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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
[_] Definitive Proxy Statement COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
CABLE TV FUND 14-B, LTD.
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
-----------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: Limited
Partnership Interests
(2) Aggregate number of securities to which transaction applies: 261,353
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): Pursuant to
Rule 0-11(c)(2), the transaction valuation is based upon the $10,720,400
sales price that is to be paid to the Registrant in connection with the
transaction that is the subject of the proxy solicitation.
(4) Proposed maximum aggregate value of the transaction to the Registrant:
$10,720,400
(5) Total fee paid: $2,144
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
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[LOGO OF JONES INTERCABLE(R), INC. APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
NOTICE OF VOTE OF THE LIMITED PARTNERS OF CABLE TV FUND 14-B, LTD.
To the Limited Partners of Cable TV Fund 14-B, Ltd.:
A special vote of the limited partners of Cable TV Fund 14-B, Ltd. (the
"Partnership") is being conducted through the mails on behalf of the
Partnership by Jones Intercable, Inc., the general partner of the Partnership,
for the purpose of obtaining limited partner approval of the sale of the
Littlerock, California cable television system (the "Littlerock System") owned
by the Partnership for $10,720,400 in cash, subject to customary working
capital closing adjustments that may have the effect of increasing or
decreasing the sales price by a non-material amount. The Littlerock System is
proposed to be sold to Jones Communications of California, Inc., an indirect
wholly owned subsidiary of the General Partner. Information relating to this
matter is set forth in the accompanying Proxy Statement.
If the limited partners approve the proposed sale of the Littlerock System
and if the transaction is closed, the Partnership will distribute the
approximately $10,838,000 of net sale proceeds to its limited partners of
record as of the closing date of the sale of the Littlerock System. It is
estimated that the limited partners will receive $41 for each $500 limited
partnership interest, or $82 for each $1,000 invested in the Partnership.
Distributions will be net of California non-resident withholding, if
applicable, and distribution checks will be issued to the limited partners'
account registration or pursuant to any special payment instruction of record.
Once the distribution of the net proceeds from the sale of the Littlerock
System has been made, limited partners will have received a total of $438 for
each $500 limited partnership interest, or $876 for each $1,000 invested in
the Partnership, taking into account the prior distributions to limited
partners made earlier in 1998. Because the distributions to the limited
partners from the sales of the Partnership's various cable television systems
will not return to the limited partners all of the capital initially
contributed by the limited partners to the Partnership, the General Partner
will not receive a general partner distribution from the Littlerock System's
sale proceeds. The Partnership will be liquidated and dissolved after the sale
of the Littlerock System, which will be the Partnership's last remaining asset
at the time of its sale.
Only limited partners of record at the close of business on July 31, 1998
are entitled to notice of, and to participate in, this vote of limited
partners. It is very important that all limited partners participate in the
voting.
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The Partnership's ability to complete the transaction discussed in the Proxy
Statement and the Partnership's ability to make a distribution to its limited
partners of the net proceeds of the sale of the Littlerock System pursuant to
the terms of the Partnership's limited partnership agreement (the "Partnership
Agreement") are dependent upon the approval of the transaction by the holders
of a majority of the Partnership's limited partnership interests.
The proposal that is the subject of this proxy solicitation will be adopted
only if approved by the holders of a majority of the limited partnership
interests. Each limited partnership interest entitles the holder thereof to
one vote on the proposal. Because the Partnership Agreement requires that the
proposal to sell the Littlerock System be approved by the holders of a
majority of the limited partnership interests, abstentions and non-votes will
be treated as votes against the proposal. A properly executed consent returned
to the general partner on which a limited partner does not mark a vote will be
counted as a vote for the proposed sale of the Littlerock System. Because
limited partners do not have dissenters' or appraisal rights in connection
with the proposed sale of the Littlerock System, if the holders of a majority
of the limited partnership interests approve the proposal, all limited
partners will receive a distribution of the net sale proceeds in accordance
with the procedures prescribed by the Partnership Agreement regardless of how
or whether they vote on the proposal.
Jones Intercable, Inc., as the general partner of the Partnership, urges you
to sign and return the enclosed proxy card as promptly as possible. The proxy
card should be returned in the enclosed envelope.
JONES INTERCABLE, INC.
General Partner
[SIGNATURE OF ELIZABETH M. STEELE]
Elizabeth M. Steele
Secretary
Dated: August 7, 1998
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[LOGO OF JONES INTERCABLE(R), INC. APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY STATEMENT
VOTE OF THE LIMITED PARTNERS OF CABLE TV FUND 14-B, LTD.
This Proxy Statement is being furnished in connection with the solicitation
of the written consents of the limited partners of Cable TV Fund 14-B, Ltd.
(the "Partnership") by Jones Intercable, Inc., the general partner of the
Partnership (the "General Partner"), on behalf of the Partnership, for the
purpose of obtaining limited partner approval of the sale of the Littlerock,
California cable television system (the "Littlerock System") owned by the
Partnership for $10,720,400 in cash, subject to customary working capital
closing adjustments that may have the effect of increasing or decreasing the
sales price by a non-material amount. The Littlerock System is proposed to be
sold to Jones Communications of California, Inc., an indirect wholly owned
subsidiary of the General Partner.
Proxies in the form enclosed, properly executed and duly returned, will be
voted in accordance with the instructions thereon. Limited partners are urged
to sign and return the enclosed proxy as promptly as possible. Proxies cannot
be revoked except by delivery of a proxy dated as of a later date. Officers
and other employees of the General Partner may solicit proxies by mail, by
fax, by telephone or by personal interview. The deadline for the receipt of
proxy votes is September 15, 1998, unless extended, but the vote of the
Partnership's limited partners will be deemed to be concluded on the date, at
least 20 business days from the date the proxy materials are sent to limited
partners, that the General Partner, on behalf of the Partnership, is in
receipt of proxies executed by the holders of a majority of the limited
partnership interests either consenting to or disapproving of the proposed
transaction. The General Partner may extend the deadline for receipt of proxy
votes if a majority of the limited partners fail to express an opinion on the
transaction by September 15, 1998. If the General Partner extends the deadline
for receipt of proxy votes, the limited partners will be informed by mail of
the reason for the extension and the new deadline. The cost of the proxy
solicitation will be paid by the General Partner.
The Partnership has only one class of limited partners and no limited
partner has a right of priority over any other limited partner. The
participation of the limited partners is divided into limited partnership
interests and each limited partner owns one limited partnership interest for
each $500 of capital contributed to the Partnership.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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As of June 30, 1998, the Partnership had 261,353 limited partnership
interests outstanding held by 15,181 persons. There is no established trading
market for such interests. To the best of the General Partner's knowledge, no
person or group of persons beneficially own more than five percent of the
limited partnership interests. During the past several years, Smithtown Bay,
LLC, Madison Partnership Liquidity Investors XIII, LLC and First Trust Co. LP,
three firms unaffiliated with the Partnership, the General Partner and each
other, have conducted tender offers for interests in the Partnership. As of
June 30, 1998, Smithtown Bay, LLC and its affiliates owned 4,548 limited
partnership interests, or 1.7 percent of the limited partnership interests. As
of such date, Madison Partnership Liquidity Investors XIII, LLC and its
affiliates owned 8,756 limited partnership interests, or 3.3 percent of the
limited partnership interests. As of such date, First Trust Co. LP and its
affiliates owned 3,100 limited partnership interests, or 1.2 percent of the
limited partnership interests. Pursuant to the terms of agreements between the
Partnership and the General Partner and such firms, all of the limited
partnership interests held by these firms will be voted in the same manner as
the majority of all other limited partners who vote on the sale of the
Littlerock System. Thus, for example, if the limited partnership interests
voted in favor of the transaction constitute a majority of all limited
partnership interests voted but not a majority of all limited partnership
interests, these firms will be required to vote their limited partnership
interests in favor of the transaction, and in such event the votes of these
firms could be sufficient to cause the transaction to be approved by a
majority of all limited partnership interests, which is the vote necessary to
cause the transaction to be approved. The General Partner owns 28 limited
partnership interests. Officers and directors of the General Partner own no
limited partnership interests. The 28 limited partnership interests owned by
the General Partner will be voted in favor of the proposed transaction. Only
limited partners of record at the close of business on July 31, 1998 will be
entitled to notice of, and to participate in, the vote.
As of the date of this Proxy Statement, the Partnership's only asset is the
Littlerock System. The Partnership sold its cable television system serving
communities in and around Surfside Beach, South Carolina (the "Surfside
System") in June 1998. The Partnership formerly owned a 73 percent interest in
the Cable TV Fund 14-A/B Venture (the "Venture"). The Venture's only asset was
the cable television system serving portions of Broward County, Florida (the
"Broward System"). The Venture sold the Broward System in March 1998. The
Venture subsequently was liquidated and dissolved.
Upon the consummation of the proposed sale of the Littlerock System, the
Partnership will distribute the approximately $10,838,000 of net sale proceeds
to its limited partners of record as of the closing date of the sale of the
Littlerock System. Limited partners will receive $41 for each $500 limited
partnership interest, or $82 for each $1,000 invested in the Partnership.
Distributions will be net of California non-resident withholding, if
applicable, and distribution checks will be issued to the limited partners'
account registration or pursuant to any special payment instruction of record.
Once the Partnership has completed the distribution of the net proceeds from
the sale of the Littlerock System, limited partners of the Partnership will
have received a total of $438 for each $500 limited partnership interest, or
$876 for each $1,000 invested in the Partnership, taking into account the
prior distributions to limited partners made earlier in 1998 from the net
proceeds of the sales of the Broward System and the Surfside System. Because
the distributions to the limited partners from the sales of the Partnership's
various cable television systems will not return to the limited partners all
of the capital initially contributed by the limited partners to the
Partnership, the General Partner will not receive a general partner
distribution from the Littlerock System's sale proceeds. The Partnership will
be liquidated and dissolved after the sale of the Littlerock System, which
will be the Partnership's last remaining asset at the time of its sale.
After the sale of the Littlerock System, the Partnership will cease to be a
public entity subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). See "Certain
Information About the Partnership and the General Partner."
Limited partners should note that there are certain federal and state income
tax consequences of the proposed sale of the Littlerock System, which are
outlined herein under the caption "Federal and State Income Tax Consequences."
The Board of Directors of the General Partner has approved the proposed sale
of the Littlerock System and the General Partner recommends approval of the
transaction by the holders of the Partnership's limited
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partnership interests. In determining the fairness of the proposed
transaction, the General Partner followed the procedures mandated by Section
2.3(b)(iv)(b) of the Partnership's limited partnership agreement (the
"Partnership Agreement"), which provides that the Partnership's cable
television systems may be sold to the General Partner or to one of its
affiliates if the price paid by the General Partner or such affiliate is
determined by the average of three separate, independent appraisals of the
fair market value of the system to be sold. Because the purchase price to be
paid to the Partnership is equal to the average of three separate, independent
appraisals of the fair market value of the Littlerock System, the Board of
Directors of the General Partner has concluded that the consideration to be
paid to the Partnership for the Littlerock System is fair to all unaffiliated
limited partners of the Partnership.
The proposal that is the subject of this proxy solicitation will be adopted
only if approved by the holders of a majority of the limited partnership
interests. Each limited partnership interest entitles the holder thereof to
one vote on the proposal. Because the Partnership Agreement requires that the
proposal to sell the Littlerock System be approved by the holders of a
majority of the limited partnership interests, abstentions and non-votes will
be treated as votes against the proposal. A properly executed consent returned
to the General Partner on which a limited partner does not mark a vote will be
counted as a vote for the proposed sale of the Littlerock System. Because
limited partners do not have dissenters' or appraisal rights in connection
with the proposed sale of the Littlerock System, if the holders of a majority
of the limited partnership interests approve the proposal, all limited
partners will receive a distribution of the Partnership's portion of the net
sale proceeds in accordance with the procedures prescribed by the Partnership
Agreement regardless of how or whether they vote on the proposal.
The approximate date on which this Proxy Statement and Form of Proxy are
being sent to limited partners is August 7, 1998.
SPECIAL FACTORS
THE PARTNERSHIP'S INVESTMENT OBJECTIVES
The Partnership was formed to acquire, develop, operate and, ultimately,
sell cable television systems. The primary objectives of the Partnership have
been to obtain capital appreciation in the value of the Partnership's cable
television properties; to generate tax losses that could be used to offset
taxable income of limited partners from other sources; and to obtain equity
build-up through debt reduction. It was contemplated from the outset of the
Partnership's existence that capital appreciation in Partnership cable
television properties would be converted to cash by a sale of such properties
at such time as the General Partner determined that the Partnership's
investment objectives had substantially been achieved and after a holding
period of approximately five to seven years. It also was contemplated from the
outset of the Partnership's existence that the General Partner or one of its
affiliates could be the purchaser of the Partnership's cable television
properties.
Sales of the Partnership's limited partnership interests commenced on August
17, 1987 and the Partnership was formed on September 9, 1987 when
subscriptions for the minimum offering amount were received. The Partnership
acquired the Littlerock System in November 1989. Based upon the track record
of prior public partnerships sponsored by the General Partner that had
liquidated or were in the process of liquidating their assets during the
period that limited partnership interests in the Partnership were being sold
and based upon disclosures made to prospective investors about the
Partnership's investment objectives in the Cable TV Fund 14 prospectus and
accompanying sales brochure, investors in the Partnership reasonably could
have anticipated that the Partnership's investment objectives would be
achieved and its assets liquidated after a holding period of approximately
five to seven years. Due to the uncertain and then adverse regulatory
environment that developed in the early 1990s for the cable television
industry, the resultant decline in the prices for cable television systems and
the subsequent inactivity in the cable television system marketplace, the
General Partner determined that it would be prudent to delay the sale of the
Littlerock System until market conditions improved, and as a result the
Littlerock System has been held by the Partnership for almost 9 years.
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The purpose of the sale of the Littlerock System, from the Partnership's
perspective, is to attain the Partnership's primary investment objective with
respect to the Littlerock System, i.e., to convert the Partnership's capital
appreciation in the Littlerock System to cash. The sale proceeds will be
distributed to the limited partners of the Partnership in accordance with the
distribution procedures established by the Partnership Agreement. The sale of
the Littlerock System is thus the necessary final step in the Partnership's
accomplishment of its investment objectives with respect to the Littlerock
System.
All distributions of the Partnership from the proceeds of the sale of cable
television systems are to be distributed 100 percent to the limited partners
until the limited partners receive an amount equal to 125 percent of their
initial capital contributions, and thereafter all such distributions are to be
shared 75 percent to the limited partners and 25 percent to the General
Partner. Based upon the distributions made to limited partners on the prior
sales of the Broward System and the Surfside System and the proposed sale
price of the Littlerock System, the limited partners of the Partnership will
not ultimately receive distributions in an amount equal to their initial
capital contributions and thus the sharing arrangement with the General
Partner will not ever be triggered.
PRIOR ACQUISITIONS AND SALES
The Partnership was formed in September 1987 as a Colorado limited
partnership in connection with a public offering of its limited partnership
interests. The Partnership has owned two cable television systems directly.
The Partnership acquired the Surfside System in September 1988 and the
Partnership acquired the Littlerock System in November 1989. In addition, in
January 1988, the Partnership and Cable TV Fund 14-A, Ltd. ("Fund 14-A"),
another public partnership managed by the General Partner, formed the Cable TV
Fund 14-A/B Venture (the "Venture"). Fund 14-A contributed $18,975,000 to the
capital of the Venture for a 27 percent ownership interest and the Partnership
contributed $51,025,000 to the capital of the Venture for a 73 percent
ownership interest. The Venture was formed to pool the financial resources of
Fund 14-A and the Partnership, two public partnerships sponsored by the
General Partner with identical investment objectives, and to enable them to
acquire a greater number of and/or larger cable television systems than each
of the partnerships could acquire on its own. The Venture acquired the Broward
System in March 1988.
On March 31, 1998, the Venture sold the Broward System to an unaffiliated
third party for $136,808,648. The sale of the Broward System was approved by
the holders of approximately 61 percent of the Partnership's limited
partnership interests in a vote of the limited partners held in the first
quarter of 1998. From the proceeds of the Broward System sale, the Venture
settled working capital adjustments, repaid the outstanding balance on its
credit facility, which totaled $39,902,968 at March 31, 1998, and paid a 2.5
percent brokerage fee of $3,420,216 to The Jones Group, Ltd., a subsidiary of
the General Partner. The Venture then distributed the remaining net sale
proceeds, or $94,039,000, to the two constituent partnerships of the Venture
in proportion to their ownership interests in the Venture. The Partnership
accordingly received 73 percent of the net sale proceeds, or $68,554,431. In
April 1998, the Partnership distributed its net sale proceeds to its limited
partners of record as of March 31, 1998. Such distribution represented
approximately $262 for each $500 limited partnership interest or $524 for each
$1,000 invested in the Partnership.
The initial sales price for the Venture's Broward System had been
$140,000,000, but this sales price was reduced by $3,191,352 to $136,808,648
at the closing on March 31, 1998 because of a basic subscriber shortfall at
closing. (The agreement between the Venture and the buyer provided that the
sales price would be reduced $2,472 for each basic subscriber less than 56,637
at the March 31, 1998 closing.) When final closing adjustments were completed
on June 30, 1998, however, additional basic subscribers that were not able to
be counted as basic subscribers of the Broward System at the March 31, 1998
closing (because they were relatively recent subscribers at such date) were
able retrospectively to be counted as basic subscribers of the Broward System.
These basic subscribers brought the basic subscriber count up to 56,637 and
the sales price accordingly was adjusted upward by $3,191,352 to $140,000,000.
The Venture distributed this $3,191,352 in July 1998 to the Venture's two
constituent partnerships in proportion to their ownership interests in the
Venture. The Partnership accordingly received 73 percent of these additional
Broward System sale proceeds, or $2,326,272. The
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Partnership subsequently distributed this sum to its limited partners of
record as of March 31, 1998, resulting in an additional return of $10 for each
$500 limited partnership interest or $20 for each $1,000 invested in the
Partnership from the Broward System sale.
On June 30, 1998, the Partnership sold the Surfside System to an
unaffiliated third party for $51,500,000. The sale of the Surfside System was
approved by the holders of approximately 61 percent of the Partnership's
limited partnership interests in a vote of the limited partners held in the
first quarter of 1998. Upon the closing of the sale of the Surfside System,
the Partnership retained approximately $443,000 of the sale proceeds for
working capital purposes, repaid all of its indebtedness (including
$15,800,000 borrowed under its credit facility, $143,000 in advances from the
General Partner and capital lease obligations of $143,900), paid a 2.5 percent
brokerage fee totaling $1,287,500 to The Jones Group, Ltd., paid a deferred
acquisition fee of $920,000 to The Jones Group, Ltd. and then distributed the
net sale proceeds of approximately $32,800,000 to the Partnership's limited
partners of record as of June 30, 1998. This distribution was made in July
1998. Such distribution represented approximately $125 for each $500 limited
partnership interest or $250 for each $1,000 invested in the Partnership.
