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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file numbers 333-35183 and 333-35183-01
JAMES CABLE PARTNERS, L.P.
JAMES CABLE FINANCE CORP.
(Exact name of Registrants as specified in their charters)
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Delaware 38-2778219
Michigan 38-3182724
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
710 North Woodward Avenue, Suite 180 48304
Bloomfield Hills, Michigan (Zip Code)
(Address of Principal Executive Offices)
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Registrants' telephone number, including area code: (248) 647-1080
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether each of the registrants (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants' 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]
The aggregate market value of the voting and non-voting common equity of James
Cable Partners, L.P. held by non-affiliates of James Cable Partners, L.P. is
estimated to be $0.
The aggregate market value of the voting and non-voting common equity of James
Cable Finance Corp. held by non-affiliates of James Cable Finance Corp. is
estimated to be $0.
The number of shares of James Cable Finance Corp. outstanding as of March 15,
2000 was 1,000.
DOCUMENTS INCORPORATED BY REFERENCE
None.
* James Cable Finance Corp. meets the conditions set forth in General
Instruction I (1)(a) and (b) to Form 10-K and is therefore filing with the
reduced disclosure format.
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TABLE OF CONTENTS
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Page No.
PART I
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Item 1. Business............................................................................. 3
General.................................................................. 3
Business Strategy........................................................ 3
Industry Overview........................................................ 5
The Systems.............................................................. 6
Programming and Subscriber Rates......................................... 9
Internet Services........................................................ 10
Customer Service and Marketing........................................... 11
Technical Overview....................................................... 11
Franchises............................................................... 12
Competition.............................................................. 13
Legislation and Regulation............................................... 14
Insurance................................................................ 18
Employees................................................................ 18
Item 2. Properties........................................................................... 18
Item 3. Legal Proceedings.................................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders.................................. 18
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters................ 19
Item 6. Selected Financial Data.............................................................. 19
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................................... 22
Overview.................................................................. 22
Results of Operations..................................................... 23
Liquidity and Capital Resources........................................... 24
Impact of Inflation and Changing Prices................................... 26
Year 2000 Compliance...................................................... 26
Effects of New Accounting Pronouncements.................................. 26
Sales of Cable Systems.................................................... 26
Forward-Looking Statements................................................ 27
Item 7A. Quantitative and Qualitative Disclosures About Market Risk....................... 29
Item 8. Financial Statements and Supplementary Data.......................................... 29
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................................. 29
PART III
Item 10. Directors and Executive Officers................................................. 30
Item 11. Executive Compensation........................................................... 30
Item 12. Security Ownership of Certain Beneficial Owners and Management................... 31
Item 13. Certain Relationships and Related Transactions................................... 31
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................. 32
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL:
James Cable Partners, L.P. ("James," and together with its wholly owned
subsidiary James Cable Finance Corp., the "Company") owns, operates and develops
cable television systems (the "Systems") serving rural communities in seven
geographically and economically diverse clusters. The Company's Systems are
operated under the name "CommuniComm Services" and are located in Oklahoma,
Texas, Georgia, Louisiana, Colorado, Wyoming, Tennessee, Alabama and Florida. As
of December 31, 1999, the Systems passed an estimated 129,600 homes and served
71,864 basic subscribers, representing a basic penetration of 55.5%. The
Company's goal is to maintain its position as the preferred provider of video
services, and to become the single hard wire broadband provider of enhanced
video services and advanced telecommunication services, in the markets that it
serves. James' principal executive offices are located at 710 N. Woodward
Avenue, Suite 180, Bloomfield Hills, Michigan 48304, and its telephone number is
(248) 647-1080.
James is a Delaware limited partnership that was formed in January, 1988 for the
purpose of realizing capital appreciation through the ownership, control and
operation of assets comprising cable television systems. Unless its term is
extended as provided in its limited partnership agreement, James will be
dissolved upon the earliest to occur of (i) December 31, 2005, (ii) a
determination, by the General Partner, of James that James should be dissolved,
with the approval of 51% of the Class A Limited Partner interests, (iii) the
sale or disposition by James of substantially all of its assets, (iv) the
consent of holders of 51% of the Class A Limited Partner interests of James, (v)
the removal of the General Partner pursuant to the terms of the Partnership
Agreement, or (vi) the bankruptcy, insolvency, dissolution or withdrawal of the
General Partner. The Term can be extended upon the affirmative vote of 51% of
the Class A Limited Partner interests and the consent of the General Partner. In
certain of the foregoing cases, the Class A Limited Partners may elect under the
Partnership Agreement to reconstitute the business of James in a new limited
partnership with a new General Partner elected by the Class A Limited Partners.
Since its inception in 1988, James' business and affairs have been managed and
controlled by its general partner, James Communications Partners, a Michigan
co-partnership (the "General Partner"). The General Partner is managed and
controlled by its three general partners, Jamesco, Inc., Trenary Corp., Ltd, and
DKS Holdings, Inc. See "Part III-Item 10. Directors and Executive Officers." The
General Partner's principal executive office is located at 710 N. Woodward
Avenue, Suite 180, Bloomfield Hills, Michigan 48304 and its telephone number is
(248) 647-1080.
James Cable Finance Corp. ("Finance Corp.") is a wholly-owned subsidiary of
James that was incorporated under the laws of the State of Michigan on June 19,
1997 for the purpose of serving as a co-issuer with James of the $100 million
principal amount notes due 2004 that the Company issued during the third and
fourth quarters of 1997. Finance Corp.'s only asset consists of $1,000 cash and
there are substantial contractual restrictions on its activities. Finance
Corp.'s principal executive office is located at 710 North Woodward Avenue,
Suite 180, Bloomfield Hills, Michigan 48304, and its telephone number is (248)
647-1080.
BUSINESS STRATEGY:
The Company believes that there are competitive and economic advantages to
owning and operating cable television systems in rural markets. Due to lower
population densities and higher per household plant installation costs, rural
markets are more likely than larger urban and suburban markets to have a single
hard wire broadband video and telecommunications service provider. In addition,
cable television systems in rural markets are typically characterized by lower
churn rates and greater penetration than larger urban and suburban markets. In
rural markets, cable service often is required for adequate reception of a full
range of over-the-air television stations. Moreover, fewer entertainment
alternatives are available, and cable television provides a major source of
entertainment.
The Company's business strategy is to (i) selectively upgrade the Company's
Systems, (ii) provide enhanced digital video, (iii) deliver advanced
telecommunications services, including Internet access, and (iv) pursue
strategic acquisitions. It has also attempted to maintain and improve system
operating results by implementing management, operational and technical changes
that are intended to improve operating efficiencies, enhance operating cash flow
and reduce overhead through economies of scale. To this end, the Company has
"clustered" its Systems in concentrated geographic areas, which allows fixed
costs to be spread over an extended subscriber base. In an effort to further
enhance its operational and financial performance, the Company may from time to
time consider opportunities to acquire or exchange its assets for cable
television systems located near its existing markets.
- - Selectively Upgrade Systems. The Company is upgrading certain of its cable
television systems to further strengthen the Company's position as the
preferred provider of video services in the communities it serves. These
upgrades, which employ fiber optic technology, increase the bandwidth of
the Company's cable plant generally to 750 megahertz ("MHz"), thereby
increasing channel capacity, enhancing signal quality and improving
technical reliability. The Company believes the upgrades will enable it to
offer comparable or superior video service and quality at attractive
pricing levels relative to its competitors, such
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as direct broadcast satellite ("DBS"). The Company also believes that the
upgrades will provide the technical platform necessary for the development
and delivery of advanced telecommunications services.
As of December 31, 1999, the Company had completed the upgrades of its
cable plant to 750 MHz in Durant and Calera, Oklahoma, serving
approximately 4,400 subscribers; Hawkinsville and Cochran, Georgia,
serving approximately 2,600 subscribers; Douglas, Torrington, Wheatland
and Lingle, Wyoming, serving approximately 5,500 subscribers; Roanoke and
Wadley, Alabama, serving approximately 2,300 subscribers; and Eatonton,
Madison and Gray, Georgia, serving approximately 3,900 subscribers. Also,
the Company has completed its projects in Westlake, Louisiana, serving
approximately 6,600 subscribers, and Decatur, Texas, serving approximately
1,100 subscribers, in which it supplemented its 450 MHz cable plant with
fiber to allow for the introduction of advanced telecommunications
services, as well as providing enhanced signal quality and improved
technical reliability.
In addition, the Company is currently in the construction phase of its 750
MHz upgrade to the cable plant for its entire Tennessee System which
serves approximately 6,100 subscribers. Upon completion of the Tennessee
upgrade, which is expected to occur during 2001, and with the completed
upgrades discussed above, the Company will have the ability to provide
advanced telecommunications services to approximately 50% of its total
subscriber base.
The Company is continually in the process of identifying other areas
within its Systems which can be upgraded to allow for the introduction of
advanced telecommunications services. However, the Company will only
proceed with upgrades which it believes are economically feasible after
carefully weighing the anticipated revenues against the costs of
completing the upgrade.
- - Provide Enhanced Digital Video. The Company, in order to provide enhanced
digital video in the upgraded Systems and certain other Systems, launched
Headend In The Sky(R) ("HITS"), a digital compression service developed by
National Digital Television Center, Inc., a subsidiary of AT&T, in its
Durant, Oklahoma System in the second quarter of 1999. HITS allows the
Company to deliver video services such as pay-per-view programming and a
tier or multiple tiers of niche satellite programming. The Company
believes that these enhanced digital video services will allow it to
provide services comparable to DBS. After its initial testing in the
Durant, Oklahoma System, the Company began introducing HITS services in
certain of its other Systems during the first quarter of 2000 and plans to
introduce HITS in additional Systems during the year 2000. Currently, the
HITS service is available to approximately 30,000 of the Company's basic
subscribers.
- - Deliver Advanced Telecommunications Services, Including Internet Access.
The Company believes that upgraded advanced telecommunications services
will provide additional revenue opportunities. The Company further
believes that the cable infrastructure will provide the fastest, most
cost-effective delivery mechanism for Internet access, inter- and intra-
network data services and telephony in many of its markets.
After its initial launch of high-speed Internet services in the fourth
quarter of 1997, the Company has begun offering either two-way or one-way
high-speed Internet services in portions of every Cluster (See "- The
Systems") except for Tennessee. While these high-speed Internet services
are fairly new in many of the areas, the Company currently has more than
1,400 high-speed Internet customers. The Company intends to increase the
number of high-speed Internet customers through an increased emphasis on
marketing of the services offered and customer based education about the
benefits of the use of high-speed Internet services.
In addition to its high-speed Internet services, the Company is also
offering traditional dial-up Internet services in many of its Systems. The
Company's dial-up services are similar to those offered by companies such
as America Online and The Microsoft Network. The Company currently has
more than 3,100 dial-up Internet customers.
- - Pursue Strategic Acquisitions. The Company intends to consider
opportunities to acquire cable television systems. Because it is more cost
effective to provide advanced telecommunications services over an expanded
subscriber base within a concentrated geographic area, the Company will
generally seek to acquire cable television systems, or groups of systems,
in close proximity to its existing Systems and markets. The Company may
also consider acquisitions in other geographic areas where consistent with
its business strategy. Furthermore, the Company may divest itself, through
asset exchanges or outright sales, of cable television systems that do not
readily lend themselves to the Company's business strategy. Factors likely
to be considered by the Company in evaluating the desirability of a
potential acquisition or asset exchange opportunity include price and
terms, subscriber densities, growth potential (in terms of both market and
cash flow) and whether the target system can be readily integrated into
the Company's operations.
