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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________
Commission file number: 0-16939
JONES SPACELINK INCOME/GROWTH FUND 1-A, LTD.
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(Exact name of registrant as specified in its charter)
Colorado 84-1069504
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State of Organization (IRS Employer Identification No.)
P.O. Box 3309, Englewood, Colorado 80155-3309 (303) 792-3111
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(Address of principal executive office and Zip Code (Registrant's telephone
no. including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
Indicate by check mark whether the registrant, (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange aAt of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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State the aggregate market value of the voting stock held by non-affiliates of
the registrant: N/A
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. X
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DOCUMENTS INCORPORATED BY REFERENCE: None
(34074)
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Certain information contained in this Form 10-K Report contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements, other than statements of
historical facts, included in this Form 10-K Report that address activities,
events or developments that the Partnership or the General Partner expects,
believes or anticipates will or may occur in the future are forward-looking
statements. These forward-looking statements are based upon certain assumptions
and are subject to a number of risks and uncertainties. Actual events or
results may differ materially from those discussed in the forward-looking
statements as a result of various factors.
PART I.
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ITEM 1. BUSINESS
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THE PARTNERSHIP. Jones Spacelink Income/Growth Fund 1-A, Ltd. (the
"Partnership") is a Colorado limited partnership that was formed pursuant to the
public offering of limited partnership interests in the Jones Spacelink
Income/Growth Fund 1 Limited Partnership Program (the "Program"). Jones
Intercable, Inc., a Colorado corporation, is the general partner of the
Partnership (the "General Partner"). The Partnership was formed for the purpose
of acquiring and operating cable television systems. The Partnership owns the
cable television systems serving the areas in and around the communities of
Bluffton, Decatur, Monroe, Auburn, Butler, Uniondale, Waterloo, Poneto, Vera
Cruz and Garrett and certain unincorporated areas of Wells, Allen, Noble, Adams
and DeKalb Counties, all in the State of Indiana (the "Northeast Indiana
Systems").
A primary objective of the Partnership has been to provide quarterly
cash distributions to the partners, principally from cash flow from operations
remaining after principal and interest payments and the creation of any reserves
necessary for the operation of the Partnership. The payment of quarterly
operating cash flow distributions reduces the financial flexibility of the
Partnership. The Partnership accordingly has suspended such distributions
because funds from cash flow have been used to pay for necessary capital
additions to the Partnership's Northeast Indiana Systems as a result of limited
borrowing capacity under the Partnership's credit facility. The Partnership
does not plan on resuming such distributions to the partners. The Partnership
intends to make distributions to the limited partners from the net proceeds of
the sale of its Northeast Indiana Systems.
PROPOSED DISPOSITION OF CABLE TELEVISION SYSTEM. On December 17,
1997, the Partnership entered into an asset purchase agreement to sell the
Northeast Indiana Systems to an unaffiliated party for a sales price of
$23,500,000, subject to closing adjustments that may have the effect of
increasing or decreasing the sales price by a non-material amount. Closing of
the sale, which is anticipated to occur during the second quarter of 1998, is
subject to several conditions, including necessary governmental and other third
party consents and the termination or expiration of the statutory waiting period
applicable to the asset purchase agreement and the transactions contemplated
thereby under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended. In addition, because the Northeast Indiana Systems constitute all of
the Partnership's assets, the sale must be approved by the owners of a majority
of the interests of the Partnership. The General Partner intends to conduct a
proxy vote on this matter in May of 1998. Upon the consummation of the proposed
sale of the Northeast Indiana Systems, the Partnership will repay all of its
indebtedness including the $7,500,000 borrowed under its credit facility and
capital lease obligations totaling $120,042, leaving the Partnership with no
debt outstanding, settle working capital adjustments, and then deposit
$1,000,000 into an indemnity escrow account. The remaining net sale proceeds of
approximately $14,900,000 will be distributed to the Partnership's limited
partners of record as of the closing date of the sale of the Northeast Indiana
Systems. Based upon financial information as of December 31, 1997, this
distribution will provide the Partnership's limited partners an approximate
return of $291.50 for each $500 limited partnership interest, or $583 for each
$1,000 invested in the Partnership. Taking into account prior distributions to
limited partners from the Partnership's operating cash flow and from the net
proceeds from the sales of the Lake Geneva System and Ripon System, the limited
partners of the Partnership will have received a total of $590 for each $500
limited partnership interest, or $1,180 for each $1,000 invested in the
Partnership.
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For a period of one year following the closing date, $1,000,000 of the
sale proceeds will remain in escrow as security for the Partnership's agreement
to indemnify the purchaser under the asset purchase agreement. The
Partnership's primary exposure, if any, will relate to the representations and
warranties made about the Northeast Indiana Systems in the asset purchase
agreement. Any amounts remaining from this indemnity escrow account and not
claimed by the purchaser at the end of the one-year period will be distributed
to the limited partners of the Partnership at that time. If the entire
$1,000,000 escrow amount is distributed to the limited partners, of which there
can be no assurance, limited partners would receive $19.50 for each $500 limited
partnership interest, or $39 for each $1,000 invested in the Partnership. The
Partnership will continue in existence at least until any amounts remaining from
the indemnity escrow account have been distributed. Since the Northeast Indiana
Systems represent the only asset of the Partnership, the Partnership will be
liquidated and dissolved upon the final distribution of any amounts remaining
from the indemnity escrow account.
CABLE TELEVISION SERVICES. The Northeast Indiana Systems offer to
their subscribers various types of programming, which include basic service,
tier service, premium service, pay-per-view programs and packages including
several of these services at combined rates.
Basic cable television service usually consists of signals of all
national television networks broadcast by their local affiliates, various
independent and educational television stations (both VHF and UHF) and certain
signals received from satellites. Basic service also usually includes programs
originated locally by the system, which may consist of music, news, weather
reports, stock market and financial information and live or videotaped programs
of a public service or entertainment nature. FM radio signals are also
frequently distributed to subscribers as part of the basic service.
The Northeast Indiana Systems offer tier services on an optional basis
to their subscribers. A tier generally includes most of the cable networks such
as Entertainment and Sports Programming Network (ESPN), Cable News Network
(CNN), Turner Network Television (TNT), Family Channel, Discovery and others,
and the cable television operators buy tier programming from these networks.
The Northeast Indiana Systems also offer a package that includes the basic
service channels and the tier services.
The Northeast Indiana Systems also offer premium services to
subscribers, which consist of feature films, sporting events and other special
features that are presented without commercial interruption. The cable
television operators buy premium programming from suppliers such as HBO,
Showtime, Cinemax, Encore and others at a cost based on the number of
subscribers served by the cable operator. The per service cost of premium
service programming usually is significantly more expensive than the basic
service or tier service programming, and consequently cable operators price
premium service separately when sold to subscribers.
The Northeast Indiana Systems also offer to subscribers pay-per-view
programming. Pay-per-view is a service that allows subscribers to receive
single programs, frequently consisting of motion pictures that have recently
completed their theatrical exhibitions and major sporting events, and to pay for
such service on a program-by-program basis.
REVENUES. Monthly service fees for basic, tier and premium services
constitute the major source of revenue for the Northeast Indiana Systems. At
December 31, 1997, the Northeast Indiana Systems' monthly basic service rates
ranged from $8.98 to $10.12, monthly basic and tier ("basic plus") service rates
ranged from $23.93 to $24.58 and monthly premium services ranged from $3.00 to
$10.00 per premium service. In addition, the Partnership earns revenues from
the Northeast Indiana Systems' pay-per-view programs and advertising fees.
Related charges may include a nonrecurring installation fee that ranges from
$15.00 to $40.00; however, from time to time the Northeast Indiana Systems have
followed the common industry practice of reducing or waiving the installation
fee during promotional periods. Commercial subscribers such as hotels, motels
and hospitals are charged a nonrecurring connection fee that usually covers the
cost of installation. Except under the terms of certain contracts with
commercial subscribers and residential apartment and condominium complexes, the
subscribers are free to discontinue the service at any time without penalty.
For the year ended December 31, 1997, of the total fees received by the
Northeast Indiana Systems, basic service and tier service fees accounted for
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approximately 72 percent of total revenues, premium service fees accounted for
approximately 14 percent of total revenues, pay-per-view fees were approximately
1 percent of total revenues, advertising fees were approximately 6 percent of
total revenues and the remaining 7 percent of total revenues came principally
from equipment rentals, installation fees and program guide sales. The
Partnership is dependent upon the timely receipt of service fees to provide for
maintenance and replacement of plant and equipment, current operating expenses
and other costs of the Northeast Indiana Systems.
FRANCHISES. The Northeast Indiana Systems are constructed and
operated under non-exclusive, fixed-term franchises or other types of operating
authorities (referred to collectively herein as "franchises") granted by local
governmental authorities. These franchises typically contain many conditions,
such as time limitations on commencement and completion of construction,
conditions of service, including the number of channels, types of programming
and the provision of free service to schools and certain other public
institutions, and the maintenance of insurance and indemnity bonds. The
provisions of local franchises are subject to federal regulation.
The Partnership holds 15 franchises for the Northeast Indiana Systems.
These franchises provide for the payment of fees to the issuing authorities and
generally range from 3 percent to 5 percent of the gross revenues of a cable
television system. The 1984 Cable Act prohibits franchising authorities from
imposing annual franchise fees in excess of 5 percent of gross revenues and also
permits the cable television system operator to seek renegotiation and
modification of franchise requirements if warranted by changed circumstances.
The Partnership has never had a franchise revoked. The Partnership
does not have any franchises that will expire prior to December 31, 1998.
COMPETITION. Cable television systems currently experience
competition from several sources.
Broadcast Television. Cable television systems have traditionally
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competed with broadcast television, which consists of television signals that
the viewer is able to receive directly on his television without charge using an
"off-air" antenna. The extent of such competition is dependent in part upon the
quality and quantity of signals available by such antenna reception as compared
to the services provided by the local cable system. Accordingly, it has
generally been less difficult for cable operators to obtain higher penetration
rates in rural areas where signals available off-air are limited, than in
metropolitan areas where numerous, high quality off-air signals are often
available without the aid of cable television systems.
Traditional Overbuild. Cable television franchises are not exclusive,
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so that more than one cable television system may be built in the same area
(known as an "overbuild"), with potential loss of revenues to the operator of
the original cable television system. The General Partner has experienced
overbuilds in connection with certain systems that it has owned or managed for
limited partnerships, and currently there are overbuilds in certain of the
systems owned or managed by the General Partner but not in the Northeast Indiana
Systems. Constructing and developing a cable television system is a capital
intensive process, and it is often difficult for a new cable system operator to
create a marketing edge over the existing system. Generally, an overbuilder
would be required to obtain franchises from the local governmental authorities,
although in some instances, the overbuilder could be the local government
itself. In any case, an overbuilder would be required to obtain programming
contracts from entertainment programmers and, in most cases, would have to build
a complete cable system, including headends, trunk lines and drops to individual
subscribers homes, throughout the franchise areas.
DBS. High-powered direct-to-home satellites have made possible the
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wide-scale delivery of programming to individuals throughout the United States
using small roof-top or wall-mounted antennas. Several companies began offering
direct broadcast satellite ("DBS") service over the last few years. Companies
offering DBS service use video compression technology to increase channel
capacity of their systems to 100 or more channels and to provide packages of
movies, satellite network and other program services which are competitive to
those of cable television systems. DBS faces technical and legal obstacles to
offering its customers local broadcast programming, although at least one DBS
provider is now attempting to do so. In addition to emerging
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high-powered DBS competition, cable television systems face competition from a
major medium-powered satellite distribution provider and several low-powered
providers, whose service requires use of much larger home satellite dishes. Not
all subscribers terminate cable television service upon acquiring a DBS system.
The General Partner has observed that there are DBS subscribers that also elect
to subscribe to cable television service in order to obtain the greatest variety
of programming on multiple television sets, including local programming not
available through DBS service. The ability of DBS service providers to compete
successfully with the cable television industry will depend on, among other
factors, the ability of DBS providers to overcome certain legal and technical
hurdles and the availability of equipment at reasonable prices.
Telephone and Utilities. Federal cross-ownership restrictions
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historically limited entry by local telephone companies into the cable
television business. The 1996 Telecommunications Act (the "1996 Telecom Act")
eliminated this cross-ownership restriction, making it possible for companies
with considerable resources to overbuild existing cable operators and enter the
business. Several telephone companies have begun seeking cable television
franchises from local governmental authorities and constructing cable television
systems. The General Partner cannot predict at this time the extent of
telephone company competition that will emerge. The entry of telephone
companies as direct competitors, however, is likely to continue over the next
several years and could adversely affect the profitability and market value of
cable television systems. The entry of electric utility companies into the
cable television business, as now authorized by the 1996 Telecom Act, could have
a similar adverse effect. The local electric utility in the Washington D.C.
area recently announced plans to participate in a planned video competitor.
Private Cable. Additional competition is provided by private cable
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television systems, known as Satellite Master Antenna Television (SMATV),
serving multi-unit dwellings such as condominiums, apartment complexes, and
private residential communities. These private cable systems may enter into
exclusive agreements with apartment owners and homeowners associations, which
may preclude operators of franchised systems from serving residents of such
private complexes. Private cable systems that do not cross public rights of way
are free from the federal, state and local regulatory requirements imposed on
franchised cable television operators. In some cases, the Partnership has been
unable to provide cable television service to buildings in which private
operators have secured exclusive contracts to provide video and telephony
services. The Partnership is interested in providing these same services, but
expects that the market to install and provide these services in multi-unit
buildings will continue to be highly competitive.
MMDS. Cable television systems also compete with wireless program
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distribution services such as multichannel, multipoint distribution service
("MMDS") systems, commonly called wireless cable, which are licensed to serve
specific areas. MMDS uses low-power microwave frequencies to transmit
television programming over-the-air to paying subscribers. The MMDS industry is
less capital intensive than the cable television industry, and it is therefore
more practical to construct MMDS systems in areas of lower subscriber
penetration. Wireless cable systems are now in direct competition with cable
television systems in several areas of the country, including the system in Pima
County, Arizona owned by the General Partner. Telephone companies have acquired
or invested in wireless companies, and may use MMDS systems to provide services
within their service areas in lieu of wired delivery systems. Enthusiasm for
MMDS has waned in recent months, however, as Bell Atlantic and NYNEX have
suspended their investment in two major MMDS companies. To date, the
Partnership has not lost a significant number of subscribers, nor a significant
amount of revenue, to MMDS operators competing with the Partnership's Northeast
Indiana Systems. A series of actions taken by the FCC, however, including
reallocating certain frequencies to the wireless services, are intended to
facilitate the development of wireless cable television systems as an
alternative means of distributing video programming. In addition, Local
Multipoint Distribution Services ("LMDS"), could also pose a significant threat
to the cable television industry, if and when it becomes established. The
potential impact, however, of LMDS is difficult to assess due to the newness of
the technology and the absence of any current fully operational LMDS systems.
Cable television systems are also in competition, in various degrees
with other communications and entertainment media, including motion pictures and
home video cassette recorders.
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REGULATION AND LEGISLATION
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The operation of cable television systems is extensively regulated by
the FCC, some state governments and most local governments. The new 1996
Telecom Act alters the regulatory structure governing the nation's
telecommunications providers. It removes barriers to competition in both the
cable television market and the local telephone market. Among other things, it
also reduces the scope of cable rate regulation.
The 1996 Telecom Act requires the FCC to undertake a host of
implementing rulemakings, the final outcome of which cannot yet be determined.
Moreover, Congress and the FCC have frequently revisited the subject of cable
regulation. Future legislative and regulatory changes could adversely affect
the Partnership's operations and there has been a recent increase in calls to
maintain or even tighten cable regulation in the absence of widespread effective
competition. This section briefly summarizes key laws and regulations affecting
the operation of the Partnership's Northeast Indiana Systems and does not
purport to describe all present, proposed, or possible laws and regulations
affecting the Partnership.
Cable Rate Regulation. The 1992 Cable Act imposed an extensive rate
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regulation regime on the cable television industry. Under that regime, all
cable systems are subject to rate regulation, unless they face "effective
competition" in their local franchise area. Federal law now defines "effective
competition" on a community-specific basis as requiring either low penetration
(less than 30 percent) by the incumbent cable operator, appreciable penetration
(more than 15 percent) by competing multichannel video providers ("MVPs"), or
the presence of a competing MVP affiliated with a local telephone company.
Although the FCC rules control, local government units (commonly
referred to as local franchising authorities or "LFAs") are primarily
responsible for administering the regulation of the lowest level of cable -- the
basic service tier ("BST"), which typically contains local broadcast stations
and public, educational, and government ("PEG") access channels. Before an LFA
begins BST rate regulation, it must certify to the FCC that it will follow
applicable federal rules, and many LFAs have voluntarily declined to exercise
this authority. LFAs also have primary responsibility for regulating cable
equipment rates. Under federal law, charges for various types of cable
equipment must be unbundled from each other and from monthly charges for
programming services. The 1996 Telecom Act allows operators to aggregate costs
for broad categories of equipment across geographic and functional lines. This
change should facilitate the introduction of new technology.
The FCC itself directly administers rate regulation of any cable
programming service tiers ("CPST"), which typically contain satellite-delivered
programming. Under the 1996 Telecom Act, the FCC can regulate CPST rates only
if an LFA first receives at least two rate complaints from local subscribers and
then files a formal complaint with the FCC. When new CPST rate complaints are
filed, the FCC now considers only whether the incremental increase is justified
and will not reduce the previously established CPST rate.
Under the FCC's rate regulations, most cable systems were required to
reduce their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price cap scheme that allows for the
recovery of inflation and certain increased costs, as well as providing some
incentive for expanding channel carriage. The FCC has modified its rate
adjustment regulations to allow for annual rate increases and to minimize
previous problems associated with regulatory lag. Operators also have the
opportunity of bypassing this "benchmark" regulatory scheme in favor of
traditional "cost-of-service" regulation in cases where the latter methodology
appears favorable. Premium cable services offered on a per-channel or per-
program basis remain unregulated, as do affirmatively marketed packages
consisting entirely of new programming product. Federal law requires that the
BST be offered to all cable subscribers, but limits the ability of operators to
require purchase of any CPST before purchasing premium services offered on a
per-channel or per-program basis.
The 1996 Telecom Act sunsets FCC regulation of CPST rates for all
systems (regardless of size) on March 31, 1999. Certain critics of the cable
television industry have called for a delay in the regulatory sunset and some
have even urged more rigorous rate regulation in the interim, including a limit
on operators passing through to their customers increased programming costs.
The 1996 Telecom Act also relaxes existing uniform rate requirements by
specifying that uniform rate requirements do not apply where the operator faces
"effective
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competition," and by exempting bulk discounts to multiple dwelling units,
although complaints about predatory pricing still may be made to the FCC.
Cable Entry Into Telecommunications. The 1996 Telecom Act provides
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that no state or local laws or regulations may prohibit or have the effect of
prohibiting any entity from providing any interstate or intrastate
telecommunications service. States are authorized, however, to impose
"competitively neutral" requirements regarding universal service, public safety
and welfare, service quality, and consumer protection. State and local
governments also retain their authority to manage the public rights-of-way and
may require reasonable, competitively neutral compensation for management of the
public rights-of-way when cable operators provide telecommunications service.
The favorable pole attachment rates afforded cable operators under federal law
can be gradually increased by utility companies owning the poles (beginning in
2001) if the operator provides telecommunications service, as well as cable
service, over its plant.
Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the FCC and state regulators. One critical
component of the 1996 Telecom Act to facilitate the entry of new
telecommunications providers (including cable operators) is the interconnection
obligation imposed on all telecommunications carriers. In July 1997, the Eighth
Circuit Court of Appeals vacated certain aspects of the FCC's initial
interconnection order. That decision is now on appeal to the Supreme Court.
Telephone Company Entry Into Cable Television. The 1996 Telecom Act
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allows telephone companies to compete directly with cable operators by repealing
the historic telephone company/cable cross-ownership ban. Local exchange
carriers ("LECs"), including the BOCs, can now compete with cable operators both
inside and outside their telephone service areas. Because of their resources,
LECs could be formidable competitors to traditional cable operators, and certain
LECs have begun offering cable service. As described above, the General Partner
is now witnessing the beginning of LEC competition in a few of its cable
communities.
Under the 1996 Telecom Act, an LEC providing video programming to
subscribers will be regulated as a traditional cable operator (subject to local
franchising and federal regulatory requirements), unless the LEC elects to
provide its programming via an "open video system" ("OVS"). To qualify for OVS
status, the LEC must reserve two-thirds of the system's activated channels for
unaffiliated entities. RCN and affiliates of local power companies recently
have been certified to provide OVS service in areas encompassing the General
Partner's cable systems in suburban Maryland and Virginia. This OVS potential
competition is not yet operational.
Although LECs and cable operators can now expand their offerings
across traditional service boundaries, the general prohibition remains on LEC
buyouts (i.e., any ownership interest exceeding 10 percent) of co-located cable
systems, cable operator buyouts of co-located LEC systems, and joint ventures
between cable operators and LECs in the same market. The 1996 Telecom Act
provides a few limited exceptions to this buyout prohibition, including a
carefully circumscribed "rural exemption." The 1996 Telecom Act also provides
the FCC with the limited authority to grant waivers of the buyout prohibition
(subject to LFA approval).
Electric Utility Entry Into Telecommunications/Cable Television. The
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1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services (including cable
television) notwithstanding the Public Utilities Holding Company Act. Electric
utilities must establish separate subsidiaries, known as "exempt
telecommunications companies" and must apply to the FCC for operating authority.
Again, because of their resources, electric utilities could be formidable
competitors to traditional cable systems.
Additional Ownership Restrictions. The 1996 Telecom Act eliminates
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statutory restrictions on broadcast/cable cross-ownership (including broadcast
network/cable restrictions), but leaves in place existing FCC regulations
prohibiting local cross-ownership between co-located television stations and
cable systems. The 1996 Telecom Act also eliminates the three year holding
period required under the 1992 Cable Act's "anti-trafficking" provision. The
1996 Telecom Act leaves in place existing restrictions on cable cross-ownership
with SMATV and MMDS facilities, but lifts those restrictions where the cable
operator is subject to effective competition. In January 1995, however, the FCC
adopted regulations which permit cable operators to own and operate SMATV
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systems within their franchise area, provided that such operation is consistent
with local cable franchise requirements.
Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a
cable system from devoting more than 40 percent of its activated channel
capacity to the carriage of affiliated national program services. A companion
rule establishing a nationwide ownership cap on any cable operator equal to 30
percent of all domestic cable subscribers has been stayed pending further
judicial review, although the FCC recently expressed an interest in reviewing
and reimposing this limit.
There are no federal restrictions on non-U.S. entities having an
ownership interest in cable television systems or the FCC licenses commonly
employed by such systems. Section 310(b)(4) of the Communications Act does,
however, prohibit foreign ownership of FCC broadcast and telephone licenses,
unless the FCC concludes that such foreign ownership is consistent with the
public interest. The investment by BCI Telecom Holding Inc. ("BCI") in the
General Partner could, therefore, adversely affect any plan to acquire FCC
broadcast or common carrier licenses. The Partnership, however, does not
currently plan to acquire such licenses.
Must Carry/Retransmission Consent. The 1992 Cable Act contains
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broadcast signal carriage requirements that allow local commercial television
broadcast stations to elect once every three years between requiring a cable
system to carry the station ("must carry") or negotiating for payments for
granting permission to the cable operator to carry the station ("retransmission
consent"). Less popular stations typically elect "must carry," and more popular
stations typically elect "retransmission consent." Must carry requests can
dilute the appeal of a cable system's programming offerings, and retransmission
consent demands may require substantial payments or other concessions. Either
option has a potentially adverse affect on the Partnership's business.
Additionally, cable systems are required to obtain retransmission consent for
all "distant" commercial television stations (except for satellite-delivered
independent "superstations" such as WGN). The burden associated with "must
carry" may increase substantially if broadcasters proceed with planned
conversion to digital transmission and the FCC determines that cable systems
must carry all analogue and digital broadcasts in their entirety.
Access Channels. LFAs can include franchise provisions requiring
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cable operators to set aside certain channels for public, educational and
governmental access programming. Federal law also requires cable systems to
designate a portion of their channel capacity (up to 15 percent in some cases)
for commercial leased access by unaffiliated third parties. The FCC has adopted
rules regulating the terms, conditions and maximum rates a cable operator may
charge for use of the designated channel capacity, but use of commercial leased
access channels has been relatively limited. The FCC released revised rules in
February 1997 mandating a modest rate reduction. The reduction sparked some
increase in part-time use, but did not make commercial leased access
substantially more attractive to third party programmers. Certain of those
programmers have now appealed the revised rules to the D.C. Court of Appeals.
Should the courts and the FCC ultimately determine that an additional reduction
in access rates is required, cable operators could lose programming control of a
substantial number of cable channels.
Access to Programming. To spur the development of independent cable
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programmers and competition to incumbent cable operators, the 1992 Cable Act
imposed restrictions on the dealings between cable operators and cable
programmers. Of special significance from a competitive business posture, the
1992 Cable Act precludes video programmers affiliated with cable companies from
favoring cable operators over competitors and requires such programmers to sell
their programming to other multichannel video distributors. This provision
limits the ability of vertically integrated cable programmers to offer exclusive
programming arrangements to cable companies. Recently there has been increased
interest in further restricting the marketing practices of cable programmers,
including subjecting programmers who are not affiliated with cable operators to
all of the existing program access requirements.
Inside Wiring. The FCC recently determined that an incumbent cable
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operator can be required by the owner of a multiple dwelling unit ("MDU")
complex to remove, abandon or sell the "home run" wiring it initially provided.
In addition, the FCC is reviewing the enforceability of contracts to provide
exclusive video service within a MDU complex. The FCC has proposed abrogating
all such contracts held by incumbent cable operators,
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but allowing such contracts when held by new entrants. These changes, and others
now being considered by the FCC, would, if implemented, make it easier for a MDU
complex owner to terminate service from an incumbent cable operator in favor of
a new entrant and leave the already competitive MDU sector even more challenging
for incumbent cable operators.