Limited partners of Partnership have received distributions from the Broward
System sale and the Surfside System sale totaling approximately $103,680,700.
All distributions to date have given the Partnership's limited partners an
approximate return of $397 for each $500 limited partnership interest or $794
for each $1,000 invested in the Partnership. The Partnership intends to make a
final distribution of approximately $10,838,000 to the limited partners,
representing the net proceeds of the sale of the Littlerock System. This
distribution will give the Partnership's limited partners an additional return
of $41 for each $500 limited partnership interest or $82 for each $1,000
invested in the Partnership. Taking into account the distributions from the
sale of the Broward System and the Surfside System and the anticipated
distribution from the sale of the Littlerock System, the limited partners of
the Partnership can expect to receive a total return of $438 for each $500
limited partnership interest or $876 for each $1,000 invested in the
Partnership. After the sale of the Littlerock System, the Partnership will be
liquidated and dissolved and no further distributions to limited partners will
be made. The General Partner has not received and will not receive any general
partner distributions from the Partnership.
THE GENERAL PARTNER'S OBJECTIVES
The purpose of the Littlerock System's sale from the General Partner's
perspective is to enable the Partnership to sell the Littlerock System at a
fair price and to enable the General Partner (through an indirect wholly owned
subsidiary) to acquire a cable television system operating in a marketplace in
which the General Partner itself desires to own and operate a cable television
system. The General Partner currently is one of the ten largest cable
television system operators in the United States, with owned and managed
systems totaling in excess of 1 million basic subscribers. A key element of
the General Partner's strategy is to increase the number of owned subscribers
clustered in attractive demographic areas. The General Partner is making
progress in clustering its owned subscribers in two primary groups of cable
systems. The General Partner's Maryland/Virginia cluster is based primarily on
geography. The General Partner's suburban cluster is based on similar market
and operating characteristics, rather than geography. The General Partner
believes that its clustering strategy may allow it to obtain both economies of
scale and operating efficiencies, for example in areas such as marketing,
administration and capital expenditures. The General Partner plans to acquire,
from three of its managed partnerships, the much larger neighboring cable
television system serving the communities of Palmdale and Lancaster,
California (the "Palmdale System") concurrently with its acquisition of the
Littlerock System. The General Partner's purchase of the Palmdale System is
subject to several closing conditions, however, and the closing of the General
Partner's purchase of the Littlerock System is not contingent on the General
Partner's acquisition of the Palmdale System. The Palmdale System is adjacent
to the Littlerock System and the two systems have been jointly operated by the
General Partner using one headend and several microwave receive sites and a
single management team based in Palmdale. The General Partner desires to add
both the Palmdale System and the Littlerock System to its suburban cluster,
which currently includes the cable systems serving the communities of Savannah
and Augusta, Georgia, Pima County, Arizona, Albuquerque, New Mexico and
Independence, Missouri.
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In contrast to the Partnership, which is a limited partnership with a finite
term and which sought cable television properties with high growth potential
during a holding period of approximately five to seven years, the General
Partner, a corporation with perpetual existence, is seeking to acquire cable
television systems that can generate a steady stream of income and may
appreciate in value over a longer holding period. The Littlerock System
satisfies this objective of the General Partner. The General Partner also may
be in a better position than the Partnership to access both debt and equity to
finance the long-term development of the Littlerock System. The General
Partner may be able to leverage the Littlerock System at a higher level than
the Partnership has done and, accordingly, the General Partner may be able to
generate a greater return on its investment in the Littlerock System than the
Partnership would be able to do within the same time. Because the General
Partner's investment horizon is much longer term than the Partnership's
investment horizon, and the General Partner will not need to sell the
Littlerock System to achieve its investment objectives, it can better
withstand the costs associated with meeting the competition and the regulatory
risks inherent in long-term holding and development of the Littlerock System.
RELEVANT PROVISIONS OF THE PARTNERSHIP AGREEMENT
Section 2.2(k) of the Partnership Agreement provides that the sale of all or
substantially all of the Partnership's assets is subject to the approval of
the holders of a majority of the Partnership's limited partnership interests.
Because the Littlerock System is the Partnership's sole remaining asset, the
sale of the Littlerock System is being submitted for limited partner approval.
Section 2.3(b)(iv)(b) of the Partnership Agreement permits the Partnership
to sell any or all of its cable television systems directly to the General
Partner or one or more of its affiliates if the system to be sold has been
held by the Partnership for at least three years, or if it is part of, or
related to, another system that has been held for three years, and provided
that the price paid to the Partnership by the General Partner or any such
affiliate is determined by the average of three separate, independent
appraisals of the particular cable television system or systems being sold,
and that the cost of such appraisals is not borne by the Partnership. Because
the Littlerock System has been held by the Partnership for at least three
years and the purchase price to be paid to the Partnership is equal to the
average of three separate, independent appraisals of the fair market value of
the Littlerock System obtained at the General Partner's expense, these
requirements of the Partnership Agreement have been satisfied.
REASONS FOR THE TIMING OF THE SALE
The Partnership has a finite legal existence of 17 years, almost 11 of which
have passed. It was not intended or expected, however, that the Partnership
would hold its cable systems for 17 years. Although it was not possible at the
outset of the Partnership to determine precisely how quickly the investment
objectives with respect to any particular system would be achieved, investors
were informed that the General Partner's past experience with prior
partnerships had shown that five to seven years was the average length of time
from the acquisition of a cable system to its sale. Investors in the
Partnership also were able to examine the track record of the General
Partner's prior partnerships because such track record was set forth in the
prospectus delivered in connection with the Partnership's initial public
offering. At the time of the formation of the Partnership, the track record
showed that prior partnerships had rarely held their cable systems for any
longer than six years.
It is the General Partner's publicly announced policy that it intends to
liquidate all of its managed partnerships, including the Partnership, as
opportunities for sales of partnership cable television systems arise in the
marketplace. The General Partner has determined that, as part of this general
liquidation plan, it is in the best interests of the Partnership to sell the
Littlerock System. During the years that the Partnership has owned and
operated the Littlerock System, senior management of the General Partner,
including Glenn R. Jones, the General Partner's Chief Executive Officer, James
B. O'Brien, the General Partner's President and Chief Operating Officer, and
Kevin P. Coyle, the General Partner's Vice President/Finance and Chief
Financial Officer, has monitored the performance of the Littlerock System. The
General Partner has overseen the Littlerock System's growth in the number of
homes passed, the miles of cable plant and the number of basic and premium
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subscribers. The General Partner's management has regularly reviewed the
Littlerock System's budgets, it has examined the Littlerock System's liquidity
and capital needs and it has carefully monitored the Littlerock System's
revenue and cash flow growth to confirm that the Partnership's primary
investment objective, i.e., capital appreciation in the Littlerock System, was
being achieved.
The General Partner concluded in January 1998 that, because the Littlerock
System met the General Partner's objective of acquiring cable systems with
operating characteristics like those of the Littlerock System, the General
Partner would exercise its right under Section 2.3(b)(iv)(b) of the
Partnership Agreement to acquire the Littlerock System. The General Partner
accordingly did not market the system for sale and did not solicit third party
buyers for the Littlerock System but instead contracted with independent
appraisal firms to prepare appraisals of the fair market value of the
Littlerock System so that the General Partner could determine the price it
would offer to pay for the Littlerock System. The three appraisals obtained by
the General Partner valued the Littlerock System at $11,118,000, $11,092,200
and $9,951,000, respectively. The General Partner's Chief Financial Officer
then took the three appraised values and averaged them pursuant to the
requirements of Section 2.3(b)(iv)(b) of the Partnership Agreement, and
thereby determined that the price the General Partner would offer for the
Littlerock System would be $10,720,400. The General Partner's senior
management also agreed that this was a fair price and accepted it on behalf of
the Partnership. See "Special Factors, The Appraisals."
No arm's-length negotiations of the terms of the purchase and sale agreement
were conducted because the Partnership does not have any employees or
management other than the employees and management of the General Partner.
When the appraisal process was completed in March 1998, the General Partner
prepared the standard purchase and sale agreement that it uses for the
acquisition of cable television systems from its managed partnerships. This
agreement was executed by officers of the General Partner both on behalf of
the General Partner as buyer and on behalf of the Partnership as seller. A
written memorandum to the General Partner's Board of Directors from the
General Partner's management outlining the terms of the transaction, including
the means by which management had determined the sales price for the
Littlerock System, the results of the three appraisals, the operating and
financial statistics of the Littlerock System and the reasons why the General
Partner should purchase the Littlerock System, was submitted to the Board of
Directors with a recommendation from management that the Board of Directors
approve the transaction, which the Board of Directors did on March 10, 1998.
The directors also were provided with copies of the three appraisal reports
that management had used in determining the sales price and a copy of the
draft purchase and sale agreement. As discussed below, the Board of Directors
unanimously concluded that the transaction was fair to the unaffiliated
limited partners of the Partnership. See "Special Factors, Recommendation of
the General Partner and Fairness of the Proposed Sale of Assets."
When investing in the Partnership, by virtue of the provisions of Section
2.2(k) of the Partnership Agreement, the limited partners vested in the
General Partner the right and responsibility to determine when the
Partnership's investment objectives had been substantially achieved. The
Littlerock System was acquired by the Partnership in November 1989 because, in
the opinion of the General Partner at the time of the Littlerock System's
acquisition, it had the potential for capital appreciation within a reasonable
period of time. It is the General Partner's opinion that during the almost 9
years that the Littlerock System has been held by the Partnership, the
Partnership's investment objectives with respect to the Littlerock System have
been achieved. The General Partner used no specific benchmarks or measurement
tools in determining that the Partnership's investment objectives have been
achieved. The General Partner conducted a subjective evaluation of a variety
of factors including the length of the holding period, the prospect for future
growth as compared to the potential risks, the cash on cash return to
investors, the after-tax internal rate of return to limited partners and the
amount of gain to be recognized on the sale of assets.
The Littlerock System was acquired by the Partnership in November 1989 for
an aggregate purchase price of approximately $4,576,000. At acquisition, the
Littlerock System consisted of cable plant passing approximately 2,328 homes
and serving approximately 1,985 basic subscribers. As of December 31, 1997,
the Littlerock System consisted of approximately 205 miles of cable plant
passing approximately 8,165 homes and
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serving approximately 5,675 basic subscribers. During the holding period, the
Partnership used approximately $3,721,100 in capital expenditures to expand
the cable plant of the Littlerock System. The increase in the value of the
Littlerock System during the holding period is demonstrated by the fact that
the Littlerock System was purchased for $4,576,000 and the Littlerock System
is proposed to be sold for $10,720,400, a difference of $6,144,400.
In evaluating whether now was the time for the Partnership to sell the
Littlerock System, the General Partner generally considered the benefits to
the limited partners that might be derived by the Partnership's holding the
Littlerock System for an additional period of time. The General Partner
assumed that the Littlerock System might continue to appreciate in value and,
if so, the Littlerock System would be able to be sold for a greater sales
price in the future. The General Partner weighed these assumptions about the
Littlerock System's continuing growth against the risks to investors from a
longer holding period, i.e., the risks that regulatory, technology and/or
competitive developments could cause the Littlerock System to decline in
value, which would result in a lesser sales price in the future. A longer
holding period would expose investors to the risk that competition from direct
broadcast satellite companies, telephone companies and/or neighboring cable
companies could diminish the number of subscribers to the Littlerock System's
basic and premium services, thereby decreasing the value of the Littlerock
System. A longer holding period also would expose investors to the risk that
changes in the regulations promulgated by the governmental agencies that
oversee cable operations could make cable systems a less desirable investment,
thereby decreasing the value of the Littlerock System. The General Partner's
decision to sell the Littlerock System was greatly influenced by the fact that
the originally contemplated holding period had been exceeded.
The General Partner is in a better position than the Partnership to bear the
risks of investment in the Littlerock System. The Partnership is limited in
its ability to obtain additional equity financing, in part because the limited
partnership interests are non-assessable. The Partnership Agreement also
contains limits on the amounts that the Partnership can borrow. And the
Partnership has only one asset, the Littlerock System, which gives the
Partnership limited collateral for borrowings. The General Partner, on the
other hand, is one of the nation's largest cable television companies with
longer term investment objectives. For example, if significant competition to
the Littlerock System were to develop, the General Partner would be in a
better position than the Partnership to finance the marketing campaigns or
technological improvements necessary to meet such competition.
Therefore, in light of all of the above factors, the General Partner has
determined that now is the appropriate time for the Partnership to convert its
capital appreciation in the Littlerock System to cash through the sale of the
Littlerock System.
CERTAIN EFFECTS OF THE SALE
Upon consummation of the sale of the Littlerock System, the Partnership will
distribute the net sale proceeds (approximately $10,838,000) to its limited
partners of record as of the closing date of the sale of the Littlerock System
pursuant to the terms of the Partnership Agreement. Limited partners will
receive $41 for each $500 limited partnership interest, or $82 for each $1,000
invested in the Partnership. Once the distribution of the net proceeds from
the sale of the Littlerock System has been made, limited partners will have
received a total of $438 for each $500 limited partnership interest, or $876
for each $1,000 invested in the Partnership, taking into account the prior
distributions to limited partners made earlier this year from the net proceeds
of the sales of the Broward System and the Surfside System. The limited
partners will be subject to federal and state income tax on the income
resulting from the sale of the Littlerock System. See the detailed information
below under the caption "Federal and State Income Tax Consequences."
Another effect of the sale is that it will result in an indirect wholly
owned subsidiary of the General Partner acquiring the Littlerock System. Thus,
as a result of this transaction, the General Partner will make a substantial
equity investment in the Littlerock System and it will have a greater equity
ownership interest in the Littlerock System than it does now as the general
partner of the Partnership. The General Partner will have a 100 percent
interest in any future capital appreciation of the Littlerock System. The
General Partner's acquisition of the
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Littlerock System will advance its goal of increasing the number of owned
subscribers in attractive demographic areas and may allow the General Partner
to obtain economies of scale and operating efficiencies by adding the
Littlerock System to its suburban cluster of systems with similar market and
operating characteristics, including the adjacent Palmdale System. The General
Partner also will bear 100 percent of the risk of system losses and any
diminution in system value. As the general partner of the Partnership, the
General Partner earns management fees and receives reimbursement of its direct
and indirect expenses allocable to the operation of the Littlerock System. The
General Partner's right to receive such fees and reimbursements related to the
Littlerock System will terminate on the Partnership's sale of the Littlerock
System.
Neither Colorado law nor the Partnership Agreement afford dissenters' or
appraisal rights to limited partners in connection with the proposed sale of
the Littlerock System. If the proposed transaction is approved by the holders
of a majority of limited partnership interests, all limited partners will
receive a distribution in accordance with the procedures prescribed by the
Partnership Agreement regardless of how or whether they vote on the proposal.
RECOMMENDATION OF THE GENERAL PARTNER AND FAIRNESS OF THE PROPOSED SALE OF
ASSETS
The General Partner believes that the proposed sale of the Littlerock System
and the distribution of the net proceeds therefrom are both procedurally and
substantively fair to all unaffiliated limited partners of the Partnership,
and it recommends that the limited partners approve the transaction. The
General Partner's recommendation that the limited partners approve the sale of
the Littlerock System and its fairness determination should not be deemed to
be free from potential conflicts of interest, however, in light of the fact
that one of its subsidiaries is the proposed purchaser of the Littlerock
System. Because the purchaser of the Littlerock System would benefit from a
lower sales price, the General Partner has an economic interest in conflict
with the economic interest of the limited partners.
In determining the substantive and procedural fairness of the proposed
transaction, the General Partner's Board of Directors on March 10, 1998
considered each of the following factors, all of which had a positive effect
on its fairness determination. The factors are listed in descending order of
importance, i.e., the first factor listed was given the most weight in the
determination that the proposed transaction is fair, although, as a practical
matter, this is an approximation of the weight given to each factor because
each factor is relevant and the General Partner's Board of Directors was not
able to weigh the relative importance of each factor precisely:
(i) the limited partnership interests are at present illiquid and the
cash to be distributed to limited partners as a result of the proposed sale
of the Littlerock System will provide limited partners with liquidity and
with the means to realize the appreciation in the value of the Littlerock
System;
(ii) the sales price represents a fair market valuation of the Littlerock
System as determined by the average of three separate appraisals of the
Littlerock System by qualified independent appraisers;
(iii) the Partnership has held the Littlerock System for almost 9 years,
a holding period beyond that originally anticipated;
(iv) the conditions and prospects of the cable television industry in
which the Partnership is engaged, including the developing threat of
competition from DBS services and telephone companies, and the working
capital and other financial needs of the Partnership if it were to continue
to own the Littlerock System;
(v) the terms and conditions of the purchase and sale agreement,
including the fact that the sales price will be paid in cash, the fact that
the Partnership was not required to make many of the representations and
warranties about the Littlerock System or give indemnities that are
customarily given in transactions of this nature, the fact that the
purchaser's obligation to close is not contingent upon its ability to obtain
financing, and the fact that the Partnership will pay no brokerage fees upon
the sale of the Littlerock System, which it likely would have paid if the
Littlerock System were being sold to an unaffiliated party; and
(vi) the sale is being conducted in accordance with the terms of the
Partnership Agreement, including the fact that the proposed transaction
will not occur unless it is approved by the holders of at least a majority
of the limited partnership interests.
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An officer of The Jones Group, Ltd., the cable brokerage subsidiary of the
General Partner, worked with each of the independent appraisers hired to
prepare fair market value appraisals of the Littlerock System, providing them
with current and historical profit and loss statements for the Littlerock
System and with current subscriber reports. Certain officers and all of the
directors of the General Partner received the final appraisal reports. The
members of the Board of Directors of the General Partner adopted the analyses
and conclusions of Strategis Financial Consulting, Inc., which valued the
Littlerock System at $11,118,000, because such firm's valuation procedures,
assumptions and methodologies most closely approximate the valuation
procedures, assumptions and methodologies used by the General Partner's
management in evaluating cable television systems. The General Partner's Board
of Directors did not specifically adopt the $11,118,000 value placed on the
Littlerock System by Strategis Financial Consulting, Inc., but the Board did
consider the fact that the value determined by this appraisal firm was the
closest of the three appraisals to the average of the three appraisals and
concluded that this fact supported its fairness determination.
