferred and
subordinated to Bank pursuant to the Subordination Agreement.
6.10 Use of Proceeds. Use any of the proceeds of the Loan, directly or
---------------
indirectly, to purchase or carry margin securities within the meaning
of Regulation U of the Board of Governors of the Federal Reserve
System; or engage as its principal business in the extension of credit
for purchasing or carrying such securities.
6.11 Partnership Documents. Amend or permit any amendments to the
---------------------
Partnership Agreement after the date hereof except Jones may make
certain routine amendments as permitted by Section 6.1 of the
Partnership Agreement.
7. DEFAULT.
-------
7.1 Events of Default. Each of the following events shall be an "Event of
-----------------
Default" hereunder:
(a) If Borrower shall fail to pay when due any installment of
principal or any other sum payable to Bank hereunder or otherwise
or, within three (3) days after the date when due, any payment of
interest; or
(b) If any representation or warranty made herein or in connection
herewith or in any statement, certificate or other document
furnished hereunder is or proves false or misleading in any
material respect; or
(c) If Borrower shall default in the payment or performance of any
obligation or indebtedness to
-25-
<PAGE>
another in excess of $100,000, whether now or hereafter incurred;
or
(d) If Borrower shall default in the performance of any other
agreement or covenant contained herein or in any document executed
or delivered in connection herewith and such default shall
continue uncured for thirty (30) days after notice thereof to
Borrower given by Bank; or
(e) If Jones shall cease to be the sole general partner of Borrower
and the manager of Borrower; or
(f) If custody or control of any substantial part of the property of
Borrower shall be assumed by any governmental agency or any court
of competent jurisdiction at the instance of any governmental
agency; if any franchise shall be suspended, revoked or otherwise
terminated, or if Borrower is required by any franchising
authority or by court order or administrative order to halt
operations under the franchise and such action shall continue
unstayed or uncorrected for thirty (30) days after Borrower has
received notice thereof or the action of any such authority has
not been stayed within such thirty day period; or if any
governmental regulatory authority or judicial body shall make any
other final nonappealable determination the effect of which would
be to affect materially and adversely the operations of Borrower
as now conducted; or
(g) If Borrower or Jones shall become insolvent, bankrupt or generally
fail to pay its debts as such debts become due; or if Borrower or
Jones admits in writing its inability to pay its debts; or if
Borrower or Jones shall suffer a receiver or trustee for it or
substantially all of its property to be appointed and if appointed
without its consent, not be discharged within sixty (60) days; or
if Borrower or Jones makes an assignment for the benefit of
creditors; or if Borrower or Jones suffers proceedings under
any law related to bankruptcy or insolvency or the reorganization
or the release of debtors to be instituted against it and if
contested by it, not dismissed or stayed within sixty (60) days;
or if proceedings under any law related to bankruptcy or
insolvency or the reorganization or the release of debtors is
instituted or commenced by Borrower or Jones; or
(h) If any judgment, writ, warrant or attachment or execution or
similar process which calls for payment or presents liability in
excess of $250,000 (not covered by insurance) shall be rendered or
issued
-26-
<PAGE>
against or levied against Borrower or its property and such
process shall not be paid, waived, stayed, vacated, discharged,
settled, satisfied or fully bonded within sixty (60) days after
its issuance or levy.
7.2 Remedies. Upon the happening of any Event of Default and at any time
--------
thereafter, at the election of Bank, and by notice by Bank to Borrower
(except if an Event of Default described in Paragraph 7.1(g) shall
occur in which case acceleration shall occur automatically without
notice): (a) Bank may declare the entire unpaid balance, principal and
interest, of all indebtedness or Borrower to Bank, hereunder or
otherwise, to be immediately due and payable and shall have the
immediate right to enforce or realize on any collateral security
granted therefor in any manner or order it deems expedient without
regard to any equitable principles of marshalling or otherwise; and
(b) in addition or in the alternative Bank may terminate its obligation
to lend hereunder and the Commitment shall immediately and
automatically terminate and Bank shall have no further obligation to
make any advances. In addition to any rights granted hereunder or in
any documents delivered in connection herewith, Bank shall have all the
rights and remedies granted by any applicable law, all of which shall
be cumulative in nature.
8. MISCELLANEOUS.
-------------
8.1 Non-Recourse. Anything contained in this Agreement to the contrary
------------
notwithstanding, in any action or proceeding brought on the Note, this
Agreement, or the indebtedness evidenced or secured thereby, no
deficiency judgment shall be sought or obtained against Jones or any
limited partner of Borrower or enforced against the separate assets of
Jones or any limited partner of Borrower, and the liability of Jones or
any limited partner of Borrower for any amounts due under the Note or
this Agreement, shall be limited to the interest of Jones or any
limited partner of Borrower in the assets of Borrower. Bank may join
Jones in its capacity as general partner as defendant in any legal
action it undertakes to enforce its rights and remedies under the Note
or this Agreement, but any judgment in any such action may be satisfied
by recourse only to the assets of Borrower, but not by recourse
directly to or by execution on Jones's separate assets. Notwithstanding
the foregoing, nothing set forth herein shall be deemed to limit the
liability of Jones or prohibit Bank from taking any legal action
against Jones or its assets for (a) any fraud or intentional misconduct
of Jones or (b) Jones' undertakings under the Subordination Agreement.