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INDUSTRY OVERVIEW:
A cable television system receives television, radio and data signals at its
"headend" site by means of off-air antennas, microwave relay systems and
satellite earth stations. These signals are then modulated, amplified and
distributed, primarily through coaxial and fiber optic distribution systems, to
deliver a wide variety of channels of television programming, primarily
entertainment and informational video programming, to the homes of subscribers
who pay fees for this service, generally on a monthly basis. A cable television
system may also originate its own television programming and other information
services for distribution through the system. Cable television systems generally
are constructed and operated pursuant to non-exclusive franchises or similar
licenses granted by local governmental authorities for a specified period of
time.
The cable television industry developed in the United States in the late 1940s
and early 1950s in response to the needs of residents in predominantly rural and
mountainous areas of the country where the quality of off-air television
reception was inadequate due to factors such as topography and remoteness from
television broadcast towers. In the 1960s, cable systems also developed in small
and medium-sized cities and suburban areas that had a limited availability of
clear off-air television station signals. All of these markets are regarded
within the cable industry as "classic" cable television system markets. In more
recent years, cable television systems have been constructed in large urban
cities and nearby suburban areas, where good off-air reception from multiple
television stations usually is already available, in order to offer customers
the numerous satellite-delivered channels typically carried by cable systems
that are not otherwise available through broadcast television reception.
Cable television systems offer customers various levels (or "tiers") of cable
services consisting of broadcast television signals of local network affiliates,
independent and educational television stations, a limited number of television
signals from so-called "super stations" originating from distant cities (such as
WGN), various satellite-delivered, non-broadcast channels (such as Cable News
Network ("CNN"), MTV: Music Television ("MTV"), the USA Network ("USA"), ESPN
and Turner Network Television ("TNT")), programming originated locally by the
cable television system (such as public, governmental and educational access
programs) and informational displays featuring news, weather and public service
announcements. For an extra monthly charge, cable television systems also offer
"premium" television services to customers on a per-channel basis. These
services (such as Home Box Office ("HBO"), Showtime and selected regional sports
networks) are satellite channels that consist principally of feature films, live
sporting events, concerts and other special entertainment features, usually
presented without commercial interruption.
A subscriber generally pays an initial installation charge and fixed monthly
fees for basic and premium television services and for other services (such as
the rental of converters and remote control devices). Such monthly service fees
constitute the primary source of revenues for cable television systems. In
addition to subscriber revenues, cable television systems also frequently offer
to their subscribers home shopping services, which pay such systems a share of
revenues from products sold in the systems' service areas. Some cable television
systems also receive revenue from the sale of available spots on
advertiser-supported programming.
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THE SYSTEMS:
The following table sets forth certain operating statistics for the Systems for
the periods indicated:
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(dollars in thousands except per subscriber data)
1995 1996 1997 1998 (1) 1999 (1)
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Homes passed (2) 128,908 129,291 129,291 138,040 129,600
Basic subscribers (3) 80,190 78,449 78,197 84,755 71,864
Basic penetration (4) 62.2% 60.7% 60.5% 61.4% 55.5%
Basic revenues (5) $26,914 $29,087 $29,978 $31,521 $30,737
Average monthly basic
revenues per subscriber (6) $27.93 $30.47 $31.92 $33.35 $34.18
Premium subscriptions (7) 28,900 25,652 24,076 26,413 23,001
Premium penetration (8) 36.0% 32.7% 30.8% 31.2% 32.0%
Average monthly total revenues
per subscriber (6) $34.56 $36.89 $38.10 $39.95 $41.56
Average annual system operating
cash flow per subscriber (9) $227 $238 $235 $233 $226
Average annual EBITDA per
subscriber (10) $199 $207 $202 $195 $188
Miles of plant 3,483 3,483 3,483 3,883 3,254
</TABLE>
(1) The figures shown for 1998 reflect the Company's purchase of its cable
system serving Tazewell, Tennessee. The figures shown for 1999 reflect the
Company's March 1999 sales of its cable systems serving Wartburg, Tennessee
and Forsyth and Monroe County, Georgia (See "Part II - Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Sales of Cable Systems").
(2) Homes passed refers to estimates by the Company of the number of dwelling
units in a particular community that can be connected to the distribution
system without any further extension of principal transmission lines. Such
estimates are based upon a variety of sources, including billing records,
house counts, city directories and other local sources.
(3) For purposes of all information presented herein, and unless otherwise
indicated, the number of basic subscribers for the Systems has been
computed by adding the actual number of subscribers for all non-bulk
accounts and the equivalent subscribers for all bulk accounts. The number
of such equivalent subscribers has been calculated by dividing aggregate
basic service revenues for bulk accounts by the full basic service rate for
the community in which the account is located.
(4) Basic subscribers as a percentage of homes passed.
(5) Basic revenues consist of monthly subscription fees for all services (other
than premium programming and Internet service) and monthly charges for
customer equipment rental.
(6) The average of the monthly revenues divided by the number of basic
subscribers at the end of such month during the twelve-month periods ended
December 31 for each year presented.
(7) A customer may purchase more than one premium service, each of which is
counted as a separate premium subscription.
(8) Premium subscriptions as a percentage of basic subscribers.
(9) System operating cash flow divided by the average number of basic
subscribers for the period.
(10) EBITDA divided by the average number of basic subscribers for the period.
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The Company's Systems are divided into seven geographic groups ("Clusters"). The
following table summarizes certain operating data at and for the year ended
December 31, 1999 for the individual clusters:
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Average Annualized
Monthly System
Percent of Total Operating System
Estimated All Systems Revenues Cash Flow Operating
Homes Basic Basic Basic Premium Premium per per Cash Flow
Cluster Passed Subscribers Subscribers Penetration Subscriptions Penetration Subscriber Subscriber Margin
------- ------ ----------- ----------- ----------- ------------- ----------- ---------- ---------- ------
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Oklahoma / Texas 33,300 16,101 22.4 % 48.4 % 5,067 31.5 % $45.33 $254 46.7 %
Louisiana 25,700 12,890 17.9 50.2 4,584 35.6 43.63 248 47.4
Georgia 19,700 12,014 16.7 61.0 5,058 42.1 42.17 222 43.8
Colorado / Wyoming 15,100 9,178 12.8 60.8 3,044 33.2 40.11 194 40.3
Alabama 13,800 9,059 12.6 65.6 2,045 22.6 38.75 225 48.5
Florida 10,000 6,533 9.1 65.3 2,833 43.4 47.55 245 42.9
Tennessee 12,000 6,089 8.5 50.7 370 6.1 26.10 138 43.9
------- ------ ----- ------
Totals 129,600 71,864 100.0 % 55.5 % 23,001 32.0 % $41.56 $226 45.2 %
======= ====== ===== ======
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The Oklahoma/Texas Cluster. The Oklahoma/Texas Cluster is comprised of Systems
that were acquired in 1988 and 1989, and serves rural communities in
southeastern Oklahoma north of Dallas, Texas and in northern Texas northwest of
Fort Worth. Since 1988, the Company has made $12.9 million in capital
expenditures improving the plant and operations in this Cluster. These
improvements include upgrading many of the Systems to 450 MHz 60-channel
capacity plant, installing three microwave complexes (eliminating the need for
eight separate headends), and upgrading the Durant System to a 750 MHz hybrid
fiber optic-backbone/coaxial ("HFC") cable system, and supplementing its 450 MHz
cable plant in Decatur, Texas with fiber.
Since the completion of its 750 MHz upgrade in the Durant System, the Company
has been offering two-way high-speed Internet services to approximately 4,400
subscribers. The Company is currently offering one-way high-speed Internet
services to approximately 1,100 subscribers in its Decatur, Texas System and
once it completes the reverse path activation of the cable plant, it will begin
to offer its two-way high-speed Internet service. In addition to the high-speed
Internet services, the Company is offering traditional dial-up Internet services
to a certain portion of the Oklahoma/Texas Cluster. Currently, the
Oklahoma/Texas Cluster has approximately 600 high-speed Internet customers and
approximately 1,260 dial-up Internet customers. Approximately 1,000 of these
dial-up customers were purchased from International Software Consultants, Inc.
in February, 1999.
The administrative and customer service operations for this cluster are
consolidated into one main office located in Durant, Oklahoma. This office
provides customer support, billing, marketing and technical operations for the
Oklahoma/Texas Cluster. The primary employer in the Oklahoma/Texas Cluster's
area is the oil and gas industry. Small manufacturing companies also provide
employment, as does farming and ranching. At December 31, 1999, the number of
homes passed in the Oklahoma/Texas Cluster was estimated to be 33,300 and the
number of basic subscribers and premium subscriptions were 16,101 and 5,067,
respectively.
The Louisiana Cluster. The Louisiana Cluster is comprised of Systems that were
acquired in three transactions in 1988 and serves rural communities in Louisiana
and Texas located near Lake Charles, Louisiana. Since its acquisition of the
Systems in this Cluster, the Company has made $10.7 million in capital
expenditures, upgrading virtually all of these Systems to 450 MHz 60-channel
plants and installing three microwave complexes eliminating the need for eight
headends. At December 31, 1999, the estimated number of homes passed for this
Cluster was 25,700 and the number of basic subscribers and premium subscriptions
were 12,890 and 4,584, respectively.
During 1999 the Company completed the process of supplementing its cable plant
in and around Westlake, Louisiana with fiber. Since this process was completed,
the Company has been offering its one-way high-speed Internet services to
approximately 6,400 subscribers. As the Company completes the reverse path
activation of the cable plant, a portion of which has already been completed,
the subscribers will be offered the Company's two-way high-speed Internet
services. In addition, the Company offers traditional dial-up services to
certain areas of the Louisiana Cluster. Currently, the Louisiana Cluster has
approximately 100 high-speed Internet customers and approximately 50 dial-up
Internet customers.
Since acquiring the Louisiana Cluster, the Company has consolidated all
administrative, customer service, technical and marketing operations into one
central office located in Westlake, Louisiana.
The economy in southwestern Louisiana ranges from the farming and cattle
industry to the petro-chemical industry and gaming. Major employers in the area
include CITGO Petroleum Corporation, PPG Industries, Inc. and Conoco, Inc. The
introduction of riverboat
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casinos on Lake Charles has become very popular due to the proximity to Houston,
and companies like Casino America, Inc. and Players International, Inc. have
become major employers in the area.
The Georgia Cluster. The Georgia Cluster is comprised of Systems that were
acquired in three transactions in 1988 and serves rural communities in central
Georgia located east of Atlanta and south of Macon. Since 1988, the Company has
made $11.7 million in capital improvements to the Georgia Cluster which has
included the installation of microwave complexes, which eliminated the need for
several headends, as well as improving the plant throughout the majority of the
Cluster. In addition, the Company has completed its 750 MHz upgrades to the
cable plant in Hawkinsville, Cochran, Eatonton, Madison and Gray.
Since the completion of its 750 MHz upgrade in Hawkinsville, Cochran, Eatonton,
Madison and Gray, the Company has been offering two-way high-speed Internet
services to approximately 6,500 subscribers. In addition to the high-speed
Internet services, the Company is offering traditional dial-up Internet services
to a certain portion of the Georgia Cluster. Currently, the Georgia Cluster has
approximately 200 high-speed Internet customers and approximately 410 dial-up
Internet customers.