In making its fairness determination, the General Partner's Board of
Directors did not consider that Strategis' overall fair market value of the
Littlerock System exceeds the sales price by $397,600 or that Strategis'
"high" market value estimate exceeds the sales price by $1,428,226. Because it
was the methodology for determining the sales price mandated by the
Partnership Agreement, the General Partner's Board of Directors considered the
fact that the sales price to be paid to the Partnership for the Littlerock
System was determined by averaging three independent appraisals of the fair
market value of the Littlerock System to be very persuasive evidence of the
fairness of the proposed transaction. As provided in Section 2.3(b)(iv)(b) of
the Partnership Agreement, the General Partner may purchase a cable television
system from the Partnership if the price paid to the Partnership by the
General Partner is determined by the average of three separate, independent
appraisals of the cable television system to be sold. It does not provide that
the purchase price shall be determined by the highest of the three appraisals.
In light of this governing partnership agreement provision, the General
Partner's Board of Directors did not consider offering the Partnership a sales
price equal to Strategis' appraisal values. Whenever a sum is to be determined
by the average of three values, there will be, by definition, values that are
higher than and values that are lower than the average. This implies to the
General Partner that such a process, agreed by all parties, is fair.
The General Partner considered the fact that the $10,720,400 purchase price
to be paid to the Partnership for the Littlerock System was determined by the
average of three independent appraisals of the fair market value of the
Littlerock System to be very persuasive evidence of the fairness of the
proposed transaction. The General Partner reviewed and considered the three
appraisals but it did not consider specific comparable transactions in
reaching its conclusions that the values for the Littlerock System determined
by the three appraisals are within the range of values seen in the marketplace
for comparable cable television systems in similar condition. The General
Partner is regularly engaged in the sale and/or purchase of cable television
systems in the marketplace both for its own account and for the account of its
various managed partnerships. It is the cumulative experience of the General
Partner's management and Board of Directors in such transactions on which the
fairness conclusions were based. The General Partner considered that the fair
market valuations of the Littlerock System were done by respected industry
appraisers using customary measures of value. Based upon the General Partner's
knowledge of and experience in the cable television industry, and its review
and consideration of the appraisals, it has concluded that the values for the
Littlerock System determined by the three appraisals are fair and within the
range of values seen in the marketplace for comparable cable television
systems in similar condition.
The $10,720,400 purchase price represents the current fair market value of
the Littlerock System on a going concern basis. The $10,720,400 purchase price
for the Littlerock System also compares favorably to the $5,484,175 net book
value of the Littlerock System at March 31, 1998. The liquidation value of a
cable television system, i.e., the sale of the system on other than a going
concern basis, is not usually considered to be an accurate indicator of the
value of a cable television system, primarily because the assets of a cable
television system typically are worth less when considered separately than
when considered as a going concern. The assets of a cable television system
consequently are not normally sold or purchased separately. A fair market
valuation of a system should, in the General Partner's view, be a valuation of
the system as a going concern. The liquidation
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value of the Littlerock System therefore was not considered by the General
Partner in reaching its determination of fairness.
Because there has never been an established trading market for the
Partnership's limited partnership interests, the General Partner does not have
access to any reliable, official information about the historical or current
market prices for the Partnership's limited partnership interests in the very
limited secondary market where such interests from time to time have been
sold. The General Partner believes that such secondary market deeply discounts
the underlying value of the limited partnership interests due to their highly
illiquid nature. Therefore, even if trading information were available, the
historical or current market prices for the Partnership's limited partnership
interests would not necessarily be indicative of the value of the
Partnership's cable television system assets. For these reasons, the General
Partner did not consider the historical or current market prices for the
limited partnership interests when reaching its fairness determination.
During the past several years, however, several limited partners of the
Partnership who are not in any other way affiliated with the Partnership or
with the General Partner conducted tender offers for interests in the
Partnership at prices ranging from $165 to $190 per $500 limited partnership
interest. The $41 per $500 limited partnership interest to be distributed to
limited partners from the net proceeds of the Littlerock System's sale
compares favorably to these tender offer prices, especially in light of the
fact that the tender offer prices theoretically reflected the distribution
made to limited partners from the Broward System sale ($262 per $500 limited
partnership interest), the distribution made to limited partners from the
Surfside System sale ($125 per $500 limited partnership interest) and the
distribution to be made to limited partners from the sale of the Littlerock
System.
The fact that the Partnership has held the Littlerock System for a period
beyond that originally anticipated was another important factor in the General
Partner's fairness determination--the General Partner believes that the
transaction is fair because a sale at this time will convert an illiquid
investment into a liquid one for all limited partners. And the current state
of the cable television industry also was considered by the General Partner in
making its fairness determination because the General Partner believes that it
is fair to investors that someone other than the Partnership take on the
uncertainties and risks involved in continuing to own and operate the
Littlerock System.
The fairness of the transaction is also demonstrated in an analysis of
certain of the terms and conditions of the purchase and sale agreement, which
generally are more favorable to the Partnership than reasonably could be
expected if the purchaser were not an affiliated company. There is no
financing contingency to closing. Because of the General Partner's existing
extensive knowledge about the Littlerock System, the Partnership has not been
required to make many of the representations and warranties about the quality
of the Littlerock System's tangible assets, the quantity of the Littlerock
System's subscribers or the validity of the Littlerock System's intangible
assets customarily found in cable television system transactions. The
Partnership likely would have been required to give such representations and
warranties to an unaffiliated party if the Littlerock System were being sold
to an unaffiliated party. In addition, the Partnership is not required to
indemnify the purchaser for defects discovered by the purchaser after the
closing. This frees the Partnership from having to reserve a portion of the
sale proceeds to cover typical indemnification obligations. The Partnership
also will pay no brokerage fee in connection with the sale of the Littlerock
System, which it likely would have paid if the Littlerock System were being
sold to an unaffiliated party. This will result in more funds from the sale
being available for distribution to the Partnership's limited partners.
The General Partner is aware and considered that although consummation of
this transaction will result in a distribution to the Partnership's limited
partners of approximately $82 per $1,000 of limited partnership capital
invested in the Partnership, there are several potential negative consequences
of the transaction to limited partners. For example, the proposed sale will
require the limited partners to recognize, for federal income tax purposes, a
gain resulting from the sale. And although the three fair market valuations
established by the independent appraisals took into account the present value
of the projected future growth of the Littlerock System and the sales price
(the average of the three appraisals) thus takes into account the present
value of the projected
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future growth of the Littlerock System, the proposed sale will deprive the
limited partners of an opportunity to participate in the actual future growth
of the Littlerock System, if any. The General Partner nevertheless concluded
that the cash distributions to the limited partners of the Partnership from
the sale of the Littlerock System outweighed these consequences.
As disclosed above, the proposed transaction is subject to various potential
conflicts of interest arising out of the Partnership's relationships with the
General Partner. Because the General Partner and its affiliates are engaged in
the ownership and operation of cable television systems, they are generally in
the market to purchase cable television systems for their own account. A
potential conflict thus arises from the General Partner's fiduciary duty as
general partner of the Partnership and its management's fiduciary duty to the
General Partner's shareholders when it determines that one of the
Partnership's cable television systems will be sold to the General Partner or
one of its affiliates and not to an unaffiliated third party. This potential
conflict of interest was disclosed to limited partners in the prospectus
delivered to investors at the time of the public offering of interests in the
Partnership. Prior to the Partnership's public offering, the General Partner
entered into negotiations with certain state securities administrators as part
of the process of clearing the offering in the "merit" states, i.e., those
states that permit the sale of securities only if the state securities
administrator deems the offering as a whole to be fair, just and equitable.
Several of the merit state securities administrators focused on the potential
conflicts of interest in the event that the Partnership were to sell one or
more of its cable television systems to the General Partner or one of its
affiliates. The General Partner agreed to include the provision in the
Partnership Agreement that permits the Partnership to sell its cable
television systems directly to the General Partner or one of its affiliates
only after a three-year holding period and only if the General Partner or such
affiliate pays a purchase price that is not less than the average of three
separate independent appraisals of the particular cable television system
being sold. The General Partner has concluded that the mechanisms for
determining the purchase price to be paid to the Partnership provide
sufficient procedural safeguards to minimize the effects of the potential
conflicts of interest inherent in any such transaction. The fact that these
procedures have been carried out in connection with the Partnership's proposed
sale of the Littlerock System, together with the fact that the transaction
also is conditioned upon receipt of the approval of the holders of a majority
of the Partnership's limited partnership interests, enable the General Partner
to conclude that the proposed transaction is both procedurally and financially
fair to all partners.
The directors of the General Partner who are not employees of the General
Partner did not vote separately to approve the transaction, nor did the
outside directors retain an unaffiliated representative to act solely on
behalf of the limited partners for the purposes of negotiating the terms of
the proposed sale of the Littlerock System and/or preparing a report
concerning the fairness of the proposed sale. While the directors of the
General Partner recognized that the interests of the General Partner and the
limited partners may not in all respects necessarily be the same, they
recognized also that the purchase price was determined in accordance with the
terms of the Partnership Agreement, that is, by averaging three separate
independent appraisals of the Littlerock System's fair market value. The
members of the Board of Directors relied on the specific right of the General
Partner under Section 2.3(b)(iv)(b) of the Partnership Agreement to purchase
the Littlerock System. The members of the Board of Directors reviewed and
considered the appraisals and, based upon their general knowledge of cable
television system transactions undertaken by the General Partner and its
affiliates and by unaffiliated cable television companies, concluded that the
values for the Littlerock System determined by the appraisers were fair and
were within the industry norms for comparable transactions. All 13 directors
of the General Partner participated in the March 10, 1998 meeting to discuss
and vote on the Partnership's sale of the Littlerock System to the General
Partner. Each of Messrs. Glenn R. Jones, James B. O'Brien, Josef J. Fridman,
Robert Kearney, Siim A. Vanaselja, James J. Krejci, William E. Frenzel, Donald
L. Jacobs, Howard O. Thrall, Robert E. Cole, Raphael M. Solot, Sanford Zisman
and Robert B. Zoellick voted to approve the transaction. No director of the
General Partner raised any questions or expressed any reservations about the
fairness of the transaction to the limited partners of the Partnership.
It is anticipated that if the proposed transaction is not consummated, the
General Partner's current management team will continue to manage the
Littlerock System on behalf of the Partnership until such time as the
Littlerock System could be sold. No other alternatives have been or are being
considered.
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THE APPRAISALS
At regular intervals during the holding period, the General Partner obtained
appraisals of all of the Partnership's cable television systems so that the
General Partner could fulfill its obligation of reporting the Partnership's
asset values to trustees and custodians of qualified plans that own limited
partner interests in the Partnership. These appraised values also have been
reported to all investors in the quarterly and annual reports mailed to
limited partners with copies of the Partnership's periodic reports on Forms
10-Q and 10-K. The most recent appraisal of the Littlerock System done prior
to the General Partner's decision to buy the system from the Partnership was
done as of July 31, 1997 by Strategis Financial Consulting, Inc., which valued
the Littlerock System as of such date at $10,579,000. This old appraisal was
not used by the General Partner's management in determining the sales price
that the General Partner would offer for the Littlerock System and it was not
considered by the General Partner's Board of Directors in making its fairness
determinations.
In determining the price that the General Partner would offer for the
Littlerock System, in January 1998 the General Partner retained Strategis
Financial Consulting, Inc., Bond & Pecaro, Inc. and Waller Capital Corporation
to prepare separate appraisals of the fair market value of the Littlerock
System as of December 31, 1997. Each of the appraisers were asked to determine
the cash price a willing buyer would give a willing seller, neither being
under any compulsion to buy or sell and both having reasonable knowledge of
relevant facts, in an arm's-length transaction to acquire the Littlerock
System. Upon receipt of the three appraisal reports, management of the General
Partner examined each of them and discussed among themselves the merits of the
appraisals' assumptions, methodologies and conclusions, and, based on their
experience in and knowledge of the cable television industry, they found each
of them to be fair and reasonable. The appraisal reports were then submitted
to the Board of Directors of the General Partner for review. As disclosed
above, the Board of Directors of the General Partner unanimously approved the
transaction based upon a price determined by averaging these three appraisals.
The written appraisal reports are available for inspection and copying at
the offices of the General Partner during regular business hours by any
interested limited partner of the Partnership or by his or her authorized
representative. Copies of such appraisals will be mailed by the General
Partner to any interested limited partner or to his or her authorized
representative upon written request to the General Partner at the expense of
the requesting limited partner. Copies of these three appraisals also have
been publicly filed with the Securities and Exchange Commission and may be
inspected at the Commission's public reference facilities and at its World
Wide Web site.
The General Partner provided each of the appraisers with the same current
and historical profit and loss statements for the Littlerock System and with
the same current subscriber reports. The appraisers also gathered information
about the Littlerock System's subscribers, channel line-up, technology, cable
plant, penetration rates and the local economy from questionnaires that each
individual appraisal firm prepared and provided to the general manager of the
Littlerock System and from conversations with the Littlerock System's
management team. From this information, the appraisers used their independent
analyses to project cash flow, determine growth of homes passed, the
Littlerock System's future penetration and possible rate adjustments. The
appraisals thus reflect the application of the appraisers' expertise to the
data about the Littlerock System supplied by the General Partner.
The General Partner's $10,720,400 offer for the Littlerock System was based
on the three separate, independent appraisals of the Littlerock System
prepared by Strategis Financial Consulting, Inc., Bond & Pecaro, Inc. and
Waller Capital Corporation as of December 31, 1997. Strategis Financial
Consulting, Inc. concluded that the Littlerock System's overall fair market
value as of December 31, 1997 was $11,118,000. Bond & Pecaro, Inc. concluded
that the Littlerock System's overall fair market value as of December 31, 1997
was $11,092,200. Waller Capital Corporation concluded that the Littlerock
System's overall fair market value as of December 31, 1997 was $9,951,000.
The General Partner believes that the three appraisals were current as of
March 10, 1998, the date that the General Partner's Board of Directors made
its fairness determination and the date on which the purchase and sale
agreement was executed. In the General Partner's view, the assumptions
regarding system operations and
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the cable television system marketplace underlying the three appraisals have
generally remained unchanged since the date of the appraisals.
The Strategis Appraisal
Strategis Financial Consulting, Inc. ("Strategis") has served the
communications industry for nearly 30 years. Its team of financial,
engineering and managerial professionals devotes a substantial portion of its
time to the appraisal of cable television systems, cellular telephone systems,
paging systems, mobile radio and broadcast stations. Strategis was selected by
the General Partner to render an opinion as to the fair market value of the
Littlerock System in light of such overall qualifications. No limitations were
imposed with respect to the appraisal to be rendered by Strategis. The firm
was selected by the General Partner to prepare an independent appraisal of the
Littlerock System because of the General Partner's familiarity with the firm
and its good reputation in the cable television industry. Strategis has
prepared independent appraisals of other cable television systems owned and/or
managed by the General Partner. The principals of Strategis are not affiliated
in any way with the General Partner.
Strategis used five generally accepted cable television valuation methods
using the income approach to valuation in establishing the range of fair
market values of the Littlerock System as a going concern. The first method
used a multiple of 1997's operating income derived from comparable asset
values of privately held and publicly traded cable companies. The second
method used a lower multiple of the Littlerock System's December 1997
operating income annualized. The third method applied a slightly lower
multiple of 1998's projected operating income. The fourth method was a
discounted net cash flow analysis in which a purchase price (estimated fair
market value) was calculated to achieve a target after-tax return on equity,
given particular operating and financing assumptions unique to the Littlerock
System's assets. The fifth method was a discounted cash flow analysis that
measured the net present value of the pre-tax operating cash flows (less
capital expenditures, plus the residual value of the Littlerock System) that
represent the return on total investment. For each valuation method, Strategis
established a "high" and a "low" estimated fair market value.
The first valuation method used a multiple of 1997's operating income of the
Littlerock System derived from comparable asset values of certain cable
companies. The cable companies used to generate baseline values for this
methodology included Adelphia Communications Corporation, Cablevision Systems
Corporation, Century Communications Corp., Comcast Corporation, Cox
Communications, C-TEC, EW Scripps, Grupo Televisa, Knight-Ridder, Media
General, TCA Cable TV, Inc., Telecommunications, Inc., Time Warner, United
International Holdings, US West MediaOne Group, the Washington Post and the
General Partner. Strategis determined, based upon its expertise and knowledge
of the cable television industry, a "low" multiple of 9.5 and a "high"
multiple of 10.5, concluding that a system comparable to the Littlerock System
would be unlikely to sell for less than 9.5 times its past year's operating
income and would be unlikely to sell for more than 10.5 times its past year's
operating income. These operating income multiples were determined based upon
several factors. First, the "pre-determined target returns on equity"
developed in connection with the fourth valuation method discussed below were
examined for the implied capitalization rate. The capitalization rate is the
inverse of the valuation multiple. The basic equation supporting a valuation
multiple is a fraction, with one being the numerator and the rate of return
minus the growth rate being the denominator. For the rates of return,
Strategis refers to the "predetermined (pre-tax) target returns on equity"
calculated as follows:
12%/(l-.34) = 18.2%
14%/(l-.34) = 21.2%
For the rate of growth estimate, Strategis examined projected growth in the
Littlerock System's operating income over the projection term. The average
annual growth rate in operating cash flow is approximately 8 percent on
Strategis' model. The inverse of the capitalization rate implies multiples of:
1
------------
(18.2%-8.0%) = 9.8 high
1
------------
(21.2%-8.0%) = 7.6 low
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These calculated multiples were then adjusted by Strategis based on its
experience in the cable television industry. According to Strategis, in its
judgment, the implied high and low multiples, if applied to trailing twelve
months operating cash flow, would not provide an adequate estimate of value
for a mature cable system such as the Littlerock System. The multiples
ultimately used by Strategis in its first valuation method, 9.5 and 10.5, as
adjusted from the capitalization rate approach, in Strategis' judgment
appropriately reflect the value of the Littlerock System. This method resulted
in an estimated fair market value ranging from a low of $10,991,614 to a high
of $12,148,626 for the Littlerock System.
The second valuation method used a lower multiple of the Littlerock System's
December 1997 operating income annualized. Strategis determined, again based
on its expertise and knowledge of the cable television industry, a "low"
multiple of 9 and a "high" multiple of 10, concluding that a system comparable
to the Littlerock System would be unlikely to sell for less than 9 times the
dollar amount of its annualized current month's operating income and would be
unlikely to sell for more than 10 times the dollar amount of its annualized
current month's operating income. These multiples are slightly lower than
those used in the previous methodology because of the increased risk and time
factors involved in using current as compared to historical information. This
method resulted in an estimated fair market value ranging from a low of
$10,637,832 to a high of $11,819,813 for the Littlerock System.