Other FCC Regulations. In addition to the FCC regulations noted
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above, there are other FCC regulations covering such areas as equal employment
opportunity, subscriber privacy, programming practices (including, among other
things, syndicated program exclusivity, network program nonduplication, local
sports blackouts, indecent programming, lottery programming, political
programming, sponsorship identification, and children's programming
advertisements), registration of cable systems and facilities licensing,
maintenance of various records and public inspection files, frequency usage,
lockbox availability, antenna structure notification, tower marking and
lighting, consumer protection and customer service standards, technical
standards and consumer electronics equipment compatibility. Federal
requirements governing Emergency Alert Systems and Closed Captioning adopted in
1997 will impose additional costs on the operation of cable systems. The FCC is
currently considering whether cable customers must be allowed to purchase cable
converters from third party vendors. If the FCC concludes that such
distribution is required, and does not make appropriate allowances for signal
piracy concerns, it may become more difficult for cable operators to combat
theft of service. The FCC has the authority to enforce its regulations through
the imposition of substantial fines, the issuance of cease and desist orders
and/or the imposition of other administrative sanctions, such as the revocation
of FCC licenses needed to operate certain transmission facilities used in
connection with cable operations.
Copyright. Cable television systems are subject to federal copyright
---------
licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
revenues to a federal copyright royalty pool (that varies depending on the size
of the system and the number of distant broadcast television signals carried),
cable operators can obtain blanket permission to retransmit copyrighted material
on broadcast signals. The possible modification or elimination of this
compulsory copyright license is the subject of continuing legislative review and
could adversely affect the Partnership's ability to obtain desired broadcast
programming. In addition, the cable industry pays music licensing fees to BMI
and is negotiating a similar arrangement with ASCAP. Copyright clearances for
nonbroadcast programming services are arranged through private negotiations.
State and Local Regulation. Cable television systems generally are
--------------------------
operated pursuant to nonexclusive franchises granted by a municipality or other
state or local government entity in order to cross public rights-of-way.
Federal law now prohibits franchise authorities from granting exclusive
franchises or from unreasonably refusing to award additional franchises. Cable
franchises generally are granted for fixed terms and in many cases include
monetary penalties for non-compliance and may be terminable if the franchisee
fails to comply with material provisions.
The terms and conditions of franchises vary materially from
jurisdiction to jurisdiction. Each franchise generally contains provisions
governing cable operations, service rates, franchise fees, system construction
and maintenance obligations, system channel capacity, design and technical
performance, customer service standards, and indemnification protections. A
number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. Although LFAs have considerable
discretion in establishing franchise terms, there are certain federal
limitations. For example, LFAs cannot insist on franchise fees exceeding 5
percent of the system's gross revenues, cannot dictate the particular technology
used by the system, and cannot specify video programming other than identifying
broad categories of programming.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the franchise authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal. Similarly, if a franchise
authority's consent is required for the purchase or sale of a cable system or
franchise, such authority may attempt to impose more burdensome or onerous
franchise requirements in
9
<PAGE>
connection with a request for consent. Historically, franchises have been
renewed for cable operators that have provided satisfactory services and have
complied with the terms of their franchises.
GENERAL. The Partnership's business consists of providing cable
television services to a large number of customers, the loss of any one of which
would have no material effect on the Partnership's business. The Northeast
Indiana Systems have had some subscribers who later terminated the service.
Terminations occur primarily because people move to another home or to another
city. In other cases, people terminate on a seasonal basis or because they
no longer can afford or are dissatisfied with the service. The amount of past
due accounts in the Northeast Indiana Systems is not significant. The
Partnership's policy with regard to past due accounts is basically one of
disconnecting service before a past due account becomes material.
The Partnership does not depend to any material extent on the
availability of raw materials; it carries no significant amounts of inventory
and it has no material backlog of customer orders. The Partnership does not
have any employees because all properties are managed by employees of the
General Partner. The General Partner has engaged in research and development
activities relating to the provision of new services but the amount of the
Partnership's funds expended for such research and development has never been
material.
Compliance with federal, state and local provisions that have been
enacted or adopted regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment has had no material
effect upon the capital expenditures, earnings or competitive position of the
Partnership.
ITEM 2. PROPERTIES
-------------------
The Partnership acquired the Northeast Indiana Systems in November
1988. The following sets forth (i) the monthly basic plus service rates charged
to subscribers and (ii) the number of basic subscribers and pay units for the
Northeast Indiana Systems. The monthly basic service rates set forth herein
represent, with respect to systems with multiple headends, the basic service
rate charged to the majority of the subscribers within the system. In cable
television systems, basic subscribers can subscribe to more than one pay TV
service. Thus, the total number of pay services subscribed to by basic
subscribers are called pay units. As of December 31, 1997, the Northeast
Indiana Systems operated cable plant passing approximately 21,400 homes, with an
approximate 67 percent penetration rate. Figures for numbers of subscribers and
homes passed are compiled from the General Partner's records and may be subject
to adjustments.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------
NORTHEAST INDIANA SYSTEMS 1997 1996 1995
- ------------------------- --------------------- ---------------------- ---------------------
<S> <C> <C> <C>
Monthly basic plus service rate $ 24.58 $ 23.08 $ 21.77
Basic subscribers 15,012 14,540 13,926
Pay units 8,312 7,468 8,413
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
--------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
None.
10
<PAGE>
PART II.
--------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
-------------------------------------------------
AND RELATED SECURITY HOLDER MATTERS
-----------------------------------
While the Partnership is publicly held, there is no public market for the
limited partnership interests, and it is not expected that a market will develop
in the future. During 1997, limited partners of the Partnership conducted
"limited tender offers" for interests in the Partnership at prices ranging from
$140 to $185 per interest. As of February 16, 1998, the number of equity
security holders in the Partnership was 2,118.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ -------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 5,522,807 $ 5,724,538 $ 6,838,837 $ 6,440,941 $ 6,214,322
Depreciation and Amortization 1,680,105 1,930,748 3,161,861 3,074,711 3,161,687
Operating Income (Loss) 396,470 (110,944) (630,272) (714,065) (681,473)
Net Income (Loss) (281,375) 3,711,661(a) (1,495,469) (1,459,114) (1,328,059)
Net Income (Loss) per
Limited Partnership Unit (5.43) 71.66(a) (28.87) (28.17) (25.64)
Weighted average number of
Limited Partner units outstanding 51,276 51,276 51,276 51,276 51,276
General Partner's Deficit (17,258) (14,444) (161,832) (134,377) (119,786)
Limited Partners' Capital 3,002,858 3,281,419 5,992,398 8,710,412 10,154,935
Total Assets 10,944,711 11,477,059 18,237,340 19,865,099 21,435,720
Credit Facility and Capitalized
Lease Obligations 7,620,042 7,467,645 11,605,582 10,787,551 10,058,100
General Partner Advances - - - 44,786 584,196
</TABLE>
(a) Net income resulted primarily from the sale of the Lake Geneva and Ripon
Systems by Jones Spacelink Income/Growth Fund 1-A, Ltd. in April 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
-------------
The following discussion of Jones Spacelink Income/Growth Fund 1-A,
Ltd.'s (the "Partnership") financial condition and results of operations
contains, in addition to historical information, forward-looking statements that
are based upon certain assumptions and are subject to a number of risks and
uncertainties. The Partnership's actual results may differ significantly from
the results predicted in such forward-looking statements.
FINANCIAL CONDITION
- -------------------
It is the General Partner's publicly announced policy that it intends
to liquidate its managed partnerships, including the Partnership, as
opportunities for sales of partnership cable television systems arise in the
marketplace. In accordance with the policy, the Partnership has entered into an
asset purchase agreement to sell the cable television systems serving the areas
in and around the communities of Bluffton, Decatur, Monroe, Auburn, Butler,
Uniondale, Waterloo, Poneto, Vera Cruz and Garrett, and the unincorporated areas
of Wells, Allen, Noble, Adams and DeKalb counties, all in the State of Indiana
(the "Northeast Indiana Systems").
On December 17, 1997, the Partnership entered into an asset purchase
agreement to sell the Northeast Indiana Systems to an unaffiliated party (the
"buyer") for a sales price of $23,500,000, subject to closing adjustments that
may have the effect of increasing or decreasing the sales price by a non-
material amount. Closing of the sale, which is anticipated to occur during the
second quarter of 1998, is subject to several conditions, including necessary
governmental and other third party consents and the termination or expiration of
the statutory waiting period applicable to the asset purchase agreement and the
transactions contemplated thereby under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended. In addition, because the Northeast
Indiana Systems constitute all of the Partnership's assets, the sale must be
approved by the owners of a majority of the interests of the Partnership. The
General Partner intends to conduct a proxy vote on this matter in May 1998.
Upon the consummation of the proposed sale of the Northeast Indiana Systems, the
Partnership will repay all of its indebtedness including the $7,500,000 borrowed
under its credit facility and capital lease obligations totaling $120,042,
leaving the Partnership with no debt outstanding, settle working capital
adjustments, and then deposit $1,000,000 into an indemnity escrow account. The
remaining net sale proceeds of approximately $14,900,000 will be distributed to
the Partnership's limited partners of record as of the closing date of the sale
of the
12
<PAGE>
Northeast Indiana Systems. Based upon financial information as of December 31,
1997, this distribution will give the Partnership's limited partners an
approximate return of $291.50 for each $500 limited partnership interest, or
$583 for each $1,000 invested in the Partnership. Taking into account prior
distributions to limited partners from the Partnership's operating cash flow and
from the net proceeds from the sales of the Lake Geneva System and Ripon System,
the limited partners of the Partnership will have received a total of $590 for
each $500 limited partner interest, or $1,180 for each $1,000 invested in the
Partnership.
For a period of one year following the closing date, $1,000,000 of the sale
proceeds will remain in escrow as security for the Partnership's agreement to
indemnify the buyer under the asset purchase agreement. The Partnership's
primary exposure, if any, will relate to the representations and warranties made
about the Northeast Indiana Systems in the asset purchase agreement. Any
amounts remaining from this indemnity escrow account and not claimed by the
buyer at the end of the one-year period will be distributed to the limited
partners of the Partnership at that time. If the entire $1,000,000 escrow amount
is distributed to the limited partners, of which there can be no assurance,
limited partners would receive $19.50 for each $500 limited partnership
interest, or $39 for each $1,000 invested in the Partnership. The Partnership
will continue in existence at least until any amounts remaining from the
indemnity escrow account have been distributed. Since the Northeast Indiana
Systems represent the only asset of the Partnership, the Partnership will be
liquidated and dissolved upon the final distribution of any amounts remaining
from the indemnity escrow account.
During 1997, the Partnership generated cash from operating activities
totaling $1,158,757, which is available to fund capital expenditures and non-
operating costs. During 1997, the Partnership purchased plant and equipment for
its cable television systems totaling approximately $906,000. Approximately 36
percent of these expenditures was for service drops to homes. Approximately 24
percent was for plant extensions related to new homes passed. The remainder of
these expenditures was used to maintain the value of the Northeast Indiana
Systems. The capital expenditures were funded primarily from cash flow from
operations. Budgeted capital expenditures for all of 1998 are estimated to be
approximately $427,000, and will be financed primarily from cash on hand and
cash flow from operations. Service drops to homes are anticipated to account
for approximately 47 percent of these expenditures and cable television plant
extensions related to new homes passed are expected to account for approximately
35 percent of these expenditures. The remainder of the anticipated capital
expenditures is necessary to maintain the value of the Northeast Indiana Systems
until they are sold. Depending upon the timing of the closing of the sale of
the Northeast Indiana Systems, the Partnership will make only the portion of the
budgeted capital expenditures scheduled to be made during the Partnership's
continued ownership of the Northeast Indiana Systems.
At December 31, 1997, $7,500,000 was outstanding under the Partnership's
$8,000,000 credit facility, leaving $500,000 available for the Partnership.
This credit facility has a final maturity date of the earlier of June 30, 1998
or the date of sale of the Northeast Indiana Systems. This credit facility will
be repaid in full upon the sale of the Northeast Indiana Systems. Interest on
the outstanding principal balance is at the Partnership's option of the Prime
Rate plus 1/4 percent or the London Interbank Offered Rate plus 1-1/4 percent.
The effective interest rates on outstanding obligations as of December 31, 1997
and 1996 were 7.17 percent and 6.84 percent, respectively.
A primary objective of the Partnership has been to provide quarterly cash
distributions to the partners, principally from cash flow from operations
remaining after principal and interest payments and the creation of any reserves
necessary for the operation of the Partnership. The payment of quarterly cash
flow distributions reduces the financial flexibility of the Partnership. The
Partnership accordingly has suspended such distributions because funds from cash
flow have been used to pay for necessary capital additions to the Partnership's
Northeast Indiana Systems as a result of limited borrowing capacity under the
Partnership's credit facility. The Partnership does not plan on resuming such
distributions to the partners. The Partnership intends to make distributions to
the limited partners from the net proceeds of the sale of the Northeast Indiana
Systems. The Partnership declared such distributions totaling $1,262,626 and
$1,262,626 in 1996 and 1995, respectively.
The General Partner believes cash on hand and cash flow from operations
will be sufficient to fund capital expenditures and other liquidity needs of the
Partnership assuming the Northeast Indiana Systems are sold by June 30, 1998.
13
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
As a result of the sale of the Lake Geneva System and the Ripon System in
April 1996, the following discussion of results of operations, through operating
income, pertains only to the results of operations for the Northeast Indiana
Systems for all periods discussed.
1997 Compared to 1996
---------------------
Revenues of the Partnership increased $375,553, or approximately 7 percent,
to $5,522,807 in 1997 compared to $5,147,254 in 1996. Basic service rate
increases accounted for approximately 43 percent of the increase in revenues.
Increases in the number of basic service subscribers accounted for approximately
41 percent of the increase in revenues. The number of basic service subscribers
increased 601, or approximately 4 percent, to 15,012 at December 31, 1997 from
14,411 at December 31, 1996. No other individual factor had a significant
effect on the increases in revenues.
Operating expenses consist primarily of costs associated with the
operation and administration of the Partnership's cable television systems. The
principal cost components are salaries paid to system personnel, programming
expenses, professional fees, subscriber billing costs, rent for leased
facilities, cable system maintenance expenses and marketing expenses.
Operating expenses increased $194,013, or approximately 7 percent, to
$2,844,900 in 1997 from $2,650,887 in 1996. The increase was primarily the
result of increases in programming costs and advertising sales related expenses.
No other individual factor significantly affected the increases in operating
expenses for the periods discussed. Operating expenses represented approximately
52 percent of revenues in 1997 and 1996, respectively.
The cable television industry generally measures the financial performance
of a cable television system in terms of operating cash flow (revenues less
operating expenses). This measure is not intended to be a substitute or
improvement upon the items disclosed on the financial statements, rather it is
included because it is an industry standard. Operating cash flow increased
$181,540, or approximately 7 percent, to $2,677,907 in 1997 from $2,496,367 in
1996. The increase was due to the increase in revenues exceeding the increase
in operating expenses.
Management fees and allocated administrative costs from the General Partner
increased $10,593, or approximately 2 percent, to $601,332 in 1997 from $590,739
in 1996. This increase was due to the increase in revenues, upon which
management fees are based, which was offset in part by a reduction in allocated
costs from the General Partner.
Depreciation and amortization expense increased $166,956, or approximately
11 percent, to $1,680,105 in 1997 from $1,513,149 in 1996. The increase was due
to capital additions in 1997.
Operating income increased $3,991, or approximately 1 percent, to $396,470
in 1997 from $392,479 in 1996. The increase was the result of the increase in
operating cash flow exceeding the increase in depreciation and amortization
expense.
Interest expense of the Partnership increased $28,829, or approximately 5
percent, to $664,204 in 1997 from $635,375 in 1996. The increase was primarily
the result of higher outstanding balances on interest bearing obligations in
1997.
The Partnership recognized a gain on the sales of the Lake Geneva System
and the Ripon System of $4,550,867 in 1996. No similar gain was recognized
during 1997.
The Partnership reported a net loss of $281,375 in 1997 compared to net
income of $3,711,661 in 1996. This change was the result of the fact that the
Partnership did not sell any cable television systems in 1997 and thus had no
gain comparable to the gain on the sales of the Lake Geneva System and the Ripon
System in 1996.
14
<PAGE>
1996 Compared to 1995
---------------------
Revenues increased $349,008, or approximately 7 percent, to $5,147,254 in
1996 from $4,798,246 in 1995. This increase was primarily the result of an
increase in the number of basic subscribers in the Partnership's Northeast
Indiana Systems and basic service rate increases. An increase in the number of
basic subscribers accounted for approximately 41 percent of the increase in
revenues. The number of basic subscribers in the Northeast Indiana Systems
increased by 726 subscribers, or approximately 5 percent, to 14,411 subscribers
in 1996, from 13,685 subscribers in 1995. Basic service rate increases
accounted for approximately 33 percent of the increase in revenues. No other
individual factor significantly contributed to the increase in revenues.
Operating expenses increased $287,446, or approximately 12 percent, to
$2,650,887 in 1996 from $2,363,441 in 1995. This increase was primarily the
result of increases in programming fees. No other individual factor
significantly affected the increase in operating expenses for the periods
discussed.
Operating cash flow increased $61,562, or approximately 3 percent, to
$2,496,367 in 1996 from $2,434,805 in 1995. This increase was due to the
increase in revenue exceeding the increase in operating expenses.
Management fees and allocated administrative costs from the General Partner
decreased $16,123, or approximately 3 percent, to $590,739 in 1996 from $606,862
in 1995. The decrease was due to the timing of certain expenses allocated from
the General Partner.
Depreciation and amortization expense decreased $237,810, or approximately
14 percent, to $1,513,149 in 1996 from $1,750,959 in 1995. This decrease was
due to the maturation of the Partnership's asset base.
The Partnership recognized operating income of $392,479 in 1996 compared to
$76,984 in 1995. This increase in operating income was due to the increase in
revenues and decreases in management fees and allocated administrative costs
from the General Partner and depreciation and amortization expense exceeding the
increase in operating expenses.
Interest expense decreased $235,468, or approximately 27 percent, to
$635,375 in 1996 from $870,843 in 1995. This decrease was primarily the result
of lower outstanding balances on interest bearing obligations. A portion of the
proceeds from the sale of the Lake Geneva and Ripon systems was used to repay a
portion of the outstanding loan balance.
The Partnership reported a gain on the sale of the Lake Geneva and Ripon
Systems of $4,550,867 in 1996. No similar gain was reported in 1995.
The Partnership reported net income of $3,711,661 in 1996 compared to a net
loss of $1,495,469 in 1995. This change was a result of the gain on the sale of
the Lake Geneva and Ripon Systems discussed above.
ITEM 8. FINANCIAL STATEMENTS
- -----------------------------
The audited financial statements of the Partnership for the year ended
December 31, 1997 follow.
15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Partners of Jones Spacelink Income/Growth Fund 1-A, Ltd.:
We have audited the accompanying balance sheets of Jones Spacelink
Income/Growth Fund 1-A, Ltd. (a Colorado limited partnership) as of December 31,
1997 and 1996, and the related statements of operations, partners' capital
(deficit) and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
General Partner's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Jones Spacelink
Income/Growth Fund 1-A, Ltd. as of December 31, 1997 and 1996, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 13, 1998.
16
<PAGE>
JONES SPACELINK INCOME/GROWTH FUND 1-A, LTD.
--------------------------------------------
(A Limited Partnership)
BALANCE SHEETS
--------------
ASSETS
------
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH $ 146,657 $ 56,865
TRADE RECEIVABLES, less allowance for doubtful
receivables of $12,965 and $5,425 at December 31, 1997
and 1996, respectively 182,946 122,004
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 12,139,015 11,233,310
Less- accumulated depreciation (6,056,785) (5,174,077)
----------- -----------
6,082,230 6,059,233
Franchise costs and other intangible assets, net of
accumulated amortization of $9,112,732 and
$8,374,039 at December 31, 1997 and
December 31, 1996, respectively 4,455,263 5,193,956
----------- -----------
Total investment in cable
television properties 10,537,493 11,253,189
DEPOSITS, PREPAID EXPENSES AND OTHER ASSETS 77,615 45,001
----------- -----------
Total assets $10,944,711 $11,477,059
=========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
17
<PAGE>
JONES SPACELINK INCOME/GROWTH FUND 1-A, LTD.
--------------------------------------------
(A Limited Partnership)
BALANCE SHEETS
--------------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
-------------------------------------------
<TABLE>
<CAPTION>
December 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
LIABILITIES:
Credit facility and capitalized lease
obligations $ 7,620,042 $ 7,467,645
Trade accounts payable and accrued liabilities 307,207 405,742
Accrued distributions to partners - 315,657
Subscriber prepayments and deposits 31,862 21,040
------------ ------------
Total liabilities 7,959,111 8,210,084
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 8)
PARTNERS' CAPITAL (DEFICIT):
General Partner-
Contributed capital 1,000 1,000
Distributions (103,950) (103,950)
Accumulated earnings 85,692 88,506
------------ ------------
(17,258) (14,444)
------------ ------------
Limited Partners-
Contributed capital, net of
related commissions, syndication
costs and interest (51,276 units
outstanding at December 31, 1997
and 1996) 21,875,852 21,875,852
Distributions (15,291,180) (15,291,180)
Accumulated deficit (3,581,814) (3,303,253)
------------ ------------
3,002,858 3,281,419
------------ ------------
Total partners' capital (deficit) 2,985,600 3,266,975
------------ ------------
Total liabilities and partners'
capital (deficit) $ 10,944,711 $ 11,477,059
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
18
<PAGE>
JONES SPACELINK INCOME/GROWTH FUND 1-A, LTD.
--------------------------------------------
(A Limited Partnership)
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
For the Year Ended
December 31,
----------------------------------------------
1997 1996 1995
----------- ------------------- ------------
<S> <C> <C> <C>
REVENUES $5,522,807 $5,724,538 $ 6,838,837
COSTS AND EXPENSES:
Operating expenses 2,844,900 3,224,895 3,426,527
Management fees and allocated administrative
costs from the General Partner 601,332 679,839 880,721
Depreciation and amortization 1,680,105 1,930,748 3,161,861
---------- ---------- -----------
OPERATING INCOME (LOSS) 396,470 (110,944) (630,272)
OTHER INCOME (EXPENSE):
Interest expense (664,204) (635,375) (870,843)
Gain on sale of cable television system - 4,550,867 -
Other, net (13,641) (92,887) 5,646
---------- ---------- -----------
Total other income (expense) (677,845) 3,822,605 (865,197)
---------- ---------- -----------
NET INCOME (LOSS) $ (281,375) $3,711,661 $(1,495,469)
========== ========== ===========
ALLOCATION OF NET INCOME (LOSS):
General Partner $ (2,814) $ 160,140 $ (14,955)
========== ========== ===========
Limited Partners $ (278,561) $3,551,521 $(1,480,514)
========== ========== ===========
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $(5.43) $69.26 $(28.87)
========== ========== ===========
WEIGHTED AVERAGE NUMBER OF
LIMITED PARTNER UNITS
OUTSTANDING 51,276 51,276 51,276
========== ========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
19
<PAGE>
JONES SPACELINK INCOME/GROWTH FUND 1-A, LTD.
--------------------------------------------
(A Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
-----------------------------------------
<TABLE>
<CAPTION>
For the Year Ended
December 31,
---------------------------------------
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
GENERAL PARTNER:
Balance, beginning of year $ (14,444) $ (161,958) $ (134,377)
Cash flow distributions - (12,626) (12,626)
Net income (loss) for the year (2,814) 160,140 (14,955)
---------- ----------- -----------
Balance, end of year $ (17,258) $ (14,444) $ (161,958)
========== =========== ===========
LIMITED PARTNERS:
Balance, beginning of year $3,281,419 $ 5,979,898 $ 8,710,412
Cash flow distributions - (1,250,000) (1,250,000)
Distribution from sale of cable television system - (5,000,000) -
Net income (loss) for the year (278,561) 3,551,521 (1,480,514)
---------- ----------- -----------
Balance, end of year $3,002,858 $ 3,281,419 $ 5,979,898
========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
20
<PAGE>
JONES SPACELINK INCOME/GROWTH FUND 1-A, LTD.
--------------------------------------------
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
For the Year Ended
December 31,
----------------------------------------------
1997 1996 1995
----------- ------------------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (281,375) $ 3,711,661 $(1,495,469)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,680,105 1,930,748 3,161,861
Gain on sale of cable television system - (4,550,867) -
Decrease (increase) in trade accounts receivable, net (60,942) 104,612 (95,974)
Increase in deposits, prepaid expenses and other assets (91,318) (22,669) (21,402)
Increase (decrease) in trade accounts payable and
accrued liabilities and subscriber prepayments
and deposits (87,713) (78,005) 41,434
Decrease in advances from Jones Intercable, Inc. - - (44,786)
---------- ------------ -----------
Net cash provided by operating activities 1,158,757 1,095,480 1,545,664
---------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (905,705) (1,009,939) (1,275,117)
Proceeds from sale of cable television system - 10,058,334 -
---------- ------------ -----------
Net cash provided by (used in) investing activities (905,705) 9,048,395 (1,275,117)
---------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 687,618 5,930,512 870,251
Repayment of borrowings (535,221) (10,068,449) (52,220)
Increase (decrease) in accrued distributions (315,657) - 315,657
Distributions to partners - (6,262,626) (1,262,626)
---------- ------------ -----------
Net cash used in financing activities (163,260) (10,400,563) (128,938)
---------- ------------ -----------
INCREASE (DECREASE) IN CASH 89,792 (256,688) 141,609
CASH, BEGINNING OF YEAR 56,865 313,553 171,944
---------- ------------ -----------
CASH, END OF YEAR $ 146,657 $ 56,865 $ 313,553
========== ============ ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 719,176 $ 638,714 $ 875,993
========== ============ ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
21
<PAGE>
JONES SPACELINK INCOME/GROWTH FUND 1-A, LTD.
--------------------------------------------
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(1) ORGANIZATION AND PARTNERS' INTERESTS:
------------------------------------
Formation and Business
----------------------
Jones Spacelink Income/Growth Fund 1-A, Ltd. (the "Partnership"), a
Colorado limited partnership, was formed on May 12, 1988, pursuant to a public
offering of limited partner interests. The Partnership was formed to acquire,
construct, develop and operate cable television systems. Jones Intercable, Inc.