On March 31, 1999 the Company sold its Forsyth and Monroe County Systems,
serving approximately 1,700 subscribers, to the City of Forsyth (See "Part II -
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations - Sales of Cable Systems").
At December 31, 1999, the Georgia Cluster passed an estimated 19,700 homes and
had 12,014 basic subscribers and 5,058 premium subscriptions. The Systems in
this Cluster operate primarily out of one office located in Eatonton, Georgia,
where all customer service, billing, marketing and technical operations are
centralized.
The Company believes that the economy in the Georgia Cluster's area is very
diversified. There are several large employers in the area, including the
corporate headquarters of Applebee's International, Inc., a regional restaurant
chain, and Warner Robbins Air Force Base.
The Colorado/Wyoming Cluster. The Colorado/Wyoming Cluster is comprised of
Systems that were acquired in 1988 and serves rural communities located east of
Denver, Colorado and north and west of Cheyenne, Wyoming. This geographically
diverse group of Systems is operated from a central office in Douglas, Wyoming.
Since these Systems were acquired, the Company has made $7.6 million in capital
expenditures to improve plant reliability, reception and service. The Company
also completed the 750 MHz HFC upgrade of the Systems serving approximately
5,500 subscribers in Douglas, Torrington, Wheatland and Lingle, Wyoming during
the first quarter of 1999.
With the completion of the 750 MHz upgrade in Douglas, Torrington, Wheatland and
Lingle, the Company began to offer its two-way high-speed Internet service to
the approximately 5,500 subscribers. During the first quarter of 1999 the
Colorado/Wyoming Cluster also began offering traditional dial-up Internet
service to a portion of its subscriber base. Currently, the Colorado/Wyoming
Cluster has approximately 290 high-speed Internet customers and approximately
680 dial-up Internet customers.
The economy in the Colorado/Wyoming Cluster's area is largely dependent on
ranching and farming, the oil and gas industry, and mining. At December 31,
1999, the estimated number of homes passed in this Cluster was 15,100 and the
number of basic subscribers and premium subscriptions were 9,178 and 3,044,
respectively.
The Alabama Cluster. The Company acquired the Systems comprising the Alabama
Cluster primarily in four transactions in 1988 and 1989. These Systems are
divided into two groups, with one group serving the rural communities located on
the western edge of the state west of Birmingham, Alabama, and the other group
serving communities located south and east of Birmingham, between Birmingham and
Atlanta, Georgia. Since its acquisition of the Systems in this Cluster, the
Company has made $5.8 million in capital expenditures, improving the channel
capacity in many of these Systems and improving reliability and channel
offerings. In the Systems serving eastern Alabama, six separate headends have
been consolidated into one microwave complex.
In addition to the improvements described above, construction to upgrade the
cable plant serving approximately 2,300 subscribers in Roanoke and Wadley,
Alabama to 750 MHz was completed during 1999. Since this upgrade was completed
the Company has been offering its two-way high-speed Internet service in Roanoke
as well as traditional dial-up Internet service to a portion of its Alabama
Cluster. Currently, the Alabama Cluster has approximately 110 high-speed
Internet customers and approximately 130 dial-up Internet customers.
The operations of the Alabama Cluster are managed from one main office located
in Roanoke, Alabama. All customer service, administrative, technical and
marketing functions have been centralized into the main office. The Alabama
Cluster, as of December 31, 1999, passed an estimated 13,800 homes and had 9,059
basic subscribers and 2,045 premium subscriptions.
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The communities served by the Alabama Cluster benefit from a number of small and
large manufacturing companies in the area, including 3M and Wrangler. In
addition, Mercedes-Benz has recently completed a large manufacturing plant in
Tuscaloosa, Alabama, just south of the Company's Systems serving western
Alabama.
The Florida Cluster. The Florida Cluster is comprised of Systems that were
acquired in 1988 and serves several rural communities located near Gainesville,
Florida. Since May 1988, the Company has made $6.6 million in capital
expenditures in this Cluster. The Company has installed a microwave complex,
which eliminated the need for three headends, and has upgraded the majority of
its cable television plant in this Cluster to 450 MHz with 60 channels of
capacity. The majority of the Systems in this Cluster have been consolidated on
one microwave complex, which reduced maintenance and equipment costs.
The Company is currently offering its one-way high-speed Internet service to its
High Springs and Alachua Systems, as well as traditional dial-up Internet
service to a portion of the Florida Cluster. Currently, the Florida Cluster has
approximately 40 high-speed Internet customers and approximately 130 dial-up
Internet customers.
The Company's Florida Cluster operates from a centralized office in High
Springs, Florida. All administrative, customer service, technical and marketing
functions are coordinated from this location. The Florida Cluster, as of
December 31, 1999, passed an estimated 10,000 homes and had 6,533 basic
subscribers and 2,833 premium subscriptions.
The University of Florida, located in Gainesville, has contributed to the
economic stability of the Florida Cluster's areas. Other industries providing
employment in the area include agriculture, ranching and tourism.
The Tennessee Cluster. The Company acquired the Systems comprising the Tennessee
Cluster in one transaction on December 10, 1998. These Systems serve rural
communities located Northeast of Knoxville, Tennessee. All administrative,
technical and marketing functions are coordinated out of one central office
located in Tazewell, Tennessee.
Since acquiring this Cluster, the Company has spent $2.4 million on capital
expenditures, the majority of which is for the 750 MHz HFC upgrade that is
currently in process. Once this upgrade is complete, which is expected to occur
in early 2001, the Company will be offering its two-way high-speed Internet
services to the approximately 6,100 subscribers. During 1999, the Company began
offering its dial-up Internet service and currently has approximately 370
dial-up Internet customers.
The economies of the communities served by the Tennessee Cluster benefit from
many furniture manufacturers as well as medical supply manufacturers and the
agriculture industry. As of December 31, 1999, the Tennessee Cluster passed an
estimated 12,000 homes and had 6,089 basic subscribers and 370 premium
subscriptions.
On March 5, 1999 the Company sold its entire cable system in Wartburg, Tennessee
(See "Part II - Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Sales of Cable Systems").
PROGRAMMING AND SUBSCRIBER RATES:
The Company has various contracts to obtain basic, satellite and premium
programming for the Systems from program suppliers, including, in limited
circumstances, some broadcast stations, with compensation generally based on a
fixed fee per customer or a percentage of the gross receipts for the particular
service. Some program suppliers provide volume discount pricing structures
and/or offer marketing support. In addition, the Company is a member of a
programming consortium consisting of small to medium sized multiple system
operators and individual cable systems serving, in the aggregate, over ten
million cable subscribers. The consortium helps create efficiencies in the areas
of securing and administering programming contracts, as well as to establish
more favorable programming rates and contract terms for small and medium sized
cable operators. The Company does not have long-term programming contracts for
the supply of a substantial amount of its programming, due in part to ongoing
negotiations with a number of its programming suppliers, but also due to the
Company's belief that it is in its best interests to enter into long-term
programming contracts only if additional benefits are derived from the
contractual arrangements. In cases where the Company does have such contracts,
they are generally for fixed periods of time ranging from one to five years and
are subject to negotiated renewal. While the loss of contracts with certain of
the Company's programming suppliers could have an adverse effect on its results
of operations, management does not believe the risk of such a loss is
particularly great due to the substantial motivation of programming suppliers to
obtain the widest possible audience for their products.
Cable programming costs are expected to continue to increase primarily due to
additional programming being provided to subscribers, increased costs to
purchase cable programming and inflationary increases. In 1997, 1998 and 1999,
programming costs as a percentage of revenues were 18.3%, 19.9% and 20.1%,
respectively. No assurance can be given that the Company's programming costs
will not increase substantially in the near future or that other materially
adverse terms will not be added to its programming contracts.
-9-
<PAGE> 10
The Systems offer their subscribers programming that includes the local network,
independent and educational television stations, a limited number of television
signals from distant cities, numerous satellite-delivered, non-broadcast
channels (such as CNN, MTV, USA, ESPN and TNT) and in some systems local
information and public access channels. The programming offered by the Company
varies among the Systems depending upon each System's channel capacity and
viewer interests. Primarily for competitive reasons, the Company generally
endeavors to offer a single level of basic service containing all broadcast and
satellite-delivered programming. In a few Systems, however, the Company does
offer two tiers of basic cable television programming: a broadcast basic
programming tier (consisting generally of network and public television signals
available over-the-air) and a satellite programming tier (consisting generally
of satellite-delivered programming such as CNN, USA, ESPN and TNT). The Company
also offers premium programming services, both on a per-channel basis and, in
many Systems, as part of premium service packages as well as multiple tiers of
digital satellite service through HITS.
Monthly subscriber rates for services vary from market to market, primarily
according to the amount of programming provided. At December 31, 1999, the
Company's monthly full basic service rates for residential subscribers ranged
from $13.95 to $39.99 and per-channel premium service rates (not including
special promotions) ranged from $5.95 to $12.95 per service. At December 31,
1999, the weighted average price for the Company's monthly full basic service
was approximately $35.25.
A one-time installation fee, which the Company may wholly or partially waive
during a promotional period, is usually charged to new subscribers. The Company
charges monthly fees for converters and remote control tuning devices. The
Company also charges administrative fees for delinquent payments for service.
Subscribers are free to discontinue service at any time without additional
charge but may be charged a reconnection fee to resume service. Commercial
customers, such as hotels, motels and hospitals, are charged a negotiated,
non-recurring fee for installation of service and monthly fees. Multiple
dwelling unit accounts may be offered a bulk rate in exchange for single-point
billing and basic service to all units.
In addition to subscriber fees, the Company derives a small amount of revenue
from the sale of local spot advertising time on locally originated and
satellite-delivered programming. The Company also derives modest amounts of
revenues from affiliations with home shopping services (which offer merchandise
for sale to subscribers and compensate system operators with a percentage of
their sales receipts).
Other potential sources of revenue for cable television systems include the
lease of tower space to cellular telephone, personal communications services
("PCS"), and paging companies and other transmission businesses and the sale of
programming featuring movies and special events to customers on a pay-per-view
basis, which the Company can now offer through its HITS service.
While the Company also offers advanced telecommunications services (including
Internet services as discussed below), it anticipates that monthly subscriber
fees from cable television will continue to constitute the majority of its total
revenues for the foreseeable future.
INTERNET SERVICES:
As of December 31, 1999 the Company had the capabilities of providing its
high-speed Internet service, via either one-way or two-way, to approximately
30,000 of its basic cable subscribers. In addition, the Company, as of December
31, 1999, was offering its traditional dial-up Internet services to over 50% of
its cable subscribers.
The two-way high-speed Internet service, which utilizes a cable modem, provides
Internet access at speeds of up to 1.5 Megabits per second. The two-way
high-speed Internet service does not require a phone line for access since all
transmissions are through the customers cable television equipment. The one-way
high-speed Internet service is a hybrid between the two-way high-speed and
traditional dial-up services. With the one-way high-speed Internet service, the
customer dials in to the server over a traditional phone line but receives
information over the cable television equipment. Thus, while the upstream
connection is at a maximum speed of 56 Kilobits per second, the downstream
access can achieve speeds of up to 1.5 Megabits per second. The traditional
dial-up Internet service offered by the Company is similar to dial-up services
offered by companies such as America Online or The Microsoft Network. With
dial-up Internet service, the customer sends and receives information over a
traditional phone line with speeds of up to 56 Kilobits per second.