The third valuation method applied a slightly lower multiple of 1998's
projected operating income of the Littlerock System. For this valuation,
Strategis first estimated, through its own analyses of current financial and
operating data provided by the General Partner, 1998's operating income for
the Littlerock System. The projection of 1998's operating income for this
third valuation method is the sum derived by subtracting projected operating
expenses from projected revenues of the Littlerock System to be generated
during the first twelve months following the valuation date. Strategis
projected growth in residential service revenue based on previously
established or reasonably foreseeable patterns of growth in the marketplace
and plant facilities (homes passed); the subscriber base; the amount of
programming to be sold to subscribers and the rates charged for programming,
associated equipment rentals and service installations. Strategis projected
revenue for commercial accounts to increase at a steady but lower rate than
residential revenue, while advertising revenue was projected based on
Strategis' estimates of the long term potential growth for local advertising
in the Littlerock System's market. Operating expenses were projected by
Strategis based on the Littlerock System's actual historical expenses and
Strategis' familiarity with cable system operating expenses typical for a
system of the Littlerock System's size. Line item expenses within the
technical-operations, general and administrative, sales and marketing, and
programming departments were examined and projected based on their
relationship to the number of subscribers or plant miles, whichever was
appropriate, and included a general inflation component. Based on its
expertise and knowledge of the cable television industry, Strategis set a
"low" multiple of 8.5 and a "high" multiple of 9.5 concluding that a system
comparable to the Littlerock System would be unlikely to sell for less than
8.5 times the system's projected operating income for the following year and
would be unlikely to sell for more than 9.5 times the system's projected
operating income for the following year. These multiples are slightly lower
than those used in the previous methodologies because of the increased risk
and time factors involved in using projected as compared to historical and
current information. This method resulted in an estimated fair market value
ranging from a low of $10,981,999 to a high of $12,273,999 for the Littlerock
System.
The fourth valuation method was a discounted net cash flow analysis in which
a purchase price (estimated fair market value) was calculated to achieve a
target after-tax return on equity given particular operating and financing
assumptions specific to the Littlerock System. This method involved the use of
projected operations for the Littlerock System and a pre-determined target
return on equity for a hypothetical buyer. Strategis used the Capital Asset
Pricing Model ("CAPM") as a guide in developing discount rates used in the
discounted cash flow model for the fourth valuation method. The CAPM was
developed to estimate the rate of return on equity that would be required by
investors to take on the risk of a given investment. Strategis used the CAPM
in conjunction with observations of actual market transactions and its
judgment. The following illustrates use of the CAPM and the support it
provided for the "pre-determined target return on equity" used to value the
Littlerock System.
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To estimate a "pre-determined target return on equity" for the CAPM,
Strategis examined movements in stock prices over 1996 and 1997 of the same
cable television multiple system operators that it examined in determining the
multiples for the first valuation method discussed above. The movements in
individual stock prices were compared to movements in the stock market as a
whole, as indicated by the price of the Standard & Poor's 500 stock index. The
extent to which movements in a particular stock are related to movements in
the market overall is reflected in the stock's "beta." Strategis calculated
individual betas for the above-listed cable television multiple system
operators. Average and median betas for the entire group were then multiplied
by the "equity risk premium," which measures the additional return to equity
investors over and above the return to holders of non-equity investments. The
risk-free rate of investment is then added to determine the required equity
return of the investment. The equation is as follows:
Beta* (Equity Risk Premium) + Risk-Free Rate = Required Return on Equity
In doing this analysis, Strategis found that the average beta for the group
of companies it examined was 1.06 and that the median beta for this same group
of companies was 1.11. It determined that the equity risk premium was 12.7
percent based upon average annual premiums over 1988 to 1997 as calculated in
Ibbotson Associates' Stocks, Bonds, Bills and Inflation (SBBI) Yearbook 1998.
Strategis also found that the risk-free rate was 5.7 percent, which was the
yield on intermediate term government bonds as of December 1997. This
statistic was derived from the SBBI Yearbook 1998. The calculations are as
follows:
(1.06* 12.7%) + 5.7% = 19.2% Required Return on Equity
(1.11* 12.7%) + 5.7% = 19.8% Required Return on Equity
Strategis then multiplied these rates by 1 minus the tax rate to calculate
the after-tax required return on equity rates as follows:
19.2%* (1-.34) = 12.7%
19.8%* (1-.34) = 13.1%
Based on Strategis' professional judgment, in Strategis' opinion these
calculations provide reasonable support for the use of 12% as the high and 14%
as the low after-tax "pre-determined target returns on equity."
Based on system information made available to Strategis by the General
Partner and on information generally available to Strategis about the cable
television industry, the firm made assumptions and projections of a variety of
factors that will affect future cash flow including housing growth, plant
mileage, growth in the number of subscribers for basic and pay television,
adjustments in subscriber rates, increases in operating expenses and capital
expenditures. Strategis also made specific assumptions concerning the capital
structure that a typical, prudent buyer might experience, as well as the
probable interest rates that would be applicable in connection with any debt
financing that might be incurred. Strategis did a "high" and a "low" analysis.
In its "high" analysis, Strategis projected that the Littlerock System's
revenues would grow from $2,730,899 in 1998 to $3,919,943 in 2004; that the
Littlerock System's operating expenses would grow from $1,438,899 in 1998 to
$1,911,846 in 2004; and that net loss of $444,404 in 1998 would decrease to
become net income of $57,859 in 2004. In Strategis' "low" analysis, revenues
and operating expenses are projected to increase to the same levels by 2004,
but net loss of $413,624 in 1998 is projected to become net income of $79,676
in 2004. Strategis projected that the Littlerock System would add
approximately 2.5 to 3 miles of cable plant per year between 1998 and 2004,
resulting in growth of the Littlerock System's cable plant from 230 miles in
1997 to 250 miles in 2004. Strategis projected that the number of homes passed
by the Littlerock System would grow from 8,184 in 1997 to 8,862 in 2004.
Strategis projected that basic subscribers would grow from 5,672 in 1997 to
6,363 in 2004. Strategis projected basic penetration of the Littlerock System
increasing from 70.3 percent in 1998 to 71.8 percent in 2004. Strategis
projected that premium television subscriptions would grow from 4,017 in 1997
to 4,157 in 2004. Strategis estimated that the Littlerock System would take
moderate rate increases between 1998 and 2004, with, for example, a 4 percent
increase in basic rates in 1998 and 1999 and 3 percent increases in
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basic rates each year thereafter, and a 4 percent increase in expanded basic
rates in 1998 and 2000, a 7 percent increase in such rates in 1999 and a 3
percent increase in such rates each year thereafter. Strategis estimated that
rate increases for pay television subscriptions would average 1 percent per
year after a 15 percent increase in 1998. Strategis estimated that rate
increases for converter rentals and installations would average 3 percent per
year. These projections, if true, would result in an increase in basic rates
from $14.37 in 1998 to $17.24 in 2004, and an increase in the rates for the
expanded basic tier from $13.10 in 1998 to $16.43 in 2004. As explained in the
preceding paragraphs, the "low" value was determined using a 14 percent return
on equity and the "high" value was determined using a 12 percent return on
equity. This method resulted in an estimated fair market value ranging from a
low of $10,452,720 to a high of $11,338,789 for the Littlerock System.
The fifth valuation method was a discounted cash flow analysis that measured
the net present value of the pre-tax operating cash flows (less capital
expenditures, plus the residual value of the Littlerock System) that represent
the return on the total investment rather than those that could result from an
assumed "purchase" with a pre-determined debt to equity ratio. The same set of
financial projections that the firm prepared and used in the fourth valuation
methodology were used for growth in subscribers, revenues, operating expenses
and capital expenditures. The projected pre-tax operating cash flows for the
Littlerock System, plus the last-year residual value of the Littlerock System
less capital expenditures, were discounted to the present time at an
acceptable current cost of money. This method indicated the present value of
the future pre-tax operating cash flows, using an acceptable discounted factor
based on the weighted average cost of money. The "high" value was determined
using a 15.1 percent target return on investment and the "low" value was
determined using a 16.6 percent target return on investment. This method
resulted in an estimated fair market value ranging from a low of $10,456,733
to a high of $11,282,266 for the Littlerock System.
Strategis' valuation methodologies resulted in differing values for the
Littlerock System. The reason for this is grounded in the basic approach that
the firm takes. The five different methods allow five different views of a
system's value. The first method looks at past performance, but allows nothing
for future performance. The second method looks at the system as it is as of
the date of the appraisal. The third method looks at the system's projected
operating income in the first year following the date of the appraisal. Both
discounted cash flow methods fully consider the future value of the system by
recognizing projected operating income and expenses, including capital
expenditures. Based upon all of the available information about a system being
appraised, the appraiser decides how to weight each of the five methods. The
final estimated fair market value is not a straight average of all of the
methods. Although the weighting is not shown in the appraisal report,
Strategis generally prefers the discounted cash flow methods since they
consider a broader range of factors that represent all sources of value,
present and future. Strategis accordingly generally gives greater
consideration to the discounted cash flow methods in its final judgment
concerning the fair market value of a cable television system. Strategis'
conclusions as to the range of values were based upon information and data
supplied by the General Partner, Strategis' onsite inspection of the
Littlerock System in January 1998, interviews with the Littlerock System's
onsite management team and general cable television industry information. The
fair market value appraisal of $11,118,000 reached by Strategis was based on
the various valuations generated by it, and Strategis' general knowledge and
expertise in the cable television industry.
As compensation for rendering an opinion as to the fair market value of the
Littlerock System, the General Partner paid Strategis a fee of $7,800. Such
fee was not contingent upon the conclusion reached by Strategis in its
opinion. As compensation for rendering opinions as to the fair market value of
other cable television systems owned and/or managed by the General Partner and
its affiliates, and completing the analysis of the allocations of purchase
prices between tangible and intangible assets for various cable television
systems owned and/or managed by the General Partner and its affiliates,
Strategis has received fees and expense reimbursements totaling $288,621
during the two years ended December 31, 1997.
The Bond & Pecaro Appraisal
Bond & Pecaro, Inc. ("Bond & Pecaro") is a consulting firm specializing in
valuations, asset appraisals and related financial services for the
communications industry. The firm has appraised assets of more than 1,500
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<PAGE>
media properties. Bond & Pecaro was selected by the General Partner to render
an opinion as to the fair market value of the Littlerock System in light of
such overall qualifications and because of the firm's good reputation in the
industry. No limitations were imposed with respect to the appraisal to be
rendered by Bond & Pecaro. Bond & Pecaro has prepared independent appraisals
of other cable television systems owned and/or managed by the General Partner.
The principals of Bond & Pecaro are not affiliated in any way with the General
Partner.
Bond & Pecaro used both the income and the market methodologies to determine
the fair market value of the Littlerock System as of December 31, 1997. The
firm developed a discounted cash flow analysis to determine the value of the
Littlerock System based upon its economic potential. Bond & Pecaro noted that
it is generally accepted that the value of a telecommunications business such
as a cable television system lies in the fact that it is a "going concern."
That is, a cable system's value reflects the revenues and, ultimately, the
after-tax cash flow that the business may reasonably be expected to generate
over a period of years. The potential resale value of the business at the end
of that period is also an important factor in the valuation of such
properties. Bond & Pecaro noted that a number of factors contributed to going
concern value, including the formation of a business plan, the construction of
the system headend facility, the development of a functional general,
administrative and technical organization, the establishment of a sales and
marketing organization and the coordination of all of these functions into a
well-defined and efficient operating organization. As described below, Bond &
Pecaro's discounted cash flow model incorporates variables such as capital
expenditures, homes passed by the system, basic penetration, paid penetration,
system revenue projections, anticipated system operating expenses and profits
and various discount rates. The variables in the analysis reflect historical
system and market growth trends as well as anticipated system performance and
market conditions. The capital expenditures provision reflects the amount of
investment that Bond & Pecaro projected will be required to expand and
maintain a competitive cable television business in the Littlerock, California
area. Bond & Pecaro's discounted cash flow projection period of ten years was
deemed by the firm to be an appropriate time horizon for the firm's analysis
because cable operators and investors typically expect to recover their
investments within a ten-year period. Thus, it was over this period that
projections regarding market demographics, system basic and pay penetration,
and operating profit margins were made by Bond & Pecaro. Bond & Pecaro looked
at the ten year period to project household growth in the Littlerock area,
anticipated market penetration percentages and system operating performance
expectations in order to project the Littlerock System's operating profits
during the next ten years. The firm deducted income taxes from the projected
operating profits to determine after-tax net income. Depreciation and
amortization expenses were added back to the after-tax income stream and
projected capital expenditures were subtracted to calculate the Littlerock
System's net after-tax cash flow. Bond & Pecaro then adjusted the stream of
annual cash flow to present value using a discount rate the firm deemed
appropriate for the cable television industry. To determine the Littlerock
System's residual value at the end of the ten-year projection period,
Bond & Pecaro applied an operating cash flow multiple of 11 to the system's
2007 operating cash flow projection. In Bond & Pecaro's opinion the terminal
value represents the hypothetical value of the system at the end of the
projection period and the net terminal value was discounted to present value.
The results of Bond & Pecaro's analysis indicated to the firm that the value
of the Littlerock System as of December 31, 1997 was $11,092,200. In order to
verify the results of the discounted cash flow analysis, as described below,
Bond & Pecaro also utilized a comparable sales approach, relying upon an
analysis of subscriber multiples. The results of this analysis supported the
firm's conclusions about valuation resulting from application of the income
approach.
Bond & Pecaro reported that the initial parameter upon which its discounted
cash flow projection was based was homes passed. Two factors affect the number
of homes passed: new plant construction and household growth. In preparing its
projection, Bond & Pecaro assumed that the number of households in the
Littlerock System's franchise area will increase at a rate equivalent to the
average growth projected for the areas served by the system as a whole, or
approximately 0.7 percent per year. Bond & Pecaro concluded that the basic
penetration rate would grow gradually over the 10-year projected period from
the current 69.5 percent to approximately 71.2 percent by 2007. The firm
projected that pay penetration of the Littlerock System will increase from a
level of 72.6 percent in December 1997 to approximately 90.6 percent by 2007.
Bond & Pecaro concluded that due to regulatory and competitive restrictions,
service rates for basic and expanded basic services are expected to grow
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with inflation while premium channel service rates are expected to remain
relatively flat throughout the 10-year projected period. Bond & Pecaro
estimated that pay-per-view service revenue will increase at a 42.5 percent
annual rate for the years 1998 through 2002 and at an 11 percent annual rate
thereafter, that commercial advertising revenue will increase at a 19.0
percent annual rate through 2002 and at a 10 percent annual rate thereafter,
and that annual installation revenue would remain constant during the
projection period. The firm concluded that equipment rental revenues as well
as other revenues also should increase by 9 percent annually through 2007.
Bond & Pecaro concluded that total system revenues would increase from
$2,700,000 in 1998 to $4,800,000 in 2007. For purposes of its appraisal, Bond
& Pecaro assumed that the Littlerock System would maintain an operating profit
margin of 45.1 percent, which was the system's operating profit margin in
1997. Bond & Pecaro used an estimated tax rate of 41.0 percent to project the
taxable income of the Littlerock System because the estimated rate reflects
the combined federal, state and local tax rates in effect on December 31,
1997. Depreciation expense for each year was determined using the MACRS
schedule for 5, 7, 15 and 39 year property based upon the reported cost of
fixed assets present at the Littlerock System. Subsequent annual capital
expenditures were estimated to approximate 5 percent of the cost of the fixed
assets of the Littlerock System as of December 31, 1997. Supplemental
provisions were made to incorporate projections of capital expenditures
associated with the conversion to digital television.
Bond & Pecaro then determined the net after-tax cash flow for the Littlerock
System. After taxes were subtracted from the system's taxable income, non-cash
depreciation expenses were added back to net income to yield after-tax cash
flow. From the after-tax cash flow, the provision for subsequent capital
expenditures was deducted to calculate the net after-tax cash flows. Bond &
Pecaro used a discount rate of 12 percent to calculate the present value of
the net after-tax cash flows. In order to account for the risks associated
with investments in the cable television industry and in the Littlerock System
in particular, Bond & Pecaro added a premium to a base discount rate to
develop the 12 percent rate employed in its analysis. Bond & Pecaro then
applied a multiplier of 11 to the Littlerock System's 2007 operating cash
flow. Bond & Pecaro's appraisal noted that multiples used in the valuation of
cable television systems of a type similar to the Littlerock System range from
8 to 12 times operating cash flow, depending on market conditions and a
system's profit potential. Bond & Pecaro noted also that exceptional
circumstances will warrant multiples outside of this range. The appraisal
report indicated that the selected multiple of 11 was used to estimate the
value of the system at the end of the investment period. According to Bond &
Pecaro, this multiple reflects the state of the market for cable television
systems as of December 31, 1997, tempered by the economic conditions of the
system's franchise service area, the uncertainty introduced by re-regulation
of the cable television industry and the prospects for increased competition
from wireless cable companies and direct broadcast satellite operators. The
10-year discounted cash flow projection of Bond & Pecaro yielded a value of
$11,092,200 for the Littlerock System.
In order to correlate this statistical valuation with the realities of the
marketplace, Bond & Pecaro analyzed the sale of four comparable cable
television systems that took place in 1997. The sales examined by Bond &
Pecaro were selected based upon their comparability to the Littlerock System.
The four cable television system transactions examined by Bond & Pecaro were:
(i) the sale of the Jonesboro, Arkansas cable television system by one
unaffiliated cable television system operator to another for a sales price of
$41,000,000 or a price per subscriber of $2,000, (ii) the sale of the
Anderson, South Carolina cable television system by one unaffiliated cable
television system operator to another for a sales price of $31,000,000 or a
price per subscriber of $1,934, (iii) the sale of the Auburn, New York cable
television system by one unaffiliated cable television system operator to
another for a sales price of $28,000,000 or a price per subscriber of $1,958,
and (iv) the sale of cable television systems in Connecticut and New Hampshire
by one unaffiliated cable television system operator to another for a sales
price of $30,000,000 or a price per subscriber of $1,954. Bond & Pecaro
determined that the average price per subscriber paid for the four comparable
cable television systems sales was approximately $1,962. As noted above, Bond
& Pecaro's discounted cash flow model concluded that the Littlerock System's
overall fair market value was $11,092,200. This $11,092,200 value reflects a
price of approximately $1,955 per subscriber, which Bond & Pecaro judged to be
consistent with prevailing subscriber multiples of comparable sales in 1997.
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A representative of Bond & Pecaro consulted with system management regarding
market factors and system-specific issues that impacted the value of the
system's tangible and intangible assets. Specific data provided by the system
and the General Partner included historical audited financial statements,
operating statistical summaries, system technical data, market demographic
data and related materials. Other sources consulted in the preparation of the
appraisal included industry factbooks, government publications and similar
reference materials. Bond & Pecaro also relied upon information furnished by
the Littlerock System's management relating to the age, condition and adequacy
of the system's physical plant.
As compensation for rendering an opinion as to the fair market value of the
Littlerock System, the General Partner paid Bond & Pecaro a fee of $10,375.