("Intercable"), a Colorado corporation, is the "General Partner," and manager of
the Partnership. Intercable and certain of its subsidiaries also own and
operate cable television systems for their own account and for the account of
other managed limited partnerships.
Cable Television System Acquisitions
------------------------------------
In November 1988, the Partnership purchased the cable television systems
serving the areas in and around the communities of Bluffton, Decatur, Monroe,
Auburn, Butler, Uniondale, Waterloo, Poneto, Vera Cruz and Garrett, and the
unincorporated areas of Wells, Allen, Noble, Adams and Dekalb Counties, all in
the State of Indiana (the "Northeast Indiana Systems").
In March 1991, the Partnership purchased the cable television system
serving the communities of Lake Geneva and areas of Walworth County, all in the
State of Wisconsin (the "Lake Geneva System") and the cable television system
serving the communities of Ripon and areas of Fond-du-Lac County, all in the
State of Wisconsin (the "Ripon System"). Such systems were sold in 1996 as
discussed below.
Contributed Capital, Commissions and Syndication Costs
------------------------------------------------------
The capitalization of the Partnership is set forth in the accompanying
statements of partners' capital (deficit). No limited partner is obligated to
make any additional contribution to Partnership capital. The General Partner
purchased its general partner interest in the Partnership by contributing $1,000
to partnership capital.
All profits and losses of the Partnership will be allocated 99 percent to
the limited partners and one percent to the General Partner, except for income
or gain from the sale or disposition of cable television properties, which will
be allocated to the partners based upon the formula set forth in the partnership
agreement, and interest income earned prior to the first acquisition by the
Partnership of a cable television system, which was allocated 100 percent to the
limited partners.
Sales of Cable Television Systems
---------------------------------
On April 11, 1996, the Partnership sold to Jones Cable Holdings, Inc., a
wholly owned subsidiary of Intercable, the Lake Geneva System for $6,345,667,
and the Ripon System for $3,712,667. The purchase prices were determined by
averaging three separate independent appraisals of each of the cable television
systems sold. No vote of the limited partners of the Partnership was required
in connection with these transactions because the sales of the Lake Geneva
System and the Ripon System, individually and collectively, did not represent
the sale of all or substantially all of the Partnership's assets. Pursuant to
the terms of an amendment to the Partnership's credit agreement, the Partnership
distributed $5,000,000 of the proceeds from the sales of the Lake Geneva System
and the Ripon System to the limited partners, and the balance of the sale
proceeds, approximately $5,058,000, reduced the Partnership's outstanding
indebtedness, which at December 31, 1996 totaled $7,467,645. The limited
partners of the Partnership received, in April 1996, approximately $98 per unit,
or $195 for each $1,000 invested in the Partnership. Limited partners of the
Partnership have received a total of $596 for each $1,000 invested in the
Partnership taking into account the prior distributions to limited partners.
Because these distributions have not yet returned to limited partners 100
percent of the capital contributed by them to the
22
<PAGE>
Partnership plus their preferred return, the General Partner was not entitled to
receive a distribution on the sales of the Lake Geneva System and the Ripon
System.
Proposed Sale of Cable Television Systems
-----------------------------------------
On December 17, 1997, the Partnership entered into an asset purchase
agreement to sell the Northeast Indiana Systems to an unaffiliated party (the
"buyer") for a sales price of $23,500,000, subject to closing adjustments that
may have the effect of increasing or decreasing the sales price by a non-
material amount. Closing of the sale, which is anticipated to occur during the
second quarter of 1998, is subject to several conditions, including necessary
governmental and other third party consents and the termination or expiration of
the statutory waiting period applicable to the asset purchase agreement and the
transactions contemplated thereby under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended. In addition, because the Northeast
Indiana Systems constitute all of the Partnership's assets, the sale must be
approved by the owners of a majority of the interests of the Partnership. The
General Partner intends to conduct a proxy vote on this matter in May 1998.
Upon the consummation of the proposed sale of the Northeast Indiana Systems, the
Partnership will repay all of its indebtedness including the $7,500,000 borrowed
under its credit facility and capital lease obligations totaling $120,042,
leaving the Partnership with no debt outstanding, settle working capital
adjustments, and then deposit $1,000,000 into an indemnity escrow account. The
remaining net sale proceeds of approximately $14,900,000 will be distributed to
the Partnership's limited partners of record as of the closing date of the sale
of the Northeast Indiana Systems. Based upon financial information as of
December 31, 1997, this distribution will give the Partnership's limited
partners an approximate return of $291.50 for each $500 limited partnership
interest, or $583 for each $1,000 invested in the Partnership. Taking into
account prior distributions to limited partners from the Partnership's operating
cash flow and from the net proceeds from the sales of the Lake Geneva System and
Ripon System, the limited partners of the Partnership will have received a total
of $590 for each $500 limited partner interest, or $1,180 for each $1,000
invested in the Partnership.
For a period of one year following the closing date, $1,000,000 of the sale
proceeds will remain in escrow as security for the Partnership's agreement to
indemnify the buyer under the asset purchase agreement. The Partnership's
primary exposure, if any, will relate to the representations and warranties made
about the Northeast Indiana Systems in the asset purchase agreement. Any
amounts remaining from this indemnity escrow account and not claimed by the
buyer at the end of the one-year period will be distributed to the limited
partners of the Partnership at that time. If the entire $1,000,000 escrow amount
is distributed to the limited partners, of which there can be no assurance,
limited partners would receive $19.50 for each $500 limited partnership
interest, or $39 for each $1,000 invested in the Partnership. The Partnership
will continue in existence at least until any amounts remaining from the
indemnity escrow account have been distributed. Since the Northeast Indiana
Systems represent the only asset of the Partnership, the Partnership will be
liquidated and dissolved upon the final distribution of any amounts remaining
from the indemnity escrow account.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Accounting Records
------------------
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting principles.
The Partnership's tax returns are also prepared on the accrual basis.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partner's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
23
<PAGE>
Property, Plant and Equipment
-----------------------------
Depreciation of property, plant and equipment is provided using the
straight-line method over the following estimated service lives:
<TABLE>
<CAPTION>
<S> <C>
Cable distribution systems 5 - 15 years
Equipment and tools 5 - 7 years
Office furniture and equipment 3 - 5 years
Buildings 30 years
Vehicles 3 - 4 years
</TABLE>
Replacements, renewals and improvements are capitalized and maintenance and
repairs are charged to expense as incurred.
Property, plant and equipment and the corresponding accumulated
depreciation are written off as certain assets become fully depreciated and are
no longer in service.
Allocation of Cost of Purchased Cable Television Systems
--------------------------------------------------------
Based on independent appraisals, the Partnership allocated the total
purchase price of the cable television systems acquired as follows: first, to
the fair value of net tangible assets acquired; second, to franchise costs in an
amount equal to the estimated value of franchise agreements; third, to
subscriber lists; fourth, to noncompete agreements; and fifth, to costs in
excess of interests in net assets purchased. The brokerage fees paid to The
Jones Group, Ltd. upon acquisition of the systems and other acquisition costs
were capitalized and charged to investment in cable television properties in the
accompanying balance sheets.
Intangible Assets
-----------------
Costs assigned to intangible assets are being amortized using the straight-
line method over the following remaining estimated useful lives:
<TABLE>
<CAPTION>
<S> <C>
Franchise costs 2 - 13 years
Costs in excess of interests in net assets purchased 33 years
</TABLE>
Revenue Recognition
-------------------
Subscriber prepayments are initially deferred and recognized as revenue
when earned.
Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to the 1997
presentation.
24
<PAGE>
(3) PROPERTY, PLANT AND EQUIPMENT:
-----------------------------
Property, plant and equipment as of December 31, 1997 and 1996, consisted
of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cable distribution systems $11,182,336 $10,440,907
Equipment and tools 504,417 435,937
Office furniture and equipment 179,632 156,856
Buildings 12,002 12,002
Vehicles 255,628 182,608
Land 5,000 5,000
----------- -----------
12,139,015 11,233,310
----------- -----------
Less-accumulated depreciation (6,056,785) (5,174,077)
----------- -----------
$ 6,082,230 $ 6,059,233
=========== ===========
</TABLE>
(4) DEBT:
-----
At December 31, 1997 and 1996, debt consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Revolving credit and term loan facility $7,500,000 $7,400,000
Capital lease obligations 120,042 67,645
---------- ----------
$7,620,042 $7,467,645
========== ==========
</TABLE>
At December 31, 1997, $7,500,000 was outstanding under the Partnership's
$8,000,000 credit facility, leaving $500,000 available for the Partnership.
This credit facility currently has a final maturity date of the earlier of June
30, 1998 or the date of sale of the Northeast Indiana Systems. This credit
facility will be repaid in full upon the sale of the Northeast Indiana Systems.
If the sale of the Northeast Indiana Systems is not closed by June 30, 1998, the
Partnership will refinance its existing debt structure. Interest on the
outstanding principal balance is at the Partnership's option of the Prime Rate
plus 1/4 percent or the London Interbank Offered Rate plus 1-1/4 percent. The
effective interest rates on outstanding obligations as of December 31, 1997 and
1996 were 7.17 percent and 6.84 percent, respectively.
Estimated maturities of the term loan and capital lease obligations for the
five years in the period ended December 31, 2002 and thereafter are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $7,536,013
1999 36,013
2000 36,013
2001 12,003
2002 -
Thereafter -
---------
$7,620,042
=========
</TABLE>
At December 31, 1997, the carrying amount of the Partnership's long-term
debt did not differ significantly from the estimated fair value of the financial
instruments. The fair value of the Partnership's long-term debt is estimated
based on the discounted amount of future debt service payments using rates of
borrowing for a liability of similar risk.
25
<PAGE>
(5) SIGNIFICANT TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES:
----------------------------------------------------------------
Management Fees, Distribution Ratios and Reimbursements
-------------------------------------------------------
The General Partner manages the Partnership and receives a fee for its
services equal to 5 percent of the gross revenues of the Partnership, excluding
revenues from the sale of cable television systems or franchises. Management
fees paid to the General Partner by the Partnership for the years ended December
31, 1997, 1996 and 1995 were $276,140, $286,227 and $341,942, respectively.
Any partnership distributions made from cash flow (defined as cash receipts
derived from routine operations and interest income, less debt principal and
interest payments and cash expenses) are allocated 99 percent to the limited
partners and one percent to the General Partner. The Partnership may distribute
any proceeds from the sale or refinancing of a cable television system generally
as follows: first, to the Partners until they have received an amount equal to
their initial capital contributions (as reduced by all prior distributions other
than distributions from cash flow); second, to the limited partners until they
have received a liquidation preference equal to 12 percent per annum, cumulative
and noncompounded, on an amount equal to their initial capital contributions,
less any portion of such capital contributions which has been returned to the
limited partners from prior sale or refinancing proceeds, as determined for any
particular year; provided that such cumulative return will be reduced by all
prior distributions of cash flow from operations and prior distributions of
proceeds of sales or refinancings of the Partnership's cable television systems.
The balance will be allocated 75 percent to the limited partners' and 25 percent
to the General Partner. See Note 6 for discussion of cash flow distributions.
The Partnership reimburses the General Partner and certain of its
subsidiaries for certain allocated general and administrative expenses. These
expenses represent the salaries and related benefits paid for corporate
personnel, office rent and related facilities expense. Such personnel provide
engineering, marketing, administrative, accounting, legal, and investor relation
services to the Partnership. Such services, and their related costs, are
necessary to the operations of the Partnership and would have been incurred by
the Partnership if it was a stand alone entity. Allocations of personnel costs
are based primarily on actual time spent by employees of the General Partner
with respect to each partnership managed. Remaining expenses are allocated
based on the pro rata relationship of the Partnership's revenues to the total
revenues of all systems owned or managed by the General Partner and certain of
its subsidiaries. Systems owned by the General Partner and all other systems
owned by partnerships for which Intercable is the general partner are also
allocated a proportionate share of these expenses. The General Partner believes
that the methodology used in allocating general and administrative costs is
reasonable. General and administrative expenses allocated to the Partnership by
the General Partner were $325,192, $393,612 and $538,779 for the years ended
December 31, 1997, 1996 and 1995, respectively.
The Partnership was charged interest during 1997 at an average interest
rate of approximately 7.82 percent per annum on the amounts due the General
Partner, which approximated the General Partner's weighted average cost of
borrowing. Total interest charged to the Partnership by the General Partner was
$2,796, $67,530 and $9,243 for the years ended December 31, 1997, 1996 and
1995, respectively.
Payments to/from Affiliates for Programming Services
----------------------------------------------------
The Partnership receives or has received programming from Superaudio,
Knowledge TV, Inc., Jones Computer Network, Ltd., Great American Country, Inc.
and Product Information Network, all of which are affiliates of the General
Partner.
Payments to Superaudio by the Partnership for the years ended December 31,
1997, 1996 and 1995 totaled $9,775, $9,979 and $11,632, respectively. Payments
to Knowledge TV, Inc. by the Partnership for the years ended December 31, 1997,
1996 and 1995 totaled $10,870, $10,882 and $12,438, respectively. Payments to
Jones Computer Network, Ltd., whose service was discontinued in April 1996, for
the years ended December 31, 1997, 1996 and 1995 totaled $-0-, $1,557 and
$4,869, respectively. Payments to Great American Country, Inc., which initiated
service in 1996, totaled $11,313 and $3,039 in 1997 and 1996, respectively.
26
<PAGE>
The Partnership receives a commission from Product Information Network,
based on a percentage of advertising revenue and number of subscribers. Product
Information Network paid commissions to the Partnership for the years ended
December 31, 1997, 1996 and 1995 totaling $18,248, $12,295 and $1,871,
respectively.
(6) DISTRIBUTIONS FROM CASH FLOW:
----------------------------
A primary objective of the Partnership has been to provide quarterly cash
distributions to the partners, principally from cash flow from operations
remaining after principal and interest payments and the creation of any reserves
necessary for the operation of the Partnership. The payment of quarterly cash
flow distributions reduces the financial flexibility of the Partnership. The
Partnership accordingly has suspended such distributions in 1997 because funds
from cash flow have been used to pay for necessary capital additions to the
Partnership's Northeast Indiana Systems as a result of limited borrowing
capacity under the Partnership's credit facility. The Partnership does not plan
on resuming such distributions to the partners. The Partnership intends to make
distributions to the limited partners from the net proceeds of the sale of the
Northeast Indiana Systems. The Partnership declared such distributions totaling
$1,262,626 and $1,262,626 in 1996 and 1995, respectively.
(7) INCOME TAXES:
------------
Income taxes have not been recorded in the accompanying financial
statements because they accrue directly to the partners. The federal and state
income tax returns of the Partnership are prepared and filed by the General
Partner.
The Partnership's tax returns, the qualification of the Partnership as such
for tax purposes, and the amount of distributable income or loss are subject to
examination by federal and state taxing authorities. If such examinations
result in changes with respect to the Partnership's qualification as such, or in
changes with respect to the Partnership's recorded income or loss, the tax
liability of the general and limited partners would likely be changed
accordingly.
Taxable income (loss) to the Partners is different from that reported in
the statements of operations due to the difference in depreciation recognized
under generally accepted accounting principles and the expense allowed for tax
purposes under the Modified Accelerated Cost Recovery System (MACRS). There are
no other significant differences between taxable income (loss) and the net loss
reported in the statements of operations.
(8) COMMITMENTS AND CONTINGENCIES:
-----------------------------
The Partnership rents office and other facilities under various long-term
lease arrangements. Rent paid under such lease arrangements totaled $63,959,
$66,613 and $73,344, respectively, for the years ended December 31, 1997, 1996
and 1995. Future minimum lease payments as of December 31, 1997, under
noncancelable operating leases for each of the five years in the period ending
December 31, 2002, and thereafter are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 46,780
1999 42,294
2000 23,398
2001 5,292
2002 4,742
Thereafter 9,050
-------
$131,556
=======
</TABLE>
27
<PAGE>
(9) SUPPLEMENTARY PROFIT AND LOSS INFORMATION:
-----------------------------------------
Supplementary profit and loss information for the respective years are
presented below:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1997 1996 1995
-------- ---------- ----------
<S> <C> <C> <C>
Maintenance and repairs $ 25,266 $ 37,948 $ 55,247
======== ========== ==========
Taxes, other than income and payroll taxes $ 85,447 $ 76,760 $ 99,201
======== ========== ==========
Advertising $ 33,297 $ 56,746 $ 76,683
======== ========== ==========
Depreciation of property, plant and equipment $915,602 $ 910,553 $1,164,194
======== ========== ==========
Amortization of intangible assets $764,503 $1,020,195 $1,997,667
======== ========== ==========
</TABLE>
28
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
---------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
PART III.
---------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------
The Partnership itself has no officers or directors. Certain information
concerning the directors and executive officers of the General Partner is set
forth below. Directors of the General Partner serve until the next annual
meeting of the General Partner and until their successors shall be elected and
qualified.
<TABLE>
<C> <C> <S>
Glenn R. Jones 68 Chairman of the Board and Chief Executive Officer
James B. O'Brien 48 President and Director
Ruth E. Warren 48 Group Vice President/Operations
Kevin P. Coyle 46 Group Vice President/Finance
Christopher J. Bowick 42 Group Vice President/Technology
Cheryl M. Sprague 45 Group Vice President/Human Resources
Cynthia A. Winning 46 Group Vice President/Marketing
Elizabeth M. Steele 46 Vice President/General Counsel/Secretary
Larry W. Kaschinske 38 Vice President/Controller
Robert E. Cole 65 Director
William E. Frenzel 69 Director
Josef J. Fridman 52 Director
Donald L. Jacobs 59 Director
Robert Kearney 61 Director
James J. Krejci 56 Director
Raphael M. Solot 64 Director
Howard O. Thrall 50 Director
Siim A. Vanaselja 41 Director
Sanford Zisman 58 Director
Robert B. Zoellick 44 Director
</TABLE>
Mr. Glenn R. Jones has served as Chairman of the Board of Directors and
Chief Executive Officer of the General Partner since its formation in 1970, and
he was President from June 1984 until April 1988. Mr. Jones is the sole
shareholder, President and Chairman of the Board of Directors of Jones
International, Ltd. He is also Chairman of the Board of Directors of the
subsidiaries of the General Partner and of certain other affiliates of the
General Partner. Mr. Jones has been involved in the cable television business in
various capacities since 1961, and he is a member of the Board of Directors and
of the Executive Committee of the National Cable Television Association. In
addition, Mr. Jones is a member of the Board of Education Council of the
National Alliance of Business. Mr. Jones is also a founding member of the James
Madison Council of the Library of Congress. Mr. Jones has been the recipient of
several awards including: the Grand Tam Award in 1989, the highest award from
the Cable Television Administration and Marketing Society; the President's Award
from the Cable Television Public Affairs Association in recognition of Jones
International's educational efforts through Mind Extension University (now
Knowledge TV); the Donald G. McGannon Award for the advancement of minorities
and women in cable from the United Church of Christ Office of Communications;
the STAR Award from American Women in Radio and Television, Inc. for exhibition
of a commitment to the issues and concerns of women in television and radio; the
Cableforce 2000 Accolade awarded by Women in Cable in recognition of the General
Partner's innovative employee programs; the Most Outstanding Corporate
Individual Achievement Award from the International Distance Learning Conference
for his contributions to distance education; the Golden Plate Award from the
American Academy of Achievement for his advances in distance education; the Man
of the Year named
29
<PAGE>
by the Denver chapter of the Achievement Rewards for College Scientists; and in
1994 Mr. Jones was inducted into Broadcasting and Cable's Hall of Fame.
Mr. James B. O'Brien, the General Partner's President, joined the General
Partner in January 1982. Prior to being elected President and a Director of the
General Partner in December 1989, Mr. O'Brien served as a division manager,
director of operations planning/assistant to the CEO, Fund Vice President and
Group Vice President/Operations. Mr. O'Brien was appointed to the General
Partner's Executive Committee in August 1993. As President, he is responsible
for the day-to-day operations of the cable television systems managed and owned
by the General Partner. Mr. O'Brien is a board member of Cable Labs, Inc., the
research arm of the U.S. cable television industry. He also serves as the
Chairman of the Board of Directors of the Cable Television Administration and
Marketing Association and as a director and a member of the Executive Committee
of the Walter Kaitz Foundation, a foundation that places people of ethnic
minority groups in positions with cable television systems, networks and vendor
companies.
Ms. Ruth E. Warren joined the General Partner in August 1980 and has
served in various operational capacities, including system marketing manager,
director of marketing, assistant division manager, regional vice president and
Fund Vice President, since then. Ms. Warren was elected Group Vice
President/Operations of the General Partner in September 1990.
Mr. Kevin P. Coyle joined The Jones Group, Ltd. in July 1981 as Vice
President/Financial Services. In September 1985, he was appointed Senior Vice
President/Financial Services. He was elected Treasurer of the General Partner
in August 1987, Vice President/Treasurer in April 1988 and Group Vice
President/Finance and Chief Financial Officer in October 1990.
Mr. Christopher J. Bowick joined the General Partner in September 1991 as
Group Vice President/Technology and Chief Technical Officer. Prior to joining
the General Partner, Mr. Bowick worked for Scientific Atlanta's Transmission
Systems Business Division in various technical management capacities since 1981,
and as Vice President of Engineering since 1989. Mr. Bowick also has served
since 1995 as President of Jones Futurex, Inc., a wholly owned subsidiary of the
General Partner that manufactures and markets data encryption products.
Ms. Cheryl M. Sprague joined the General Partner in November 1997 as
Group Vice President/Human Resources. Prior to November 1997 and since December
1995, Ms. Sprague served as Director, Human Resources for Westmoreland Coal
Company, where she was responsible for human resources management for said
company and three of its subsidiaries. From October 1993 to December 1995, Ms.
Sprague served as President of Peak Executive Resources, where she provided
consulting services in organizational development and human resources to
businesses experiencing organizational transition. From April 1992 to October
1993, Ms. Sprague was Vice President, Human Resources for Penrose-St. Francis
Healthcare System, where she was responsible for management of all human
resources activities. Ms. Sprague serves as an adjunct instructor at Regis
University and has earned the professional designation as a Senior Professional
in Human Resources from the Society for Human Resource Management and its
affiliate, the Human Resources Certification Board. Ms. Sprague is a past
president of the Colorado Human Resource Association and was named by that
association as the Colorado Human Resources Administrator of the Year in 1986.
Ms. Sprague also serves as a director on the Area VI Board for the Society for
Human Resource Management.
Ms. Cynthia A. Winning joined the General Partner as Group Vice
President/Marketing in December 1994. Previous to joining the General Partner,
Ms. Winning served since 1994 as the President of PRS Inc., Denver, Colorado, a
sports and event marketing company. From 1979 to 1981 and from 1986 to 1994,
Ms. Winning served as the Vice President and Director of Marketing for Citicorp
Retail Services, Inc., a provider of private-label credit cards for ten national
retail department store chains. From 1981 to 1986, Ms. Winning was the Director
of Marketing Services for Daniels & Associates cable television operations, as
well as the Western Division Marketing Director for Capital Cities Cable. Ms.
Winning also serves as a board member of Cities in Schools, a dropout
intervention/prevention program.
30
<PAGE>
Ms. Elizabeth M. Steele joined the General Partner in August 1987 as Vice
President/General Counsel and Secretary. From August 1980 until joining the
General Partner, Ms. Steele was an associate and then a partner at the Denver
law firm of Davis, Graham & Stubbs, which serves as counsel to the General
Partner.
Mr. Larry Kaschinske joined the General Partner in 1984 as a staff
accountant in the General Partner's former Wisconsin Division, was promoted to
Assistant Controller in 1990, named Controller in August 1994 and was elected
Vice President/Controller in June 1996.
Mr. Robert E. Cole was appointed a Director of the General Partner in March
1996. Mr. Cole is currently self-employed as a partner of First Variable
Insurance Marketing and is responsible for marketing to National Association of
Securities Dealers, Inc. firms in northern California, Oregon, Washington and
Alaska. From 1993 to 1995, Mr. Cole was the Director of Marketing for Lamar
Life Insurance Company; from 1992 to 1993, Mr. Cole was Senior Vice President of
PMI Inc., a third party lender serving the special needs of Corporate Owned Life
Insurance (COLI) and from 1988 to 1992, Mr. Cole was the principal and co-
founder of a specialty investment banking firm that provided services to finance
the ownership and growth of emerging companies, productive assets and real
property. Mr. Cole is a Certified Financial Planner and a former United States
Naval Aviator.
Mr. William E. Frenzel was appointed a Director of the General Partner in
April 1995. Mr. Frenzel has been a Guest Scholar since 1991 with the Brookings
Institution, a research organization located in Washington D. C. Until his
retirement in January 1991, Mr. Frenzel served for twenty years in the United
States House of Representatives, representing the State of Minnesota, where he
was a member of the House Ways and Means Committee and its Trade Subcommittee,
the Congressional Representative to the General Agreement on Tariffs and Trade
(GATT), the Ranking Minority Member on the House Budget Committee and a member
of the National Economic Commission. Mr. Frenzel also served in the Minnesota
Legislature for eight years. He is a Distinguished Fellow of the Tax
Foundation, Vice Chairman of the Eurasia Foundation, a Board Member of the U.S.-
Japan Foundation, the Close-Up Foundation, Sit Mutual Funds and Chairman of the
Japan-America Society of Washington.
Mr. Josef J. Fridman was appointed a Director of the General Partner in
February 1998. Mr. Fridman is currently senior vice-president, law and
corporate secretary of BCE Inc., Canada's largest telecommunications company.
Mr. Fridman joined Bell Canada, a wholly owned subsidiary of BCE Inc., in 1969,
and has held increasingly senior positions with Bell Canada and BCE Inc. since
such time. Mr. Fridman has held his current position since January 1991. Mr.
Fridman's directorships include Telesat Canada, TMI Communications, Inc.,
Telebec Itee, BCI Telecom Holding Inc. and BCE Corporate Services Inc. He is a
member of the Quebec Bar Association, the Canadian, American and International
Bar Associations and the Lord Reading Law Society. Mr. Fridman is a governor of
the Quebec Bar Association.