Monthly rates charged to Internet customers vary based on the type of service
they receive. In some of the Systems a discount is given to those Internet
customers who also receive the Company's cable television service. At December
31, 1999, the Company's monthly Internet rate varied from $17.95, for a dial-up
customer who also receives cable television, to $54.95 for high-speed commercial
customers.
-10-
<PAGE> 11
CUSTOMER SERVICE AND MARKETING:
The Company emphasizes customer service, which it believes is increasingly
important to the successful operation of its business. To meet its objective of
providing high levels of customer service, the Company offers its customers a
full line-up of programming, timely and reliable service (with virtually all
service inquiries responded to within 24 hours) and good picture quality. The
Company's employees receive ongoing training in customer service, sales and
subscriber retention, and technical support. Customer service representatives
and technicians are also trained to market upgrades at the point of sale or
service. In addition, the Company has attempted to establish and to maintain a
local presence and visibility within the communities it serves.
As part of its efforts to maximize cash flow, and in response to increasing
competition, the Company has attempted to add and retain subscribers and
increase cash flow per subscriber by aggressively marketing its basic and
premium service offerings as well as its Internet and HITS services. To this
end, the Company utilizes a number of coordinated marketing techniques,
including (i) direct door to door sales, (ii) local newspaper and radio
advertising and cable system promotional advertising insertion in certain
satellite programs, (iii) direct mail, (iv) telemarketing, primarily for premium
service subscriptions, and (v) monthly billing statement inserts. There can be
no assurance that the Company's efforts in this area will be successful. See "-
Competition" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Forward Looking Information."
TECHNICAL OVERVIEW:
The following table sets forth certain information, as of December 31, 1999,
regarding the analog channel capacities and miles of plant of the Systems:
<TABLE>
<CAPTION>
300 MHZ 330 MHZ 400 MHZ 450 MHZ 750 MHZ
UP TO 36 UP TO 42 UP TO 54 UP TO 62 UP TO 100
CHANNELS CHANNELS CHANNELS CHANNELS CHANNELS TOTAL
-------- -------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Number of headends (1) 11 16 1 13 8 49
Number of subscribers as of
December 31, 1999 (1) 14,401 10,447 418 27,885 18,713 71,864
% of subscribers 20.0% 14.5% 0.6% 38.8% 26.1% 100.0%
Miles of Plant 786 488 6 1,244 730 3,254
% of miles of plant 24.2% 15.0% 0.2% 38.2% 22.4% 100.0%
</TABLE>
(1) Some of the Company's headends have subscribers on multiple bandwidth
levels. In these instances the headend has been included in the highest
bandwidth category offered but the subscribers have been allocated to
their actual bandwidth category.
The Company is currently in the construction phase of its 750 MHz upgrade to the
cable plant for its Tennessee Cluster which serves approximately 6,100
subscribers. Upon completion of the Tennessee upgrade, which is expected to
occur during 2001, and with the upgrades that have already been completed, the
Company will have the ability to provide advanced telecommunications services to
approximately 50% of its December 31, 1999 subscriber base.
The Company is continually in the process of identifying other areas within its
Systems which can be upgraded to allow for the introduction of advanced
telecommunications services. However, the Company will only proceed with
upgrades which it believes are economically feasible after carefully weighing
the anticipated revenues against the costs of completing the upgrade.
The Company utilizes a "trap" scheme, except in the Tennessee Cluster which
utilizes addressable converters, whereby a technician installs filters, or
traps, at each cabled home enabling the technician to configure the programming
received by each subscriber. Upon completion of a System upgrade, the Company
will enable digital addressable technology to certain of its subscribers to take
advantage of the HITS service. That service transmits digitally compressed
signals of niche satellite programming, multiplexed premium services,
pay-per-view movies and music for reception by cable systems, which in turn
deliver them to their subscribers.
While some of the Company's Systems are wired exclusively with coaxial cable;
the remaining Systems utilize fiber optic cable in conjunction with coaxial
cable. Fiber optic strands are capable of carrying hundreds of video, data and
voice channels over extended distances without the extensive signal
amplification typically required for coaxial cable. The Company plans to use an
HFC design across those portions of its cable plant that serve its highest
subscriber densities to most efficiently upgrade the Systems. Additionally, the
Company plans to use fiber optic technology to interconnect certain headends and
install fiber backbones to reduce amplifier cascades, thereby gaining
operational efficiencies and improved picture quality and system reliability.
-11-
<PAGE> 12
FRANCHISES:
Cable television systems are generally constructed and operated under
non-exclusive franchises granted by local governmental authorities. These
franchises typically contain many conditions, such as, among others, (i) time
limitations on commencement and completion of construction, (ii) conditions of
service, including number of channels, types of programming and the provision of
free service to schools and certain other public institutions and (iii) the
maintenance of insurance and indemnity bonds. Certain provisions of local
franchises are subject to federal regulation under the Cable Communications
Policy Act of 1984 (the "1984 Cable Act"), the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"), and the
Telecommunications Act of 1996 (the "1996 Telecom Act").
At December 31, 1999, the Company held 120 franchises. These franchises,
substantially all of which are non-exclusive, generally provide for the payment
of fees to the issuing authority. Annual franchise fees range up to 5% of the
gross revenues generated by a System. For the past three years, franchise fee
payments made by the Company have averaged approximately 2.7% of total gross
System revenues. Franchise fees are generally passed directly through to the
customers on their monthly bills. General business or utility taxes may also be
imposed in various jurisdictions. The 1984 Cable Act prohibits franchising
authorities from imposing franchise fees in excess of 5% of gross revenues and
also permits the cable operator to seek renegotiation and modification of
franchise requirements if warranted by changed circumstances. Most of the
Company's franchises can be terminated prior to their stated expirations for
uncured breaches of material provisions.
The following table sets forth the number of franchises by year of franchise
expiration and the number and percentage of basic subscribers at December 31,
1999:
<TABLE>
<CAPTION>
PERCENTAGE NUMBER PERCENTAGE
YEAR OF NUMBER OF OF TOTAL OF BASIC OF TOTAL BASIC
FRANCHISE EXPIRATION FRANCHISES FRANCHISES SUBSCRIBERS SUBSCRIBERS
-------------------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Prior to 2002 8 6.0 % 2,834 3.9 %
2002 - 2006 35 26.3 18,426 25.6
2007 - 2010 29 21.8 19,935 27.7
2011 and after 44 33.1 24,991 34.9
No expiration date 4 3.0 1,404 2.0
--- ----- ------ -----
Subtotal 120 90.2 67,590 94.1
No franchise required 13 9.8 4,274 5.9
--- ----- ------ -----
Total 133 100.0 % 71,864 100.0 %
=== ===== ====== =====
</TABLE>
The Company believes that it has good relationships with its franchising
authorities. To date, the Company has never had a franchise revoked for any of
its Systems, and no request by the Company for a franchise renewal or extension
has been denied, although such renewals and extensions have frequently entailed
mutually acceptable franchise modifications.
The 1984 Cable Act provides for, among other things, an orderly franchise
renewal process in which renewal of franchise licenses issued by governmental
authorities will not be unreasonably withheld, or, if renewal is withheld and
the franchise authority chooses to acquire the system or transfer ownership to
another person, such franchise authority or other person must pay the operator
either (i) the "fair market value" (without value assigned to the franchise) for
the system covered by such franchise if the franchise did not exist before the
effective date of the 1984 Cable Act (December 1984) or the franchise was
pre-existing but the franchise agreement did not provide for a buyout or (ii) in
the case of pre-existing franchises with buyout provisions, the price set forth
in such franchise agreements. In addition, the 1984 Cable Act established
comprehensive renewal procedures which require that an incumbent franchisee's
renewal application be assessed on its own merits and not as part of a
comparative process with competing applications.
The 1984 Cable Act also established buyout rates for franchises which post-date
the existence of the 1984 Cable Act or pre-date the 1984 Cable Act but the
franchise agreement does not contain buyout provisions; in the event the
franchise is terminated "for cause" and the franchise authority desires to
acquire the system, the franchise authority must pay the operator an "equitable"
price. To date, none of the Company's franchises has been terminated.
The 1992 Cable Act prohibits the award of exclusive franchises, prohibits
franchising authorities from unreasonably refusing to award additional
franchises and permits them to operate cable systems themselves without
franchises. The 1996 Telecom Act provides 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. State and
local authorities retain authority to manage the public rights of way and
"competitively neutral" requirements concerning right of way fees, universal
service, public safety and welfare, service quality, and consumer protection are
permitted with respect to telecommunications services.
-12-
<PAGE> 13
COMPETITION:
Cable television systems face competition from alternative methods of receiving
and distributing television signals and from other sources of news, information
and entertainment such as off-air television broadcast programming, DBS
services, wireless cable services, newspapers, movie theaters, live sporting
events, online computer services and home video products, including videotape
cassette recorders. The extent to which a cable communications system is
competitive depends, in part, upon the cable system's ability to provide, at a
reasonable price to customers, a greater variety of programming and other
communications services than those which are available off-air or through other
alternative delivery sources and upon superior technical performance and
customer service.
Cable television systems generally operate pursuant to franchises granted on a
nonexclusive basis. The 1992 Cable Act prohibits franchising authorities from
unreasonably denying requests for additional franchises and permits franchising
authorities to operate cable television systems without a franchise. It is
possible that a franchising authority might grant a second franchise to another
company containing terms and conditions more favorable than those afforded the
Company.
Well-financed businesses from outside the cable industry (such as the public
utilities that own the poles to which cable is attached) may become competitors
for franchises or providers of competing services. Congress has repealed the
prohibition against national television networks owning cable systems, and
telephone companies may now enter the cable industry as described below. In
addition, beginning in 1997, there has been a significant increase in the number
of cities that have constructed their own cable television systems in a manner
similar to city-provided utility services. These systems typically will compete
directly with the existing cable operator without the burdens of franchise fees
or other local regulation. Although the total number of municipal overbuild
cable systems remains small, there appears to be an increasing trend in cities
authorizing such direct municipal competition with cable operators.
In recent years, the Federal Communications Commission ("FCC") and the Congress
have adopted policies providing a more favorable operating environment for new
and existing technologies that provide, or have the potential to provide,
substantial competition to cable television systems. These technologies include,
among others, DBS service, whereby signals are transmitted by satellite to
satellite dishes as small as eighteen inches located the on customer premises.
Programming is currently available to the owners of DBS dishes through
conventional, medium and high-powered satellites. DBS systems have increased
channel capacity to over 100, enabling them to provide movies, broadcast
stations, high-speed Internet access, and other program service comparable to
those of cable television systems. DBS is currently being heavily marketed on a
nationwide basis by two specific providers and is a significant competitor to
traditional hardline cable service providers, including the Company.
The 1992 Cable Act contains provisions, which the FCC has implemented with
regulations, to enhance the ability of cable competitors to purchase and make
available to home satellite dish owners certain satellite delivered cable
programming at competitive costs. Digital satellite service ("DSS") offered by
DBS systems has certain advantages over cable systems with respect to
programming and digital quality, as well as disadvantages that include high
costs for additional outlets and a lack of local broadcast programming in
smaller markets, service and equipment distribution. With respect to local
broadcast television programming, recent legislation has removed legal obstacles
to the retransmission of such programming to DBS subscribers. DBS providers are
now making local broadcast programming available in certain larger markets. If
subsequent rural loan legislation is enacted, local broadcast programming may
become available to DBS subscribers in smaller markets. In rural markets it may
not be cost effective for DBS providers to provide local programming unless it
is subsidized by the federal government. The Company's strategy of providing
pay-per-view and satellite niche programming via the HITS application in certain
of its Systems is designed to combat DSS competition. "Bundling" of the
Company's video service with Internet services and other advanced
telecommunications services in certain of the Company's Systems may also be an
effective tool for combating DSS competition. The principal DBS systems with
which the Company's Systems compete are DirectTV and Echostar.