Such fee was not contingent upon the conclusions reached by Bond & Pecaro in
its opinion. As compensation for rendering opinions as to the fair market
value of other cable television systems owned and/or managed by the General
Partner and its affiliates, Bond & Pecaro has received fees totaling $17,098
during the two years ended December 31, 1997.
The Waller Appraisal
Waller Capital Corporation ("Waller") is a firm specializing in financial
services and asset appraisals for the telecommunications industry. Waller was
selected by the General Partner to render an opinion as to the fair market
value of the Littlerock System in light of its overall qualifications and
because of the firm's good reputation in the cable television industry. No
limitations were imposed with respect to the appraisals to be rendered by
Waller. Waller has prepared independent appraisals of other cable television
systems owned and/or managed by the General Partner. Neither Waller nor any of
its representatives have any active or contemplated direct interest in the
General Partner, in any of its managed partnerships or in any of its
affiliates, except for incidental shareholdings in the General Partner, which
is a publicly traded company.
In arriving at its opinion as to the fair market value of the Littlerock
System, Waller utilized audited and unaudited financial statements, visited
the Littlerock System, met with the management of the General Partner to
discuss the Littlerock System's business, current operations and prospects,
analyzed published financial and operating information and prospects, analyzed
published financial and operating information considered by Waller to be
comparable or related to the Littlerock System, and made other financial
studies, analysis and investigations as Waller deemed appropriate. Waller
indicated in its report that the primary purpose of its valuation was to
arrive at the fair market value of the Littlerock System, with fair market
value defined as the amount at which a property would change hands between a
willing buyer and a willing seller when neither is acting under compulsion and
when both have reasonable knowledge of the relevant facts. The valuation was
determined on a cash-for-assets basis.
Numerous elements, both quantitative and qualitative, were factored into
Waller's valuation. Waller concluded that the Littlerock System has attractive
demographics with, for example, average household income in the area served by
the system being significantly higher than the national average. Waller also
noted that due to the technical profile of the largest employers in the
Littlerock area (aerospace and defense), the residents of the area are also
highly educated. The firm further noted that the Littlerock area has
experienced substantial growth in households, with the area's households
expected to grow over 3.5 percent per year from 1997 to 2000. Waller also
concluded that the technical condition of the system at 550 Mhz capacity will
be sufficient for the Littlerock market for the near future. On the negative
side, Waller noted that while there is no current wireless competition to the
Littlerock System, there exists the potential of wireless competition due to
the Littlerock area's flat geography. Waller also noted that the local
economy, while increasingly diversified, still is heavily dependent on the
aerospace and defense industries and a downturn in either of these industries
could negatively impact system revenues.
The general methodology of Waller's appraisal was to evaluate the discounted
cash flow stream generated by the Littlerock System over a ten-year period
(1998 to 2007), applying all relevant market and economic factors. Waller's
ten-year projections were prepared using information provided by the General
Partner together with Waller's industry estimates. Waller developed its
projections through on-sight due diligence, a review of
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the Littlerock System's 1998 operating budget prepared by the General Partner,
other operating and subscriber data and projections and demographic data
relating to the Littlerock System's service area. A sale was assumed to occur
in the tenth year (2007) of the discounted cash flow model. The cash flow
sales multiple selected reflected the long-term prospects for cash flow growth
and the cash flow quality of the Littlerock System. The multiple selected also
accounted for the presumed technical condition of the Littlerock System at
2007. The multiple selected was applied against the full tenth year cash flow.
Waller's analysis utilized a discount rate of 14 percent derived from Waller's
weighted average cost of capital ("WACC") model. The discount rate was
commensurate with a probable buyer's capital structure, operating risk and
other factors associated with the operations of the Littlerock System. The
discount rate used was consistent with the WACCs for an average cable buyer,
private or public, and adjusted for certain factors such as size, liquidity,
leverage and risk associated with a typical cable system buyer. The cable
companies used to generate the WACC model were Adelphia Communications
Corporation, Comcast Corporation, Cox Communications, Century Communications
Corp., Cablevision Systems Corporation, TCA Cable TV, Inc.,
Telecommunications, Inc., Time Warner and US West MediaOne Group.
Like Strategis and Bond & Pecaro, Waller developed its discounted cash flow
model based upon its own assumptions about the Littlerock System. Waller
projected that homes passed growth would be approximately 1 percent per year
over the ten year projection period, growing from 8,321 homes passed in 1998
to 9,100 homes passed in 2007. Waller projected that system plant miles would
grow from 208 in 1998 to 228 in 2007. Waller concluded that subscriber growth
would range from 0.7 percent to 2.7 percent in any particular year and that,
as a result, subscribers would grow from 5,825 in 1998 to 6,370 in 2007.
Waller projected growth in the number of pay units generally averaging
1 percent per year during the ten year projection period, with pay units
increasing from 4,200 in 1998 to 4,593 in 2007. Waller also examined growth in
rates charged to subscribers, concluding that basic service rates would grow
from $26.98 in 1998 to $37.49 in 2007. Waller concluded that rates for pay
programming would increase approximately 2 percent per year, with rates
increasing from $7.70 in 1998 to $9.20 in 2007. Waller concluded that total
system revenue would increase from $2,891,000 in 1998 to $4,395,000 in 2007,
with growth in basic service revenues the primary reason for such increase.
Waller also included that total operating expenses would grow from $1,481,000
in 1998 to $2,471,000 in 2007. Because Waller concluded that expenses would
increase at a slightly higher rate than revenue, Waller concluded that the
Littlerock System's cash flow would grow less dramatically, from $1,409,000 in
1998 to $1,923,000 in 2007.
Waller's analysis was further supported by comparable system sales. Waller
examined specific transactions to determine if an appropriate multiple of cash
flow could be derived from current market information. Waller examined
multiples from announced and completed cable television transactions in 1996
and 1997, relying upon data from transactions executed by Waller, from Paul
Kagan & Associates, Inc. and from general industry information sources. Waller
acknowledged that comparable sales data is difficult to generalize from
because of the variability of factors such as system size, growth prospects,
penetration, location, demographics, technical system condition and franchise
terms, which information often is not publicly available. Given these
limitations, Waller is of the opinion that comparable sales data offers only
an approximation of factors that help devise a fair market value and is used
as a reasonableness test of the discounted cash flow approach to value.
For its comparable system sales analysis, Waller examined transactions
involving cable television systems of similar size and characteristics to the
Littlerock System. Waller examined five transactions that occurred in 1997 and
seven transactions that occurred in 1996. The five cable television system
transactions examined by Waller from 1997 were: (i) the sale of the
Shelbyville, Tennessee cable television system by one unaffiliated cable
television system operator to another for a sales price of $20,000,000 or a
price per subscriber of $1,726, (ii) the sale a Florida system by one
unaffiliated cable television system operator to another for a sales price of
$4,000,000 or a price per subscriber of $2,000, (iii) the sale of the Sun
City, California cable television system by one unaffiliated cable television
system operator to another for a sales price of $13,000,000 or a price per
subscriber of $1,342, (iv) the sale of the Oak Creek, Arizona cable television
system by one unaffiliated cable television system operator to another for a
sales price of $5,000,000 or a price per subscriber of $1,452, and (v) the
sale of the Clearlake, California cable television system by one of the
General Partner's managed partnerships
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to an unaffiliated cable television system operator for a sales price of
$21,000,000 or a price per subscriber of $1,237. The seven 1996 cable
television system transactions examined by Waller were: (i) the sale of the
Palm Coast, Florida cable television system by one unaffiliated cable
television system operator to another for a sales price of $30,000,000 or a
price per subscriber of $2,970, (ii) the sale of the Nogales, Arizona cable
television system by one unaffiliated cable television system operator to
another for a sales price of $12,000,000 or a price per subscriber of $1,438,
(iii) the sale of the Picken City, South Carolina cable television system by
one unaffiliated cable television system operator to another for a sales price
of $8,000,000 or a price per subscriber of $1,867, (iv) the sale of the Kern
County, California cable television system by one unaffiliated cable
television system operator to another for a sales price of $11,000,000 or a
price per subscriber of $1,657, (v) the sale of a cable television system
serving a portion of San Francisco, California by one unaffiliated cable
television system operator to another for a sales price of $20,000,000 or a
price per subscriber of $1,593, (vi) the sale of several small systems in
California by one unaffiliated cable television system operator to another for
a sales price of $21,000,000 or a price per subscriber of $1,891 and (vii) the
proposed sale of the Roseville, California cable television system by one of
the General Partner's managed partnerships to an unaffiliated cable television
system operator for a sales price of $31,000,000 or a price per subscriber of
$1,738. Waller determined that the average price per subscriber paid for the
comparable cable television system sales was approximately $1,938 and a cash
flow multiple of 8.7. Waller concluded that this comparable sales analysis
supported and validated Waller's discounted cash flow analysis, which resulted
in an aggregate value for the Littlerock System of $1,754 per subscriber and a
8.7 times 1997 cash flow multiple.
Based on its various analyses and investigations of the Littlerock System,
Waller concluded that the fair market value of the Littlerock System as of
December 31, 1997 was $9,951,000.
As compensation for rendering an opinion as to the fair market value of the
Littlerock System, the General Partner paid Waller a fee of $15,213. Such fee
was not contingent upon the conclusion reached by Waller in its opinion.
Waller received no fees from the General Partner and its affiliates during the
two years ended December 31, 1997.
COSTS OF THE TRANSACTION
The following is a reasonably itemized estimate of all expenses incurred or
to be incurred in connection with the proposed sale of the Littlerock System,
all of which will be paid by the General Partner, including without limitation
the cost of soliciting the votes of the holders of limited partnership
interests:
<TABLE>
<S> <C>
Filing fees $ 2,144
Legal fees $10,000
Accounting fees $10,000
Appraisal fees $33,387
Printing costs $60,000
Postage and miscellaneous costs $20,000
</TABLE>
PROPOSED SALE OF ASSETS
THE PURCHASE AND SALE AGREEMENT
Pursuant to the terms and conditions of a purchase and sale agreement dated
as of March 10, 1998 (the "Purchase and Sale Agreement") by and between the
Partnership as seller and the General Partner as purchaser, the Partnership
agreed to sell the Littlerock System to the General Partner or to a subsidiary
of the General Partner. The General Partner has assigned its rights and
obligations as purchaser to Jones Communications of California, Inc., an
indirect wholly owned subsidiary. The purchaser intends to finance the
acquisition of the Littlerock System using cash on hand and borrowings
available under credit facilities dated as of October 29, 1996 among Jones
Cable Holdings II, Inc., as the borrower, and several lenders, including The
Bank of Nova Scotia, NationsBank of Texas, N.A. and Societe Generale as the
managing agents. The maximum amount
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available under the credit facilities is $600 million. One $300 million
facility reduces quarterly beginning March 31, 2000 through the final maturity
date of December 31, 2005 and the lenders' revolving commitment under the
other $300 million facility terminates on October 27, 1998, at which time any
outstanding borrowings convert to a term loan payable in semi-annual
installments commencing June 30, 2001 with a final maturity date of December
31, 2005. Interest on amounts outstanding under the credit facilities varies
from the "base rate," which generally approximates the prime rate, to the base
rate plus 1/4 percent or LIBOR plus 1/2 percent to 1 1/4 percent depending on
certain financial covenants. The effective interest rate on the $130,000,000
outstanding at March 31, 1998 was 6.18 percent. The credit facilities are
secured by a pledge of the stock of all of the subsidiaries of the borrower.
Jones Communications of California, Inc. is a wholly owned subsidiary of Jones
Cable Holdings II, Inc., which in turn is a wholly owned subsidiary of the
General Partner.
Based upon amounts estimated as of March 31, 1998, the aggregate cost of the
acquisition of the Littlerock System to the purchaser, including working
capital adjustments, will be approximately $10,829,411. Amounts borrowed by
the purchaser to acquire the Littlerock System will be repaid from cash
generated by the operations of the Littlerock System and other systems owned
by Jones Cable Holdings II, Inc. and from other sources of funds, including
possible future refinancings.
The closing of the sale will occur on a date upon which the Partnership and
the purchaser mutually agree. It is anticipated that the closing will occur in
the fourth quarter of 1998. Because the closing is conditioned upon, among
other things, the approval of the limited partners of the Partnership and the
consent of governmental franchising authorities and other third parties, there
can be no assurance that the proposed sale will occur. If all conditions
precedent to the purchaser's obligation to close are not eventually satisfied
or waived, the purchaser's obligation to purchase the Littlerock System will
terminate.
THE LITTLEROCK SYSTEM
The assets to be acquired consist primarily of the real and personal,
tangible and intangible assets of the Partnership's Littlerock System. The
purchaser will purchase all of the tangible assets of the Littlerock System,
including, among other things, the headend equipment, underground and
aboveground cable distribution systems, towers, earth satellite receive
stations, and furniture and fixtures of the Littlerock System. The purchaser
also will acquire certain of the intangible assets of the Littlerock System,
including, among other things, all of the franchises, leases, agreements,
permits, licenses and other contracts and contract rights of the Littlerock
System. Also included in the sale are any parcels of real estate owned by the
Littlerock System, the subscriber accounts receivable of the Littlerock System
and all of the Littlerock System's engineering records, files, schematics,
maps, reports, promotional graphics, marketing materials and reports filed
with federal, state and local regulatory agencies. Certain of the Littlerock
System's assets will be retained by the Partnership, including cash or cash
equivalents on hand and in banks, certain insurance policies and rights and
claims thereunder, and any federal or state income tax refunds to which the
Partnership may be entitled.
SALES PRICE
Subject to the customary working capital closing adjustments described
below, the sales price for the Littlerock System is $10,720,400. The sales
price will be reduced by any accounts payable and accrued expenses and vehicle
lease obligations existing on the closing date. The sales price will be
increased by any accounts receivable existing on the closing date. The sales
price for the Littlerock System also will be adjusted as of the closing date
with respect to all items of income and expense associated with the operation
of the Littlerock System. This adjustment will reflect, in accordance with
generally accepted accounting principles, that all expenses and income
attributable to the period on or after the closing date are for the account of
the purchaser and those prior to the closing date are for the account of the
seller. While these adjustments may have the effect of increasing or
decreasing the sales price, any adjustment is not expected to be material.
Please see Note 5 of the Notes to Unaudited Pro Forma Consolidated Financial
Statements for a detailed accounting of the estimated closing adjustments.
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CONDITIONS TO CLOSING
The purchaser's obligations under the Purchase and Sale Agreement are
subject to the following conditions: (a) the Partnership shall have obtained
all material consents and approvals from governmental authorities and third
parties with whom the Partnership has contracted that are necessary for the
transfer of the Littlerock System, (b) all representations and warranties of
the Partnership shall be true and correct in all material respects as of the
closing date and (c) termination or expiration of the statutory waiting period
applicable to the Purchase and Sale Agreement and the transactions
contemplated thereby under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"). The Partnership must obtain the consent of
the County of Los Angeles to the transfer of the Littlerock System's cable
franchises. The Partnership and the General Partner have filed all documents
required to obtain the consent of the franchising authority to the transfer of
the Littlerock System's cable franchise. It is anticipated that the
Partnership will not experience any significant difficulty in obtaining the
necessary consents and approvals to the currently proposed sale. If, however,
the Partnership fails to obtain certain non-material consents and approvals of
third parties with whom the Littlerock System has contracted, the purchaser
likely will waive this condition to closing. In such circumstances, the
purchaser would agree to indemnify the Partnership for any liabilities
incurred in connection with a closing without prior receipt of all necessary
consents.
The Partnership's obligations under the Purchase and Sale Agreement are
subject to the following conditions: (a) the receipt of the purchase price for
the Littlerock System, (b) the limited partners of the Partnership shall have
approved the sale of the Littlerock System to the purchaser on the terms and
conditions of the Purchase and Sale Agreement and (c) the statutory waiting
periods applicable to the Purchase and Sale Agreement and the transactions
contemplated thereby under the HSR Act shall have terminated or shall have
expired.
FEDERAL AND STATE INCOME TAX CONSEQUENCES
The purpose of the following discussion of the income tax consequences of
the proposed transaction is to inform the limited partners of the Partnership
of the 1998 federal and state income tax consequences to the Partnership and
to its partners arising from the proposed sale of the Littlerock System as
well as from the prior 1998 sales of the Broward System and the Surfside
System. These tax consequences are expected to be incurred in 1998, the year
in which the sales have closed or are expected to close. The tax information
included herein was prepared by the tax department of the General Partner. The
tax information is taken from tax data compiled by the General Partner in its
role as the Partnership's tax administrator and is not based upon the advice
or formal opinion of counsel. The tax discussion that follows is merely
intended to inform the limited partners of factual information and should not
be considered tax advice.
Section 5.3 of the Partnership Agreement specifies that Partnership
distributions of cable television system net sale proceeds shall be allocated
100 percent to limited partners until they have received a return in an amount
equal to 125 percent of their initial capital contributions and thereafter
such distributions will be made 75 percent to the limited partners and 25
percent to the General Partner. Because limited partners will not receive
distributions in an amount equal to the capital they initially contributed to
the Partnership, all of the net proceeds from the sales of the Broward System,
the Surfside System and the Littlerock System will be allocated to the limited
partners.
The allocation of gain from the sales of the Broward System, the Surfside
System and the Littlerock System will be allocated 100 percent to the limited
partners in accordance with Section 5.2 of the Partnership Agreement. This
allocation follows the underlying economic gain of the partners and hence
satisfies the "substantial economic effect" test enacted in IRC Section 704(b)
regarding special partnership allocations.
Application of the allocation provisions of Section 5.2 ensures that the
limited partners' net sum of allocable partnership loss and income during the
Partnership's life will equal the net economic gain realized from their
investment in the Partnership. The estimated allocable limited partner income
from the sales reported below incorporates the application of the special
partnership allocation rules of Section 5.2.
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By the expected date of the sales in 1998, most of the limited partners will
have received certain tax benefits from their investment in the Partnership.
Assuming maximum federal income tax rates and no other sources of passive
income, original limited partners of the Partnership will have received
$1,698,795 in tax benefits from Partnership losses ($13 per $1,000 invested).
Tax benefits derived from allocable Partnership losses have been limited due
to the passive loss limitation rules enacted in 1986.
The Littlerock System sale will be the final of three cable television
system sales whose gains will be reported to the limited partners on their
1998 Partnership income tax forms. The anticipated results of the three cable
system sales are detailed below.
THE BROWARD SYSTEM SALE
The March 1998 sale of the Broward System generated taxable gain that will
be allocable to the limited partners in an amount approximating $68,694,640
($526 per $1,000 invested). The General Partner estimates that all of the gain
will be characterized as ordinary income from Internal Revenue Code ("IRC")
Section 1245 recapture of depreciation and amortization on Partnership
operating assets. It is not anticipated that any of the allocable gain will be
treated as long term capital gain under IRC Section 1231. Some or all of this
allocable gain may be offset by passive loss carryforwards of the limited
partners, which is discussed in more detail below.