Mr. Donald L. Jacobs was appointed a Director of the General Partner in
April 1995. Mr. Jacobs is a retired executive officer of TRW. Prior to his
retirement, he was Vice President and Deputy Manager of the Space and Defense
Sector; prior to that appointment, he was the Vice President and General Manager
of the Defense Systems Group and prior to his appointment as Group General
Manager, he was President of ESL, Inc., a wholly owned subsidiary of TRW.
During his career, Mr. Jacobs served on several corporate, professional and
civic boards.
Mr. Robert Kearney was appointed a director of the General Partner in July
1997. Mr. Kearney is a retired executive officer of Bell Canada. Prior to his
retirement in December 1993, Mr. Kearney was the President and Chief Executive
Officer of Bell Canada. He served as Chairman of BCE Canadian Telecom Group in
1994 and as Deputy Chairman of BCI Management Limited in 1995. During his
career, Mr. Kearney served in a variety of capacities in the Canadian, American
and International Standards organizations, and he has served on several
corporate, professional and civic boards.
Mr. James J. Krejci is President and CEO of Imagelink Technologies, Inc., a
privately financed company with leading technology in the desktop or personal
computer videoconferencing market. Prior to joining
31
<PAGE>
Imagelink Technologies in July 1996, Mr. Krejci was President of the
International Division of International Gaming Technology, the world's largest
gaming equipment manufacturer, with headquarters in Reno, Nevada. Prior to
joining IGT in May 1994, Mr. Krejci was Group Vice President of Jones
International, Ltd. and was Group Vice President of the General Partner. He also
served as an officer of subsidiaries of Jones International, Ltd. until leaving
the General Partner in May 1994. Mr. Krejci started his career as an electronics
research engineer with the Allen-Bradley Company, then moved to the 3M Company,
General Electric and Becton Dickinson until March 1985 when he joined Jones
International, Ltd. Mr. Krejci has been a director of the General Partner since
August 1987.
Mr. Raphael M. Solot was appointed a Director of the General Partner in
March 1996. Mr. Solot is an attorney and has practiced law for 34 years with an
emphasis on franchise, corporate and partnership law and complex litigation.
Mr. Howard O. Thrall was appointed a Director of the General Partner in
March 1996. Mr. Thrall had previously served as a Director of the General
Partner from December 1988 to December 1994. Mr. Thrall is a management and
international marketing consultant, having active assignments with First
National Net, Inc., LEP Technologies, Cheong Kang Associates (Korea), Aero
Investment Alliance, Inc. and Western Real Estate Partners, among others. From
September 1993 through July 1996, Mr. Thrall served as Vice President of Sales,
Asian Region, for World Airways, Inc. headquartered at the Washington Dulles
International Airport. From 1984 until August 1993, Mr. Thrall was with the
McDonnell Douglas Corporation, where he concluded as a Regional Vice President,
Commercial Marketing with the Douglas Aircraft Company subsidiary.
Mr. Siim A. Vanaselja was appointed a Director of the General Partner in
August 1996. He is the Executive Vice President and Chief Financial Officer of
Bell Canada International Inc. and Vice President of BCI Telecom Holding Inc.
Mr. Vanaselja joined BCE Inc., Canada's largest telecommunications company, in
February 1994 as Assistant Vice-President, International Taxation. In June
1994, he was appointed Assistant Vice-President and Director of Taxation, and in
February 1995, Mr. Vanaselja was appointed Vice-President, Taxation. On August
1, 1996, Mr. Vanaselja was appointed the Executive Vice President and Chief
Financial Officer of Bell Canada International Inc., a subsidiary of BCE Inc.
Prior to joining BCE Inc. and since August 1989, Mr. Vanaselja was a partner in
the Toronto office of KPMG Peat Marwick Thorne. Mr. Vanaselja has been a member
of the Institute of Chartered Accountants of Ontario since 1982 and is a member
of the Canadian Tax Foundation, the Tax Executives Institute and the
International Fiscal Association.
Mr. Sanford Zisman was appointed a director of the General Partner in June
1996. Mr. Zisman is a principal in the law firm of Zisman & Ingraham, P.C. of
Denver, Colorado and he has practiced law for 32 years, specializing in the
areas of tax, business and estate planning and probate administration. Mr.
Zisman was a member of the Board of Directors of Saint Joseph Hospital, the
largest hospital in Colorado, serving at various times as Chairman of the Board,
Chairman of the Finance Committee and Chairman of the Strategic Planning
Committee. Since 1982, he has also served on the Board of Directors of Maxim
Series Fund, Inc., a subsidiary of Great-West Life Assurance Company.
Mr. Robert B. Zoellick was appointed a Director of the General Partner in
April 1995. Mr. Zoellick is 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. Mr. Zoellick currently serves on the boards of Alliance Capital and
Said Holdings.
32
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
--------------------------------
The Partnership has no employees; however, various personnel are required
to operate the cable television systems owned by the Partnership. Such
personnel are employed by the General Partner and, pursuant to the terms of the
limited partnership agreement of the Partnership, the cost of such employment is
charged by the General Partner to the Partnership as a direct reimbursement
item. See Item 13.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
----------------------------------------------------------------------
As of February 16, 1998, no person or entity owned more than 5 percent of
the limited partnership interests of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
The General Partner and its affiliates engage in certain transactions with
the Partnership as contemplated by the limited partnership agreement of the
Partnership. The General Partner believes that the terms of such transactions
are generally as favorable as could be obtained by the Partnership from
unaffiliated parties. This determination has been made by the General Partner
in good faith, but none of the terms were or will be negotiated at arm's-length
and there can be no assurance that the terms of such transactions have been or
will be as favorable as those that could have been obtained by the Partnership
from unaffiliated parties.
TRANSACTIONS WITH THE GENERAL PARTNER
The General Partner charges the Partnership a 5 percent management fee, and
the General Partner is reimbursed for certain allocated overhead and
administrative expenses. These expenses represent the salaries and benefits
paid to corporate personnel, rent, data processing services and other corporate
facilities costs. Such personnel provide engineering, marketing,
administrative, accounting, legal and investor relations services to the
Partnership. Allocations of personnel costs are based primarily on actual time
spent by employees of the General Partner with respect to each partnership
managed. Remaining expenses are allocated based on the pro rata relationship of
the Partnership's revenues to the total revenues of all systems owned or managed
by the General Partner and certain of its subsidiaries. Systems owned by the
General Partner and all other systems owned by partnerships for which Jones
Intercable, Inc. is the general partner are also allocated a proportionate share
of these expenses.
The General Partner from time to time also advances funds to the
Partnership and charges interest on the balance payable. The interest rate
charged approximates the General Partner's weighted average cost of borrowing.
TRANSACTIONS WITH AFFILIATES
Knowledge TV, Inc., a company owned 67 percent by Jones Education Group,
Ltd., 7 percent by Mr. Jones and 26 percent by the General Partner, operates the
television network JEC Knowledge TV. JEC Knowledge TV 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 Northeast Indiana Systems.
Jones Computer Network, Ltd., a wholly owned subsidiary of Jones Education
Group, Ltd., a company owned 64 percent by Jones International, Ltd., 16 percent
by the General Partner, 12 percent by BCI and 8 percent by Mr. Jones, 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 Northeast Indiana Systems. Jones Computer
Network, Ltd. terminated its programming in April 1997.
33
<PAGE>
The Great American Country network provides country music video programming
to the cable television systems owned by the Partnership. This network, owned
and operated by Great American Country, Inc., a subsidiary of Jones
International Networks, Ltd., an affiliate of the General Partner, commenced
service in 1996 in the Northeast Indiana Systems.
Jones Galactic Radio, Inc. is a subsidiary of Jones International Networks,
Ltd., an affiliate of the General Partner. Superaudio, a joint venture between
Jones Galactic Radio, Inc. and an unaffiliated entity, provides audio
programming to the Northeast Indiana Systems.
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 Northeast Indiana Systems carries PIN for all or part of each day.
Revenues received by the Partnership from the PIN Venture relating to the
Northeast Indiana Systems totaled approximately $18,248 for the year ended
December 31, 1997.
The charges to the Partnership for related party transactions are as
follows for the periods indicated:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------------------------
1997 1996 1995
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Management fees $276,140 $286,227 $341,942
Allocation of expenses 325,192 393,612 538,779
Interest expense 2,796 67,530 9,243
Amount of advances outstanding 0 0 0
Highest amount of advances outstanding 156,929 111,692 30,144
Programming fees:
Knowledge TV, Inc. 10,870 10,882 12,438
Jones Computer Network, Ltd. 0 1,557 4,869
Great American Country 11,313 3,039 0
Superaudio 9,775 9,979 11,632
</TABLE>
34
<PAGE>
PART IV.
--------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
<C> <C> <S>
(a) 1. See index to financial statements for a list of financial
statements and exhibits thereto filed as part of this
report.
3. The following exhibits are filed herewith:
4.1 Limited Partnership Agreement for Jones Spacelink
Income/Growth Fund 1-A, Ltd. (1)
10.1.1 Copy of franchise and related documents granting a cable
television system franchise for the County of Adams,
Indiana. (1)
10.1.2 Copy of franchise and related documents granting a cable
television system franchise for the County of Allen,
Indiana. (1)
10.1.3 Copy of franchise and related documents granting a cable
television system franchise for the City of Auburn,
Indiana. (1)
10.1.4 Copy of franchise and related documents granting a cable
television system franchise for the City of Bluffton,
Indiana. (1)
10.1.5 Copy of franchise and related documents granting a cable
television system franchise for the City of Butler,
Indiana. (1)
10.1.6 Copy of franchise and related documents granting a cable
television system franchise for the City of Decatur,
Indiana. (1)
10.1.7 Copy of franchise and related documents granting a cable
television system franchise for the County of DeKalb,
Indiana. (1)
10.1.8 Copy of franchise and related documents granting a cable
television system franchise for the City of Garrett,
Indiana. (1)
10.1.9 Copy of franchise and related documents granting a cable
television system franchise for the Town of Monroe,
Indiana.(1)
10.1.10 Copy of franchise and related documents granting a cable
television system franchise for the County of Noble,
Indiana. (1)
10.1.11 Copy of franchise and related documents granting a cable
television system franchise for the Town of Poneto,
Indiana. (1)
10.1.12 Copy of franchise and related documents granting a cable
television system franchise for the Town of Uniondale,
Indiana. (1)
10.1.13 Copy of franchise and related documents granting a cable
television system franchise for the Town of Vera Cruz,
Indiana. (1)
10.1.14 Copy of franchise and related documents granting a cable
television system franchise for the Town of Waterloo,
Indiana. (1)
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
<C> <C> <S>
10.1.15 Copy of franchise and related documents granting a cable
television system franchise for the County of Wells,
Indiana. (1)
10.2.1 Credit and Security Agreement dated as of March 6, 1991
among Jones Spacelink Income/Growth Fund 1-A, Ltd. and
Credit Lyonnais New York Branch, as agent for various
lenders. (2)
10.2.2 Amendment No. 2 dated as of September 30, 1994 to the
Credit and Security Agreement dated as of March 6, 1991
among Jones Spacelink Income/Growth Fund 1-A, Ltd. and
Credit Lyonnais New York Branch, as agent for various
lenders. (3)
10.2.3 Amendment No. 3 dated as of December 16, 1994 to the
Credit and Security Agreement dated as of March 6, 1991
among Jones Spacelink Income/Growth Fund 1-A, Ltd. and
Credit Lyonnais New York Branch, as agent for various
lenders. (3)
10.2.4 Amendment No. 4 dated as of March 28, 1996 to the Credit
and Security Agreement dated as of March 6, 1991 among
Jones Spacelink Income/Growth Fund 1-A, Ltd. and Credit
Lyonnais New York Branch, as agent for various lenders.
(4)
10.3.1 Asset Purchase Agreement dated September 5, 1995 between
Jones Spacelink Income/Growth Fund 1-A, Ltd. and Jones
Intercable, Inc. relating to the Ripon System. (5)
10.3.2 Asset Purchase Agreement dated September 5, 1995 between
Jones Spacelink Income/Growth Fund 1-A, Ltd. and Jones
Intercable, Inc. relating to the Lake Geneva System. (5)
10.3.3 Asset Purchase Agreement dated December 17, 1997 between
Triax Midwest Associates, L.P. and Jones Spacelink
Income/Growth Fund 1-A, Ltd.
27 Financial Data Schedule
__________
(1) Incorporated by reference from the Partnership's Annual
Report on Form 10-K for fiscal year ended 12/31/88.
(2) Incorporated by reference from the Partnership's Annual
Report on Form 10-K for fiscal year ended 12/31/91.
(3) Incorporated by reference from the Partnership's Annual
Report on Form 10-K for fiscal year ended 12/31/94.
(4) Incorporated by reference from the Partnership's Annual
Report on Form 10-K for fiscal year ended 12/31/95.
(5) Incorporated by reference from the Partnership's Current
Report on Form 8-K dated September 11, 1995.
(b) Reports on Form 8-K
-------------------
None.
</TABLE>
36
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
JONES SPACELINK INCOME/
GROWTH FUND 1-A, LTD.
a Colorado limited partnership
By: Jones Intercable, Inc.
By: /s/ Glenn R. Jones
------------------
Glenn R. Jones
Chairman of the Board and Chief
Dated: March 23, 1998 Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Glenn R. Jones
------------------
Glenn R. Jones
Chairman of the Board and Chief
Executive Officer
Dated: March 23, 1998 (Principal Executive Officer)
By: /s/ Kevin P. Coyle
------------------
Kevin P. Coyle
Group Vice President/Finance
Dated: March 23, 1998 (Principal Financial Officer)
By: /s/ Larry Kaschinske
--------------------
Larry Kaschinske
Vice President/Controller
Dated: March 23, 1998 (Principal Accounting Officer)
By: /s/ James B. O'Brien
--------------------
James B. O'Brien
Dated: March 23, 1998 President and Director
By: /s/ Robert E. Cole
------------------
Robert E. Cole
Dated: March 23, 1998 Director
By: /s/ William E. Frenzel
----------------------
William E. Frenzel
Dated: March 23, 1998 Director
37
<PAGE>
By: --------------------------
Josef J. Fridman
Dated: March 23, 1998 Director
By: --------------------------
Donald L. Jacobs
Dated: March 23, 1998 Director
By: --------------------------
Robert Kearney
Dated: March 23, 1998 Director
By: /s/ James J. Krejci
--------------------------
James J. Krejci
Dated: March 23, 1998 Director
By: /s/ Raphael M. Solot
--------------------------
Raphael M. Solot
Dated: March 23, 1998 Director
/s/ Howard O. Thrall
By: --------------------------
Howard O. Thrall
Dated: March 23, 1998 Director
By: --------------------------
Siim A. Vanaselja
Dated: March 23, 1998 Director
By: /s/ Sanford Zisman
--------------------------
Sanford Zisman
Dated: March 23, 1998 Director
By: /s/ Robert B. Zoellick
--------------------------
Robert B. Zoellick
Dated: March 23, 1998 Director
38
<PAGE>
EXHIBIT 10.3.3
ASSET PURCHASE AGREEMENT
DATED: DECEMBER 17, 1997
BETWEEN
TRIAX MIDWEST ASSOCIATES, L.P.
AND
JONES SPACELINK INCOME/GROWTH FUND 1-A, LTD.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
R E C I T A L S............................................................ 1
Section 1. Purchase and Sale of Assets............................... 1
1.1. Conveyance of Assets........................................ 1
1.2. Excluded Assets............................................. 3
Section 2. Purchase Price and Method of Payment....................... 4
2.1. Purchase Price.............................................. 4
2.2. Deposit..................................................... 5
2.3. Method of Payment........................................... 5
2.4. Definitions; Adjustments.................................... 5
2.5. Limited Assumption of Liabilities........................... 10
Section 3. Representations, Warranties, Covenants and Agreements of
Seller.. .................................................. 11
3.1. Organization, Qualification and Authority................... 11
3.2. Due Authorization........................................... 11
3.3. No Conflicts................................................ 11
3.4. Financial Statements........................................ 12
3.5. Regulatory Licenses and Filings............................. 13
3.6. Franchises and Other Authorities............................ 14
3.7. Status of the Systems....................................... 15
3.8. Legality of Signals Carried; Compliance with Applicable
Laws........................................................ 17
3.9. Real Property and Leases.................................... 19
3.10. Personal Property.......................................... 19
3.11. Contracts.................................................. 20
3.12. Employee Agreements and Benefits; Labor Matters............ 20
3.13. ERISA...................................................... 21
3.14. Access Agreements.......................................... 22
3.15. Bonds, Insurance and Letters of Credit..................... 22
3.16. Litigation................................................. 22
3.17. Intellectual Property...................................... 23
3.18. Payment of Taxes........................................... 23
3.19. Seller's Accounts and Promotions........................... 23
3.20. Environmental Compliance................................... 24
3.21. Continuation of Business................................... 24
3.22. Approvals and Consents..................................... 25
3.23. Other Financial Interests.................................. 25
3.24. Complete Disclosure........................................ 25
Section 4. Representations, Warranties, Covenants and Agreements of
Buyer...................................................... 25
4.1. Organization and Authority of Buyer......................... 25
4.2. Due Authorization by Buyer.................................. 25
4.3. No Conflicts................................................ 26
4.4. Litigation.................................................. 26
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
-----------------
(Cont.)
<TABLE>
Page
----
<S> <C>
4.5. Complete Disclosure......................................... 26
Section 5. Covenants and Further Agreements........................... 26
5.1. Application for Assignment of Franchises and Licenses....... 26
5.2. Information; Consultation; Confidentiality.................. 27
5.3. Period Pending Closing...................................... 28
5.4. Cooperation................................................. 29
5.5. Expenses.................................................... 29
5.6. Brokerage................................................... 30
5.7. Reliance Upon and Survival of Representations and
Warranties.................................................. 30
5.8. Further Assurances.......................................... 30
5.9. Indemnification............................................. 31
5.10. No Negotiation.............................................. 33
5.11. Employees................................................... 33
Section 6. Conditions Precedent to the Obligation of Buyer to Close... 33
6.1. Truth of Representations and Warranties..................... 33
6.3. Consents of Third Parties................................... 34
6.4. Opinion of Seller's Counsel................................. 34
6.5. Opinion of FCC and Copyright Counsel........................ 35
6.6. No Adverse Change........................................... 35
6.7. Inventories................................................. 35
6.8. No Litigation............................................... 35
6.9. HSR Act Compliance.......................................... 35
6.10. Deliveries.................................................. 35
Section 7. Conditions Precedent to the Obligation of Seller to Close.. 35
7.1. Truth of Representations and Warranties..................... 35
7.2. Performance of Agreements................................... 35
7.3. Opinion of Counsel for Buyer................................ 36
7.4. Consents of Third Parties................................... 36
7.5. No Adverse Change........................................... 36
7.6. No Litigation............................................... 36
7.7. HSR Act Compliance.......................................... 36
7.8. Deliveries.................................................. 36
7.9. Subscriber Adjustment Amount and Revenue Adjustment
Amount...................................................... 36
Section 8. The Closing................................................ 36
8.1. Time and Place.............................................. 36
8.2. Deliveries by Seller........................................ 36
8.3. Deliveries by Buyer......................................... 37
8.4. Other Action................................................ 38
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
-----------------
(Cont.)
<TABLE>
Page
----
<S> <C>
Section 9. Allocation of Purchase Price.............................. 38
Section 10. Termination............................................... 38
10.1. Termination Events.......................................... 38
10.2. Effect of Termination....................................... 39
Section 11. Casualty Losses........................................... 39
Section 12. Non-competition........................................... 40
Section 13. Notices................................................... 40
Section 14. Parties in Interest....................................... 41
Section 15. Entire Agreement.......................................... 42
Section 16. Governing Law............................................. 42
Section 17. Counterparts.............................................. 42
Section 18. Descriptive Headings...................................... 42
Section 19. Definitions............................................... 42
</TABLE>
iii
<PAGE>
LIST OF SCHEDULES AND EXHIBITS
------------------------------
Schedules
0.1 Systems of Seller
1.1(a) Machinery, Equipment, etc.
1.1(b) Governmental Authorizations
1.1(c) Franchise Authorizations
1.1(d) Access Agreements, etc.
1.1(f) Leases of Real and Personal Property
1.1(g) Owned Real Property
1.1(i) Other Agreements
1.2(h) Excluded Assets
2.4(a) Sprint Subscribers
2.4(a)(i) Standard Basic Rates
3.3 Non Conflicts
3.4(c) Contingent Obligations
3.5(a) Exceptions to Regulatory Compliance
3.5(b) Legal or Governmental Actions and Proceedings
3.6 Compliance; Absence of Defaults
3.7(a) Combined Basic and Tier Rates
3.7(b) Cable Services and Rates
3.7(c) Channel Capacity; Matters Affecting or Relating to Channels
3.7(d) Exceptions to Compliance; Complaints
3.7(j) Information Regarding Certifications or Complaints
3.8(a) Information Regarding Signals Carried
3.8(b) Exceptions Regarding Conduct of Business
3.9(c) Exceptions Regarding Real Property
3.12 Employees, Employment Agreements, etc.
3.13 ERISA
3.15 Insurance, Bonds and Letters of Credit
3.16 Litigation
3.18 Tax Matters
3.19(a) Billing Practices
3.19(b) Subscription and Converter Deposit Agreements
3.19(c) Billing and Collection Terms
3.19(d) Concessions; Promotions
3.19(e) Barter/Trade Out Agreements
3.20 Environmental Disclosure Schedule
3.22 Required Notices and Consents
3.23 Other Financial Interests
6.3 Required Consents
9 Allocation of Purchase Price
19 Definitions
iv
<PAGE>
Exhibits
- --------
Exhibit A Form of Assumption Agreement
Exhibit B Form of Indemnity Escrow Agreement
Exhibit C Form of Certificate
Exhibit D Form of Franchise Consent
Exhibit E Form of Third Party Consent
Exhibit F Form of Opinion of Seller's Counsel
Exhibit G Form of Opinion of FCC Counsel
Exhibit H Form of Opinion of Buyer's Counsel
Exhibit I Form of Non-Competition Agreement
v
<PAGE>
TRIAX MIDWEST ASSOCIATES, L.P. and
JONES SPACELINK INCOME/GROWTH FUND 1-A, LTD.
THIS ASSET PURCHASE AGREEMENT, effective as of the 17th day of December,
1997 is entered into by TRIAX MIDWEST ASSOCIATES, L.P., a Missouri limited
partnership ("Buyer"), and JONES SPACELINK INCOME/GROWTH FUND 1-A, LTD., a
Colorado limited partnership ("Seller").
R E C I T A L S:
- - - - - - - - -
Seller is franchised or otherwise authorized by law to operate community
antenna television systems and to distribute, and does operate and distribute,
audio and video signals by coaxial and/or fiber optic cable in and around the
communities and other geographic areas set forth in Schedule 0.1 (the
------------
"Systems").
Buyer desires to acquire the Systems and all the assets used or held for
use in the operation of the Systems from Seller (except the Excluded Assets, as
defined in Section 1.2).
Seller desires to sell, transfer and assign the Systems and the assets used
in the Systems to Buyer.
THEREFORE, in consideration of the covenants and agreements and in reliance
on the representations and warranties set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
Section 1. Purchase and Sale of Assets.
- --------- ---------------------------
1.1. Conveyance of Assets. At the Closing (as defined in Section 8.1),
--------------------
Seller will sell, transfer, assign and convey to Buyer, by instruments of
conveyance in the forms reasonably acceptable to Buyer, at Seller's expense
(except as otherwise expressly provided herein), good, valid and marketable
title to all of the assets (tangible and intangible, real, personal and mixed)
comprising the Systems which are owned, used or held for use by Seller primarily
in connection with the operation of the Systems (the "Transferred Assets"),
except for the Excluded Assets (as defined in Section 1.2), free and clear of
all defaults, liens, encumbrances, security interests and pledges, and all
adverse claims, charges, restrictions and title impediments (other than (i)
liens for taxes not yet due and payable and liens for taxes the payment of which
is being contested or the time for doing so has not yet expired, and for which
adequate reserves have been provided; (ii) zoning laws and ordinances and
similar legal requirements; (iii) rights reserved to any governmental authority
to regulate the affected property; and (iv) as to Real Property (as defined in
Section 3.9(c)) interests, any easements, rights-of-way, servitudes, permits,
restrictions and minor imperfections or irregularities in title which are
reflected in the public records and which do not individually or in the
aggregate materially interfere with the right or ability to own, use or operate
the Real Property or to convey good, marketable and indefeasible title to such
Real Property (collectively, "Permitted Liens"); provided that classification of
any
<PAGE>
item as a Permitted Lien will not affect any liability Seller may have for such
item, including pursuant to any indemnity obligation under this Agreement); all
of the above with such warranties of title and full substitution and subrogation
to all rights and actions of warranty against all preceding owners to the
fullest extent that such warranties are transferable. The Transferred Assets
shall include (not by way of limitation) the following:
(a) All of the tangible assets owned, used or held for use by Seller
in connection with the ownership or operation of the Systems, including,
but not by way of limitation, all physical plant and equipment, machinery,
electronic devices, trunk and distribution cable, conduit, vaults and
pedestals, grounding and pole hardware, head-end equipment, microwave
transmission and reception sites and related equipment, installed
subscribers' devices (including, without limitation, drop lines, encoders,
transformers and terminals for television sets and fittings), local
origination equipment, all inventories of materials and supplies, and all
spare parts, equipment (including, but not limited to, all receiving,
transmission and related equipment), converters, other signal control
devices, house-drop inventory, tools, vehicles, real property, personal
property and other assets, including (but not by way of limitation) the
items listed in Schedule 1.1(a);
---------------
(b) The licenses, authorizations, registrations and permits from the
Federal Communications Commission (the "FCC") and the Federal Aviation
Administration (the "FAA") required for the operation of the Systems (the
"FCC Licenses", and the "FAA Licenses", respectively), copyright licenses
and registrations, and all other governmental permits, consents, licenses,
authorizations, registrations and certificates which relate to the
ownership or operation of the Systems, including, but not limited to, all
community antenna relay services, business radio, earth station and other
licenses (collectively, the "Governmental Authorizations"), each of which
Seller has listed in Schedule 1.1(b);
---------------
(c) The franchises and similar grants of governmental authority
(collectively, the "Franchises") which relate to the ownership or operation
of the Systems, each of which Seller has listed in Schedule 1.1(c);
---------------
(d) The pole attachment agreements, easements, public and private
rights-of-way, permits for crossings over or under highways, railroads or
other property, and similar grants of authority which relate to the
ownership or operation of the Systems (collectively, the "Access
Agreements"), each of which Seller has listed in Schedule 1.1(d);
---------------
(e) All instruments of title, rights or claims of Seller under any
warranty, business records, customer lists, files, books, records, maps and
engineering data, blue prints, schematics, drawings, diagrams, surveys,
engineering and technical data, annual FCC proof of performance tests, and
all documents and logs relating to the Transferred
2
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Assets or the construction and operation of the Systems, including, but not
limited to, all subscriber complaint files, and other records maintained
pursuant to the Franchises or applicable law;
(f) The leases of real and personal property used in connection with,
or which relate to the ownership or operation of the Systems (collectively,
the "Leases"), each of which Seller has listed in Schedule 1.1(f);
---------------
(g) The real property interests owned or held by Seller which relate
to the ownership or operation of the Systems, including all improvements
thereon and rights related thereto, such as towers, fixtures, easements,
rights-of-way and other interests therein, each of which Seller has listed
in Schedule 1.1(g), together with a legal description of all owned real
---------------
property;
(h) All accounts receivable of Seller from customers of the Systems or
otherwise related to the Systems or the Transferred Assets existing and
uncollected as of the Closing (the "Closing Accounts Receivable");
(i) All customer subscription agreements, contracts, agreements,
commitments and other arrangements of Seller to provide television signal
in connection with the operation of the Systems (including, but not limited
to, agreements with trailer parks, apartments, condominiums, commercial
users and other multiple dwelling users), all agreements to broadcast
advertising and all other contracts applicable to the operation of the
Systems (collectively, the "Other Agreements"), each of which Seller has
listed in Schedule 1.1(i), and a true and correct copy of each written form
---------------
of which has been delivered to Buyer by Seller, Seller having included in
Schedule 1.1(i) a description of each such agreement which is not in
---------------
written form; and
(j) All subscriber deposits (including converter deposits) and amounts
collected by Seller for services, materials or equipment to be supplied
from and after the Closing Date or which is refundable.