-27-
<PAGE>
8.2 Set Offs. As collateral for the payment of any and all of Borrower's
--------
indebtedness and obligations to Bank, whether matured or unmatured, now
existing or hereafter incurred or created hereunder or otherwise,
Borrower hereby grants to Bank a security interest in and lien upon all
funds, balances or other property of any kind of Borrower, or in which
Borrower has an interest, limited to the interest of Borrower therein,
at any time in the possession, custody or control of Bank.
8.3 Binding and Governing Law. This Agreement and all documents executed
-------------------------
hereunder shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns and shall be
governed as to their validity, interpretation and effect by the laws of
the State of Colorado.
8.4 Survival. All agreements, representations, warranties and covenants of
--------
Borrower contained herein or in any documentation required hereunder
shall survive the execution of this Agreement and the making of the
Loan hereunder and will continue in full force and effect as long as
any indebtedness hereunder of Borrower to Bank remains outstanding.
8.5 No Waiver; Delay. If Bank shall waive any power, right or remedy
----------------
arising hereunder or under any applicable law, such waiver shall not be
deemed to be a waiver upon the later occurrence or recurrence of any of
said events. No delay by Bank in the exercise of any power, right or
remedy shall, under any circumstances, constitute or be deemed to be a
waiver, express or implied, of the same and no course of dealing
between the parties hereto shall constitute a waiver of Bank's powers,
rights or remedies. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
8.6 Modification. Except as otherwise provided in this Agreement, no
------------
modification or amendment hereof shall be effective unless made in a
writing signed by appropriate officers of the parties hereto.
8.7 Headings. The various headings in this Agreement are inserted for
--------
convenience only and shall not affect the meaning or interpretation of
this Agreement or any provision hereof.
8.8 Notices. Any notice, request or consent required hereunder or in
-------
connection herewith shall be deemed satisfactorily given if in writing
and delivered by hand or by facsimile transmission or mailed
(registered or certified mail) to the parties at their respective
addresses set forth in the beginning of this Agreement or their
facsimile number set forth hereafter or such other
-28-
<PAGE>
addresses or facsimile numbers as may be given by either party to the
other in writing, if to Borrower or Jones to the attention of the
Treasurer (Facsimile No. 790-7324), with a copy to the General Counsel
(Facsimile No. 799-1644), and if to Bank, to the attention of Leslie
Kelly, Vice President (Facsimile No. 623-3750).
8.9 Payment on Non-Business Days. Whenever any payment to be made
----------------------------
hereunder shall be stated to be due on a day which is not a Business
Day, such payment may be made on the next succeeding business day,
provided however that such extension of time shall be included in the
computation of interest due in conjunction with such payment or other
fees due hereunder, as the case may be.
8.10 Time of Day. All time of day restrictions imposed herein shall be
-----------
calculated using Bank's local time.
8.11 Severability. If any provision of this Agreement or the application
------------
thereof to any person or circumstance shall be invalid or enforceable
to any extent, the remainder of this Agreement and the application of
such provisions to other persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
8.12 Counterparts. This Agreement may be executed in any number of
------------
counterparts with the same effect as if all the signatures on such
counterparts appeared on one document, and each such counterpart shall
be deemed to be an original.
-29-
<PAGE>
IN WITNESS WHEREOF, the undersigned, by their duly authorized partners or
officers, have executed this Agreement the day and year first above written.
ATTEST: JONES CABLE INCOME FUND 1-A,
LTD., a Colorado limited
partnership
By: /s/ Katherine A. LeVoy
-------------------------------- By: JONES INTERCABLE, INC.,
a Colorado corporation
Title: Assistant Secretary Its General Partner
-----------------------------
[CORPORATE SEAL] By: /s/ J. Roy Pottle
------------------------------
Title: Treasurer
---------------------------
COLORADO NATIONAL BANK, a
national banking association
By: /s/ Leslie M. Kelly
------------------------------
Title: Vice President
---------------------------
-30-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 42,929
<SECURITIES> 0
<RECEIVABLES> 119,661
<ALLOWANCES> (11,125)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,022,869
<DEPRECIATION> (4,794,646)
<TOTAL-ASSETS> 4,610,684
<CURRENT-LIABILITIES> 561,876
<BONDS> 5,296,610
0
0
<COMMON> 0
<OTHER-SE> (1,247,802)
<TOTAL-LIABILITY-AND-EQUITY> 4,610,684
<SALES> 0
<TOTAL-REVENUES> 4,971,826
<CGS> 0
<TOTAL-COSTS> 4,474,943
<OTHER-EXPENSES> 30,614
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 356,864
<INCOME-PRETAX> 109,405
<INCOME-TAX> 0
<INCOME-CONTINUING> 109,405
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 109,405
<EPS-PRIMARY> 6.37
<EPS-DILUTED> 6.37
</TABLE>