THE SURFSIDE SYSTEM SALE
The June 1998 sale of the Surfside System generated taxable gain that will
be allocable to the limited partners in an amount approximating $19,374,805
($148 per $1,000 invested). The General Partner estimates that all of the gain
will be characterized as ordinary income from IRC Section 1245 recapture of
depreciation and amortization on Partnership operating assets. It is not
anticipated that any of the allocable gain will be treated as long term
capital gain under IRC Section 1231. Some or all of this allocable gain may be
offset by passive loss carryforwards of the limited partners, which is
discussed in more detail below.
THE LITTLEROCK SYSTEM SALE
The 1998 sale of the Littlerock System will generate taxable gain that will
be allocable to the limited partners in an amount approximating $8,142,765
($62 per $1,000 invested). The General Partner estimates that all of the gain
will be characterized as ordinary income from IRC Section 1245 recapture of
depreciation and amortization on Partnership operating assets. It is not
anticipated that any of the allocable gain will be treated as long term
capital gain under IRC Section 1231. Some or all of this allocable gain may be
offset by passive loss carryforwards of the limited partners, which is
discussed in more detail below.
APPLICATION OF PASSIVE LOSS CARRYFORWARDS
The Tax Reform Act of 1986 enacted a limitation on a limited partner's
ability to currently deduct allocable partnership losses, which were deemed to
be passive losses. The law phased in the disallowance of passive loss
deductions until 1990, when no passive losses were allowable except to the
extent of passive income or a disposition of the passive activity. The proper
application of these loss limitation rules will have resulted in the existence
of passive loss carryforwards for the Partnership's limited partners. These
potential passive loss carryforwards can be deducted in the current year to
offset the allocable Partnership gains from the three system sales detailed
above.
The General Partner estimates that the Partnership has generated potential
passive loss carryforwards of $93,471,735 ($715 per $1,000 invested) that may
be available for offset against 1998 income. The carryforward amount is
calculated by applying the passive loss limitations to historical partnership
losses and assuming that the limited partners of the Partnership would not
have utilized prior year limited passive losses on account of other sources of
passive income. The availability of these loss carryforwards depends on the
particular tax history of each limited partner. Partners that have utilized
some or all of prior Partnership losses limited by the passive loss rules will
have deductible passive losses that vary accordingly.
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<PAGE>
SYNDICATION COSTS
Syndication costs represent the sales commissions paid by limited partners
on their purchase of their limited partnership interests and allocable costs
associated in forming the Partnership. These costs were capitalized on the
Partnership books and are reflected in the limited partners' capital account
balance. Upon liquidation of the Partnership, the syndication costs cannot be
deducted by the Partnership. However, these costs can be deducted by the
limited partners as a long term capital loss under IRC Section 731. Limited
partners will have an ending capital balance on their final Form 1065,
Schedule K-1 which represents their allocable syndication costs. The
Partnership has syndication costs of 17,969,375 ($138 per $1,000 invested)
that will be deductible by limited partners on their 1998 returns.
A limited partner with the maximum available passive loss carryforwards will
not be subject to 1998 federal income tax on the gain from the sales of the
Partnership's three systems after deduction of his or her allocable
syndication costs. Partners who have previously utilized Partnership passive
losses will have results that vary accordingly.
SECONDARY MARKET PURCHASERS
Limited partners that have recently acquired their partnership interests in
the limited partnership secondary market or through tender offers will have
allocable income from the cable system sales in the amounts reported above.
Because the Partnership does not have an IRC Section 754 election in effect,
the purchase of a limited partnership interest in the Partnership places the
new investor in the same position as the limited partner from whom the
interest was purchased. However, the new investor will not have the prior
investors' passive loss carryforwards or tax basis in the Partnership.
Newer investors in the Partnership will not have the above calculated
passive loss carryforwards and will likely have a greater reportable net
taxable income from the system sales than investors who have held their
partnership interests for a longer period of time. Also, recent investors will
not have their net tax basis in their partnership interests reflected on their
annual Schedule K-1. Such limited partners must track their tax basis by
adjusting their original cost by allocable income or loss and partnership
distributions. Their adjusted tax basis will be deductible as a long term
capital loss under IRC Section 731 in a manner similar to the Partnership
syndication costs discussed above.
TAX WITHHOLDING ON SALE PROCEEDS
Limited partners who are non-resident aliens or foreign corporations
("foreign persons") are subject to a federal withholding tax on their share of
the Partnership's income from the system sales. The withholding rates are 39.6
percent for individual partners and 35 percent for corporate partners. The tax
withheld will be remitted to the Internal Revenue Service and the foreign
persons will receive a credit on their 1998 U.S. tax return for the amount of
the tax withheld by the Partnership. The withheld tax will be treated as a
distribution to such limited partners.
The sale of the Surfside System will require limited partner reporting to
the State of South Carolina. The General Partner is required by state law to
withhold 5 percent of each partner's allocable income occurring from sale
activity within South Carolina without consideration of loss carryforwards.
This withholding requirement also applies to tax exempt entities such as
trusts and IRAs.
The sale of the Littlerock System will require limited partner reporting to
the State of California. The General Partner is required by state law to
withhold 7 percent of each U.S. non-resident partner's allocable income and
9.3 percent of each foreign non-resident partner's allocable income occurring
from sale activity within California without consideration of loss
carryforwards. This withholding requirement does not apply to tax exempt
entities such as trusts and IRAs.
Limited partners are required to file non-resident state tax returns to
compute the appropriate state tax liability. Documentation of withheld taxes
will be reported on state specified forms to limited partners in January 1999.
The General Partner anticipates that most partners will likely receive a
refund from this reporting process. Detailed South Carolina and California
reporting instructions and blank forms will be provided to limited partners in
their annual tax reporting package, which will be mailed to limited partners
in March 1999.
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FEDERAL REPORTING BY TAX EXEMPT ENTITIES
The 1998 Partnership cable system sales will generate Unrelated Business
Taxable Income (UBTI) to tax exempt entities, which will require the filing of
Form 990-T. Assuming prior year UBTI losses have not been previously utilized,
the 1998 allocable UBTI income should be fully offset with no resulting tax
liability. Although many trust administrators complete the required tax
returns, responsibility for completion of the Form 990-T ultimately rests with
the beneficiaries of trusts, IRAs and other tax exempt entities. Because this
is an area in which there is a variance of policy among trust administrators,
each limited partner who is a beneficiary is advised to confirm with his or
her trust administrator that this filing requirement will be fulfilled.
The General Partner has learned that some trust administrators will file a
Form 990-T without consideration of prior year loss carryforwards. If your
plan administrator employs this methodology, your tax exempt plan will be
subject to significant tax liabilities that would not be required if prior
losses were reported. Each limited partner who is a beneficiary of a tax
exempt entity is advised to inquire about the reporting methodology employed
by his or her trust administrator if the trust administrator is filing the
Form 990-T for 1998.
CERTAIN INFORMATION ABOUT THE PARTNERSHIP
AND THE GENERAL PARTNER
The General Partner acquires, develops and operates cable television systems
for itself and for its managed limited partnerships. Based on the number of
basic subscribers served by the General Partner's owned and managed cable
television systems, the General Partner is one of the larger cable television
system operators in the United States serving in excess of 1 million basic
subscribers. The principal executive offices of the Partnership and the
General Partner are located at 9697 East Mineral Avenue, Englewood, Colorado
80112, and their telephone number is (303) 792-3111.
The limited partnership interests of the Partnership are registered pursuant
to Section 12(g) of the Exchange Act. As such, the Partnership currently is
subject to the informational reporting requirements of the Exchange Act and,
in accordance therewith, is obligated to file periodic reports, proxy
statements and other information with the Commission relating to its business,
financial condition and other matters. Reports and other information filed by
the Partnership can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the following regional offices of the Commission: 7 World
Trade Center, Suite 1300, New York, New York 10048 and Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The
Commission also maintains a World Wide Web site that contains reports, proxy
statements and information statements of registrants (including the
Partnership) that file electronically with the Commission at
http://www.sec.gov. The Partnership's registration and reporting requirements
under the Exchange Act will be terminated upon the dissolution of the
Partnership, which is expected to occur soon after the sale of the Littlerock
System.
The General Partner also is subject to the informational filing requirements
of the Exchange Act and, in accordance therewith, files periodic reports,
proxy statements and other financial information with the Securities and
Exchange Commission relating to its business, financial condition and other
matters. Information, as of particular dates, concerning the General Partner's
directors and officers, their compensation, options granted to them, the
principal holders of the General Partner's securities and any material
interest of such persons in transactions with the General Partner is required
to be disclosed in certain documents filed with the Commission. Such reports,
proxy statements and other information may be inspected at the above-listed
public reference facilities maintained by the Commission and at the
Commission's World Wide Web site. Copies of such materials may be obtained
upon payment of the Commission's prescribed charges by writing to the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C.
20549.
The name, business address and principal occupation and employment for the
past five years of each of the directors and executive officers of the General
Partner are set forth in Schedule 1 to this Proxy Statement. To the best
knowledge of any of the persons listed on Schedule 1 hereto, except as
disclosed on such schedule, no persons listed on such schedule beneficially
own any limited partnership interests in the Partnership.
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Except as disclosed herein, neither the General Partner nor, to the best of
its knowledge, any of the persons listed on Schedule 1 hereto, has any
contract, arrangement, understanding or relationship with any other person
with respect to any limited partnership interest of the Partnership,
including, but not limited to, any contract, arrangement, understanding or
relationship concerning the transfer or the voting of any of such interests,
joint ventures, loan or option arrangements, puts or calls, guaranties of
loans, guaranties against loss or the giving or withholding of proxies.
CERTAIN RELATED PARTY TRANSACTIONS
The General Partner and its affiliates engage in certain transactions with
the 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.
The purchase price for the Littlerock System was determined in accordance
with the provisions of the Partnership Agreement but the proposed sale of the
Littlerock System by the Partnership to one of the General Partner's
subsidiaries was not negotiated at arm's-length and thus there can be no
assurance that the terms of such transaction have been or will be as favorable
as those that could have been obtained by the Partnership from an unaffiliated
purchaser.
The General Partner charges the Partnership a management fee relating to the
General Partner's management of the Partnership's cable television systems,
and the Partnership reimburses the General Partner for certain allocated
overhead and administrative expenses in accordance with the terms of the
Partnership Agreement. These expenses consist primarily of salaries and
benefits paid to corporate personnel, rent, data processing services and other
facilities costs. Such personnel provide engineering, marketing,
administrative, accounting, legal and investor relations services to the
Partnership. Allocations of personnel costs are based primarily on actual time
spent by employees of the General Partner with respect to cable television
systems managed. Systems owned by the General Partner and its subsidiaries and
all other systems owned by partnerships for which Jones Intercable, Inc. or
one of its subsidiaries is the general partner are also allocated a
proportionate share of these expenses. No duplicate management or other fees
or reimbursements are charged to the Partnership.
The General Partner from time to time also advances funds to the Partnership
and charges interest on the balances payable by the Partnership. The interest
rate charged the Partnership approximates the General Partner's weighted
average cost of borrowing.
Knowledge TV, Inc. is an affiliate of the General Partner that owns and
operates Knowledge TV, a network that provides programming related to
computers and technology; business, careers and finance; health and wellness;
and global culture and languages. Knowledge TV, Inc. sells its programming to
the cable television systems owned by the Partnership.
Jones Computer Network, Ltd., an affiliate of the General Partner, operated
the television network Jones Computer Network. This network provided
programming focused primarily on computers and technology. Jones Computer
Network sold its programming to the cable television systems owned by the
Partnership. Jones Computer Network terminated its programming in April 1997.
The Great American Country network provides country music video programming
to the cable television systems owned by the Partnership. This network is
owned and operated by Great American Country, Inc., a subsidiary of Jones
International Networks, Ltd., an affiliate of the General Partner.
Jones Galactic Radio, Inc. is a company owned by Jones International
Networks, Ltd., an affiliate of the General Partner, Superaudio, a joint
venture between Jones Galactic Radio, Inc. and an unaffiliated entity,
provides satellite programming to the cable television systems owned by the
Partnership.
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The Product Information Network Venture (the "PIN Venture") is a venture
among a subsidiary of Jones International Networks, Ltd., an affiliate of the
General Partner, and two unaffiliated cable system operators. The PIN Venture
operates the Product Information Network ("PIN"), which is a 24-hour network
that airs long-form advertising generally known as "infomercials." The PIN
Venture generally makes incentive payments of approximately 60 percent of its
net advertising revenue to the cable systems that carry its programming. The
Partnership's 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 $12,124 for the three months ended March 31,
1998 and $45,488 for the year ended December 31, 1997.
The programming fees paid by the Partnership to Knowledge TV, Inc., Jones
Computer Network, Ltd., Great American Country and Superaudio (collectively,
the "affiliated programming providers") are governed by the terms of the
various master programming agreements entered into by and between the General
Partner and each of the affiliated programming providers. Generally, with
respect to most video programming services, cable operators pay to programmers
a monthly license fee per subscriber that is based on a number of factors,
including the perceived value of the programming, the size of the cable
operator and the level of distribution of the programming service within the
cable operator's systems and the other terms and conditions under which the
programming is provided. The General Partner negotiates master programming
agreements with each programming network distributed on any of its owned or
managed cable systems. The Partnership pays the same per subscriber rate for
all of its programming, including the programming provided by affiliates of the
General Partner, as the General Partner pays for the programming it provides on
cable television systems that it owns itself, i.e., the General Partner does
not receive any markup for programming provided to the Partnership under its
master programming agreements. The master programming agreements entered into
by and between the General Partner and the affiliated programming providers
were negotiated by officers of the General Partner with representatives of the
affiliated programming providers.
The charges to the Partnership for related party transactions were as follows
for the periods indicated:
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS
ENDED FOR THE YEAR ENDED
MARCH 31, 1998 DECEMBER 31,
-------------- --------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C> <C>
Management fees................ $526,804 $2,046,467 $1,888,466 $1,722,188
Allocation of expenses......... 609,192 2,353,371 2,504,431 2,459,481
Interest expense............... 716 2,678 106,022 145,929
Amount of notes and advances
outstanding................... 891,877 835,015 449,094 1,896,049
Highest amount of notes and
advances outstanding.......... 891,877 835,015 3,058,834 1,896,049
Programming fees:
Knowledge TV, Inc. .......... 17,813 63,921 56,798 49,493
Jones Computer Network,
Ltd. ....................... -0- 14,633 39,371 34,402
Great American Country....... 16,732 22,309 24,339 -0-
Superaudio................... 15,271 57,469 52,687 46,269
</TABLE>
29
<PAGE>
USE OF PROCEEDS FROM LITTLEROCK SYSTEM SALE
The following is a brief summary of the Partnership's estimated use of the
proceeds from the sale of the Littlerock System. All of the following selected
financial information is based upon amounts as of March 31, 1998 and certain
estimates of liabilities at closing. Final results may differ from these
estimates. A more detailed discussion of the financial consequences of the sale
of the Littlerock System is set forth below under the caption "Unaudited Pro
Forma Consolidated Financial Information." All limited partners are encouraged
to review carefully the unaudited pro forma consolidated financial statements
and notes thereto.
If the holders of a majority of limited partnership interests of the
Partnership approve the proposed sale of the Littlerock System and the
transaction is closed, the Partnership will distribute the $10,838,000 of net
sale proceeds to its limited partners of record as of the closing date of the
sale of the Littlerock System. The estimated uses of the sale proceeds are as
follows:
<TABLE>
<S> <C>
Contract Sales Price of the Littlerock System................... $10,720,400
Add:Cash on Hand................................................ 8,589
Estimated Net Closing Adjustments........................... 109,011
-----------
Cash Available for Distribution by the Partnership......... $10,838,000
===========
Limited Partners' Share (100%)............................. $10,838,000
===========
</TABLE>
Based upon financial information available at March 31, 1998, below is an
estimate of all cash distributions that will have been made to limited partners
after the distribution of the proceeds from the sale of the Littlerock System
is completed.
Summary of Estimated Cash Distributions to Limited Partners:
<TABLE>
<S> <C>
Partial Return of Limited Partners' Initial Capital on the
1998 Sale of the Venture's Broward System................... $ 68,554,431
Partial Return of Limited Partners' Initial Capital on the
Subscriber Warrant Residual on the 1998 Sale of the
Venture's Broward System.................................... 2,326,272
Partial Return of Limited Partners' Initial Capital on the
1998 Sale of the Partnership's Surfside System.............. 32,800,000
Partial Return of Limited Partners' Initial Capital on the
1998 Sale of the Partnership's Littlerock System............ 10,838,000
------------
Total Estimated Cash Received by Limited Partners............ $114,518,703
============
Total Cash Received per $1,000 of Limited Partnership
Capital..................................................... $ 876
============
Total Cash Received per $500 Limited Partnership Interest ... $ 438
============
</TABLE>
30
<PAGE>
Based on financial information available at March 31, 1998, the following
table presents the estimated results of the Partnership when it has completed
the sale of the Littlerock System:
<TABLE>
<S> <C>
Dollar Amount Raised.......................................... $130,676,500
Number of Cable Television Systems Purchased Directly......... Two
Number of Cable Television Systems Purchased Indirectly....... One
Date of Closing of Offering................................... October 1988
Date of First Sale of Properties.............................. March 1998
Tax and Distribution Data per $1,000 of Limited Partnership
Capital:
Federal Income Tax Results
Ordinary Income (Loss)
--from operations......................................... $ 722
--from recapture.......................................... $ 736
Capital Gain (Loss)....................................... $(138)
Cash Distributions to Investors
Source (on GAAP basis)
--investment income....................................... $ -0-
--return of capital....................................... $ 876
Source (on cash basis)
--sales................................................... $ 876
</TABLE>
31
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
OF CABLE TV FUND 14-B, LTD.
The following unaudited pro forma consolidated balance sheet assumes that as
of March 31, 1998, the Partnership had sold the Surfside System and the
Littlerock System. The following unaudited pro forma consolidated statements
of operations assume that the Venture had sold the Broward System and the
Partnership had sold the Surfside System and the Littlerock System on January
1 of the respective periods. The sales price for the Littlerock System is
$10,720,400. The funds available to the Partnership from the sale of the
Littlerock System, adjusting for the estimated net closing adjustments, are
expected to total approximately $10,829,411. Such funds plus cash on hand will
be used to distribute $10,838,000 to the limited partners of the Partnership.
The limited partner distribution of $10,838,000 represents $41 for each $500
limited partnership interest or $82 for each $1,000 invested in the
Partnership.