The general language of sale, transfer, assignment and conveyance of assets to
Buyer contained in this Section 1.1 shall be controlling regardless of whether
individual assets are described in this Section 1.1 or on any of the attached
Schedules, all such assets to be transferred and conveyed to Buyer at Closing,
subject to the terms and conditions of this Agreement.
1.2. Excluded Assets. Notwithstanding anything herein, the following
---------------
assets (the "Excluded Assets") are excluded from the Transferred Assets:
(a) Seller's cash on hand and bank deposits on the Closing Date;
(b) Seller's prepaid assets;
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<PAGE>
(c) Seller's contracts other than the Assumed Contracts (as defined in
Section 2.5);
(d) Seller's partnership assets and books and records and other
agreements and documents which relate to matters among Seller's partners
and/or their affiliates, provided, however, that Seller shall permit Buyer
to have access thereto to the extent and in the manner contemplated by this
Agreement;
(e) All of the patents, trademarks, service marks, trade names and
copyrights (and all applications therefor), and rights to receive payments
with respect thereto, owned or used by Seller in connection with the
operation of the Systems; provided, however, that for a period of 90 days
after the Closing Date, Buyer shall have the right to operate the Systems
using Seller's name and all derivations of such name and related trade
names, trademarks and service marks in use in connection with the Systems
on the Closing Date;
(f) All insurance policies, construction and performance bonds,
letters of credits or other similar items and any cash surrender value in
regard thereto, and any stocks, bonds, certificates of deposit and similar
investments;
(g) Any claims, rights and interests in and to any refunds of federal,
state or local franchise, income or other taxes or fees for periods prior
to the Closing Date; and
(h) Those assets which are listed in Schedule 1.2(h).
---------------
Section 2. Purchase Price and Method of Payment.
- --------- ------------------------------------
2.1. Purchase Price. At Closing, Buyer shall acquire and accept from
--------------
Seller, and Seller shall transfer and convey to Buyer, the Transferred Assets,
and, in consideration therefor, Buyer will:
(a) Pay Seller the sum of Twenty-Three Million Five Hundred Thousand
Dollars ($23,500,000), in the manner and subject to adjustment as provided
herein (the "Cash Consideration");
(b) Pay Seller in the manner provided herein: (i) 100% of the face
amount of all bona fide Closing Accounts Receivable outstanding for thirty
(30) days or less from the date of first billing thereof and (ii) 90% of
bona fide Closing Accounts Receivable outstanding for 31 through 60 days
from the date of first billing thereof; and
(c) Assume the Assumed Obligations contemplated by Section 2.5 under
the form of Assignment and Assumption Agreement attached as Exhibit A (the
---------
"Assumption Agreement").
4
<PAGE>
The payments made by Buyer and the obligations of Seller which are assumed by
Buyer are sometimes collectively referred to herein as the "Purchase Price."
2.2. Deposit. Upon execution and delivery of this Agreement by Seller and
-------
Buyer, Buyer shall deliver $500,000 (the "Deposit") to Colorado National Bank
("Escrow Agent"), to be held and applied pursuant to the terms of that certain
Deposit Escrow Agreement, dated the date hereof, by and among Seller, Buyer and
Escrow Agent.
2.3. Method of Payment. The Cash Consideration shall be paid on the
-----------------
Closing Date in the following manner:
(a) Escrow Agent shall wire to Seller the amount of the Deposit and
all interest thereon in immediately available funds;
(b) Buyer shall wire to Escrow Agent in immediately available funds
the amount of any Reserve Account to be established under Section 2.4(c);
(c) Buyer shall wire to Escrow Agent One Million Dollars ($1,000,000)
(the "Indemnity Escrow Amount"), which will secure payment by Seller of any
indemnification obligations to Buyer in accordance with the terms of an
indemnity escrow agreement in substantially the form attached hereto as
Exhibit B (the "Indemnity Escrow Agreement"); and
---------
(d) Buyer shall wire to Seller Twenty-Two Million Five Hundred
Thousand Dollars ($22,500,000), (A) minus: (i) the amount of the Deposit
and all interest earned thereon, and (ii) the amount of the Reserve
Account, and (B) plus or minus, as applicable, any other adjustments made
at Closing hereunder in immediately available funds (the "Closing Wire
Transfer").
For purposes of all wire transfers which are contemplated by this
Agreement, Seller agrees to provide complete written wire transfer instructions
to Buyer at least three (3) business days prior to the Closing Date.
2.4. Definitions; Adjustments.
------------------------
(a) For the purpose of this Agreement, the following terms shall have
the meanings set forth below:
(i) "Basic Subscriber" shall mean, as to any System and as of any
------------------
date of determination thereof, persons who pay Seller the standard
monthly rates for basic cable service (whether for broadcast basic or
expanded basic service) (each a "Standard Basic Rate") as set forth in
Schedule 2.4(a)(i), each of whom has paid at least one monthly bill
------------------
generated and mailed in the ordinary course of business for cable
television services and one additional payment (which can
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<PAGE>
include a pro rata payment in respect of a partial month's service or
a payment in respect of a full installation fee), none of whom is
pending disconnection for any reason, and none of whom is delinquent
in payment for such cable television services; provided, however, that
those persons who are participants in the "Sprint" program described
on Schedule 2.4(a) (the "Sprint Subscribers") and who pay Seller the
---------------
standard monthly rate therefor shall be deemed to be paying the
standard monthly rate for cable service. For this purpose, a Basic
Subscriber shall be delinquent if, as of the Listing Date (as
hereinafter defined), such Basic Subscriber is more than fifty-nine
(59) days delinquent in payment and has more than a $5.00 balance
which is over two months past due (excluding amounts in dispute).
(ii) "Equivalent Basic Subscriber Number" shall mean, as of the
------------------------------------
date of determination thereof, the sum of the aggregate number of
Basic Subscribers for each System and, the aggregate number of
Equivalent Subscribers for each System (excluding Seasonal
Subscribers), in each case computed as of the Listing Date.
(iii) "Equivalent Subscribers" shall mean, as to any System, or
------------------------
portion thereof, and as to the date of determination thereof, the
number of equivalent Basic Subscribers served by such System derived
by dividing (A) the total monthly billings for sales by Seller of
basic cable services to bulk and commercial accounts, by (B) the
monthly standard rate charged by Seller to single family households
for broadcast basic cable services and expanded basic service, where
available, as of the Listing Date in such System. For purposes of the
foregoing, there shall be excluded all billings to any bulk or
commercial account which, as of the Listing Date, is more than two
months delinquent in payment and has more than a $5.00 balance
(excluding amounts in dispute).
(iv) "Seasonal Subscribers" shall mean those subscribers who
----------------------
reside in vacation or other second households who subscribe for basic
television services for 6 months or less in any 12-month period.
(v) "Tentative Subscribers" shall mean as to any System and as of
-----------------------
the date of determination thereof, persons who have paid one payment
for one month's services or a full installation fee at hook-up, but
have not yet paid at least one full monthly bill generated and mailed
in the ordinary course of business. Tentative Subscribers shall be
identified on a schedule at Closing. A Tentative Subscriber who,
within sixty (60) days following Closing pays a full monthly bill
generated in the ordinary course of business, shall be deemed a Basic
Subscriber.
For the purposes hereof with respect to all accounts receivable and the
computation of the number of Basic Subscribers, Equivalent Subscribers and
Tentative Subscribers,
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<PAGE>
Seller and Buyer shall credit only actual customer payments. Seller shall
deliver to Buyer five (5) days prior to the Closing Date a written list of
all cable television subscribers of Seller as of the close of business 10
days prior to the Closing Date (the "Listing Date"), separately identifying
all of such subscribers meeting the definitions of Basic Subscriber,
Equivalent Subscriber and Tentative Subscriber hereunder (the "Pre-Closing
Subscriber List").
(b) Seller has delivered, or within 10 days after the date hereof,
will deliver, to Buyer a list of all of the number of Seller's subscribers,
including Basic Subscribers, Sprint Subscribers and Equivalent Subscribers,
each separately identified as such. For the purposes of this Agreement,
the number of Basic Subscribers, in the aggregate, shall be considered to
equal the Equivalent Basic Subscriber Number.
(c) Each Tentative Subscriber included on the Pre-Closing Subscriber
List shall be removed from the Pre-Closing Subscriber List and placed on a
Tentative Subscriber List (the "Tentative Subscriber List") on the Listing
Date for the purpose of making a preliminary determination of the
Equivalent Basic Subscriber Number delivered to Buyer by Seller at Closing.
If and to the extent that accounts which are placed on the Tentative
Subscriber List cause the Equivalent Basic Subscriber Number delivered to
Buyer by Seller at Closing to fall below 15,250, Buyer shall deliver into a
separate escrow account at Closing, funds (the "Reserve Account") equal to
$1,541 multiplied by the difference between 15,250 and the Equivalent Basic
Subscriber Number (the "Subscriber Adjustment Amount"). The amount of
funds transferred to the Reserve Account shall reduce the amount of the
Closing Wire Transfer as provided in Section 2.3(d). If and to the extent
that Tentative Subscribers pay a full monthly bill generated in the
ordinary course of business within 60 days following the Closing Date such
subscribers shall be deleted from the Tentative Subscriber List and
returned to the Pre-Closing Subscriber List. Upon completion of such
reconciliation and agreement thereto by Seller and Buyer, but in no event
later than 90 days following the Closing Date, Seller shall be paid out of
the Reserve Account $1,541 per Tentative Subscriber returned to the Pre-
Closing Subscriber List from the Tentative Subscriber List (subject to the
Pre-Closing Subscriber List reconciliation provided for in Section 2.4(d)
below), plus a pro rata share of any interest or other income earned on the
Reserve Account and applicable to the amount thereof so paid to Seller.
After such payment is made to Seller, all amounts remaining in the Reserve
Account shall be paid to Buyer. In order to obtain payment from
subscribers on the Tentative Subscriber List, Buyer shall exert such
efforts as it exerts in the ordinary course of business to obtain payment
from similarly situated subscribers in other cable systems it owns, but in
no event shall Buyer be required to file a lawsuit (or to hire a collection
agency or law firm) with respect thereto. Buyer: (i) will provide Seller
a list of payments upon reconciliation of the Tentative Subscriber List,
and (ii) will not grant to any subscriber on the Tentative Subscriber List
a deferred payment option which would cause said subscriber not to be
counted as a Basic Subscriber. It is understood that Buyer may, but will
not be obligated to, provide continuing cable service to any account which
is delinquent in any amount payable to Buyer.
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<PAGE>
(d) Promptly after the expiration of 60 and not more than 90 days
following the Closing Date, Seller and Buyer shall review and reconcile the
Pre-Closing Subscriber List and the Tentative Subscriber List, to determine
the Equivalent Basic Subscriber Number existing on the Listing Date, in
accordance with the foregoing definition and as adjusted with respect to
the Tentative Subscriber List under Section 2.4(c). If, as a result of
such reconciliation, the Equivalent Basic Subscriber Number actually
delivered to Buyer at Closing is less than 15,250, the Cash Consideration
shall be reduced by an amount equal to $1,541 multiplied by the number by
which the Equivalent Basic Subscriber Number is less than 15,250. Any such
adjustment to the Cash Consideration shall be paid to Buyer first out of
any Reserve Account created under Section 2.4(c) or, if such funds are
insufficient, out of the Escrow, and Seller shall pay any remaining balance
due upon demand if the Reserve Account and the Escrow are not sufficient to
pay such adjustment.
(e) The parties agree to make cash adjustments and payments between
them at Closing to transfer to Buyer any converter and other subscriber
deposits received or held by Seller, and any sums which Seller would have a
present or future legal obligation to refund. Seller and Buyer further
agree to make such cash adjustments and payments between them at Closing
and as soon as practicable after the Closing Date (but not later than 90
days following the Closing) to reflect the principles that: (i) all
expenses and income attributable to the Excluded Assets are for the account
of Seller, (ii) all expenses and income attributable to the construction,
installation, ownership or operation of the Systems prior to the Closing
Date are for the account of Seller (including amounts payable for supplies,
inventories and other assets acquired by Seller, which Seller shall deliver
to Buyer at Closing) (the "Current Adjustment Amount"), and (iii) all
expenses and income attributable to the construction, installation,
ownership or operation of the Systems on and after the Closing Date are for
the account of Buyer. Such adjustments shall include, but shall not be
limited to, an allocation of the following between Seller and Buyer: (i)
franchise, copyright, license or other fees; (ii) pole attachment fees and
rentals and charges payable in respect of leasehold interests; (iii)
property taxes and assessments payable in respect of any Transferred
Assets; (iv) charges for utilities, microwave relay and other services
furnished to or in connection with the business of operating the Systems,
provided that pay television and other programming expenses will be
independently incurred and paid for by Seller and Buyer before and after
Closing, respectively, and will not be subject to adjustment; (v) fees
payable to the FCC or other governmental authority in connection with the
Systems or the ownership or operation thereof; and (vi) wages, salaries,
commissions, bonuses (based on any commitment therefor or amount thereof
paid for the most recent year), accrued vacation (except as otherwise
provided below) and other fringe benefits (and related payroll taxes, etc.)
of Seller's employees as of the Closing Date who become and continue as
employees of Buyer during and beyond the 90 day period following the
Closing Date (it being agreed that Seller shall be liable for all forms of
compensation due to Seller's employees who do not so become and continue as
Buyer's employees, except for actual wage or salary payments and directly
related fringe benefits payable solely with respect to the
8
<PAGE>
employment of such employees by Buyer and services rendered by such
employees to Buyer at the request of Buyer, which shall be paid by Buyer).
Seller shall make all payments due to its employees for services rendered
by such employees prior to the Closing Date or otherwise accruing to such
employees as of the Closing Date in accordance with Seller's normal payment
practices, but in no event later than 30 days following the Closing Date.
Nothing herein shall be deemed to require the pro-rating of any income tax
or similar type of tax.
(f) For purposes of this Agreement, the average monthly revenue per
subscriber paid to Seller by the Basic Subscribers for the last three (3)
complete calendar months prior to Closing shall be computed by dividing (i)
the average monthly total revenue from operations of the Systems for the
last three (3) complete calendar months prior to Closing, computed on the
accrual basis in a manner consistent with Seller's past practices,
(including charges for basic and pay cable television service, home
----------
shopping revenues, installation fees, converter and other equipment fees,
late charges, revenues from advertising sales, revenues from pay-per-view
programming, tower rental, collection fees and NSF fees, and franchise fees
not separately billed, but excluding sales taxes, equipment sales,
---------
franchise fees separately billed, FCC fees separately billed, extraordinary
items and interest income) by (ii) the Equivalent Basic Subscriber Number
(which for this purpose shall be computed based on the weighted average
number of subscribers for the period) (the "Three Month Average Revenue").
If the Three Month Average Revenue per subscriber is less than the Required
Average Revenue for the Systems as of the Closing Date, the Cash
Consideration shall be reduced by an amount equal to the product of the
Cash Consideration less any Subscriber Adjustment Amount, multiplied by a
fraction, the numerator of which is the amount by which the Three Month
Average Revenue is less than the Required Average Revenue and the
denominator of which is the Required Average Revenue (the "Revenue
Adjustment Amount"). For purposes of this Agreement, the term "Required
Average Revenue" shall mean (i) if the Closing occurs after April 1, 1998,
$30.60 or (ii) if the Closing occurs before April 1, 1998, the figure
derived by (a) adding, for each of the three complete calendar months prior
to Closing, $30.60 for any month which ends after January 1, 1998, and
$29.65 for any month which ends prior to January 1, 1998, and (b) dividing
the sum by three.
(g) If the Equivalent Basic Subscriber Number delivered to Buyer at
Closing is greater than 15,250 and (i) the product of the Equivalent Basic
Subscriber Number multiplied by the Three Month Average Revenue is greater
than (ii) the product of 15,250 multiplied by the Required Average Revenue,
then there shall be no Revenue Adjustment Amount, even if the Three Month
Average Revenue per subscriber is less than the Required Average Revenue.
The final reconciliation of the Revenue Adjustment Amount shall occur
subsequent to the final reconciliation of the Tentative Subscriber List.
(h) The Subscriber Adjustment Amount, the Current Adjustment Amount
and the Revenue Adjustment Amount (collectively, the "Adjustment Amounts")
shall be
9
<PAGE>
estimated in good faith by Seller, and set forth, together with a detailed
statement of the calculation thereof, in a certificate (the "Initial
Adjustment Certificate") executed by a duly authorized representative of
Seller and delivered to Buyer not later than 10 days prior to the Closing.
Seller shall use reasonable efforts to keep Buyer informed during its
preparation of the Initial Adjustment Certificate. If accepted by Buyer,
the Initial Adjustment Certificate shall constitute the basis on which the
Adjustment Amounts are calculated for purposes of the Closing. Seller and
Buyer shall endeavor in good faith to agree upon the actual Adjustment
Amounts within 90 days after the Closing. Seller or Buyer, as appropriate,
shall pay to the other party within five (5) business days after the final
determination the amount by which the parties agree that the Adjustment
Amounts differ from the Adjustment Amounts as estimated in the Initial
Adjustment Certificate. Any amounts in dispute at the end of such 90 day
period will be determined within 120 days after the Closing Date by an
accounting firm mutually agreed upon by the parties, whose determination
will be conclusive. Buyer and Seller will each be responsible for one-half
of the fees and expenses payable to such firm in connection with such
determination. The payment required after determination of all disputed
amounts will be made by the responsible party within five business days
after the final determination.
2.5. Limited Assumption of Liabilities. At the Closing, Seller shall
---------------------------------
assign and transfer to Buyer, and Buyer shall assume, be obligated to pay or
otherwise satisfy or be responsible for, (i) the obligations and liabilities
arising or accruing on or after the Closing Date under all of the Franchises,
Leases and Governmental Authorizations, and under those Access Agreements and
Other Agreements listed on Schedules 1.1(d) and 1.1(i) (such Franchises, Leases,
---------------- ------
Governmental Authorizations, Access Agreements and Other Agreements are
sometimes referred to herein as the "Assumed Contracts"); (ii) other obligations
and liabilities of Seller only to the extent that there shall be an adjustment
in favor of Buyer with respect thereto pursuant to Section 2.4; and (iii) all
obligations and liabilities arising out of Buyer's ownership of the Transferred
Assets or operation of the Systems after the Closing Date (collectively, the
"Assumed Obligations"). Notwithstanding the foregoing, upon the agreement of
Buyer, if the assignment and transfer of any Assumed Obligation would cause a
breach of or default under the Assumed Contract under which the Assumed
Obligation arises, and if the required consent to its transfer and assignment
has not been obtained by Closing, Seller agrees to continue, at Buyer's expense
(other than charges for personnel or internal operating administrative or
overhead expenses of Seller or any creditor of Seller), the Assumed Contract in
effect, and Buyer shall have and enjoy the benefit of the rights and obligations
thereunder as agent for Seller until such time as the consent is obtained (but
not to extend more than 90 days beyond the Closing Date, at which time such item
shall be deemed to have been automatically assigned and transferred to Buyer,
without any further act on the part of Buyer or Seller). All debts, liabilities
and obligations arising out of or relating to the Transferred Assets or the
operation of the Systems other than the Assumed Obligations shall remain and be
the obligations and liabilities solely of Seller, and Buyer shall not assume or
have any obligation or liability for such debts, liabilities or obligations.
10
<PAGE>
Section 3. Representations, Warranties, Covenants and Agreements of Seller.
- --------- ---------------------------------------------------------------
Seller represents, warrants, covenants and agrees, as of the date hereof
and on the Closing Date (except where another date or period of time is
expressly mentioned) that:
3.1. Organization, Qualification and Authority.
-----------------------------------------
(a) Seller is a limited partnership duly organized under the laws of
the State of Colorado and is duly qualified to transact business, and is in
good standing, in the State of Indiana;
(b) The character and location of the properties, assets, licenses and
rights used in the operation of the Systems and the nature of the Systems
as operated by Seller do not require Seller to qualify to transact business
in any jurisdiction other than the states set forth in Section 3.1(a); and
(c) Seller has full partnership power, capacity and authority to own
and lease the properties and assets used in the operation of the Systems,
to carry on the business of the Systems as presently conducted, and to
operate the Systems as heretofore operated by Seller.
3.2. Due Authorization. The execution and delivery of this Agreement and
-----------------
the performance of the transactions contemplated hereby have been duly
authorized and approved by all necessary partnership action of Seller, and by
appropriate resolutions duly adopted, and all other actions required to be taken
by law, by Seller's general partner. Seller has full partnership power to enter
into and to perform this Agreement and the transactions contemplated hereby.
This Agreement constitutes a valid and binding Agreement of Seller and is
enforceable against Seller in accordance with its terms (except as such
enforceability may be limited by bankruptcy, insolvency or similar laws, or by
general principles of equity relating to the availability of equitable
remedies).
3.3. No Conflicts. Subject to the receipt of the consents set forth in
------------
Schedule 3.3, neither the execution and delivery of this Agreement by Seller nor
- ------------
the consummation by Seller of the transactions contemplated by Seller herein,
nor the compliance by Seller with the terms, conditions and provisions hereof,
conflict with or will conflict with Seller's limited partnership agreement or
the articles of incorporation or bylaws of Seller's general partner, nor any
Lease, Access Agreement, Other Agreement or indenture, mortgage, deed of trust,
covenant, instrument, contract or agreement to which Seller is a party or by
which Seller, the Transferred Assets or the Systems is bound; any Franchise or
Governmental Authorization; the Communications Act of 1934, as amended,
including, but not limited to, the Cable Communications Policy Act of 1984, as
amended, the Cable Television Consumer Protection and Competition Act of 1992,
as amended (the "1992 Act"), the Telecommunications Act of 1996, as amended, and
the rules and regulations thereunder (collectively, the "Communications Act");
the Copyright Act of 1976, as amended, and the rules and regulations thereunder
11
<PAGE>
(collectively, the "Copyright Act"); the rules, regulations or policies of the
FCC, the FAA or United States Copyright Office (the "Copyright Office"); or any
applicable federal, state or local law; nor result in a breach or violation of
or default under any of the same (whether immediate or subject to the passage of
time or giving of notice), nor cause the suspension, revocation, impairment,
forfeiture, nonrenewal or termination of any Governmental Authorization or
Franchise, or any other license, permit, franchise, certificate, registration,
consent or authorization.
3.4. Financial Statements.
--------------------
(a) The books of account and financial records of Seller are current
and have been maintained by Seller in the ordinary course of business.
Seller has prepared its financial statements relating to the Systems in
accordance with generally accepted accounting principles applied on a basis
consistent from period to period. Seller has delivered to Buyer: (i)
unaudited financial statements relating to the Systems (including opening
and year end balance sheets and an income and expense statement for each of
the two fiscal years ended December 31, 1995 and 1996, (collectively, the
"Historical Financial Statements"); (ii) monthly reports of all accounts
receivable of the Systems (including an aging thereof in month end
increments) ("Receivable Reports") for the period commencing January 1,
1997; and (iii) monthly managers' subscriber summary reports ("Subscriber
Reports") which include the Systems, separately listing total subscribers,
for the period following December 31, 1996. Seller also has delivered to
Buyer consistently prepared monthly financial statements for each of the
months since the end of Seller's fiscal year ended 1996 ("Operating
Reports") which reflect all billings for basic and premium services and
other sources of revenues, by category, for the interim period between
December 31, 1996 and the end of the month preceding the date of this
Agreement. Seller will deliver to Buyer: (A) as soon as they are
available, but in no event later than thirty (30) days after the end of
each month an Operating Report, a Subscriber Report and Receivable Report
for the Systems for the most recent month; and (B) such other financial and
operating information regarding the Systems and the Transferred Assets as
Buyer reasonably requests. Such financial statements have been and will be
prepared on a basis consistent from period to period. Except as set forth
in the Schedules hereto, each of such financial statements, Historical
Financial Statements, Receivable Reports, Subscriber Reports and such other
reports provided to Buyer is and will be true, correct and complete in all
material respects with respect to the subject matter contained therein, and
fairly presents, and will fairly present, the results of operation of
Seller and the Systems and related information, for the periods covered
thereby, and does not and will not omit to state or reflect any material
fact required to be stated or reflected therein or necessary to make the
statements therein not misleading, subject, however, to normal year end
audit adjustments with respect to unaudited information, which adjustments
are not material individually or in the aggregate.