Cable television systems also compete with wireless program distribution
services such as multichannel multipoint distribution service ("MMDS") which
uses low power microwaves to transmit video programming and high speed data
services, including Internet access, over the air to customers. Additionally,
the FCC has licensed Local Multipoint Distribution Service ("LMDS") systems,
which can provide multichannel wireless video services in the 28 gigahertz
("GHz") band and has scheduled auctions in the future for licenses in the 24 GHz
and 39 GHz bands. LMDS is also suited for providing wireless data services,
including the possibility of Internet access. Wireless distribution services
generally provide many of the programming services provided by cable systems,
and digital compression technology has increased significantly the channel
capacity of the systems. Because MMDS service requires unobstructed "line of
sight" transmission paths, the ability of wireless distribution systems to
compete may be hampered in some areas by physical terrain and foliage. Although
prohibitive topography and limited "line of sight" access have limited
competition from wireless distribution systems in a majority of the Company's
franchise service areas, the Company has experienced such competition in
portions of its Systems in Oklahoma, Texas, Louisiana and Florida.
The 1996 Telecom Act eliminated the previous prohibition on the provision of
video programming by local exchange telephone companies ("LECs") in their
telephone service areas. Various LECs currently are seeking to provide video
programming services within their telephone service areas through a variety of
distribution methods, primarily through the deployment of broadband wire
-13-
<PAGE> 14
facilities, but also through the use of wireless (MMDS) transmission. Cable
television systems could be placed at a competitive disadvantage if the delivery
of video programming services by LECs becomes widespread, since LECs may not be
required, under certain circumstances, to obtain local franchises to deliver
such video services or to comply with the variety of obligations imposed upon
cable television systems under such franchises. Issues of cross-subsidization by
LECs of video and telephony services also pose strategic disadvantages for cable
operators seeking to compete with LECs that provide video services. The Company
believes, however, that the small markets in which it provides, or expects to
provide, cable services are unlikely to support competition in the provision of
video and broadband telecommunications services given the lower population
densities and higher costs per subscriber of installing plant.
Although LECs and cable operators can now expand their offerings across
traditional service boundaries, the general prohibition on LEC buyouts (i.e. any
ownership interest exceeding ten 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 remains in place. The 1996 Telecom Act
provides a few limited exceptions to this buyout prohibition, including a "rural
exemption." The 1996 Telecom Act also provides the FCC with limited authority to
grant waivers of the buyout prohibition (subject to local franchising authority
approval). The Company believes that significant growth opportunities exist by
establishing cooperative rather than competitive relationships with LECs within
service areas, to the extent permitted by law.
The entry of electric utility companies into the cable business, which was
authorized by the 1996 Telecom Act, could also have an adverse affect on the
Company's business. In addition, well capitalized businesses from outside of the
cable industry may become competitors for franchises or providers of competing
services.
Other new technologies may become competitive with non-entertainment services
that cable television systems can offer. The FCC has authorized television
broadcast stations to transmit textual and graphic information useful both to
consumers and businesses. The FCC also permits commercial and noncommercial FM
stations to use their subcarrier frequencies to provide non-broadcast services
including data transmissions. The FCC has established an over-the-air
Interactive Video and Data Service that will permit two-way interaction with
commercial and educational programming along with informational and data
services. The expansion of fiber optic systems, as well as the introduction of
new xDSL services, by LECs and other common carriers provide facilities for the
transmission and distribution to homes and businesses of video services,
including interactive computer-based services like the Internet, data and other
non-video services. In addition, wireless Internet access is now offered in some
markets by cellular, PCS and other mobile service providers, such as Nextel.
Advances in communications technology as well as changes in the marketplace and
the regulatory and legislative environments are constantly occurring. Thus, it
is not possible to predict the effect that ongoing or future developments might
have on the cable industry or on the operations of the Company.
LEGISLATION AND REGULATION:
General. The operation of cable television systems is extensively regulated by
the FCC, some state governments and most local governments. The 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 Company's
operations. This section briefly summarizes key laws and regulations affecting
the operation of the Company's Systems and does not purport to describe all
present, proposed, or possible laws and regulations affecting the Company or its
Systems.
Cable Rate Regulation. The 1992 Cable Act imposed an extensive rate regulation
regime on the cable television industry. Under that regime, all cable systems
are subject to rate regulation, unless they face "effective competition" in
their local franchise area. Federal law now defines "effective competition" on a
community-specific basis as requiring either low penetration (less than 30%) by
the incumbent cable operator, appreciable penetration (more than 15%) by
competing multichannel video providers ("MVPs"), or the presence of a competing
MVP affiliated with a local telephone company.
Although the FCC rules control, local government units (commonly referred to as
local franchising authorities or "LFAs") are primarily responsible for
administering the regulation of the lowest level of cable -- the basic service
tier ("BST"), which typically contains local broadcast stations and public,
educational, and government ("PEG") access channels. Before an LFA begins BST
rate regulation, it must certify to the FCC that it will follow applicable
federal rules, and many LFAs have voluntarily declined to exercise this
authority. LFAs also have primary responsibility for regulating cable equipment
rates. Under federal law, charges for various types of cable equipment must be
unbundled from each other and from monthly charges for programming services.
-14-
<PAGE> 15
The FCC formerly administered rate regulation of cable programming service tiers
("CPST"), which typically contain satellite-delivered programming. However, the
1996 Telecom Act eliminated CPST regulation effective March 31, 1999.
Accordingly, the FCC cannot act on CPST rate increases that occur after that
date.
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 products. 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.
In an effort to ease the regulatory burden on small cable systems, the FCC has
created special rate rules applicable for systems with fewer than 15,000
subscribers owned by an operator with fewer than 400,000 subscribers. The
special rate rules allow for a vastly simplified cost-of-service showing. The
Company is eligible for these simplified cost-of-service rules, and has
calculated its rates generally in accordance with those rules. The 1996 Telecom
Act provides additional relief for small cable operators. For franchising units
with less than 50,000 subscribers and owned by an operator with less than one
percent of the nation's cable subscribers (i.e. approximately 600,000
subscribers) that is not affiliated with any entities with aggregate annual
gross revenues exceeding $250 million, CPST rate regulation was automatically
eliminated by the 1996 Telecom Act.
Although FCC regulation of CPST rates for all systems (regardless of size)
expired on March 31, 1999, critics of the cable television industry have called
for more rigorous rate regulation (including limits on programming cost
pass-throughs to cable subscribers) until a greater degree of competition to
incumbent cable operators has developed. The 1996 Telecom Act also relaxes
existing uniform rate requirements by specifying that uniform rate requirements
do not apply where the operator faces "effective competition," and by exempting
bulk discounts to multiple dwelling units, although complaints about predatory
pricing still may be made to the FCC.
Cable Entry Into Telecommunications. The 1996 Telecom Act provides that no 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
telecommunication carriers. The Supreme Court, in January 1999, upheld the FCC's
authority to adopt pricing rules for unbundled network elements and resale by
competitive LEC's. The FCC's pricing rules may be subject to further judicial
review.
Telephone Company Entry into Cable Television. The 1996 Telecom Act allows
telephone companies to compete directly with cable operators by repealing the
historic telephone company/cable cross-ownership ban. LECs, including the Bell
Operating Companies, 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.
Under the 1996 Telecom Act, a LEC, utility company, or other entity providing
video programming to subscribers through wired facilities will be regulated as a
traditional cable operator (subject to local franchising and federal regulatory
requirements), unless an election is made to provide the video programming via
an "open video system" ("OVS"). To qualify for OVS status, two-thirds of the
system's activated channels must be reserved for unaffiliated entities. The
Fifth Circuit Court of Appeals recently reversed certain of the FCC's OVS rules,
including the FCC's preemption of local franchising.
Although LECs and cable operators can now expand their offerings across
traditional service boundaries, the general prohibition on LEC buyouts (that is,
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 remains in place. The 1996 Telecom Act
provides a few limited exceptions to this buyout prohibition, including a "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).
-15-
<PAGE> 16
Electric Utility Entry Into Telecommunications/Cable Television. The 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 companies.
Additional Ownership Restrictions. The 1996 Telecom Act eliminates 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 leaves in place existing restrictions on
cable cross-ownership with satellite master antenna television ("SMATV") and
MMDS facilities, but lifts those restrictions where the cable operator is
subject to effective competition. FCC regulations permit cable operators to own
and operate separate SMATV systems within their franchise area, provided that
such operation is consistent with local cable franchise requirements.
Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a cable system
from devoting more than 40% of its activated channel capacity to the carriage of
affiliated national program services. A companion rule establishes a nationwide
ownership cap on any cable operator equal to 30% of all nationwide subscribers
to multichannel video programming distributors, including cable and DBS
subscribers. The FCC has stayed this horizontal ownership rule pending further
judicial review.
There are no federal restrictions on non-U.S. entities having an ownership
interest in cable television systems or the FCC licenses commonly employed by
such systems.
Must Carry/Retransmission Consent. The 1992 Cable Act conveyed to a commercial
broadcaster the right generally to elect every three years either to require (i)
the local cable operator to carry its signals ("must carry") or (ii) that such
operator obtain the broadcaster's retransmission consent before doing so. In
order to satisfy these requirements the Company has agreed, in limited
circumstances, to the direct payment of nominal fees for carriage and, again in
limited circumstances, to carry satellite-delivered cable programming which is
affiliated with the network carried by such stations. Currently, the Company has
agreements in place for the majority of its broadcast channels and is involved
in ongoing discussions with the balance of the broadcasters to obtain an
agreement. The Company believes that it will be able to successfully reach an
agreement with the majority of the remaining broadcasters so that its compliance
with the "retransmission consent" and "must carry" provisions of the 1992 Cable
Act will not have a material effect on its operations, although this result may
change in the future depending on such factors as market conditions, channel
capacity and similar matters when such arrangements are renegotiated. In
particular, the burden associated with must carry obligations could dramatically
increase if television broadcast stations proceed with planned conversions to
digital transmissions and if the FCC determines that cable systems must carry
all analog and digital signals transmitted by the television stations. A
rulemaking is now pending at the FCC regarding the imposition of dual digital
and analog must carry provisions.
Access Channels. LFAs can include franchise provisions requiring 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% 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 this
designated channel capacity, but, to date, use of commercial leased access
channels has been relatively limited.
Access to Programming. To spur the development of independent cable 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 the possibility of subjecting video programmers who are not affiliated
with cable operators to all program access requirements. In addition, some cable
industry critics have argued that vertically integrated, non-satellite
programming (such as certain regional sports networks), which are now exempt
from the ban on exclusive programming, should be subjected to this prohibition.
Inside Wiring. The FCC has determined that an incumbent cable 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
services within a MDU complex. The FCC has proposed abrogating all such
contracts held by incumbent cable operators, 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. In a separate proceeding, the FCC has preempted restrictions on the
deployment of private antennas, including DBS receivers, on rental property
within the exclusive use of a tenant (such as balconies and patios).