The unaudited pro forma consolidated financial statements should be read in
conjunction with the appropriate notes to the unaudited pro forma consolidated
financial statements.
ALL OF THE FOLLOWING UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
IS BASED UPON AMOUNTS AS OF MARCH 31, 1998 AND CERTAIN ESTIMATES OF
LIABILITIES AT CLOSING. FINAL RESULTS MAY DIFFER FROM SUCH INFORMATION.
32
<PAGE>
CABLE TV FUND 14-B, LTD.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
------------ ------------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents............. $ 95,044,345 $ (84,206,345) $10,838,000
Receivables, net...................... 568,156 (568,156) --
Investment in Cable Television
Properties:
Property, plant and equipment, net.. 21,838,352 (21,838,352) --
Franchise costs and other intangible
assets, net........................ 22,310,615 (22,310,615) --
------------ ------------- -----------
Total investment in cable
television properties............ 44,148,967 (44,148,967) --
Deposits, Prepaid Expenses and
Deferred Charges..................... 360,594 (360,594) --
------------ ------------- -----------
Total Assets...................... $140,122,062 $(129,284,062) $10,838,000
============ ============= ===========
LIABILITIES AND PARTNERS' CAPITAL
(DEFICIT)
Liabilities:
Debt................................ $ 15,974,535 $ (15,974,535) $ --
General Partner advances............ 891,877 (891,877) --
Deferred brokerage fee.............. 920,000 (920,000) --
Accrued distributions to limited
partners........................... 68,554,431 (57,716,431) 10,838,000
Accrued distribution to joint
venture partner.................... 25,484,569 (25,484,569) --
Trade accounts payable and accrued
liabilities........................ 576,850 (576,850) --
Subscriber prepayments.............. 103,032 (103,032) --
------------ ------------- -----------
Total Liabilities................. 112,505,294 (101,667,294) 10,838,000
------------ ------------- -----------
Minority Interest in Joint Venture.... (130,051) 130,051 --
------------ ------------- -----------
Partners' Capital (Deficit):
General Partner..................... -- -- --
Limited Partners.................... 27,746,819 (27,746,819) --
------------ ------------- -----------
Total Partners' Capital (Deficit). 27,746,819 (27,746,819) --
------------ ------------- -----------
Total Liabilities and Partners'
Capital (Deficit)................ $140,122,062 $(129,284,062) $10,838,000
============ ============= ===========
</TABLE>
The accompanying notes to unaudited pro forma consolidated financial statements
are an integral part of this unaudited balance sheet.
33
<PAGE>
CABLE TV FUND 14-B, LTD.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
----------- ------------ ---------
<S> <C> <C> <C>
Revenues.................................. $40,929,333 $(40,929,333) $ --
Costs and Expenses:
Operating expenses...................... 22,717,178 (22,717,178) --
Management fees and allocated overhead
from General Partner................... 4,399,838 (4,399,838) --
Depreciation and amortization........... 14,070,460 (14,070,460) --
----------- ------------ -------
Operating Loss............................ (258,143) 258,143 --
----------- ------------ -------
Other Income (Expense):
Interest expense........................ (3,903,254) 3,903,254 --
Other, net.............................. (8,561) 8,561 --
----------- ------------ -------
Total other income (expense), net..... (3,911,815) 3,911,815 --
----------- ------------ -------
Consolidated Loss Before Minority
Interest................................. (4,169,958) 4,169,958 --
Minority Interest in Consolidated Loss.... 626,089 (626,089) --
----------- ------------ -------
Net Loss.................................. $(3,543,869) $ 3,543,869 $ --
=========== ============ =======
Net Loss Per Limited Partnership Unit..... $ (13.42) $ --
=========== =======
</TABLE>
The accompanying notes to unaudited pro forma consolidated financial statements
are an integral part of this unaudited statement.
34
<PAGE>
CABLE TV FUND 14-B, LTD.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
------------ ------------ ---------
<S> <C> <C> <C>
Revenues................................. $ 10,536,074 $(10,536,074) $ --
Costs and Expenses:
Operating expenses..................... 5,985,741 (5,985,741) --
Management fees and allocated overhead
from General Partner.................. 1,135,996 (1,135,996) --
Depreciation and amortization.......... 3,670,505 (3,670,505) --
------------ ------------ -------
Operating Loss........................... (256,168) 256,168 --
------------ ------------ -------
Other Income (Expense):
Interest expense....................... (971,605) 971,605 --
Gain on sale of cable television
system................................ 82,465,154 (82,465,154) --
Other, net............................. (587,846) 587,846 --
------------ ------------ -------
Total other income (expense), net.... 80,905,703 (80,905,703) --
------------ ------------ -------
Consolidated Income Before Minority
Interest................................ 80,649,535 (80,649,535) --
Minority Interest in Consolidated Income. (22,016,787) 22,016,787 --
------------ ------------ -------
Net Income............................... $ 58,632,748 $(58,632,748) $ --
============ ============ =======
Net Income Per Limited Partnership Unit.. $ 221.48 $ --
============ =======
</TABLE>
The accompanying notes to unaudited pro forma consolidated financial statements
are an integral part of this unaudited statement.
35
<PAGE>
CABLE TV FUND 14-B, LTD.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
1) The following calculations present the sale of the Littlerock System and
the resulting estimated distributions to be received by the Partnership.
2) The Partnership sold the Surfside System for $51,500,000. Such funds were
used to repay all Partnership indebtedness and to distribute $32,800,000 to the
limited partners of the Partnership.
3) The unaudited pro forma consolidated balance sheet of the Partnership
assumes that the Venture had sold the Broward System for $136,808,648 and that
the Partnership had sold the Surfside System for $51,500,000 and the Littlerock
System for $10,720,400 as of March 31, 1998. The unaudited pro forma
consolidated statements of operations of the Partnership assume that the
Venture had sold the Broward System and that the Partnership had sold the
Surfside System and the Littlerock System as of January 1, 1997.
4) The limited partner distribution of $10,838,000 represents $41 for each
$500 limited partnership interest or $82 for each $1,000 invested in the
Partnership.
5) The estimated gain recognized from the sale of the Littlerock System and
corresponding estimated distribution to limited partners as of March 31, 1998
has been computed as follows:
GAIN ON SALE OF ASSETS:
<TABLE>
<S> <C>
Contract sales price.............................................. $10,720,400
Less: Net book value of investment in cable television properties
at March 31, 1998........................................... (5,484,175)
-----------
Gain on sale of assets............................................ $ 5,236,225
===========
DISTRIBUTIONS TO PARTNERS:
Contract sales price.............................................. $10,720,400
Add:Trade receivables, net........................................ 204,520
Prepaid expenses.................................................. 15,497
Less:Accrued liabilities.......................................... (107,620)
Subscriber prepayments............................................ (3,386)
-----------
Adjusted cash received ........................................... 10,829,411
Add:Cash on hand.................................................. 8,589
-----------
Cash available for distribution by the Partnership................ $10,838,000
===========
Limited Partners' share (100%).................................... $10,838,000
===========
</TABLE>
36
<PAGE>
AVAILABLE INFORMATION
The Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 and the Partnership's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1998 are being mailed to the limited partners of
the Partnership together with this Proxy Statement. Copies of the three
independent appraisals of the fair market value of the Littlerock System and
copies of the Purchase and Sale Agreement between the Partnership and the
General Partner have been publicly filed with the Securities and Exchange
Commission and may be inspected at the Commission's public reference facilities
and at its World Wide Web site, and such documents also are available to each
limited partner of the Partnership upon written request to Elizabeth M. Steele,
Secretary, Jones Intercable, Inc., 9697 East Mineral Avenue, Englewood,
Colorado 80112. Copies of these documents will be provided at the expense of
the requesting limited partner.
A Rule 13e-3 Transaction Statement furnishing certain additional information
with respect to the transaction described herein has been jointly filed by the
Partnership and the General Partner with the Securities and Exchange
Commission. This document may be inspected at the Commission's public reference
facilities and at its World Wide Web site.
INCORPORATION BY REFERENCE
The following documents, which have been filed by the Partnership with the
Securities and Exchange Commission pursuant to the requirements of the Exchange
Act are hereby incorporated by reference: (i) the Partnership's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997, (ii) the
Partnership's Current Report on Form 8-K dated March 10, 1998 and (iii) the
Partnership's Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1998.
37
<PAGE>
SCHEDULE 1
EXECUTIVE OFFICERS AND DIRECTORS OF THE GENERAL PARTNER
Set forth below is the name, residence or business address, present
principal occupation or employment and five-year employment history of the
executive officers and directors of the General Partner. Also set forth is the
aggregate number of limited partnership interests of the Partnership
beneficially owned by each such person. The present principal occupation of
each executive officer of the General Partner is as an executive officer of
the General Partner. The Partnership has no officers or employees. All persons
listed except for Messrs. Fridman, Kearney and Vanaselja are citizens of the
United States. Messrs. Fridman, Kearney and Vanaselja are citizens of Canada.
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Glenn R. Jones Mr. Jones has served as Chairman of the Board of 0
c/o Jones Intercable, Inc. Directors and Chief Executive Officer of the
9697 E. Mineral Avenue General Partner since its formation in 1970. He
Englewood, CO 80112 served as President of the General Partner from
1984 to 1988. Mr. Jones has been involved in
the cable television business in various
capacities since 1961.
Robert E. Cole Mr. Cole was appointed a Director of the General 0
c/o Jones Intercable, Inc. Partner in March 1996. Mr. Cole is currently
9697 E. Mineral Avenue self-employed as a partner of First Variable
Englewood, CO 80112 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 of a specialty investment banking
firm that provided services to finance the
ownership and growth of emerging companies,
productive assets and real property.
Kevin P. Coyle Mr. Coyle, Group Vice President/Finance of the 0
c/o Jones Intercable, Inc. General Partner, has been the General Partner's
9697 E. Mineral Avenue Chief Financial Officer since 1990. Mr. Coyle
Englewood, CO 80112 has been an associate of the finance department
of the General Partner since 1981.
William E. Frenzel Mr. Frenzel was appointed a Director of the 0
1775 Massachusetts General Partner in April 1995. He has been a
Avenue, NW Guest Scholar since 1991 with the Brookings
Washington, DC 20036 Institution, a research organization located in
Washington, DC. Until his retirement in January
1991, Mr. Frenzel served for twenty years in
the United States House of Representatives.
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Josef J. Fridman Mr. Fridman was appointed a director of the 0
c/o BCI Telecom Holding Inc. General Partner in February 1998. He is senior
1000 rue de la vice-president, law and corporate secretary of
Gauchetiere Bureau 1100 BCE Inc. Mr. Fridman joined Bell Canada, a
Montreal (PQ) wholly owned subsidiary of BCE Inc., in 1969,
Canada H3B 4Y8 and he has held increasingly senior positions
with Bell Canada and BCE Inc. since such time.
He has held his current position since 1991.
Donald L. Jacobs Mr. Jacobs was appointed a Director of the 0
60435 Tekampe Road General Partner in April 1995. Mr. Jacobs is a
Bend, OR 97702 retired executive officer of TRW. Prior to his
retirement in 1992, he was Vice President and
Deputy Manager of the Space and Defense Sector;
prior to that appointment, he was the Vice
President and General Manager of the Defense
Systems Group; and prior to that appointment,
he was President of ESL, Inc., a subsidiary of
TRW.
Larry Kaschinske Mr. Kaschinske has been the Controller and Chief 0
c/o Jones Intercable, Inc. Accounting Officer of the General Partner since
9697 E. Mineral Avenue 1994. Mr. Kaschinske has been an associate of
Englewood, CO 80112 the finance department of the General Partner
since 1984.
Robert Kearney Mr. Kearney was appointed a Director of the 0
c/o BCI Telecom Holding Inc. General Partner in July 1997. Mr. Kearney is a
1000 rue de la retired executive officer of Bell Canada. Prior
Gauchetiere Bureau 1100 to his retirement in December 1993, Mr. Kearney
Montreal (PQ) was the President and Chief Executive Officer
Canada H3B 4Y8 of Bell Canada. He served as Chairman of BCE
Canadian Telecom Group in 1994 and as Deputy
Chairman of BCI Management Limited in 1995.
James J. Krejci Mr. Krejci has been a Director of the General 0
3100 Arapahoe Avenue Partner since 1987. Mr. Krejci is President and
Boulder, CO 80303 CEO of Imagelink Technologies, Inc., a
privately financed company with leading
technology in the desktop or personal computer
videoconferencing market. Prior to joining
Imagelink Technologies in July 1996, he was the
President of the International Division of
International Gaming Technology headquartered
in Reno, Nevada. Prior to joining International
Gaming Technology in May 1994, Mr. Krejci had
been a Group Vice President of the General
Partner since 1987.
James B. O'Brien Mr. O'Brien has been President and a Director of 0
c/o Jones Intercable, Inc. the General Partner since 1989 and a member of
9697 E. Mineral Avenue the Executive Committee of the General
Englewood, CO 80112 Partner's Board of Directors since 1993.
Mr. O'Brien has been with the General Partner
since 1982 in various operational management
positions.
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Raphael M. Solot Mr. Solot was appointed a Director of the 0
501 South Cherry Street General Partner in March 1996. Mr. Solot is an
Denver, CO 80222 attorney in private practice. He has practiced
law for 34 years with an emphasis on franchise,
corporate and partnership law and complex
litigation.
Cheryl M. Sprague Ms. Sprague joined the General Partner as Group 0
c/o Jones Intercable, Inc. Vice President/Human Resources in November
9697 E. Mineral Avenue 1997. Prior to November 1997 and since December
Englewood, CO 80112 1995, Ms. Sprague served as Director, Human
Resources for Westmoreland Coal Company. From
October 1993 to December 1995, Ms. Sprague
served as President of Peak Executive
Resources. From April 1992 to October 1993, Ms.
Sprague was Vice President, Human Resources for
Penrose-St. Francis Healthcare System.
Elizabeth M. Steele Ms. Steele joined the General Partner in 1987 as 0
c/o Jones Intercable, Inc. Vice President/General Counsel and Secretary.
9697 E. Mineral Avenue Prior to that time, Ms. Steele was a partner at
Englewood, CO 80112 Davis, Graham & Stubbs, a Denver, Colorado law
firm that serves as counsel to the General
Partner.
Howard O. Thrall Mr. Thrall was appointed a director of the 0
c/o Jones Intercable, Inc. General Partner in March 1996 and he had
9697 E. Mineral Avenue previously served as a director of the General
Englewood, CO 80112 Partner from December 1988 to December 1994.
Mr. Thrall is now a management and
international marketing consultant. From
September 1993 through July 1996, Mr. Thrall
served as Vice President of Sales, Asian
Region, for World Airways, Inc. From 1984 until
August 1993, Mr. Thrall was with the McDonnell
Douglas Corporation, where he was a Regional
Vice President, Commercial Marketing with the
Douglas Aircraft Company subsidiary.
Siim A. Vanaselja Mr. Vanaselja was appointed a Director of the 0
c/o BCI Telecom Holding Inc. General Partner in August 1996. Mr. Vanaselja
1000 rue de la joined BCE Inc., Canada's largest
Gauchetiere Bureau 1100 telecommunications company, in February 1994
Montreal (PQ) and he has served in various capacities with
Canada H3B 4Y8 that company and its subsidiaries since that
time. He currently serves as Executive Vice
President and Chief Financial Officer of Bell
Canada International Inc. and Vice President of
BCI Telecom Holding Inc., BCE Inc.
subsidiaries. Prior to joining BCE Inc., Mr.
Vanaselja was a partner in the Toronto office
of KPMG Peat Marwick Thorne.
Ruth E. Warren Ms. Warren has been Group Vice 0
c/o Jones Intercable, Inc. President/Operations of the General Partner
9697 E. Mineral Avenue since 1990. Ms. Warren has been with the
Englewood, CO 80112 General Partner in various operational
management positions since 1980.
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Cynthia A. Winning Ms. Winning joined the General Partner as Group 0
c/o Jones Intercable, Inc. Vice President/Marketing in December 1994.
9697 E. Mineral Avenue Prior to joining the General Partner, Ms.
Englewood, CO 80112 Winning served in 1994 as the President of PRS
Inc., a Denver, Colorado sports and event
marketing company. From 1979 to 1981 and from
1986 to 1994, Ms. Winning served as the Vice
President and Director of Marketing for
Citicorp Retail Services, Inc.
Sanford Zisman Mr. Zisman was appointed a Director of the 0
3773 Cherry Creek North Drive General Partner in June 1996. Mr. Zisman is a
Denver, CO 80209 principal in the law firm Zisman & Ingraham,
P.C. of Denver, Colorado. He has practiced law
for 32 years, with an emphasis on tax, business
and estate planning and probate administration.
Robert L. Zoellick Mr. Zoellick was appointed a Director of the 0
3900 Wisconsin Avenue, NW General Partner in April 1995. Mr. Zoellick is
Washington, DC 20016 the John M. Olin Professor at the U.S. Naval
Academy for the 1997-1998 term. From 1993
through 1997, he was an Executive Vice
President at Fannie Mae, a federally chartered
and stockholder-owned corporation that is the
largest housing finance investor in the United
States. From August 1992 to January 1993, Mr.
Zoellick served as Deputy Chief of Staff of the
White House and Assistant to the President.
From May 1991 to August 1992, Mr. Zoellick
served concurrently as the Under Secretary of
State for Economic and Agricultural Affairs and
as Counselor of the Department of State, a post
he assumed in March 1989. From 1985 to 1988,
Mr. Zoellick served at the Department of
Treasury in a number of capacities, including
Counselor to the Secretary.
</TABLE>
S-4
<PAGE>
[LOGO OF JONES INTERCABLE APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE PARTNERSHIP BY THE GENERAL PARTNER
The undersigned Limited Partner of Cable TV Fund 14-B, Ltd., a Colorado
limited partnership, hereby votes on the sale of the Partnership's Littlerock,
California cable television system to Jones Communications of California, Inc.,
an indirect wholly owned subsidiary of Jones Intercable, Inc., for a sales
price of $10,720,400 in cash, subject to normal closing adjustments, pursuant
to the terms and conditions of that certain Purchase and Sale Agreement dated
as of March 10, 1998, as follows:
[_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS
(YOU MUST SIGN ON THE REVERSE SIDE OF THIS PROXY CARD FOR YOUR VOTE TO COUNT.)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED LIMITED PARTNER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE PROPOSED SALE TRANSACTION.
PLEASE SIGN EXACTLY AS NAME
APPEARS ON LABEL.