(b) Since January 1, 1997, (i) with respect to the Systems, Seller has
not incurred any obligation or liability, contingent or otherwise (except
normal trade or
12
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business obligations incurred in the ordinary course of business), the
performance of which would be reasonably likely, individually or in the
aggregate, to have a material adverse effect on the financial conditions or
results of operations of the Systems, (ii) there has been no material
adverse change in the Transferred Assets or the financial condition,
liabilities or operations of the Systems, and to the knowledge of Seller
and without notice to the contrary, no fact or condition exists or is
contemplated or threatened that could reasonably be expected to cause such
material adverse change, other than changes affecting the United States
cable industry as a whole, including any change arising from (A)
legislation, litigation, rulemaking or regulation or (B) competition caused
by or arising from other multiple channel distribution services.
(c) Except as set forth in Schedule 3.4(c), the Systems have no
---------------
outstanding claims, contingent obligations (whether as a guarantor,
indemnitor, surety, accommodation party or otherwise), liability for taxes
which are due and unpaid or long-term commitments or obligations, and, to
Seller's knowledge and without notice to the contrary, there are no
potential unasserted claims with respect to Seller, the Systems or the
Transferred Assets; to the knowledge of Seller and without notice to the
contrary, no person or entity has threatened to assert any of such claims
against Seller, the Systems or the Transferred Assets, except as set forth
in the financial statements provided under Section 3.4(a) or as set forth
in the Schedules to this Agreement.
3.5. Regulatory Licenses and Filings.
-------------------------------
(a) Except as set forth in Schedule 3.5(a): (i) Seller has timely
---------------
filed all notices and all Statements of Account and has made all required
royalty payments under the Copyright Act so as to qualify for the
compulsory license for the carriage of radio and television stations, and
has completed and filed all other registrations and filings required to be
filed with the FCC and FAA, copies of which have been delivered to Buyer by
Seller, and paid all amounts due in connection with such filings or arising
as a result of the information shown thereon; (ii) all Statements of
Account in connection with the operation of the Systems during the last
three (3) years have been completed in compliance in all material respects
with (S)111 of the Copyright Act; (iii) all royalty payments required to be
made in connection with the operation of the Systems during the last three
(3) years were remitted to the Copyright Office and were computed and
reported in accordance with the regulations adopted pursuant to (S)111 of
the Copyright Act; and (iv) the statements, representations, warranties and
calculations contained in and amounts paid under each of such notices,
filings and registrations are true and correct in all material respects and
consistent with applicable federal regulations.
(b) Except as set forth in Schedule 3.5(b), there is no legal action,
---------------
investigation or proceeding pending or, to the knowledge of Seller, and
without notice to the contrary, threatened (or basis existing therefor) for
the purpose of modifying, revoking, terminating, suspending or canceling
any of the Governmental Authorizations, the FCC Licenses, the FAA Licenses,
any Franchise, the compulsory copyright license under (S)111
13
<PAGE>
of the Copyright Act, or any of Seller's other authorizations or
certificates, or which would have a material adverse effect upon, or cause
material disruption to, the Systems or the consummation of the transactions
contemplated hereby.
(c) Within 90 days after Closing, or such shorter period as may be
required to enable Buyer to make a timely filing with respect to the six-
month Copyright reporting period in which the Closing occurs, upon the
request of Buyer Seller shall deliver to Buyer a certificate in the form
attached as Exhibit C signed by Seller setting forth Seller's gross
---------
receipts (calculated in a manner which is consistent with the regulations
of the Copyright Office adopted under (S)111 of the Copyright Act) derived
from the retransmission of any television or radio broadcast signals during
the portion of the applicable six-month reporting period that includes the
Closing Date.
3.6. Franchises and Other Authorities.
--------------------------------
(a) Except as set forth in Schedule 3.6, Seller has, and is in
------------
compliance in all material respects with (without waiver or other
forbearance of compliance), all Franchises and Governmental Authorizations,
including, but not limited to, all permits (including environmental
permits), licenses, consents, certificates, registrations and other
authorities and rights required by any statute, ordinance, regulation or
other legal authority relating or applicable to the Systems or the
Transferred Assets, and/or the ownership or operation thereof (the
Franchises, Governmental Authorizations and all of the foregoing being
collectively referred to herein as the "Authorities"). The Franchises
represent all of the franchises or similar grants of governmental authority
required to provide cable television services to the communities listed in
Schedule 1.1(b) as currently operated. The Franchises are all of the
---------------
Franchises necessary or required to operate the Systems. A photocopy of
each of which Authorities, as currently in effect, including all
amendments, modifications, consents or waivers of compliance thereof
(including, without limitation, all agreements relating to any form of rate
regulation, customer service and consumer protection requirements or
standards) has been delivered to Buyer by Seller. The Systems have no
Authorities which are not in written form. Seller also has delivered to
Buyer a copy of all material correspondence which resulted in any such
amendment, modification, consent or waiver. A list of the current
franchise fees required to be paid by Seller made under each of such
Franchises is set forth in Schedule 1.1(c);
---------------
(b) Except as set forth in Schedule 3.6, Seller has not previously
------------
caused, suffered or permitted any material default, dispute or
noncompliance to occur or exist, and there is no current default, dispute
or noncompliance, with respect to any Authority, and to the knowledge of
Seller, and without notice to the contrary, no ground or basis exists,
whether or not subject to the giving of notice or passage of time, for
cancellation, termination, suspension, restriction or limitation upon the
rights granted by any Authority; except as set forth in Schedule 3.6, all
------------
Authorities are in full force and effect; and
14
<PAGE>
(c) For any Franchise that has an unexpired term of fewer than three (3)
years from the date of Closing, a timely request for renewal has been
submitted to the appropriate governmental authority pursuant to Section 626
of the Communications Act. Except as set forth on Schedule 3.6, Seller (i)
------------
has not been notified in writing by a governmental authority with respect
to any such Franchise of a preliminary decision not to renew or of any
finding that could reasonably be expected to serve as a basis for a
decision not to renew; and (ii) has no knowledge that any such notice is to
be received.
3.7. Status of the Systems.
---------------------
(a) The Systems have not less than 21,790 homes passed by not more
than approximately 441 miles of constructed and activated coaxial and/or
fiber optic cable. Seller's posted combined basic and tier rate as of the
date hereof is not less than the current rates set forth in Schedule 3.7(a)
---------------
and as of the Closing shall not be less than the Closing rates set forth in
Schedule 3.7(a).
---------------
(b) Schedule 3.7(b) sets forth as to the Systems: (i) each type of
---------------
cable television service offered by Seller; (ii) as of the date of this
Agreement the number of subscribers for each such service; (iii) as of the
date of this Agreement the rates charged for each service as of a date
within the most recent 10 day period; and (iv) as of the date of this
Agreement the subscribers in such System who receive services at a rate
below the Standard Basic Rate for such System, the amount charged to such
subscribers for such services and the term of the commitment to provide any
such services at less than the Standard Basic Rate. The Systems have the
ability, without additional capital expenditures, to deliver both a basic
and expanded basic service sold and supplied separately to subscribers
using the minimum bandwidth set forth in Schedule 3.7(b). The basic
---------------
service is composed of not more than the number of channels specifically
identified in Schedule 3.7(b) as those channels presently constituting
---------------
Seller's basic service package. Seller has delivered to Buyer strand maps
covering the areas comprising the Systems if Seller has such maps. Except
as set forth in Schedule 3.7(b), as of the date of this Agreement, no other
---------------
person or entity has a franchise or is otherwise licensed to offer or
provide, or does offer or provide, cable television services as a cable
operator in any franchise territory of Seller, and to Seller's knowledge
without notice to the contrary (which knowledge shall include any written
application filed with a franchising authority) as of the date of this
Agreement, no person or entity has made application to any franchising
authority to provide cable television services in any franchise territory
of Seller.
(c) Schedule 3.7(c) sets forth: (i) the channel capacity of each of
---------------
the Systems to carry video/aural signals which are the equivalent of
television signals (excluding FM channels), each of which delivers the
number of channels set forth therein without additional capital
expenditures; and (ii) the separate identity of such channels which have
been activated and which have not been activated.
15
<PAGE>
(d) Except as set forth in Schedule 3.7(d), each of the Systems and
---------------
all of the channels carried thereon, without additional capital
expenditures, complies in all material respects with all applicable FCC
technical regulations, including the regulations contained at 47 C.F.R.
Part 76 and, to the extent applicable, Part 78 thereof, and with all
technical standards contained in the Authorities. The picture quality
delivered by the Systems through the Closing Date will not deteriorate from
the quality of picture currently being delivered by the Systems as of the
date hereof. Each of the Systems is currently maintained. There are no
obligations or liabilities to subscribers of the Systems except: (i) with
respect to deposits made by such subscribers which will be transferred to
Buyer at the Closing, (ii) the obligation to supply services to subscribers
in the ordinary course of business, and (iii) as disclosed herein or in the
Schedules attached hereto. There are no complaints of subscribers of which
Seller has knowledge or notice that have not been resolved or (A) will not
be resolved in the ordinary course of business without unusual expense or
(B) if not resolved, which will have a material adverse effect on the
Systems individually or in the aggregate. Since January 1, 1997, Seller
has provided a consistent level of customer service to subscribers of the
Systems. Except as set forth in Schedule 3.7(d), the customer service
---------------
level provided by Seller complies with the standards established by the
customer service regulations adopted by the FCC which became effective on
July 1, 1993 and, if applicable, all other customer service standards
established by the grantors of the Franchises. Except as set forth in
Schedule 3.7(d), as of the date of this Agreement Seller has received no
---------------
notice that any franchising authority will seek to impose the customer
service levels established by such FCC regulations.
(e) Except with respect to debts or accounts payable that are being
contested in good faith and for which adequate reserves have been provided:
(i) all debts to contractors, subcontractors, materialmen and other persons
supplying services or property with respect to the construction or
maintenance of the Systems have been paid in full or are included in
Seller's accounts payable, and (ii) all accounts payable with respect to
the construction, maintenance or operation of the Systems have been paid or
are current in accordance with their terms and will be paid by Seller in
accordance with such terms.
(f) There has not occurred any sale or other transfer of ownership of
any System or any material portion thereof since September 30, 1988 other
than assets sold in the ordinary course of business.
(g) Seller has delivered, or within 10 days after the date of this
Agreement will deliver:
(i) a list of the channels presently constituting Seller's
"basic" television package, any "expanded basic" package and each of
Seller's tiers of pay and premium channels on a tier-by-tier basis,
and a description of all changes in channels carried in Seller's
"basic" television package, any expanded basic package and its tiers
of pay and premium channels, including all changes in rates with
respect thereto, since January 1, 1992;
16
<PAGE>
(ii) a list of all local commercial television and radio
broadcast stations presently carried on the Systems, together with the
channel on which each such station was carried on the Systems on (A)
January 1, 1992 and (B) July 19, 1985, to the extent such information
is available. Seller has not received any notice from any local
commercial television or radio broadcast station presently carried on
the Systems that such station desires to be carried on any channel
other than the channel on which such station presently is carried;
(iii) a list of all local non-commercial television and radio
broadcast stations presently carried on the Systems, together with the
channel on which each such station was carried on the Systems on July
19, 1985, to the extent such information is available; and
(iv) a list of each commercial and non-commercial television
broadcast station which Seller and/or its predecessors notified, and
each such station which Seller and/or its predecessors was legally
entitled to notify, on or prior to May 3, 1993, that such station did
not legally qualify for mandatory carriage under the FCC's "must
carry" rules due to signal level, copyright or other legal exemptions,
and specifying for each such station the legal reason why such station
was not entitled to mandatory carriage.
(h) None of the grantors of the Authorities is entitled to be
grandfathered to establish rates under 47 U.S.C. (S)543(j) or the
regulations thereunder.
(i) Each of the Systems was initially activated prior to September 30,
1988.
(j) Except as set forth on Schedule 3.7(j), as of the date of this
---------------
Agreement, (i) no grantor of any of the Authorities has applied to the FCC
for certification under 47 U.S.C. (S)543 and the regulations thereunder or
has indicated an intention to make such application, and (ii) no person has
filed a Form 329 or other complaint with the FCC thereunder.
3.8. Legality of Signals Carried; Compliance with Applicable Laws.
------------------------------------------------------------
(a) Schedule 3.8(a) lists all television and radio stations and other
---------------
programming or signals carried by each of the Systems, separately setting
forth and listing all: (i) commercial and non-commercial television and
radio broadcast stations and (ii) satellite delivered programming carried
by each System. As to each such television and radio broadcast station,
Schedule 3.8(a) also indicates whether its signal is of local or distant
---------------
origin under the Communications Act, and whether such signal is received
off-air, or via satellite or microwave. Timely notice was given to each
commercial and non-commercial station carried by the Systems, and to each
such station which was entitled to notice, under the FCC's mandatory
broadcast station carriage rules contained in and adopted under the 1992
Act. There are no broadcast stations that are entitled to carriage
17
<PAGE>
under the FCC rules which are not carried by the Systems, except as
separately listed in Schedule 3.8(a), which list specifies the exemption
---------------
which provides the basis for not carrying each such station. Schedule
--------
3.8(a) also indicates, as to each broadcast station that is entitled to
------
carriage on the Systems under FCC rules, whether the station has elected
mandatory carriage or retransmission consent and the date of such station's
notice. As to each such station which requested retransmission consent,
the status as of the date of this Agreement of any negotiations therefor is
set forth in Schedule 3.8(a). Each retransmission agreement which has been
---------------
entered into by Seller with respect to the Systems is listed in Schedule
--------
3.8(a). A copy of each retransmission agreement entered into by Seller
------
with respect to the Systems, and of all written notices and correspondence
sent or received in connection with such mandatory carriage and
retransmission consent matters has been provided to Buyer. The Systems
have no retransmission agreement which is not written. No notices or
demands have otherwise been received by Seller with respect to the Systems
challenging the right of any of the Systems to carry any television or
radio broadcast channel or other programming, or asserting an obligation of
any of the Systems to carry any television or radio broadcast channel or
other programming not carried by the Systems. Except as set forth in
Schedule 3.8(a) or 3.8(b), the Systems are operated in compliance in all
--------------- ------
material respects with all FCC and FAA regulations and rules; provided that
Seller makes no representation herein with respect to the rates charged to
its customers. The Systems are in full compliance in all material respects
with all FCC and FAA regulations relating to tower lighting and marking
requirements and aeronautical frequency signal leakage requirements,
including compliance with the Cumulative Leakage Index specifications
("CLI") and Proof of Performance technical tests of the FCC. All Systems
using restrictive frequencies (108-137 mhz and 225-245 mhz) comply with CLI
requirements.
(b) Except as set forth in Schedule 3.8(b), Seller has conducted the
---------------
business of the Systems, including the ownership and use of the Transferred
Assets, in accordance with, and Seller, the Systems and the Transferred
Assets are in compliance in all material respects with the Communications
Act (provided that Seller makes no representation herein with respect to
the rates charged to its customers), the Copyright Act and all other
applicable federal, state and local laws, ordinances, rules and
regulations, including, but not limited to, all laws, ordinances, rules and
regulations relating to the installation, maintenance or operation of cable
television systems, building construction, use or occupancy, zoning, the
environment, and the treatment, handling, use, existence or disposal of
pollutants, contaminants or hazardous, toxic or regulated substances or
wastes. Seller has not received any notice of noncompliance, or any waiver
or postponement of or stay from full and immediate compliance with, and
neither Seller nor the Transferred Assets is the subject of any pending,
or, to the knowledge of Seller and without notice to the contrary, a
potential subject, of any claims, charges or fines under, any of the
Franchises, the Governmental Authorizations or the Authorities or under any
such laws, rules or regulations, nor has Seller received any notice calling
attention to the need for any work, repairs, construction, alterations or
installation on or in connection with the Transferred Assets or the Systems
that has not been corrected.
18
<PAGE>
(c) Neither Seller nor, to the knowledge of Seller, its officers, general
partner, employees or agents has made any illegal or questionable payments
to any third party.
3.9. Real Property and Leases.
------------------------
(a) All real property (including, without limitation, all interests in
any rights to real property) and improvements located thereon, and in each
case a general description thereof, which is owned by Seller is set forth
in Schedule 1.1(g) (the "Owned Real Property").
---------------
(b) A description of real property leased by Seller and of the
improvements thereon and the use made thereof are set forth in Schedule
--------
1.1(f) (the "Leased Real Property").
------
(c) Seller has (and will convey to Buyer at the Closing) fee simple
title to the Owned Real Property and valid and binding leasehold interests
(the "Real Estate Leases") with respect to the Leased Real Property
(collectively, the "Real Property"). Except as set forth in Schedule
--------
3.9(c), Seller is in peaceable possession of the Owned Real Property and
------
Leased Real Property. The Owned Real Property and Seller's interest in the
Leased Real Property are free and clear of all liens, security interests,
pledges and encumbrances, other than the Permitted Liens or liens, security
interests, pledges and encumbrances which will be discharged and released
on or prior to the Closing Date, and are free and clear of all defaults,
adverse claims, title impediments, encroachments, boundary disputes,
covenants, restrictions, rights of way and title objections that would
conflict in any material respect with Buyer's use of said property in the
manner heretofore used by Seller. With respect to each Real Estate Lease:
(i) the Lease is in full force and effect; (ii) all accrued and payable
rents have been paid; (iii) there is no default of Seller, nor to Seller's
knowledge, of any other party thereunder, and there is no waiver,
indulgence or postponement of any obligations thereunder; (iv) to Seller's
knowledge and without notice to the contrary, no event that with the giving
of notice, the lapse of time, the happening of any further event or
otherwise would become a default, has occurred under any such Lease; and
(v) Seller has provided Buyer with a photocopy of each written Real Estate
Lease, including all amendments, modifications, consents, waivers and all
material correspondence relating thereto, and has included in Schedule
--------
1.1(f) a description of each such Real Estate Lease which is not in written
------
form.
(d) Seller has delivered to Buyer all surveys of and title
commitments and title policies with respect to, the Owned Real Property and
the Leased Real Property which are in the possession or control of Seller.
3.10. Personal Property. Seller has (and will convey to Buyer at the
-----------------
Closing): (a) good, valid and marketable title to all of the tangible assets,
machinery, equipment and other tangible personal property of the Systems
("Seller's Personal Property"), including, without limitation, the personal
property listed in Schedule 1.1(a), the Governmental Authorizations, the
---------------
19
<PAGE>
Franchises and the Access Agreements, and (b) valid and binding leasehold
interests with respect to the Leased Personal Property (as hereinafter defined),
in each case free and clear of all liens, security interests, pledges and
encumbrances, other than Permitted Liens or liens, security interests, pledges
and encumbrances which will be discharged and released on or prior to the
Closing Date, and free and clear from any other interest, adverse claim,
covenant or restriction that would conflict in any material respect with Buyer's
use thereof in the manner heretofore used by Seller. All personal property
leased by Seller is identified in Schedule 1.1(f) (the "Leased Personal
---------------
Property"). With respect to each such Lease: (i) the Lease is in full force
and effect; (ii) all accrued and payable rents have been paid; (iii) there is no
default by Seller thereunder nor to Seller's knowledge, of any other party
thereunder, and there is no waiver, indulgence or postponement of any
obligations thereunder; (iv) to Seller's knowledge and without notice to the
contrary, no event that with the giving of notice, the lapse of time, the
happening of any further event or otherwise would become a default, has occurred
under any such Lease; and (v) Seller has provided Buyer a photocopy of each
written Lease, including all amendments, modifications, consents, waivers and
all material correspondence relating thereto, and has included in Schedule
--------
1.1(f) a description of each such Lease which is not in written form.
- ------
3.11. Contracts. The Leases, Access Agreements, and Other Agreements
---------
listed in the Schedules to this Agreement constitute all of the contracts which
are used, held for use or are required primarily to conduct the business of the
Systems as heretofore conducted by Seller (except oral subscriber contracts and
miscellaneous service or other contracts or agreements, none of which is
material and each of which is terminable without penalty at will). Except as
set forth in the Schedules hereto, each of such contracts and agreements is in
full force and effect and current in all material respects as to the performance
thereof by Seller, and to Seller's knowledge (and without notice to the
contrary) by the other party(ies) thereto, in accordance with its terms, without
waiver, indulgence or postponement of any of the obligations thereunder; and to
the knowledge of Seller and without notice to the contrary, no event has
occurred which constitutes, or with the giving of notice, passage of time or
otherwise will constitute, a default thereunder. Seller is not entitled to the
benefit of any representations, warranties and agreements in connection with
Seller's acquisition or the construction of the Systems or any Transferred
Assets.
3.12. Employee Agreements and Benefits; Labor Matters. Schedule 3.12
----------------------------------------------- -------------
lists as of the date of this Agreement the employees of Seller in connection
with the operation of the Systems. Schedule 3.12 also lists the date of
-------------
employment, age, current compensation level, date of last increase in
compensation and prior compensation level of each of such persons and describes
all compensation plans or arrangements, profit sharing, equity option or
purchase plans, and other agreements or arrangements under which employees of
Seller or their dependents receive, or are entitled to receive in the future,
compensation or benefits. Seller has delivered to Buyer a true and correct copy
of all employment handbooks and written materials stating employment policies of
Seller. Seller has no non-written employment policies. In connection with the
Systems, Seller is not a party to or bound by any written or unwritten
employment, non-competition or consulting agreement or understanding which is
not terminable at will without penalty. In
20
<PAGE>
connection with the Systems, Seller is not a party to any collective bargaining
agreement and is not the subject of any complaint or proceeding before the
National Labor Relations Board or similar regulatory body. As of the date of
this Agreement, Seller is not aware of any activities of any labor union or
other party which is currently seeking to represent or organize the employees of
Seller, and Seller has not made any agreement with or commitment to or conducted
negotiations with any labor union or employee association with respect to any
future agreement. There is neither pending nor (to the knowledge of Seller and
without notice to the contrary) threatened any labor dispute, strike or work
stoppage or slowdown which affects or may affect Seller, the Transferred Assets
or the Systems. Except as set forth in Schedule 3.12, Seller is in compliance,
-------------
and since January 1, 1997 has complied, in all material respects with the
relevant provisions of the Communications Act, Subpart E of Part 76 of the FCC's
rules and regulations and all other federal, state and local laws and related
rules and regulations and agreements relating to employment generally and all
aspects thereof, including hiring, firing, discipline, leave, wages, hours,
employee safety and conditions of employment. With respect to the employees of
the Systems, Seller has no liability for any arrears in wages, salaries or
overtime pay (other than for Seller's current pay period) or for any vacation,
time off or pay in lieu of vacation or time off (other than for normal accruals)
or for any other payments or penalties for failure to comply with any statute,
law, rule or regulation or agreement. Seller shall indemnify Buyer and hold
Buyer harmless from and against all such sums (including, but not limited to,
those sums which relate to Seller's current pay period and its normal accruals).
Except as set forth on Schedule 3.5(b), as of the date of this Agreement, no
---------------
proceedings before any court, governmental agency, or arbitrator relating to
such matters, including, but not limited to, unfair labor practice claims, are
pending or (to the knowledge of Seller and without notice to the contrary)
threatened involving Seller. Buyer shall have no obligation to hire any
employee or agent of Seller in connection with the transactions contemplated
hereby.
3.13. ERISA.
-----
(a) Other than as set forth in Schedule 3.13, Seller does not provide,
-------------
contribute to or maintain for the benefit of employees of the Systems any
employee benefit plan (hereinafter referred to as a "Plan"), as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations thereunder ("ERISA"), any Plan which
is a "Group Health Plan" (as defined in Section 4980B(g)(2) of the Code),
or any Plan which is an "Employee Welfare Benefit Plan" (as defined in
Section 3(1) of ERISA), nor has Seller provided to such employees any
benefit which is a "Disqualified Benefit" (as defined in Section 4976(b) of
the Code) for which an excise tax would be imposed. [For purposes of this
Section 3.13, Seller shall include all trades or businesses (whether or not
incorporated) which are a member of a group of which Seller is a member and
which are under common control within the meaning of Section 414 of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
thereunder (hereinafter the "Code").]
(b) The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby will not result in: (i) a complete
or partial
21
<PAGE>
withdrawal from any Plan, (ii) any funding deficiency or lien under ERISA,
(iii) any payment obligation (whether of severance pay or otherwise),
acceleration, vesting or increase in benefits to any person, or (iv) the
assessment of any amounts, including interest and penalties, or incurrence
of any costs or expenses (including additional taxes, payment of any
funding deficiency, expenses of compliance or any related accounting or
legal fees and costs) attributable to the existence of any Plan.
3.14. Access Agreements. Seller possesses and is in compliance in all
-----------------
material respects with all Access Agreements (including, but not limited to,
rights of access to all trailer parks, hotels, motels, apartments, condominiums
and other multiple dwelling units served by the Systems and the Transferred
Assets), permits and authorizations used by Seller or necessary for the
installation, operation, maintenance, repair or replacement of all cables,
lines, towers, equipment and other facilities which relate to the ownership or
operation of the Systems and the Transferred Assets. A list of each pole
attachment agreement and the number of poles to which Seller has attached cable
under each of such agreements is set forth in Schedule 1.1(d). Except as set
---------------
forth in Schedule 1.1(d), Seller has not made, and is not required to make, any
---------------
deposits under any of such agreements in order to secure Seller's performance
thereunder. Seller has delivered to Buyer a true and complete photocopy of each
such Access Agreement, permit and similar authorization. Seller has no such
Access Agreements, permits or authorizations which are not in written form.
Seller also has delivered to Buyer a copy of all material correspondence which
resulted in any amendment, modification, consent or waiver of such Access
Agreements. Except as set forth in Schedule 1.1(d), Seller has not received
---------------
notice of any noncompliance or additional make-ready or other requirements under
any of such Access Agreements, permits or authorizations which has not been
remedied or will not be remedied by Seller prior to Closing.