-16-
<PAGE> 17
Other FCC Regulations. In addition to the FCC regulations noted 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, children's programming advertisements, and closed
captioning), 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,
consumer electronics equipment compatibility, and Emergency Alert Systems. The
FCC recently stated that cable customers must be allowed to purchase cable
converters from third party vendors, and established a multi-year phase-in
during which security functions (which would remain in the operator's exclusive
control) would be unbundled from basic converter functions (which could then be
satisfied by third party vendors). Details regarding this phase-in are still
under FCC review. 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.
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.
Internet Service Regulation. Although there is no significant federal regulation
of cable system delivery of Internet services at the current time, and even
though the FCC recently issued a report to Congress finding no immediate need to
impose such regulation, this situation may change as cable systems expand their
broadband delivery of Internet services. In particular, proposals have been
advanced in Congress and at the FCC that would require cable operators to
provide access to unaffiliated Internet service providers and online service
providers. Certain Internet service providers have attempted, unsuccessfully, to
use existing commercial leased access provisions to gain access to cable system
delivery. Finally, some LFAs have imposed mandatory Internet access requirements
as part of cable franchise renewals or transfer approvals. LFA authority to
impose such requirements was upheld by a U.S District Court in Portland, Oregon
and is now on appeal before the Ninth Circuit. Numerous LFAs are considering
imposing similar mandatory access requirements either during the renewal or
transfer processes or pursuant to their general franchise authority. Mandatory
access conditions, similar to those described above, could be imposed on the
Company by LFAs or through future regulatory, judicial or legislative
developments and could have adverse affects on the Company's 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 (which 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 Company'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. Although LFAs have
considerable discretion in establishing franchise terms, there are certain
federal limitations. For example, LFAs cannot insist on franchise fees exceeding
5% of the system's gross revenues, cannot dictate the particular technology used
by the system, and cannot specify video programming other than identifying broad
categories of programming.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the franchise authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal. Similarly, if a franchise
authority's consent is required for the purchase or sale of a cable system or
franchise, such authority may attempt to impose more burdensome or onerous
franchise requirements in connection with a request for consent. Historically,
franchises have been renewed for cable operators that have provided satisfactory
services and have complied with the terms of their franchises. However, there
can be no assurance that renewal will be granted or that renewals will be made
on similar terms and conditions.
Various proposals have been introduced at the state and local levels with regard
to the regulation of cable television systems, and a number of states have
adopted legislation subjecting cable television systems to the jurisdiction of
state governmental agencies.
-17-
<PAGE> 18
Tennessee and Florida, states where the Company operates Systems, have enacted
legislation with respect to the regulation of cable television systems. In
addition, a number of communities that the Company serves have adopted local
rate regulation and customer service ordinances.
INSURANCE:
The Company has insurance covering risks incurred in the ordinary course of
business, including general liability, property coverage and business
interruption insurance. As is typical in the cable television industry, the
Company does not maintain insurance covering its underground plant. Because of
the industry-wide casualty insurance reductions that resulted from insurers'
loss experience with several hurricanes in the southeastern portion of the
United States, the Company's casualty insurance in Florida and Louisiana was
ultimately reduced to $1 million per occurrence. All of the Company's casualty
insurance coverage is subject to deductibles ranging between $10,000 and
$100,000 per occurrence. The Company believes that its Systems in Florida and
Louisiana are located in areas that are not subject to a high degree of risk
from hurricanes, or from ice storms (which do pose a significant risk for its
Systems in other areas), and that losses in excess of its existing coverage
would be unlikely. If the Company is unable to maintain adequate casualty
insurance it will be subject to a potential reduction in cash flow in the event
of a loss in excess of its policy limits, and if a significant loss were to
occur, it could have a material adverse effect on the Company's financial
condition and results of operations. Notwithstanding the foregoing, the Company
believes that the amounts and types of its insurance coverage are commercially
reasonable given the nature and types of the Company's business and properties.
EMPLOYEES:
At December 31, 1999, the Company had approximately 161 full-time employees and
7 part-time employees. None of the Company's employees is represented by a labor
union. The Company considers its relations with its employees to be good.
ITEM 2. PROPERTIES
A cable television system consists of four principal operating components. The
first component, known as the headend, receives television, radio and
information signals by means of special antennas and satellite earth stations.
The second component, the distribution network, which originates at the headend
and extends throughout the system's service area, consists of microwave relays,
coaxial or fiber optic cables placed on utility poles or buried underground and
associated electronic equipment. The third component of the system is a "drop
cable," which extends from the distribution network into each customer's home
and connects the distribution system to the customer's television set. The
fourth component, a converter, is the home terminal device that expands channel
capacity to permit reception of more than twelve channels of programming.
The Company's principal physical assets consist of cable television systems,
including signal-receiving, encoding and decoding apparatus, headends,
distribution systems and subscriber house drop equipment for each of its
Systems. The signal receiving apparatus typically includes a tower, antenna,
ancillary electronic equipment and earth stations for reception of satellite
signals. Headends, consisting of associated electronic equipment necessary for
the reception, amplification and modulation of signals, are located near the
receiving devices. The Company's distribution systems consist primarily of
coaxial cable and related electronic equipment. As the upgrades are completed,
the Systems will incorporate fiber optic cable. Subscriber equipment consists of
taps, house drops and converters. The Company owns its distribution systems,
various office fixtures, test equipment and certain service vehicles. The
physical components of the Systems require maintenance and periodic upgrading to
keep pace with technological advances.
The Company's cables generally are attached to utility poles under pole rental
agreements with local public utilities, although in some areas the distribution
cable is buried in underground ducts or trenches. The FCC regulates most pole
attachment rates under the federal Pole Attachment Act.
The Company owns or leases parcels of real property for signal reception sites
(antenna towers and headends), microwave complexes and business offices. The
Company believes that its properties, both owned and leased, are in good
condition and are suitable and adequate for the Company's business operations as
presently conducted.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to ordinary and routine litigation proceedings that are
incidental to the Company's business. Management believes that the outcome of
all pending legal proceedings will not, in the aggregate, have a material
adverse effect on the financial condition or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Effective December 29, 1999, with the approval of James' Partnership Advisory
Board and more than 96% of its limited partners, the limited partnership
agreement of James was amended and restated in its entirety. The James Cable
Partners, L.P. Second Amended and Restated Agreement of Limited Partnership
dated as of December 29, 1999 (the "Partnership Agreement") is substantially
similar
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<PAGE> 19
to James' prior limited partnership agreement. The most significant changes
effected by such amendment and restatement include the creation of a second
class of limited partnership interests and a reduction, from 96% or 66%, as
applicable, to 51%, in the requisite percentage consent of limited partners
necessary to undertake certain actions.
In connection with the adoption of the Partnership Agreement, and with the
approval of James' Partnership Advisory Board and its limited partners, (i) the
incentive compensation payable by James to the general partner pursuant to the
1994 General Partner Incentive Compensation Agreement dated December 9, 1994 was
converted to a 2% Class A limited partnership interest and (ii) the general
partner was issued an option to acquire a Class B limited partnership interest
of not more than 3.125% and not less than 2.5%.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
EQUITY INTERESTS:
Equity interests in James consist of a general partnership interest and limited
partnership interests. The general partnership interest represents 0.95% of
James' total partnership interest and the limited partnership interests
represent the balance of James' total partnership interest. James has been a
privately held entity since its formation in 1988 and no trading market exists
for either the general partnership interest or the limited partnership
interests. At December 31, 1999, there was one holder of the general partnership
interest and 17 holders of the limited partnership interests. See also "Part III
- - Item 10. Directors and Executive Officers" and " - Item 12. Security Ownership
of Certain Beneficial Owners and Management." James has not made any
distributions of cash or property to any of its partners since the date of its
inception.
Equity interests in Finance Corp. consist of shares of its common stock, no par
value per share. Finance Corp. has been a privately held entity since its
formation and no trading market exists for such common stock. At December 31,
1999, 1,000 shares of common stock were issued and outstanding, all of which
were owned of record and beneficially by James. Finance Corp. has never paid or
declared a dividend.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain historical financial data for
the Company for each of the years in the five-year period ended December 31,
1999. The financial data for the years ended December 31, 1995 to 1999 were
derived from the financial statements of the Company which have been audited by
Deloitte & Touche LLP, independent auditors. The financial statements of the
Company at December 31, 1998 and 1999 and for each of the years in the
three-year period ended December 31, 1999, together with the report of Deloitte
& Touche LLP thereon, appear elsewhere in this Form 10-K.
-19-
<PAGE> 20
Selected Financial Data
(amounts in thousands, except subscriber data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997 1998 (15) 1999 (15)
---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues $33,305 $35,213 $35,778 $37,758 $37,372
System operating expenses (1) 15,073 16,249 17,400 19,410 20,445
Non-system operating expenses (2) 2,280 2,480 2,585 2,960 2,831
Depreciation and amortization 12,214 9,272 7,930 7,561 8,013
---------------------------------------------------------------------------
Operating income 3,738 7,212 7,863 7,827 6,083
Interest expense, net 9,659 8,852 9,470 11,026 11,020
General partner incentive payment --- --- --- --- 540
Other expenses, net 141 254 233 112 109
---------------------------------------------------------------------------
Loss before gains on sales and
extraordinary items (6,062) (1,894) (1,840) (3,311) (5,586)
Gains on sales of cable
systems --- --- --- --- 15,886
Extraordinary loss due to debt
refinancing 548 --- 3,125 --- ---
---------------------------------------------------------------------------
Net (loss) income ($6,610) ($1,894) ($4,965) ($3,311) $10,300
===========================================================================
OTHER DATA:
EBITDA (3) $15,952 $16,484 $15,793 $15,388 $14,096
System operating cash flow (4) 18,232 18,964 18,378 18,348 16,927
Capital expenditures 2,405 3,942 7,596 9,171 11,767
EBITDA margin (5) 47.9% 46.8% 44.1% 40.8% 37.7%
Ratio of earnings to fixed
charges (6) --- --- --- --- 1.9x
CASH FLOW DATA:
Cash provided by operating
activities $6,901 $9,066 $8,403 $5,133 $3,706
Cash (used in) provided by
investing activities (2,405) (3,942) (7,596) (16,971) 3,671
Cash (used in) provided by
financing activities (3,844) (6,079) 8,995 3,400 (3,500)
---------------------------------------------------------------------------
Net increase (decrease) in cash $652 ($955) $9,802 ($8,438) $3,877
===========================================================================
SUMMARY SUBSCRIBER DATA:
Homes passed (7) 128,908 129,291 129,291 138,040 129,600
Basic subscribers (8) 80,190 78,449 78,197 84,755 71,864
Basic penetration (9) 62.2% 60.7% 60.5% 61.4% 55.5%
Premium subscriptions (10) 28,900 25,652 24,076 26,413 23,001
Premium penetration (11) 36.0% 32.7% 30.8% 31.2% 32.0%
Average monthly total revenues
per subscriber (12) $34.56 $36.89 $38.10 $39.95 $41.56
System operating cash flow per
subscriber (13) $227 $238 $235 $233 $226
EBITDA per subscriber (14) $199 $207 $202 $195 $188
<CAPTION>
AT DECEMBER 31,
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $1,056 $101 $9,903 $1,465 $5,342
Total assets 39,727 32,844 43,912 44,367 51,799
Total debt 88,573 82,494 100,000 103,500 100,000
Partners' deficit (54,452) (56,346) (65,711) (69,022) (58,183)
</TABLE>
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<PAGE> 21
NOTES TO SELECTED FINANCIAL DATA
(1) System operating expenses exclude depreciation and amortization.