DATED: ______________________, 1998
___________________________________
Beneficial Owner Signature
(Investor)
___________________________________
Authorized Trustee/Custodian
Signature
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE>
[LOGO OF JONES INTERCABLE APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE PARTNERSHIP BY THE GENERAL PARTNER
The undersigned Limited Partner of Cable TV Fund 14-B, Ltd., a Colorado
limited partnership, hereby votes on the sale of the Partnership's Littlerock,
California cable television system to Jones Communications of California, Inc.,
an indirect wholly owned subsidiary of Jones Intercable, Inc., for a sales
price of $10,720,400 in cash, subject to normal closing adjustments, pursuant
to the terms and conditions of that certain Purchase and Sale Agreement dated
as of March 10, 1998, as follows:
[_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS
(YOU MUST SIGN ON THE REVERSE SIDE OF THIS PROXY CARD FOR YOUR VOTE TO COUNT.)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED LIMITED PARTNER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE PROPOSED SALE TRANSACTION.
ALL OWNERS MUST SIGN EXACTLY AS
NAME(S) APPEAR ON LABEL.
When limited partnership
interests are held by more than
one person, all owners must sign.
When signing as attorney, as
executor, administrator, trustee
or guardian, please give full
title as such. If a corpo-ration,
please sign in full corporation
name by autho-rized officer. If a
partnership, please sign in
partnership name by authorized
person.
DATED: ______________________, 1998
___________________________________
Signature - Investor 1
___________________________________
Signature - Investor 2
___________________________________
Signature - Investor 3
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE>
Exhibit 99.1
LITTLEROCK SYSTEM
-----------------
PURCHASE AND SALE AGREEMENT
---------------------------
THIS PURCHASE AND SALE AGREEMENT is made as of the 10th day of March, 1998,
by and between CABLE TV FUND 14-B, LTD., a Colorado limited partnership
("Seller") and JONES INTERCABLE, INC., a Colorado corporation ("Buyer").
RECITALS
--------
A. Seller owns and operates a cable television system in and around the
Town of Littlerock, California (the "System").
B. Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, the System upon the terms and conditions set forth in this Agreement.
AGREEMENT
---------
In consideration of the mutual promises contained in this Agreement and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Purchase and Sale. Subject to the terms and conditions set forth in
-----------------
this Agreement, Seller hereby agrees to sell, convey, assign, transfer and
deliver to Buyer, and Buyer hereby agrees to purchase from Seller, on the
Closing Date (as defined in Paragraph 9 hereof), all of Seller's right, title
and interest in and to the System and the Assets (as defined in Paragraph 2
hereof) then being transferred and sold pursuant hereto, free and clear of all
security interests, liens, pledges, charges and encumbrances.
2. Assets. (a) The assets to be conveyed to Buyer hereunder shall consist
------
of all of the assets and properties of Seller, whether real, personal, tangible
or intangible, of whatever description and wherever located, now owned or used
by Seller solely in connection with Seller's ownership or operation of the
System, except those items excluded pursuant to subparagraph 2(b) hereof, but
including all additions made to the Closing Date, to the end that all of
Seller's assets owned on the Closing Date which are used or owned solely in
connection with Seller's ownership or operation of the System shall
<PAGE>
pass to Buyer. Such assets (collectively, the "Assets") shall include, without
limitation:
(i) all of Seller's towers, tower equipment, antennas, aboveground and
underground cable, distribution systems, headend amplifiers, line amplifiers,
earth satellite receive stations and related equipment, microwave equipment,
testing equipment, motor vehicles, office equipment, furniture and fixtures,
supplies, inventory and other physical assets owned or used by Seller solely in
connection with Seller's ownership or operation of the System;
(ii) the franchises, leases, agreements, permits, consents, licenses and
other contracts, pole line or joint pole agreements, underground conduit
agreements, agreements for the reception or transmission of signals by
microwave, easements, rights-of-way and construction permits, if any, and any
other obligations and agreements between Seller and suppliers and customers,
which are owned or used by Seller solely in connection with Seller's ownership
and operation of the System;
(iii) the real property owned and used solely in connection with the
System;
(iv) all accounts receivable of Seller arising in connection with the
System;
(v) all engineering records, files, data, drawings, blueprints,
schematics, maps, reports, lists and plans and processes owned or developed by
or for Seller and intended for use in connection with the System;
(vi) all promotional graphics, original art work, mats, plates, negatives
and other advertising, or related materials developed by or for Seller and
intended for use in connection with the System;
(vii) all of Seller's correspondence files, lists, records and reports
concerning customers and prospective customers of the Systems, concerning
television stations whose transmissions are or may be carried as part of the
Systems and concerning all dealings with federal, state, and local regulatory
agencies, including all reports filed by or on behalf of Seller with the
Federal Communications Commission (the "FCC") in connection with the System and
any Statements of Account of the System filed by or on behalf of Seller with the
united States Copyright Office in connection with the System;
<PAGE>
provided however, that Seller shall not transfer to Buyer the licenses and
- -------- -------
agreements for which the consent of a third party is required to transfer (the
"Additional Agreements") until Seller has obtained the approval of the parties
granting the Additional Agreements to such transfer, whereupon such Additional
Agreements shall be deemed to be included in the assets to be transferred to
Buyer pursuant to this Agreement.
(b) The following properties and assets relating to the System and its
business operations shall be retained by Seller and shall not be sold, assigned
or transferred to Buyer;
(i) cash or cash equivalents on hand or in banks;
(ii) insurance policies and rights and claims thereunder;
(iii) all claims, rights and interest in and to any refunds for Federal,
state or local income or other taxes or fees of any nature whatsoever for
periods prior to the Closing Date, including without limitation, fees paid to
the United States Copyright Office; and
(iv) assets disposed of in the normal course of business or with the
written consent of Buyer between the date hereof and the Closing Date.
3. Purchase Price. Subject to the adjustments to be made in accordance
--------------
with Paragraph 4 hereof, the total purchase price for the Assets shall be Ten
Million Seven Hundred Twenty Thousand Four Hundred Dollars ($10,720,400.00) (the
"Purchase Price"), which Purchase Price represents the average of three separate
independent appraisals of the System. The Purchase Price shall by payable to
Seller at Closing in cash, by cashier's check or by wire transfer of Federal
funds to a bank or banks designated by Seller.
4. Adjustments. All adjustments provided for herein with respect to this
-----------
transaction shall increase or decrease the Purchase Price, as appropriate, and
shall be made as of the close of business (5:01 p.m., local time) on the Closing
Date.
(a) Rent, pole rents, franchise fees, taxes, power and utility fees and
deposits, insurance premiums, licenses, customer prepayments and deposits, and
other prepayments and amounts due shall be prorated and debited or credited to
Seller or Buyer, as applicable. For purposes of
<PAGE>
adjustments made under this Paragraph 4(a), the subscriber accounts receivable
which are due and payable for and with respect to the month in which the Closing
takes place shall be prorated as of the Closing Date.
(b) The Purchase Price shall be reduced by any accounts payable, accrued
expenses and vehicle lease obligations for which Seller would otherwise be
liable hereunder, but for which the obligation for payment is assumed by Buyer.
(c) Seller and Buyer shall jointly determine the adjustments required by
this Paragraph 4 at the Closing. The net amount to which Buyer or Seller, as
the case may be, is entitled pursuant hereto shall be thereupon paid by Buyer or
Seller, as the case may be, by an adjustment to the Purchase Price. All
adjustments made at Closing shall be tentative and shall be subject to final
adjustment within 90 days after Closing.
5. Assumption of Liabilities. Buyer shall agree to assume and discharge
-------------------------
all debts, liabilities and obligations of Seller arising with respect to periods
subsequent to the Closing Date under any franchise, license, permit, lease,
instrument or agreement transferred to Buyer hereunder and, with respect to
periods prior to and including the Closing Date, to assume and discharge all
obligations of Seller to the extent that the Purchase Price is reduced pursuant
to Paragraph 4(b) hereof; provided, however, that Buyer shall not assume the
-------- -------
Additional Agreements until Seller has obtained the approval of the parties
granting the Additional Agreements to Seller's transfer of the Additional
Agreements to Buyer, whereupon the Additional Agreements shall be deemed to be
included in the assets to be assumed by Buyer hereunder. Buyer hereby agrees to
indemnify and to hold harmless from and against any and all damages, costs,
claims and expenses (the "Indemnifiable Claims") arising by reason of the
ownership, operation or control of the System after Closing Date; provided,
--------
however, that Buyer shall not indemnify and hold harmless Seller from any
- -------
Indemnifiable Claims arising under Additional Agreements as a result of actions
relating to any period before Seller has obtained the approval of the parties
granting the Additional Agreements to Seller's transfer of the Additional
Agreements to Buyer. Anything herein to the contrary notwithstanding, there is
hereby excluded from the assumed obligations, and Seller hereby agrees to retain
and discharge, and to indemnify and hold Buyer harmless from and against, any
and all Indemnifiable Claims to the extent they arise (a) out of any debt,
liability or obligation arising with respect to periods prior to the Closing
Date for which no reduction of the Purchase Price has been made pursuant to
Paragraph 4(b) hereof, (b) out of any debt, liability or obligation arising
under the Additional
<PAGE>
Agreements arising as a result of actions relating to any period before Seller
has obtained the approval of the parties granting the Additional Agreements to
Seller's transfer of the Additional Agreements to Buyer, and (c) any debt,
liability or obligation of Seller not expressly assumed hereunder, whenever
arising.
6. Seller's Representations. Seller hereby represents, warrants, covenants
------------------------
and agrees, that:
(a) Seller is a limited partnership duly organized and validly existing
under the laws of the State of Colorado. Seller has all requisite partnership
power and authority to own and operate its properties and to carry on its
business as now and where being conducted.
(b) All necessary consents and approvals have been obtained by Seller
for the execution and delivery of this Agreement. The execution and delivery of
this Agreement by Seller has been duly and validly authorized and approved by
all necessary action of Seller. This Agreement is a valid and binding obligation
of Seller, enforceable against it in accordance with its terms.
(c) Subject to the receipt of any required consents, Seller has full
legal power, right and authority to sell and convey to Buyer legal and
beneficial title to the Assets and Seller's sale to Buyer shall transfer good
and marketable title thereto, free and clear of all security interests, liens,
pledges, charges and encumbrances of every kind.
(d) The execution, delivery and performance of this Agreement by Seller
will not violate any provisions of law and will not, with or without the giving
of notice or the passage of time, conflict with or result in any breach of any
of the terms or conditions of, or constitute a default under, any mortgage,
agreement or other instrument to which Seller is a party or by which Seller, the
Assets or the System are bound. The execution, delivery and performance of this
Agreement will not result in the creation of any security interest, lien,
pledge, charge or encumbrance upon the Assets or the Systems.
7. Conditions Precedent to Buyer's Obligations. The obligations of Buyer
-------------------------------------------
under this Agreement with respect to the purchase and sale of the Assets shall
be subject to the fulfillment on or prior to the Closing Date of each of the
following conditions:
<PAGE>
(a) All of the representations and warranties by Seller contained in
this Agreement shall be true and correct in all material respects at and as of
the Closing Date. Seller shall have complied with and performed all of the
agreements, covenants and conditions required by this Agreement to be performed
or complied with by it on or prior to the Closing Date.
(b) Seller shall have delivered to Buyer such instruments, consents and
approvals of third parties as are necessary to transfer the Assets to Buyer
pursuant to this Agreement.
(c) The statutory waiting period applicable to this Agreement and the
transactions contemplated hereby under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), shall have been terminated
or shall have expired.
8. Conditions Precedent to Seller's Obligation. The obligations of Seller
-------------------------------------------
under this Agreement with respect to the purchase and sale of the Assets shall
be subject to the fulfillment on or prior to the Closing Date of each of the
following conditions:
(a) The statutory waiting period applicable to this Agreement and the
transactions contemplated hereby under the HSR Act, shall have been terminated
or shall have expired.
(b) The limited partners of Seller shall have approved the transactions
contemplated by this Agreement.
(c) Buyer shall have delivered the Purchase Price to Seller in
accordance with Paragraph 3 hereof.
9. Closing. The closing hereunder (the "Closing") shall be held in the
-------
offices of Seller, 9697 East Mineral Avenue, Englewood, Colorado, 80112, on such
date or dates as the parties hereto shall mutually agree. At the Closing, all
cash, checks, notes, deeds, bills of sale, certificates of title, assignments
and other instruments and documents referred to or contemplated by this
Agreement shall be exchanged by the parties hereto.
10. Brokerage. Seller represents and warrants to Buyer that Seller will be
---------
solely responsible for, and pay in full, any and all brokerage or finder's fees
or agent's commissions or other like payment owing in connection with Seller's
use of any broker, finder or agent in connection with this
<PAGE>
Agreement or the transactions contemplated hereby. Buyer represents and warrants
to Seller that Buyer will be solely responsible for, and pay in full, any and
all brokerage or finder's fees or agent's commission or other like payment owing
in connection with Buyer's use of any broker, finder or agent in connection with
this Agreement or the transaction contemplated hereby. Each party hereto agrees
to indemnify and hold the other party hereto harmless against and in respect of
any breach by it of the provision of this Paragraph 10.
11. Miscellaneous.
-------------
(a) Buyer shall have the right, upon notice to Seller, to assign prior
to the Closing Date, in whole or in part, its rights and obligations hereunder
to any affiliate of Buyer, including any public limited partnership or
partnerships of which Buyer or any affiliate of Buyer is a general partner or
any joint venture or general partnership of which Buyer, or any affiliate of
Buyer, or any of such public limited partnership or partnerships is a
constituent partner, or to any subsidiary of Buyer or other entity controlled
by, controlling or under common control with Buyer, or, subject to Seller's
consent, to any other entity.
(b) From time to time after the Closing Date, Seller shall, if requested
by Buyer, make, execute and deliver to Buyer such additional assignments, bills
of sale, deeds and other instruments of transfer, as may be necessary or proper
to transfer to Buyer all of Seller's right, title and interest in and to the
assets covered by this Agreement. Such efforts and assistance shall be without
cost to Buyer.
(c) This Agreement embodies the entire understanding and agreement among
the parties concerning the subject matter hereof and supersedes any and all
prior negotiations, understandings or agreements in regard thereto. This
Agreement shall be interpreted, governed and construed in accordance with the
laws of the State of Colorado. This Agreement may not be modified or amended
except by an agreement in writing executed by both Buyer and Seller.
(d) Any sales, use, transfer or documentary taxes imposed in connection
with the sale and deliver of the Assets and the rights acquired by Buyer under
this Agreement shall be paid by Buyer.
IN WITNESS WHEREOF the parties have executed this Agreement as of the day
and year first above written.
<PAGE>
SELLER:
------
CABLE TV FUND 14-B, LTD.,
a Colorado limited partnership
By: Jones Intercable, Inc., a Colorado
corporation, as its general partner
By:
Title:
BUYER:
-----
JONES INTERCABLE, INC.,
a Colorado corporation
By:
Title:
<PAGE>
Exhibit 9.2
August 7, 1998
Re: Proxy Mailing - Cable TV Fund 14-B, Ltd.
Dear Beneficial Owner of Cable TV Fund 14-B, Ltd:
Our records indicate that you are a beneficial owner of limited partnership
interests in Cable TV Fund 14-B, Ltd. (the "Partnership"). Enclosed for your
information and review are proxy solicitation materials.
Your qualified plan trustee/custodian, which is the registered owner of your
limited partnership interests, has authorized Jones Intercable, Inc. (the
"General Partner") to mail these proxy materials directly to you and has
authorized its clients, the beneficial owners, to execute the proxy cards on its
behalf.
By this authorization, your signature will be legally sufficient and your vote
of the limited partnership interests registered in the name of the
trustee/custodian will be counted without the trustee/custodian's
counter-signature.
Please vote, date and sign as Beneficial Owner (Investor), and return your proxy
card to the General Partner in the enclosed envelope as soon as possible, but no
later than September 15, 1998.
------------------
If the proposed sale is consummated, the Partnership will mail your share of the
net sale proceeds to your trustee/custodian for your benefit, and the
Partnership will notify you that the distribution has occurred.
The closing of the sale of the Littlerock California system is expected to occur
during the fourth quarter of 1998. Fund 14-B will be liquidated and dissolved
after the sale of the Littlerock System, which will be Fund 14-B's last
remaining asset at the time of its sale.
If you have any questions, please call our Investor Services Department.
Sincerely,
Jones Intercable, Inc.
The General Partner
<PAGE>
Exhibit 99.3
August 7, 1998
Re: Notice of Proxy Mailing: Proposed Sale of the Littlerock California Cable
Television System by Cable TV Fund 14-B, Ltd.
Dear Registered Representative of clients in Cable TV Fund 14-B, Ltd.:
Cable TV Fund 14-B, Ltd. ("Fund 14-B") plans to sell its Littlerock California
system to Jones Communications of California, Inc. in the fourth quarter of
1998.
The proposed sale and the distribution of net sales proceeds are contingent upon
the approval by the holders of a majority of Fund 14-B's limited partnership
interests, as well as the consents of governmental authorities and other third
parties. Enclosed for your information is a copy of the Fund 14-B Notice and
Proxy Statement.
The proxy record date is August 7, 1998.
For taxable accounts, proxy materials are being sent directly to investors. For
tax-exempt accounts (IRAs and other qualified plans), proxy materials are being
sent according to the instructions of the Trustees--which are the registered
owners of investors' interests in these plans. Some Trustees required us to send
proxy materials directly to their clients, the beneficial owners, and to accept
the investors' signatures as legally sufficient to count the votes without the
Trustee's counter-signature. Other Trustees required us to mail their clients'
proxy materials directly to the Trustees for their handling.
The proxy due date is September 15, 1998, but we hope to have all votes in as
soon as possible.
If the proposed sale is consummated, limited partners in Fund 14-B are expected
to receive approximately $82 for each $1,000 invested. Distributions will be net
of California non-resident withholding, if applicable. This withholding
requirement does not apply to residents of the State of California or to tax-
exempt entities such as IRAs and other qualified plans. Distribution checks will
be issued according to the account registration or special payment of record.
The closing of the Littlerock System is expected to occur during the fourth
quarter of 1998. Fund 14-B will be liquidated and dissolved after the sale of
the Littlerock System, which will be the Partnership's last remaining asset at
the time of its sale.
<TABLE>
<CAPTION>
Proposed Sale Prior Distribution Expected Distribution Anticipated
Littlerock CA System Broward FL System Surfside SC System Total Return
- -------------------- ------------------ --------------------- --------------
<S> <C> <C> <C>
$82 per $1000* $524 per $1000** $250 per $1000 $856 per $1000
On 4/30/98 On 8/14/98
</TABLE>
*Net of California non-resident withholding tax, if applicable
**Net of South Carolina non-resident withholding tax, if applicable.
Please review the enclosed list that shows each of your clients Fund 14-B--
registration and check information and estimated distributions prior to
withholding, if applicable.
If you find any discrepancies in this information, please call our Investor
Services Department.
Sincerely,
Jones Intercable, Inc.
The General Partner
Enclosures