3.15. Bonds, Insurance and Letters of Credit. A description of each
--------------------------------------
insurance policy, each performance bond and each letter of credit required to be
maintained, or which is maintained covering the property comprising the Systems
and Transferred Assets, and/or the operation of the Systems, is set forth in
Schedule 3.15, and a copy of each such letter of credit or bond has been
- -------------
delivered to Buyer by Seller. Each of such policies, letters of credit and
bonds is current and in full force and effect. Seller has not received any
notice of default under or intended cancellation or nonrenewal of any such
policies, letter of credit or bonds. There are no pending or, to Seller's
knowledge without notice to the contrary, threatened requests to make a draw
under any such letter of credit.
3.16. Litigation. Except as set forth in Schedule 3.5(b) or Schedule
---------- --------------- --------
3.16, neither Seller nor the Transferred Assets is a party to, subject to or
bound by any judgment, order, injunction or decree of any court, administrative
agency, arbitration proceeding or other governmental authority that may restrict
or interfere with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, the operation of the
Systems or the ownership or use of the Transferred Assets by Buyer subsequent to
the Closing. Seller is not a party to, nor to the knowledge of Seller and
without notice to the contrary is Seller threatened with, any investigation by
any governmental agency or any legal action or other proceeding before any
court, arbitrator or mediator, administrative or regulatory agency which might
22
<PAGE>
adversely affect the properties, business or condition (financial or otherwise)
of the Systems or the transactions contemplated hereby, and Seller does not know
or have notice of any basis for any such action or proceeding.
3.17. Intellectual Property. Other than Seller's name and the name of
---------------------
Seller's general partner, Seller is not the owner, user or licensee of any
patent, trademark, service mark, trade name or copyright (or application
therefor), nor are any of such items used in connection with the Systems.
Seller has not, nor has the use of any such item in connection with the Systems,
infringed upon or conflicted with any patent, trademark, service mark, trade
name or copyright of others, and Seller has not received any notice of any such
claimed infringement or conflict. During the past five (5) years, Seller has
not existed under or used any name other than "Jones Spacelink Income/Growth
Fund 1-A, Ltd.", "Jones Intercable, Inc.", "Jones Intercable", "Jones Spacelink"
and "Jones Spacelink, Ltd."
3.18. Payment of Taxes. Within the time and in the manner prescribed by
----------------
law, except as otherwise set forth in Schedule 3.18, Seller has: (a) filed all
-------------
federal, state and local tax returns required to be filed; and (b) fully paid
all federal, state and local taxes, charges and assessments of every kind that
are due and payable with respect to the Transferred Assets, the Systems or the
operation thereof, including, without limitation, all payroll, sales, use,
copyright, license, franchise, property and income taxes, charges and
assessments, the failure of which to be filed or paid could adversely affect the
Transferred Assets or result in the imposition of an encumbrance upon the
Transferred Assets, except such amounts as are being contested diligently and in
good faith and for which adequate reserves have been established. Except as set
forth in Schedule 3.18 hereto, no audit or investigation of the tax treatment of
-------------
any of Seller's returns or reports in connection with the Systems or the
Transferred Assets is in progress, pending or, to the knowledge of Seller and
without notice to the contrary, threatened, and, to the knowledge of Seller and
without notice to the contrary, there exists no basis for the assertion or
assessment of any additional taxes against Seller, the Systems or the
Transferred Assets. No waiver or consent to the extension of any statute of
limitations has been given and is in effect with respect to the assessment of
any taxes against Seller, the Systems or the Transferred Assets. Seller has
accrued on its books all taxes, charges and assessments accruing on the
Transferred Assets, the Systems or the operation thereof which are not presently
payable and will pay the same when due and in any event prior to the time when
any penalty or interest arises for the nonpayment thereof, or when the
nonpayment thereof will result in or constitute a lien, charge, security
interest, encumbrance or adverse claim upon or against the Transferred Assets,
the Systems or Buyer.
3.19. Seller's Accounts and Promotions.
--------------------------------
(a) Except as set forth in Schedule 3.19(a), Seller bills its
----------------
subscribers for cable television services monthly and is current in its
billings. Such bills are due and payable in full on the 10th day of the
month in which services are received.
23
<PAGE>
(b) As of the date of this Agreement, except as set forth in Schedule
--------
3.19(b), Seller does not enter into any written subscription or converter
-------
deposit agreements.
(c) Seller's other billing and collection terms and practices are set
forth in Schedule 3.19(c).
----------------
(d) Since January 1, 1997, Seller has not given any concession, price
discount, free service, free installation or promotional allowance, except
as set forth in Schedule 3.19(a) or in Seller's 1997 and 1998 marketing
----------------
plans, which are attached as Schedules 3.19(d) and 3.7(b).
----------------- ------
(e) As of the date of this Agreement, except as set forth in Schedule
--------
3.19(e), Seller has no obligation to provide advertising time or other
-------
concessions under any barter or trade-out arrangement.
3.20. Environmental Compliance.
------------------------
(a) Except as set forth in Schedule 3.20, no asbestos-containing
-------------
materials, equipment containing PCB's, underground storage tanks, hazardous
substances, wastes or other pollutants or contaminants [as such terms are
defined under applicable federal and state environmental laws, including
the Comprehensive Environmental Response, Compensation and Liability Act of
1980 and the rules and regulations thereunder, as amended, 42 U.S.C.
(S)9601(14)] are or have been located, disposed of, installed, used or
exposed on or in connection with any of the Transferred Assets, including
the Owned Real Property and the Leased Real Property ("Environmental
Matters"). In connection with the Systems and the Transferred Assets,
Seller has not disposed of or requested any person to dispose of any
asbestos-containing materials, equipment containing PCBs, underground
storage tanks, hazardous substances, wastes, pollutants or contaminants at
any site, including any site being investigated by any environmental agency
or which is the subject of any administrative or judicial proceeding
relating to the clean-up of materials, except at a site duly licensed for
the receipt and disposal of such materials and except in compliance with
all applicable law.
(b) Except as set forth in Schedule 3.20, Seller has no knowledge or
-------------
information of the existence of any Environmental Matters affecting any
other property which would adversely affect any Owned Real Property or
Leased Real Property.
3.21. Continuation of Business. Since June 1, 1997, Seller has continued
------------------------
the operations of the Systems in accordance with Seller's past practices and has
maintained inventories of supplies and equipment in connection with the
operation of the Systems and provided services to subscribers in accordance with
Seller's past practices. Seller has continued to perform routine and required
maintenance on, and replaced when necessary and otherwise in accordance with
Seller's past practices, all machinery, equipment, devices, cable, tools,
vehicles and other items of personal property owned or used by Seller.
24
<PAGE>
3.22. Approvals and Consents. Seller has included in Schedule 3.22 a
---------------------- -------------
complete list and description of the relationship of all persons (including, but
not limited to, governmental authorities and agencies, creditors, and each party
to any other instrument or agreement to which Seller is a party or by which
Seller or the Transferred Assets is bound or who is affected by the assignment
of any rights to be transferred or obligations to be assumed hereunder) who are
entitled to notice of, or whose consent is required for, the execution of this
Agreement or the consummation of the transactions contemplated hereby by Seller
in order to accomplish the assignment or transfer of any property, instruments
or documents contemplated herein or to preclude any cancellation, suspension,
termination or reformation of any instrument, agreement or right.
3.23. Other Financial Interests. Except as set forth in Schedule 3.23,
------------------------- -------------
Seller has no direct or indirect financial interest in any video programmer, or
any competitor, supplier, customer, lessor or lessee of Seller.
3.24. Complete Disclosure. Seller has no knowledge of any proposed or
-------------------
actual increase in fees or charges under any Franchise, Governmental
Authorization, Authority, Access Agreement or any other contract or agreement,
which would materially adversely affect the Systems or the operation or
financial condition thereof or any of Seller's rights or ability to enter into
and consummate the transactions contemplated by this Agreement or comply with
the terms and conditions hereof. No information, representation, warranty,
covenant or agreement of Seller in this Agreement or any Schedule hereto or
given in any certificate, memorandum, instrument or document or otherwise
furnished by or on behalf of Seller in connection with the transactions
contemplated hereby contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary to make the
statements contained herein and therein not misleading.
Section 4. Representations, Warranties, Covenants and Agreements of Buyer.
- --------- --------------------------------------------------------------
Buyer represents, warrants, covenants and agrees as of the date hereof and
on the Closing Date (except where another date or period of time is expressly
mentioned) that:
4.1. Organization and Authority of Buyer. Buyer is a limited partnership
-----------------------------------
duly organized and validly existing under the laws of the State of Missouri and
is duly qualified to transact business and is in good standing in the State of
Indiana. Buyer has full partnership power, capacity and authority to enter
into this Agreement, to consummate the transactions contemplated herein and to
own and operate its properties, including the Transferred Assets, and to carry
on the business of the Systems subsequent to the Closing.
4.2. Due Authorization by Buyer. The execution and delivery of this
--------------------------
Agreement and the performance of the transactions contemplated herein have been
duly authorized and approved by all necessary partnership actions of Buyer, and
by appropriate resolutions duly adopted, and all other actions required to be
taken by law, by Buyer's general partner. Buyer has full
25
<PAGE>
partnership power to enter into and to perform this Agreement and the
transactions contemplated hereby. This Agreement constitutes a valid and binding
agreement of Buyer and is enforceable against Buyer in accordance with its terms
(except as such enforceability may be limited by bankruptcy, insolvency or
similar laws or by general principles of equity relating to the availability of
equitable remedies).
4.3. No Conflicts. Neither the execution and delivery of this Agreement
------------
nor the consummation of the transactions contemplated by Buyer herein, nor the
compliance by Buyer with the terms, conditions and provisions hereof, conflict
with or will conflict with the terms of the certificate or agreement of limited
partnership of Buyer or of Buyer's general partner or any indenture, mortgage,
deed of trust, covenant, agreement or other instrument to which Buyer is a party
or by which Buyer or any of its property is bound; the Communications Act; the
rules, regulations or policies of the FCC, the FAA or Copyright Office; or any
applicable federal, state or local law, nor cause the suspension, revocation,
impairment, forfeiture, nonrenewal or termination of any license, permit,
franchise, certificate, consent or authorization to which Buyer is a party or is
subject.
4.4. Litigation. Buyer is not a party or subject to, or bound by any
----------
judgment, order, injunction or decree of any court, administrative agency,
arbitration proceeding or other governmental authority that may restrict or
interfere with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby.
4.5. Complete Disclosure. No information, representation, warranty,
-------------------
covenant or agreement of Buyer in this Agreement or given in any certificate,
memorandum, instrument or document or otherwise furnished or to be furnished by
or on behalf of Buyer in connection with the transactions contemplated hereby
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary to make the statements contained
herein and therein not misleading.
Section 5. Covenants and Further Agreements.
- --------- --------------------------------
5.1. Application for Assignment of Franchises and Licenses.
-----------------------------------------------------
(a) Seller and Buyer agree to join in and file and to take such other
actions as are necessary, on forms provided by Buyer or otherwise
satisfactory to Buyer and its lenders, to obtain, at Seller's expense
(excluding Buyer's attorneys' fees, personnel costs and travel expenses),
the approval of applications or requests for approval or consent: (a) with
each local government, the consent of which is necessary to the assignment
of the Franchises and for the operation of the Systems by Buyer on and
after the Closing, (b) with the FCC and the FAA for the assignment of the
FCC Licenses and the FAA Licenses, if any, and (c) with every other
authority, person or entity with respect to any Governmental Authorization,
license, permit, copyright, Lease, Access Agreement or Other Agreement to
which Seller is a party or which affects the transfer or operation of
26
<PAGE>
the Transferred Assets and the Systems, the approval or consent to transfer
of which is required by the terms of the underlying document. Buyer agrees
to provide to any authority, person or party such information as may be
reasonably requested to determine whether to grant approval or consent to
the transactions contemplated by this Agreement.
(b) If applicable, Buyer and Seller, as soon as practicable following
the execution and delivery of this Agreement, shall file the required
notification with the Federal Trade Commission and the Antitrust Division
of the Department of Justice under the Hart-Scott-Rodino Anti-Trust
Improvements Act of 1976, as amended (the "HSR Act"). Buyer and Seller
shall comply fully with all applicable notification, reporting and other
requirements of the HSR Act, and any similar requirements of any other
jurisdiction. All actions required by Buyer and Seller under this Section
5.1(b) shall be at their own respective expenses, except that Buyer and
Seller shall each pay one-half of the filing fee with respect to such HSR
Act filing.
5.2. Information; Consultation; Confidentiality.
------------------------------------------
(a) Seller will give Buyer (at Buyer's expense) access to and permit
Buyer to review the Transferred Assets and the Systems, the related books
and records, and such other information as shall be reasonably requested by
Buyer, including, but not limited to, access to all books, records and
other information as Buyer may request for the purpose of providing the
FCC, state cable commissions, the grantors of the Franchises or the
Authorities and others with such information concerning rates and the
operations of the Systems, as Buyer, the FCC, state cable commissions, the
grantors of the Franchises or Authorities and others may request or
require, such information and records to include information as to original
cost of services for the purpose of justifying rates. Seller agrees to
continue to be reasonably available through the Closing Date and for 90
days thereafter, at no charge or cost to Buyer, for consultation with
representatives of Buyer with respect to the operation, management and
business of the Systems; provided that Seller will not be required to
maintain any representative at the Systems. Seller has preserved in
confidence, and from and after the date hereof will continue to preserve in
confidence, all of the Systems' confidential information and trade and
business secrets. No party hereto will make or authorize any public
announcement or disclosure relating to the transactions contemplated by
this Agreement without first consulting with the other party, except for
disclosures necessary, useful or appropriate in order to satisfy the
conditions to Closing or as required by law.
(b) If this Agreement terminates without a Closing, Buyer agrees to
return to Seller all written information in Buyer's possession furnished to
Buyer by Seller, including copies thereof, and all other materials and
tangible media relating to the Systems or Seller. From the date of this
Agreement to the Closing Date, or indefinitely hereafter if this Agreement
terminates without a Closing, Buyer will preserve in confidence and not
disclose, any confidential information of Seller to any third party,
27
<PAGE>
except to Buyer's legal, accounting and other advisors, to Buyer's
employees and agents, and as otherwise necessary, useful or appropriate in
order to take such steps as are necessary or desirable to satisfy the
conditions of Closing or as required by law.
5.3. Period Pending Closing. Seller covenants and agrees that between the
----------------------
date of this Agreement and the Closing Date:
(a) Seller will:
(i) pay, when due, all its accounts payable and other debts
relating to Seller, the Systems and the Transferred Assets, the
failure of which to be paid could adversely affect the Transferred
Assets or result in the imposition of an encumbrance upon the
Transferred Assets, except such amounts as are being contested
diligently and in good faith and for which adequate reserves have been
maintained; and
(ii) promptly give notice to Buyer of the receipt by Seller of
any notice of any action, proceeding or investigation with respect to
the Systems or the Transferred Assets.
(b) Seller will not, without Buyer's prior written consent, which
consent shall not be unreasonably withheld in the case of Section (i)
below:
(i) Transfer. Sell, assign, transfer or convey any of the
--------
Transferred Assets or any portion of the Systems with a book value or
sale price of more than $10,000 in the aggregate;
(ii) Encumbrances. Subject any of the Transferred Assets or the
------------
Systems to any security interest, lien, restriction, pledge, charge,
adverse claim or encumbrance not set forth in the Schedules hereto as
of the date of execution of this Agreement which would not be
discharged on or prior to the Closing Date;
(iii) Maintenance. Fail to: (A) keep the Transferred Assets,
-----------
the Systems or the physical plant constituting a part thereof in a
current state of repair and operating efficiency, ordinary wear and
tear excepted; (B) maintain the level of inventories and supplies of
the Systems in accordance with Seller's past practice or otherwise as
necessary to the operation of the Systems as heretofore conducted by
Seller; or (C) maintain any insurance policies, bond or letter of
credit affecting the Transferred Assets or the Systems in effect;
(iv) Books and Records. Fail to currently maintain the books
-----------------
and records relating to the Systems' financial condition, the
Transferred Assets or the operation of the Systems, including, but not
limited to, books and records relating to subscriber orders,
disconnections or complaints;
28
<PAGE>
(v) Promotions. Other than as described in Schedule 3.19(d),
---------- ----------------
waive the charge for the first month of cable service or installation
or grant any other promotion (whether consisting of free or reduced
charge for installation or service or otherwise which are not in
accordance with Seller's past practices);
(vi) Retransmission Consents. Enter into any agreement with
-----------------------
respect to the retransmission of signals of commercial stations,
Buyer's consent to such agreement not to be unreasonably withheld,
provided, however, that Buyer shall not be required to consent to any
such agreement which would require a payment by Buyer;
(vii) Insurability. Take any action or refrain from taking any
------------
action if the taking of such action or failure to take such action,
respectively, adversely affects the insurability of the Transferred
Assets or the Systems; or
(viii) Other. Otherwise deal with the Transferred Assets or the
-----
Systems or conduct and manage the Transferred Assets or the Systems in
a manner which, when judged in relationship to Seller's past dealings
and operations, is extraordinary or outside the usual and ordinary
course of routine operation, including, but not limited to, any
modifications in Seller's marketing efforts, subscriber services,
subscriber relations programs and installations. Seller will use its
good faith efforts to preserve the goodwill of suppliers, subscribers
and others having business relations with the Systems. Seller shall
not make, enter into, modify, amend or allow to lapse or become
impaired, any contract, agreement, commitment or other obligation
affecting the Systems, the Transferred Assets or any right or
obligation to be assigned to or assumed by Buyer, except agreements
which are cancelable within 90 days, without penalty, or under which
the commitment of Seller does not exceed $20,000 individually or
$100,000 in the aggregate.
5.4. Cooperation. After the Closing Date, Buyer shall provide Seller and
-----------
Seller's representatives with reasonable access to the books of account and
other records of the Systems and Transferred Assets which are reasonably
required or requested by Seller for the preparation of income tax returns and
other proper purposes applicable to periods prior to the Closing Date,
including, without limitation, any determination of amounts to be paid by one
party hereto to another. Seller will provide Buyer and Buyer's representatives
with reasonable access to any records or documents pertaining to the Systems and
the Transferred Assets which are reasonably required or requested by Buyer for
proper purposes and which are retained by Seller and not delivered to Buyer, and
if such documents are retained by someone other than Seller, Seller will cause
such person(s) to provide Buyer and Buyer's representatives access thereto.
5.5. Expenses. Seller agrees to indemnify Buyer and hold Buyer harmless
--------
against any and all loss, damage, liability, cost and expense, including
reasonable attorneys' fees, suffered or incurred by reason of, or arising out
of: (i) any law pertaining to bulk sales or transfers of
29
<PAGE>
assets or affecting the rights of creditors of Seller (as to which Buyer agrees
to waive compliance in consideration of the indemnification agreement of Seller
hereunder) or the effectiveness of the sale or transfer of assets as against
creditors of Seller; (ii) any sales, use, transfer, documentary, vehicle title
transfer, excise or license tax, fee or charge applicable to any of the
Transferred Assets, to any part of the Systems or to the transactions
consummated hereunder; and (iii) any appraisal rights or other liability owing
to any partner of Seller. All other expenses incurred in connection with the
negotiation, preparation, execution and performance of this Agreement shall be
paid by the party incurring such expenses, unless expressly provided otherwise
hereunder.
5.6. Brokerage. Seller represents to Buyer that Seller has not utilized
---------
any brokerage firm or finder in connection with this transaction, except for The
Jones Group, Ltd., whose fees will be paid by Seller. Buyer represents to
Seller that it has not utilized any brokerage firm or finder with respect to
this transaction. Buyer agrees to indemnify Seller and hold Seller harmless
against any claim of any person for a broker's or finder's fee or similar
compensation relating to this Agreement or the transactions contemplated hereby
based on an asserted agreement with Buyer; and Seller agrees to indemnify Buyer
and hold Buyer harmless against any such claim based on an asserted agreement
with Seller.
5.7. Reliance Upon and Survival of Representations and Warranties.
------------------------------------------------------------
Notwithstanding any investigation at any time conducted by any of the parties
hereto, each party may rely on the representations and warranties of the other
party or parties set forth herein or in any Schedule hereto or other instrument
or document delivered in connection herewith. Notwithstanding any investigation
made, or information obtained, by any party hereto, the representations and
warranties contained in this Agreement and in any document delivered at Closing
shall survive for a period ending on the date which is one year after the
Closing Date, except for representations and warranties set forth in Sections
3.2, 3.3, 3.13, 3.18, 3.20, 4.2 and 4.3, which shall survive for the period of
the applicable statute of limitations.
5.8. Further Assurances.
------------------
(a) Subject to Section 5.1, Seller and Buyer shall use their good
faith commercially reasonable efforts to obtain all necessary approvals,
consents, waivers and authorizations from all appropriate governmental
authorities, bodies, agencies and persons to the transfer or assignment to
Buyer of all rights and obligations contemplated by this Agreement.
(b) Each party agrees to execute and deliver or cause to be executed
and delivered at all reasonable times and places such additional
instruments and documents as the other party may reasonably request or
which are required for the purpose of carrying out this Agreement.
(c) Seller will maintain all Access Agreements, permits,
authorizations, insurance policies, letters of credit currently maintained
by Seller in connection with the
30
<PAGE>
Systems and the Transferred Assets in full force and effect at all times
through the Closing Date, and thereafter as and to the extent provided in
Section 2.5.
(d) Buyer shall be entitled to participate in any meetings relating to
the extension, transfer or assignment of the Franchises, Authorities,
Access Agreements, and any Lease. The terms and conditions of the
extension, transfer and assignment of the Franchises, Authorities or Access
Agreements, or any Lease, or consents thereto and of all requests for the
extension, transfer and assignment thereof shall be satisfactory and
approved in advance by Buyer, such approval not to be withheld
unreasonably. The approvals of the transfer of the Franchises,
Authorities, Access Agreements and Leases shall not contain any conditions
to their transfer, or changes to the terms of the underlying instruments to
which such consents apply, without the advance approval of Buyer, which
approval shall not be withheld unreasonably; provided, however, that in no
event will the withholding of consent by Buyer to any condition or change
that will cause Buyer to incur costs in excess of $8,000 be deemed to be
unreasonable. Except as otherwise provided above, nothing herein shall
require Buyer or Seller to agree to make any payment as a condition to
obtaining any such extension or approval for transfer.
(e) Seller shall use its good faith efforts to obtain (i) a five (5)
year extension with respect to any Franchise which expires within five (5)
years after the date hereof and (ii) assist Buyer in negotiating with the
City of Bluffton and the City of Decatur to obtain either (a) extensions of
such franchises so that at closing, the remaining terms of such franchises
are no less than 10 years or (b) language reasonably acceptable to Buyer in
the transfer resolutions of such Cities, clarifying certain provisions of
such franchises. Any conditions imposed by the franchising authorities to
the extension of such Franchises, or changes required by the franchising
authorities to the underlying terms of the Franchises in connection with
such extensions shall be approved in advance by Buyer and, if so approved,
shall be the sole obligation of Buyer; provided, however, that if Buyer
does not approve such conditions or changes, and the extensions are not
obtained, Seller will be deemed have used its good faith efforts to obtain
any such extensions.
(f) Seller shall use commercially reasonable efforts to obtain (i) an
extension of the agreement with Capri Meadows Associates and Capri II
Associates for service to 932 North Main Street, Bluffton, Indiana for a
term of at least five (5) years, and (ii) a written pole attachment
agreement with the City of Auburn, Indiana for an initial term of two (2)
years and thereafter from year to year.
5.9. Indemnification.
---------------
(a) Seller agrees to indemnify and defend Buyer against and hold Buyer
harmless from any loss, claim, damage, liability or expense (including
reasonable
31
<PAGE>
attorneys' fees): (i) incurred or sustained by Buyer on account of any and
all liabilities of Seller, except: (A) the Assumed Obligations (but
subject to the terms of Section 2.5), and (B) liabilities and obligations
arising or accruing after the Closing Date with respect to the ownership or
operation of the Systems or the Transferred Assets which are expressly
assumed by Buyer under the Assumption Agreement; (ii) incurred or sustained
by Buyer as a result of any misrepresentation or breach of any
representation or warranty of Seller under Section 3 or in any Schedule or
other instrument or document delivered pursuant hereto; (iii) arising under
Sections 5.5 and 5.6 for which Seller is liable thereunder, (iv) incurred
or sustained by Buyer as a result of any refund of rates mandated under FCC
regulations for "basic" and/or CPST service owed to customers of the
Systems for the period during which Seller owned the Systems prior to the
Closing Date; and (v) otherwise arising from Seller's breach of this
Agreement.
(b) Buyer agrees to indemnify and defend Seller against and hold
Seller harmless from and against any loss, claim, damage, liability or
expense (including reasonable attorneys' fees): (i) incurred or sustained
by Seller after the Closing Date: (A) under the Assumed Obligations (but
subject to the terms and provisions of Section 2.5); and (B) arising out of
the ownership or operation of the Systems or the Transferred Assets after
the Closing Date; (ii) incurred or sustained by Seller on account of any
misrepresentation or breach of any representation or warranty of Buyer
included in Section 4 or in any Schedule or other document delivered by
Buyer pursuant hereto; (iii) arising under Sections 5.5 and 5.6 for which
Buyer is liable thereunder, and (iv) otherwise arising from Buyer's breach
of this Agreement.
(c) No claim for indemnification, damages or other relief under
Section 5.9(a) or Section 5.9(b) may be brought after the date which is one
(1) calendar year from the Closing Date, except that: (i) Seller's
obligations to indemnify under Section 5.9(a) shall continue and remain in
effect with respect to matters covered by Sections 3.2, 3.3, 3.13, 3.18 and
3.20 for the period of the statute of limitations applicable thereto,
including any extensions thereof, and (ii) Buyer's obligations to indemnify
under Section 5.9(b) shall continue and remain in effect with respect to
matters covered by Section 4.2 and 4.3 for the period of the statute of
limitations applicable thereto, including any extensions thereof. In
addition, Seller and Buyer shall have no liability under Sections 5.9(a)
and 5.9(b), respectively, unless the aggregate amount of losses otherwise
subject to its indemnification obligations thereunder exceeds $50,000 (the
"Threshold Amount"); provided, however, that when the losses of an
indemnified party exceed the Threshold Amount, the indemnifying party shall
be liable for the indemnified party's aggregate losses of the Threshold
Amount and any losses in excess of the Threshold Amount. All losses shall
be computed net of any insurance proceeds received which reduce the losses
that would otherwise be sustained, and provided further that in determining
the Threshold Amount, the term "material" shall not be applied when used in
the representations and warranties of Seller under this Agreement so as to
reduce the obligations of Seller under such representations and warranties
in an amount which would exceed, in the aggregate, if the word material
were not used therein, $5,000.