(2) Non-system operating expenses consist primarily of management fees payable
to the General Partner of the Company.
(3) EBITDA represents operating income before depreciation and amortization.
The Company has included EBITDA data (which are not a measure of financial
performance under Generally Accepted Accounting Principles ("GAAP"))
because it understands such data are used by certain investors to determine
a company's historical ability to service its indebtedness. EBITDA should
not be considered as an alternative to net income as an indicator of the
Company's performance or as an alternative to cash flow as a measure of
liquidity as determined in accordance with GAAP.
(4) System operating cash flow represents revenues less system operating
expenses. System operating cash flow should not be considered as an
alternative to net income as an indicator of the Company's performance or
as an alternative to cash flow as a measure of liquidity as determined in
accordance with GAAP.
(5) EBITDA margin represents EBITDA divided by revenues.
(6) For purposes of calculating the ratio of earnings to fixed charges,
earnings includes income or loss before extraordinary items plus interest
expense (which includes amortization of debt issuance costs). Fixed charges
consist of interest expense incurred (including amortization of debt
issuance costs) and the estimated interest component of rent expense.
Earnings were inadequate to cover fixed charges by $6.1 million, $1.9
million, $1.8 million and $3.3 million for the years ended December 31,
1995, 1996, 1997 and 1998, respectively.
(7) Homes passed refers to estimates by the Company of the number of dwelling
units in a particular community that can be connected to the distribution
system without any further extension of principal transmission lines. Such
estimates are based upon a variety of sources, including billing records,
house counts, city directories and other local sources.
(8) For purposes of all information presented herein, unless otherwise
indicated, the number of basic subscribers for the Systems has been
computed by adding the actual number of subscribers for all non-bulk
accounts and the equivalent subscribers for all bulk accounts. The number
of such equivalent subscribers has been calculated by dividing aggregate
basic service revenues for bulk accounts by the full basic service rate for
the community in which the account is located.
(9) Basic subscribers as a percentage of homes passed.
(10) A customer may purchase more than one premium service, each of which is
counted as a separate premium subscription.
(11) Premium subscriptions as a percentage of basic subscribers.
(12) The average of the monthly total revenues divided by the number of basic
subscribers at the end of such month during the twelve-month periods ended
December 31 for each year presented.
(13) System operating cash flow divided by the average number of basic
subscribers for the period.
(14) EBITDA divided by the average number of basic subscribers for the period.
(15) The figures shown for 1998 reflect the Company's December 1998 purchase of
its cable system serving Tazewell, Tennessee. The figures shown for 1999
reflect the Company's March 1999 sales of its cable systems serving
Wartburg, Tennessee and Forsyth and Monroe County, Georgia (See "- Sales of
Cable Systems").
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<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion provides information regarding the Company's financial
condition and results of operations for each of the years ended December 31,
1997, 1998 and 1999. This discussion should be read in conjunction with the
consolidated financial statements of the Company, and the notes thereto, which
appear elsewhere herein.
OVERVIEW:
Revenues. The Company's revenues are primarily attributable to subscription fees
charged to subscribers to the Company's basic and premium cable television
programming services. Basic revenues consist of monthly subscription fees for
all services (other than premium programming and Internet service) as well as
monthly charges for customer equipment rental. Premium revenues consist of
monthly subscription fees for programming provided on a per-channel basis.
Internet revenues consist of monthly subscription fees, leased line fees and
cable modem installation charges. In addition, other revenues are derived from
installation and reconnection fees charged to subscribers to commence service,
late payment fees, franchise fees, advertising revenues and commissions related
to the sale of goods by home shopping services. At December 31, 1999, the
Company had 71,864 basic subscribers and 23,001 premium subscriptions,
representing basic penetration of 55.5% and premium penetration of 32.0%. The
table below sets forth, for the periods indicated, the percentage of the
Company's total revenues attributable to the various sources:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Basic 83.8 % 83.5 % 82.3 %
Premium 9.2 8.7 7.9
Internet 0.0 0.3 2.1
HITS 0.0 0.0 0.1
Other 7.0 7.5 7.6
------------ ------------ ------------
100.0 % 100.0 % 100.0 %
============ ============ ============
</TABLE>
System Operating Expenses. System operating expenses are comprised of variable
operating expenses and fixed selling, service and administrative expenses
directly attributable to the Systems. Variable operating expenses consist of
costs directly attributable to providing cable and Internet services to
customers and therefore generally vary directly with revenues. Variable
operating expenses include programming fees paid to suppliers of programming the
Company includes in its basic and premium cable television services, as well as
expenses related to copyright fees, franchise operating fees and bad debt
expenses. Satellite programming fees have historically increased at rates in
excess of inflation due in part to improvements in the quality of programming.
Selling, service and administrative expenses directly attributable to the
Systems include the salaries and wages of the field and office personnel, plant
operating expenses, office and administrative expenses and sales costs.
Non-System Operating Expenses. Non-system operating expenses consist primarily
of general overhead expenses which are not directly attributable to any one
System. These expenses include most legal, audit and tax fees, an incentive
bonus pool accrual for the General Managers of the Systems and amounts paid to
the General Partner for management expenses.
Significant Leverage. At December 31, 1999, the Company's indebtedness was
$100.0 million, its total assets were $51.8 million, and its partners' deficit
was $58.2 million. Due to the Company's high degree of leverage: (a) a
substantial portion of its cash flow from operations will be committed to the
payment of its interest expense and will not be available for other purposes;
(b) the Company's ability to obtain additional financing in the future for
working capital, capital expenditures, acquisitions or other purposes may be
limited; and (c) the Company is more highly leveraged than many cable television
companies and certain DBS and telephone companies, which may limit the Company's
flexibility in reacting to changes in its business.
-22-
<PAGE> 23
RESULTS OF OPERATIONS:
The following table sets forth the percentage relationship that the various
items bear to revenues for the periods indicated:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenues 100.0 % 100.0 % 100.0 %
System operating expenses 48.6 51.4 54.7
Non-system operating expenses 7.2 7.9 7.6
Depreciation and amortization 22.2 20.0 21.4
----------- ----------- -----------
Operating income 22.0 20.7 16.3
Interest expense, net 26.5 29.2 29.5
General partner incentive payment 0.0 0.0 1.4
Other expenses, net 0.7 0.3 0.3
----------- ----------- -----------
Loss before gains on sales and
extraordinary items (5.2) (8.8) (14.9)
Gains on sales of cable
systems --- --- 42.5
Extraordinary loss due to debt
refinancing 8.7 --- ---
----------- ----------- -----------
Net (loss) income (13.9)% (8.8)% 27.6 %
=========== =========== ===========
EBITDA margin 44.1 % 40.8 % 37.7 %
</TABLE>
RESULTS OF OPERATIONS -- YEAR ENDED DECEMBER 31, 1999 VERSUS YEAR ENDED DECEMBER
31, 1998:
Revenues. Revenues decreased by $400,000, or 1.0%, from $37.8 million in 1998 to
$37.4 million in 1999. This decrease is primarily the result of a reduction in
the Company's basic and premium revenues of $1.1 million from 1998 to 1999 which
was partially offset by a $700,000 increase in its Internet revenues for the
same periods. The decrease in the Company's basic and premium revenues are a
result of both the sale of the Company's Tennessee (Wartburg) and Forysth and
Monroe County, Georgia cable systems (See "- Sales of Cable Systems") and the
decrease in the Company's subscriber base discussed below. Average basic
revenues per subscriber per month increased from $33.35 to $34.18, or 2.5%,
between 1998 and 1999 due to rate increases imposed by the Company in the fourth
quarters of each of those years.
Subscribers. At December 31, 1999 the Company had 71,864 subscribers which
represents a decrease of 12,891 from the 84,755 subscribers at December 31,
1998. This decrease is primarily the result of sale of the Company's Tennessee
(Wartburg) and Forsyth and Monroe County, Georgia cable systems (See "- Sales of
Cable Systems") which accounted for 11,259 of the December 31, 1998 subscribers.
These sales were partially offset by the purchase of approximately 900
subscribers in Lafayette, Alabama from the Company's franchised cable service
competitor in November of 1999. Without such sales and purchase, the Company's
subscriber base decreased by 2,528. The Company believes that this decrease is a
result of the increased availability and affordability of competitive video
services from satellite dishes and other alternatives to traditional hardline
cable service (See "Item 1. Business - Competition"). The Company continues to
respond to this competition with the introduction of advanced telecommunications
services and aggressive marketing campaigns.
System Operating Expenses. System operating expenses increased 5.3% from $19.4
million in 1998 to $20.4 million in 1999. This increase was primarily the result
of additional costs related to the launching of Internet services in many of the
Company's Systems during 1999, as well as increases in programming costs
associated with new channel offerings and increased rates charged by programming
suppliers. As a percentage of revenues, system operating expenses increased by
3.3% from 51.4% in 1998 to 54.7% in 1999.
Non-System Operating Expenses. Non-system operating expenses, which consist
primarily of amounts paid to the General Partner for management expenses,
decreased 4.3% from $3.0 million in 1998 to $2.8 million in 1999, primarily due
to decreases in legal and other professional fees.
EBITDA. As a result of the foregoing, EBITDA in 1999 was $14.1 million, a
decrease of 8.4% from EBITDA in 1998 of $15.4 million.
Depreciation and Amortization. Depreciation and amortization increased 6.0% from
$7.6 million in 1998 to $8.0 million in 1999, due to the capital expenditures
associated with the Company's ongoing selective upgrades.
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<PAGE> 24
Interest Expense, Net. Interest expense, net remained constant at $11.0 million
for 1998 and 1999. Interest expense decreases of $300,000 which resulted from
capitalization of interest costs associated with the Company's ongoing selective
upgrades were offset by a decrease in interest income of approximately $200,000
from 1998 to 1999.
Loss before Gains on Sales and Extraordinary Items. As a result of the foregoing
factors, the Company's loss before gains on sales and extraordinary items
increased $2.3 million from $3.3 million in 1998 to $5.6 million in 1999.
Net Income / Loss. As a result of the foregoing factors, and because of the
gains on the sales of the Tennessee (Wartburg) and Forsyth and Monroe County,
Georgia cable systems (See "- Sales of Cable Systems") of $15.9 million, the
Company experienced net income of $10.3 million in 1999 as compared to a net
loss of $3.3 million in 1998.
RESULTS OF OPERATIONS -- YEAR ENDED DECEMBER 31, 1998 VERSUS YEAR ENDED DECEMBER
31, 1997:
Revenues. Revenues in 1998 were $37.8 million, an improvement of $2.0 million,
or 5.5%, over revenues of $35.8 million in 1997. In 1998, basic revenues
increased by $1.5 million, or 5.1%, primarily due to increases in subscription
rates. Average basic revenues per subscriber per month increased from $31.92 to
$33.35, or 4.5%, between 1997 and 1998.
Subscribers. During 1998, the Company experienced an increase of 6,558
subscribers (from 78,197 at December 31, 1997 to 84,755 at December 31, 1998) as
a result of its acquisition of Fannon Cable TV, Inc. in December of 1998.
Without this acquisition, the Company's subscriber count was essentially
unchanged from 1997 to 1998. The Company believes that the growth of its
subscriber base has been offset by the increased availability and affordability
of competitive video services and generally reflects the cable industry's
experience as a whole with respect to increased competition from satellite
dishes and wireless cable services (See "Item 1. Business - Competition").