32
<PAGE>
(d) Promptly after receipt by a party entitled to indemnification
under this Agreement (the "Indemnified Party") of written notice of the
assertion or the commencement of any claim, action, suit or proceeding by
any person who is not a party to this Agreement (collectively, an "Action")
with respect to any matter referred to in Sections 5.9(a) and 5.9(b), the
Indemnified Party shall give written notice thereof to the party from whom
indemnification is sought pursuant hereto (the "Indemnifying Party") and
thereafter shall keep the Indemnifying Party reasonably informed with
respect thereto; provided, however, that failure of the Indemnified Party
to give the Indemnifying Party notice as provided herein shall not relieve
the Indemnifying Party of its obligations hereunder. In case any Action
shall be brought against any Indemnified Party, the Indemnifying Party
shall be entitled to participate in such Action and, at the request of the
Indemnified Party, shall assume the defense thereof with counsel reasonably
satisfactory to the Indemnified Party, at the Indemnifying Party's sole
expense. If the Indemnifying Party shall assume the defense of any Action,
it shall not settle the litigation unless the settlement shall include as
an unconditional term thereof the giving by the claimant or the plaintiff
of a release of the Indemnified Party, satisfactory to the Indemnified
Party, from all liability with respect to such Action.
(e) Notwithstanding any provision contained herein to the contrary,
Seller shall not be deemed to have violated its representations or
warranties by virtue of any subscriber claiming ownership of his or her
home wiring to the extent permitted by the 1992 Act.
5.10. No Negotiation. Until this Agreement is terminated, Seller agrees
--------------
not to negotiate or otherwise discuss the sale of the Systems or any interest
therein, any possible sale or other transfer of any ownership interest in
Seller, or the transactions contemplated hereby, directly or indirectly, with
any party other than Buyer other than as may be required, useful or advantageous
to obtain any consent or approval contemplated by this Agreement or otherwise to
facilitate consummation of the transactions contemplated by this Agreement.
5.11. Employees. Buyer shall have no obligation to employ any of Seller's
---------
employees. Within 60 days after the date of this Agreement, Buyer shall notify
Seller of those of Seller's employees which Buyer intends to hire, provided,
however, that such notification shall not be deemed to alter the employment at
will nature of the relationship between Buyer and any such individual.
Section 6. Conditions Precedent to the Obligation of Buyer to Close.
- --------- --------------------------------------------------------
The obligation of Buyer to consummate the transactions herein contemplated
is subject to the satisfaction at or before the Closing of the following
conditions:
6.1. Truth of Representations and Warranties. The representations and
---------------------------------------
warranties of Seller included in this Agreement and in each Schedule or other
instrument or document delivered hereunder shall be true and correct in all
material respects on and as of the Closing
33
<PAGE>
Date, with the same effect as though such representations and warranties had
been made on and as of such date (except for representations and warranties
which by their terms relate to a specific date, which shall remain true and
correct as of such date). Buyer shall have received a certificate to the
foregoing effect dated the Closing Date signed by Seller, together with evidence
satisfactory to Buyer that all security interests in and liens, pledges and
encumbrances upon the Transferred Assets have been satisfied, terminated and
released or will be satisfied, terminated and released simultaneously with the
receipt by Seller's lenders of certain portions of the Closing Wire Transfer.
Buyer, in its sole discretion, shall have the right to waive compliance with any
representation and warranty of Seller and proceed with the Closing.
6.2. Performance of Agreements. Each payment, delivery or other action
-------------------------
required of Seller under this Agreement, and each agreement of Seller to be
performed at or before the Closing under the terms hereof or as contemplated
herein, shall have been duly performed. Buyer shall have received a certificate
to this effect dated the Closing Date and signed by Seller.
6.3. Consents of Third Parties. Seller shall have obtained and delivered
-------------------------
to Buyer on the forms set forth in Exhibit D (with respect to Franchises) and
---------
Exhibit E (with respect to other third parties) or such other forms as are
- ---------
reasonably satisfactory to Buyer, the consents of the third parties listed in
the "Consent" section of Schedule 6.3 and shall have issued notifications to
------------
third parties listed in the "Notices" section of Schedule 6.3 in sufficient time
------------
in advance so that any necessary notice period shall have been met (such
consents and notices being referred to herein as "Required Consents"); provided,
however, that for purposes of this Section 6.3, the consent of the respective
utilities with which Seller has pole attachment agreements listed on Schedule
--------
6.3 shall be deemed to have been given if, as of the Closing, any such utility
- ---
is not threatening: (a) to refuse to: (i) consent to the assignment to Buyer
of Seller's pole attachment agreement with such utility, or (ii) execute with
Buyer a replacement pole attachment agreement in such form as is customarily
executed by such utility with cable television companies and which does not
contain material changes from the agreement heretofore existing between Seller
and the utility, or (b) to order or otherwise compel the removal of the cable
plant owned by Seller from such utility's poles. Notwithstanding the foregoing,
however, Seller agrees to continue to use Seller's good faith commercially
reasonable efforts subsequent to the Closing to complete the transfer to Buyer
of any pole attachment agreements not actually transferred to Buyer as of the
Closing Date and to pay any costs or fees charged by the applicable utility in
connection with such transfers. Without Buyer's consent, the Required Consents
shall contain no changes to the underlying documents to which they apply,
without the advance approval of Buyer, which approval shall not be withheld
unreasonably; provided, however, that in no event will the withholding of
consent by Buyer to any condition or change that will cause Buyer to incur costs
in excess of $8,000 be deemed to be unreasonable. Except as otherwise provided
above, nothing herein shall require Buyer or Seller to agree to make any payment
as a condition to obtaining any such extension or approval for transfer.
6.4. Opinion of Seller's Counsel. Seller shall provide to Buyer and
---------------------------
Buyer's lenders the favorable opinion, dated the Closing Date, of Elizabeth
Steele, general counsel to the general
34
<PAGE>
partner of Seller, or other counsel satisfactory to Buyer, substantially in the
form attached hereto as Exhibit F.
---------
6.5. Opinion of FCC and Copyright Counsel. Seller shall provide to Buyer
------------------------------------
and Buyer's lenders the favorable opinion, dated the Closing Date, of Cole,
Raywid & Braverman, FCC and copyright counsel to Seller, or other FCC and
copyright counsel satisfactory to Buyer and its lenders, in form and substance
satisfactory to counsel for Buyer and its lenders, substantially in the form
attached hereto as Exhibit G.
---------
6.6. No Adverse Change. There shall have been no material adverse change
-----------------
in the Transferred Assets or the financial condition, liabilities or operations
of the Systems.
6.7. Inventories. Seller shall deliver to Buyer on the Closing Date
-----------
inventories of supplies and equipment consistent with those levels maintained as
of the date of this Agreement.
6.8. No Litigation. There shall be no legal requirement, and no judgment
-------------
shall have been entered and not vacated by any governmental authority or court
of competent jurisdiction in any litigation or arising therefrom, which enjoins,
restrains, makes illegal, or prohibits consummation of the transactions
contemplated by this Agreement.
6.9. HSR Act Compliance. All waiting periods under the HSR Act
------------------
applicable to this Agreement or the transaction contemplated hereby shall have
expired or been terminated.
6.10. Deliveries. Seller shall have made or stand willing and able to
----------
make all the deliveries to Seller set forth in Section 8.2.
Section 7. Conditions Precedent to the Obligation of Seller to Close.
- --------- ---------------------------------------------------------
The obligation of Seller to consummate the transactions herein
contemplated is subject to the satisfaction at or before the Closing of the
following conditions:
7.1. Truth of Representations and Warranties. The representations and
---------------------------------------
warranties of Buyer included in this Agreement and in any Schedule or other
instrument or document delivered by Buyer hereunder shall be true and correct in
all material respects on and as of the Closing Date with the same effect as
though such representations and warranties had been made on and as of such date
(except for representations and warranties which by their terms relate to a
specific date, which shall remain true and correct as of such date). Seller
shall have received a certificate to this effect dated the Closing Date and
signed by Buyer.
7.2. Performance of Agreements. Each payment, delivery or other action
-------------------------
required of Buyer under this Agreement, and each agreement of Buyer to be
performed at or before the Closing under the terms hereof or as contemplated
herein, shall have been duly performed.
35
<PAGE>
Seller shall have received a certificate to this effect dated the Closing Date
and signed by Buyer.
7.3. Opinion of Counsel for Buyer. Buyer shall provide to Seller the
----------------------------
favorable opinion of Gallop, Johnson & Neuman, L.C., counsel to Buyer, dated the
Closing Date, substantially in the form attached hereto as Exhibit H.
---------
7.4. Consents of Third Parties. The Required Consents shall have been
-------------------------
obtained.
7.5. No Adverse Change. There shall have been no material adverse change
-----------------
in the Transferred Assets or the financial condition, liabilities or operations
of the Systems.
7.6. No Litigation. There shall be no legal requirement, and no judgment
-------------
shall have been entered and not vacated by any governmental authority or court
of competent jurisdiction in any litigation or arising therefrom, which enjoins,
restrains, makes illegal, or prohibits consummation of the transactions
contemplated by this Agreement.
7.7. HSR Act Compliance. All waiting periods under the HSR Act applicable
------------------
to this Agreement or the transaction contemplated hereby shall have expired or
been terminated.
7.8. Deliveries. Buyer shall have made or stand willing and able to make
----------
all the deliveries to Buyer set forth in Section 8.3.
7.9. Subscriber Adjustment Amount and Revenue Adjustment Amount. The sum
----------------------------------------------------------
of the Subscribers Adjustment Amount and the Revenue Adjustment Amount, if any,
shall be no greater than $900,000.
7.10. Limited Partner Approval. The limited partners of Seller shall have
------------------------
approved the Agreement and the transactions contemplated by the Agreement.
Section 8. The Closing.
- --------- -----------
8.1. Time and Place. The closing of the transactions contemplated
--------------
hereunder (the "Closing") shall be held at the offices of Triax
Telecommunications Company, L.L.C., 100 Fillmore Street, Suite 600, Denver,
Colorado 80206 at 10:00 a.m. on or before April 30, 1998, or at such other time
or place as may be agreed to in writing by the parties (the "Closing Date").
Either party may terminate this Agreement without penalty or liability if the
Closing has not occurred by June 30, 1998 and such failure is not due to any
breach or default by the terminating party; provided that in the event Buyer is
in the process of negotiating in good faith with the City of Bluffton and the
City of Decatur pursuant to Section 5.8(e), Buyer may extend the termination
date for an additional 60 day period.
8.2. Deliveries by Seller. At the Closing, Seller shall execute, where
--------------------
applicable, and deliver to Buyer:
36
<PAGE>
(a) Such bills of sale, deeds, assignments, consents and other
instruments of conveyance and transfer as may, in the opinion of counsel
for Buyer, be required or appropriate in order to effectively vest in Buyer
title to, and physical possession of, all of the Transferred Assets;
(b) The Assumption Agreement;
(c) The Indemnity Escrow Agreement;
(d) All other certificates, instruments, documents, surveys, lists and
opinions required to be delivered by Seller under this Agreement;
(e) Possession of the Systems and the Transferred Assets; and
(f) All documents, records, files and agreements of Seller relating to
the operations or assets of Seller, including all copies thereof, except
for the Excluded Assets.
(g) Such other instruments and documents as Buyer or its counsel may
reasonably request, including, without limitation, pay off letters from
Seller's lenders indicating that upon receipt of a certain portion of the
Closing Wire Transfer, they will release or terminate financing statements
filed under the Uniform Commercial Code or otherwise recorded under the
laws of any state and any other release or termination of lien and
encumbrance requested for the purpose of closing the transactions
contemplated by this Agreement.
8.3. Deliveries by Buyer. At the Closing, Buyer shall pay or cause to be
-------------------
paid or execute and deliver to or on behalf of Seller:
(a) The Good Faith Deposit, including all interest earned thereon;
(b) The Closing Wire Transfer;
(c) Proof that the Indemnity Escrow Amount and any amount required to
be paid into a Reserve Account have been deposited with the Escrow Agent;
(d) The Indemnity Escrow Agreement;
(e) The Assumption Agreement; and
(f) All other certificates, instruments, consents, documents and
opinions as Seller or its counsel may reasonably request for the purpose of
closing the transactions contemplated by this Agreement.
37
<PAGE>
8.4. Other Action. The parties shall take such further actions, execute
------------
such additional instruments and documents and make such further deliveries as
may be required or desirable to close the transactions contemplated by this
Agreement.
Section 9. Allocation of Purchase Price.
- --------- ----------------------------
The Purchase Price shall be allocated among the Transferred Assets as
set forth in Schedule 9. Each of the parties hereto covenants and agrees for
----------
purposes of all federal, state and other income tax returns filed: (a) to adopt
the allocation of the Purchase Price among the Transferred Assets set forth in
Schedule 9; (b) to execute any forms required by Section 1060 of the Internal
- ----------
Revenue Code of 1986, as amended; and (c) not to take any position inconsistent
therewith upon examination of any such tax return, or in any refund claim,
litigation or otherwise.
Section 10. Termination.
- ---------- -----------
10.1. Termination Events. This Agreement may be terminated and the
------------------
transaction contemplated by this Agreement may be abandoned:
(a) at any time, by the mutual agreement of Buyer and Seller;
(b) by either Buyer or Seller, at any time, if the other is in
material breach or default of its respective covenants, agreements, or
other obligations in this Agreement, or if any of its representations in
this Agreement or any document to be delivered at Closing are not true and
accurate in all material respects when made or when otherwise required by
this Agreement to be true and accurate, provided that such breach or
default is incapable of cure or has not been cured within 15 calendar days
after receipt of written notice of such breach, default or
misrepresentation from the other party;
(c) by either Buyer or Seller, upon written notice to the other, if
any of the conditions to its obligations set forth in Sections 6 and 7,
respectively, shall not have been satisfied on or before May 31, 1998 for
any reason other than (i) a breach or default by such party of its
respective covenants, agreements, or other obligations hereunder, or (ii)
any representations of such party herein not being true and accurate in all
material respects when made or when otherwise required by this Agreement to
be true and accurate in all material respects; or
(d) as otherwise provided in this Agreement.
38
<PAGE>
10.2. Effect of Termination.
---------------------
(a) Costs and Return of Information. Without limiting any other
-------------------------------
provision of this Section 10.2, if the transaction contemplated by this
Agreement is terminated and abandoned as provided herein: (i) each party
shall pay the costs and expenses incurred by it in connection with this
Agreement, and no party (or any of its officers, directors, employees,
agents, representatives or partners) shall be liable to any other party for
any costs, expenses or damages except as expressly specified herein; (ii)
each party shall re-deliver all documents, work papers and other materials
of the other party relating to the transaction contemplated hereby, whether
so obtained before or after the execution hereof, to the party furnishing
the same; (iii) all confidential information received by either party
hereto shall be treated in accordance with Section 5.2 hereof; and (iv)
neither party hereto shall have any liability or further obligation to the
other party to this Agreement except (A) as stated in subparagraphs (ii)
and (iii) of this Section 10.2(a), and (B) to the extent applicable, as set
forth in Sections 10.2(b) and 10.2(c) below.
(b) Buyer's Remedies. If both: (i) this Agreement is terminated by
----------------
Buyer pursuant to Section 10.1(b), and (ii) Seller is in breach in any
material respect of any of its representations and warranties made herein
or its covenants or agreements made herein (and Buyer is not in breach in
any material respect of any of its representations and warranties made
herein or its covenants or agreements made herein), the Deposit and all
accrued interest thereon shall be returned to Buyer, and Buyer shall also
have (in addition to its right to receive the Deposit and all accrued
interest thereon) the right to seek monetary damages from Seller in an
amount equal to the Deposit.
(c) Seller's Remedies. If both: (i) this Agreement is terminated by
-----------------
Seller pursuant to Section 10(b), and (ii) Buyer is in breach in any
material respect of any of its representations and warranties made herein
or its covenants or agreements made herein (and Seller is not in breach in
any material respect of any of its representations and warranties made
herein or its covenants or agreements made herein), the Deposit and all
accrued interest thereon shall be delivered to Seller.
Section 11. Casualty Losses.
- ---------- ---------------
The risk of any loss or damage to the Transferred Assets resulting
from fire, theft, or any other casualty (except reasonable wear and tear) shall
be borne by Seller at all times prior to the Closing. If any such loss or
damage shall be sufficiently substantial so as to preclude and prevent within 30
days after the occurrence of the event resulting in such loss or damage
resumption of normal operations of any portion of the Systems or replacement or
restoration of the lost or damaged Transferred Assets, Seller shall immediately
notify Buyer in writing of its inability to resume normal operations or to
replace or restore the lost or damaged Transferred Assets, and Buyer, at any
time within 10 days after receipt of such notice, may elect by written notice to
Seller to either (i) waive such defect and proceed toward consummation of the
39
<PAGE>
transaction in accordance with terms of this Agreement, or (ii) terminate this
Agreement. If Buyer elects to terminate this Agreement, Buyer and Seller shall
stand fully released and discharged of any and all obligations hereunder, and
the Deposit and all interest accrued thereon shall be returned to Buyer. If
Buyer shall elect to consummate the transaction contemplated by this Agreement
notwithstanding such loss or damage and does so, all insurance proceeds payable
as a result of the occurrence of the event resulting in such loss or damage
shall be delivered by Seller to Buyer, or the rights thereto shall be assigned
by Seller to Buyer if not yet paid over to Seller.
Section 12. Non-competition.
- ---------- ---------------
In consideration of the allocation of $200,000 out of the Purchase
Price (the "Non-Competition Payment"), which it is hereby agreed is fair and
adequate compensation therefor, Seller shall agree in writing with Buyer at
Closing (in the form of Non-Competition Agreement set forth in Exhibit I),
---------
effective on and after the Closing Date and for the three (3) year period
following the Closing Date, not to engage, directly or indirectly, either
personally, or as an owner, employee, partner, associate, officer, manager,
agent, advisor, consultant or otherwise in any business which is competitive
with the business of Buyer within a five (5) mile radius of the Franchise areas
of the Systems. For the purposes hereof, a business will be deemed competitive
with the business of Buyer if it involves the development, construction, sale,
lease, rental or operation of any cable television system, satellite master
antenna television system, multi-point distribution system, low power television
system, direct broadcast satellite system or "open video" system, as such terms
are generally defined and used in the communications industry; provided,
however, that nothing herein shall prohibit Seller from (a) owning securities of
any company in amounts which are not more than 5% of the issued and outstanding
securities of such company, (b) providing programming and programming-related
services to video distributors, provided such services are offered to Buyer on
not less favorable terms than those offered to other third parties, or (c)
engaging or participating in any telephony, satellite or wireless business that
has multi-state distribution capabilities, except that Seller will not purchase
or own an interest in an entity which offers wireless services in any geographic
area in which a System is operated.
Section 13. Notices.
- ---------- -------
Any notice or other communication required or permitted hereunder
shall be sufficiently given if in writing and sent by certified or registered
mail, postage prepaid, or by next business day courier service (such as Federal
Express) or confirmed telecopy, addressed as follows:
40
<PAGE>
(a) If to Seller, addressed to:
JONES SPACELINK INCOME/GROWTH FUND 1-A, LTD.
c/o Jones Intercable, Inc.
9697 E. Mineral Avenue
Englewood, Colorado 80112
Attention: President
Telecopy #: (303) 790-0533
With a copy to:
General Counsel
Jones Intercable, Inc.
9697 E. Mineral Avenue
Englewood, Colorado 80112
Telecopy #: (303) 799-1644
(b) If to Buyer, addressed to:
TRIAX MIDWEST ASSOCIATES, L.P.
c/o Triax Telecommunications Company, L.L.C.
Attention: Jay R. Busch, President
100 Fillmore Street, Suite 600
Denver, Colorado 80206
Telecopy #: 303-333-1110
With a copy to:
Alan G. Johnson, Esq.
Gallop, Johnson & Neuman, L.C.
16th Floor
101 South Hanley Road
St. Louis, Missouri 63105
Telecopy #: 314-862-1219
or to such other address(es) as Seller or Buyer shall give notice to the other
by like means. Any such notice or communication shall be deemed to have been
given upon receipt.
Section 14. Parties in Interest.
- ---------- -------------------
Neither party may assign this Agreement or any interest in this
Agreement without the prior written consent of the other party; provided that at
the Closing Buyer may collaterally assign its interest to the financial
institutions who are lenders to Buyer in connection with the
41
<PAGE>
transactions contemplated hereby. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their successors and
assigns.
Section 15. Entire Agreement.
- ---------- ----------------
The Schedules hereto are incorporated in and form an integral part of
this Agreement. All understandings and agreements between the parties relating
to the subject matter hereof are merged into this Agreement, which fully and
completely expresses the agreement of the parties and supersedes any prior
agreement or understanding relating to the subject matter hereof, including,
without limitation, any letter of intent and related correspondence among the
parties.
Section 16. Governing Law.
- ---------- -------------
This Agreement and the agreements and instruments contemplated hereby
shall be governed by and construed in accordance with the law of the State of
Colorado, without regard to the conflict of law provisions thereof.
Section 17. Counterparts.
- ---------- ------------
This Agreement may be executed in several counterparts, all of which
taken together shall constitute one instrument.
Section 18. Descriptive Headings.
- ---------- --------------------
The descriptive headings of the several sections of this Agreement are
inserted for convenience only and shall not be deemed to affect the meaning or
construction of any of the provisions hereof.
Section 19. Definitions.
- ---------- -----------
Each of the terms set forth in Schedule 19 shall have the meaning
-----------
ascribed to it in the Section of the Agreement referred to in Schedule 19.
------------
42
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
TRIAX MIDWEST ASSOCIATES, L.P.
By: TRIAX MIDWEST GENERAL PARTNER, L.P., its
Managing General Partner
By: TRIAX MIDWEST, L.L.C., its sole General
Partner
By: [SIGNATURE ILLEGIBLE]
--------------------------------
Title: PRESIDENT
----------------------------
JONES SPACELINK INCOME/GROWTH FUND 1-A, LTD.
By: JONES INTERCABLE, INC., its General Partner
By: /s/ Elizabeth Steele
--------------------------------
Title: Vice President
-----------------------------
43
<PAGE>
SCHEDULE 19
-----------
DEFINITIONS
Term Section
Access Agreements 1.1(d)
Action 5.9(d)
Adjustment Amounts 2.4(g)
Assumed Contracts 2.4
Assumed Obligations 2.5
Assumption Agreement 2.1(c)
Authorities 3.6(a)
Basic Subscriber 2.4(a)(i)
Buyer Introduction
Cash Consideration 2.1(a)
CLI 3.8(a)
Closing Accounts Receivable 1.1(h)
Closing 8.1
Closing Date 8.1
Closing Wire Transfer 2.3(e)
Code 3.13(a)
Communications Act 3.3
Copyright Act 3.3
Copyright Office 3.3
Current Adjustment Amount 2.4(e)
Deposit 2.2
Environmental Matters 3.20(a)
Equivalent Basic Subscriber Number 2.4(a)(ii)
Equivalent Subscribers 2.4(a)(iii)
ERISA 3.13(a)
Escrow Agent 2.2
Excluded Assets 1.2
FAA 1.1(b)
FAA Licenses 1.1(b)
FCC 1.1(b)
FCC Licenses 1.1(b)
Franchises 1.1(c)
Governmental Authorizations 1.1(b)
Historical Financial Statements 3.4
HSR Act 5.1(b)
Indemnified Party 5.9(d)
Indemnifying Party 5.9(d)
Indemnity Escrow Amount 2.3(c)
Indemnity Escrow Agreement 2.3(c)
44
<PAGE>
Initial Adjustment Certificate 2.4(g)
Leased Personal Property 3.10
Leased Real Property 3.9(b)
Leases 1.1(f)
Listing Date 2.4(a)
1992 Act 3.3
Non-Competition Payment 12
Operating Reports 3.4
Other Agreements 1.1(i)
Owned Real Property 3.9(a)
Permitted Liens 1.1
Plan 3.13(a)
Pre-Closing Subscriber List 2.4(a)
Purchase Price 2.1
Real Estate Leases 3.9(c)
Real Property 3.9(c)
Receivable Reports 3.4
Required Average Revenue 2.4(f)
Required Consents 6.3
Reserve Account 2.4(c)
Revenue Adjustment Amount 2.4(f)
Seller Introduction
Seller's Personal Property 3.10
Sprint Subscribers 2.4(a)
Standard Basic Rate 2.4(a)(i)
Subscriber Adjustment Amount 2.4(c)
Subscriber Reports 3.4
Systems Recitals
Tentative Subscriber List 2.4(c)
Tentative Subscribers 2.4(a)(v)
Three Month Average Revenue 2.4(f)
Threshold Amount 5.9(c)
Transferred Assets 1.1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 146,657
<SECURITIES> 0
<RECEIVABLES> 182,946
<ALLOWANCES> (12,965)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 12,139,015
<DEPRECIATION> (6,056,785)
<TOTAL-ASSETS> 10,944,711
<CURRENT-LIABILITIES> 339,069
<BONDS> 7,620,042
0
0
<COMMON> 0
<OTHER-SE> 2,985,600
<TOTAL-LIABILITY-AND-EQUITY> 10,944,711
<SALES> 0
<TOTAL-REVENUES> 5,522,807
<CGS> 0
<TOTAL-COSTS> 5,126,337
<OTHER-EXPENSES> 13,641
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 664,204
<INCOME-PRETAX> (281,375)
<INCOME-TAX> 0
<INCOME-CONTINUING> (281,375)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (281,375)
<EPS-PRIMARY> (5.43)
<EPS-DILUTED> (5.43)
</TABLE>