System Operating Expenses. System operating expenses increased 11.6% from $17.4
million in 1997 to $19.4 million in 1998. This increase was primarily due to
$900,000 of variable cost increases associated with higher programming fees
(which increased from $6.6 million in 1997 to $7.5 million in 1998). In
addition, selling, service and administrative expenses of the Systems increased
8.5%, from $9.3 million in 1997 to $10.1 million in 1998, due to increased fixed
costs (including approximately $360,000 of additional costs related to the
launching of Internet services in certain of the Company's Systems during 1998).
Non-System Operating Expenses. Non-system operating expenses, which consist
primarily of amounts paid to the General Partner for management expenses
increased 14.5% to $3.0 million in 1998 from $2.6 million in 1997, primarily due
to increases in legal and other professional fees.
EBITDA. As a result of the foregoing, EBITDA in 1998 was $15.4 million, a
decrease of 2.6% from EBITDA in 1997 of $15.8 million.
Depreciation and Amortization. Depreciation and amortization decreased 4.6% from
$7.9 million in 1997 to $7.6 million in 1998, primarily due to certain assets
becoming fully depreciated.
Interest Expense, Net. Interest expense, net increased $1.6 million, or 16.4%,
from $9.5 million in 1997 to $11.0 million in 1998. This increase is primarily
the result of a change in the Company's debt structure that occurred in 1997.
During 1997 the Company had an average debt balance of approximately $89 million
and an average interest rate of approximately 10.8%, both of which were affected
by the Company's refinancing which took place on August 15, 1997. During 1998,
the Company's average debt balance increased to $100 million with an average
interest rate of 10.75%. These changes in the debt structure resulted in an
increase in interest expense of approximately $1.7 million from 1997 to 1998.
This increase in interest expense was partially offset by an increase in
interest income of approximately $200,000 from 1997 to 1998.
Loss before Gains on Sales and Extraordinary Items. As a result of the foregoing
factors, the Company's loss before gains on sales and extraordinary items
increased $1.5 million from $1.8 million in 1997 to $3.3 million in 1998.
Net Loss. As a result of the foregoing factors, and because of the extraordinary
loss due to debt refinancing of $3.1 million in 1997, net loss decreased $1.7
million from $5.0 million in 1997 to $3.3 million in 1998.
LIQUIDITY AND CAPITAL RESOURCES:
General. Liquidity describes the ability to generate sufficient cash flows to
meet the cash requirements of continuing operations. Liquidity, in the context
of the Company's operations, is typically determined by the cash flows from
operating activities (e.g. initial installation charges and monthly service fees
paid by subscribers) and the cash flows used in investing activities (e.g.
spending associated with capital projects). The Company continuously monitors
available cash and cash equivalents in relation to projected cash needs to
maintain adequate balances for current payments while maximizing cash available
for investment opportunities.
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<PAGE> 25
Net cash from operating activities was $8.4 million, $5.1 million and $3.7
million for the years ended December 31, 1997, 1998 and 1999, respectively. Net
cash from investing activities was $3.7 million for the year ended December 31,
1999 as compared to net cash used in investing activities of $17.0 million for
the year ended December 31, 1998. This change in investing activities was
primarily due to the $7.8 million spent in acquiring Fannon Cable TV, Inc. in
1998 and the $16.7 million received from the sales of the Company's Tennessee
(Wartburg) and Forsyth and Monroe County, Georgia cable systems (See "- Sales of
Cable Systems") in 1999. In addition, the Company's capital expenditures
increased from $9.2 million in 1998 to $11.8 million in 1999 as a result of the
capital improvement projects which were in process during 1999. Cash flows used
in financing activities were $3.5 million for the year ended December 31, 1999
as compared to cash flows from financing activities of $3.4 million for the year
ended December 31, 1998. This change in financing activities is primarily
attributable to $3.5 million in borrowings associated with the acquisition of
Fannon Cable TV, Inc. in 1998 that were repaid in March of 1999 following the
System sales.
Total assets increased $7.4 million from $44.4 million at December 31, 1998 to
$51.8 million at December 31, 1999. This increase resulted from significant
changes in the Company's cash, net property and equipment, and net intangible
assets. Cash increased by $3.9 million primarily as a result of the proceeds
received on the sale of its Tennessee (Wartburg) and Forsyth and Monroe County,
Georgia cable systems (See "- Sales of Cable Systems"). Net property and
equipment increased by $5.9 million as a result of the Company's capital
improvement projects which were in process during 1999. Net intangible assets
decreased $1.7 million primarily as a result of the 1999 amortization expense.
The net property and equipment and the net intangible assets were not materially
affected by the System sales because the assets sold were fully or nearly fully
depreciated or amortized.
Total debt decreased from $103.5 million at December 31, 1998 to $100.0 million
at December 31, 1999. This $3.5 million decrease in debt was the direct result
of the Company's repayment of the borrowings associated with its acquisition of
Fannon Cable TV, Inc.
As of December 31, 1999, the Company had completed the upgrades of its cable
plant to 750 MHz in Durant and Calera, Oklahoma, serving approximately 4,400
subscribers; Hawkinsville and Cochran, Georgia, serving approximately 2,600
subscribers; Douglas, Torrington, Wheatland and Lingle, Wyoming, serving
approximately 5,500 subscribers; Roanoke and Wadley, Alabama, serving
approximately 2,300 subscribers; and Eatonton, Madison and Gray, Georgia,
serving approximately 3,900 subscribers. Also, the Company has completed its
projects in Westlake, Louisiana, serving approximately 6,600 subscribers, and
Decatur, Texas, serving approximately 1,100 subscribers, in which it
supplemented its 450 MHz cable plant with fiber to allow for the introduction of
advanced telecommunications services.
In addition, the Company is currently in the construction phase of its 750 MHz
upgrade to the cable plant for its Tennessee System which serves approximately
6,100 subscribers. Upon completion of the Tennessee upgrade, which is expected
to occur during 2001, and with the completed upgrades discussed above, the
Company will have the ability to provide advanced telecommunications services to
approximately 50% of its December 31, 1999 total subscriber base.
The Company is continually in the process of identifying other areas within its
Systems which can be upgraded to allow for the introduction of advanced
telecommunications services. However, the Company will only proceed with
upgrades which it believes are economically feasible after carefully weighing
the anticipated revenues against the costs of completing the upgrade.
The Notes. The Company has outstanding an aggregate principal amount of
$100,000,000 of its 10 3/4% Series B Senior Notes due 2004 (the "Notes"). The
Notes are general senior unsecured obligations of the Company that mature on
August 15, 2004 and rank equally in right of payment with all other existing and
future unsubordinated indebtedness of the Company and senior in right of payment
to any subordinated obligations of the Company. The Notes are effectively
subordinated in right of payment to all secured indebtedness of the Company.
Interest on the Notes accrues at the rate of 10 3/4% per annum and is payable
semi-annually in cash in arrears on February 15 and August 15, which commenced
on February 15, 1998, to holders of record on the immediately preceding February
1 and August 1. Interest on the Notes accrues from the most recent date to which
interest has been paid. Interest is computed on the basis of a 360-day year
comprised of twelve 30-day months.
There is no public market for the Notes. The Company has not and does not intend
to list the Notes on any securities exchange or to seek approval for quotation
through any automated quotation system.
The Credit Facility. The Company has a Credit Facility with two independent
banks acting as the lenders. The Credit Facility is a $20 million revolving
credit facility (with an option to increase the amount of credit available
thereunder to $30 million). The Credit Facility matures on August 15, 2002.
Proceeds under the Credit Facility will be available (i) to provide for working
capital and general corporate purposes, (ii) to fund certain permitted
acquisitions of cable television systems, (iii) to provide for certain permitted
repurchases of up to $5 million in the aggregate of limited partnership
interests in the Company, and (iv) to pay transaction fees and expenses. The
Credit Facility requires the Company to maintain the ratio of its total debt to
annualized six-month EBITDA at no more than 7.50 to 1. As of December 31, 1999,
this covenant limited the Company's maximum borrowings thereunder to
approximately $2 million. The Credit Facility requires payments of accrued
interest on a monthly basis throughout the term, with principal payment due at
maturity.
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<PAGE> 26
The Credit Facility is secured by a first priority lien on and security interest
in substantially all of the assets of the Company. The Credit Facility contains
certain covenants and provides for certain events of default customarily
contained in facilities of a similar type. The financial covenants which the
Company considers most significant require it to: (a) maintain an interest
coverage ratio (that is, the ratio of annualized six-month EBITDA to interest
expense) of at least 1.1 to 1; (b) maintain a senior debt ratio (that is, the
ratio of debt under the Credit Facility to annualized six-month EBITDA) of no
more than 1.75 to 1; and (c) maintain the total debt ratio described above. In
addition, the second amendment to the Credit Facility, which is dated December
31, 1999 (See "Part IV - Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K - Exhibit (4)(g)"), added certain restrictions to the amount
of capital expenditures that the Company can make for the remainder of the
Credit Facility term. The Company is in compliance with each of these covenants.
The Company believes that it will continue to generate cash or obtain financing
sufficient to meet its requirements for debt service, working capital and
capital expenditures contemplated in the near term and through the maturity date
of the Notes. However, the ability of the Company to satisfy its obligations
will be primarily dependent on its future financial and operating performance
and upon its ability to renew or refinance borrowings or to raise additional
equity capital if necessary.
IMPACT OF INFLATION AND CHANGING PRICES:
The Company's costs and expenses are subject to inflation and price
fluctuations. However, because changes in costs are generally passed through to
subscribers, such changes historically have not had, and in the future are not
expected to have, a material effect on the Company's results of operations.
YEAR 2000 COMPLIANCE:
The Year 2000 issue had the potential of impacting the Company in three
different areas: (1) The technical aspects of the Company's business, (2) the
Company's accounting and billing and (3) programming reception. However, the
Company did not experience any significant malfunctions or errors in its
operating or business systems when the date changed from 1999 to 2000. Moreover,
based on its operations since January 1, 2000, the Company does not expect any
significant impact on its continuing business as a result of the "Year 2000
issues."
It is possible that the full impact of the date change, which was of concern due
to computer programs that use two digits instead of four digits to define years,
has not been fully recognized. For example, it is possible that Year 2000 or
similar issues, such as leap-year related problems, may occur at monthly,
quarterly or yearly intervals. The Company believes, though, that any such
problems are likely to be minor and correctable. In addition, the Company could
still be negatively impacted if its customers or suppliers are adversely
affected by the Year 2000 or similar issues. The Company currently is not aware
of any significant Year 2000 or similar problems that have arisen for its
customers and suppliers.
Due in part to the Company's historical reliance on third party vendors in the
areas of concern, the costs incurred by the Company in connection with its Year
2000 readiness efforts were immaterial to the Company's operations.
EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS:
In June 1998, Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The standard is effective for the first quarter
of the Company's fiscal year beginning January 1, 2001. The Company does not
anticipate that the adoption of SFAS No. 133 will have a material impact on its
financial position or results of operations.
SALES OF CABLE SYSTEMS:
Sale of the Tennessee (Wartburg) Cluster. On March 5, 1999, pursuant to an Asset
Purchase Agreement dated as of July 31, 1998, the Company sold its cable
television systems in Pickett County, Scott County, Morgan County, Roane County,
Fentress County and Cumberland County, Tennessee, all of which made-up the
Tennessee (Wartburg) System, to Rapid Communications Partners, L.P. for $14.7
million in cash. As a result of the sale, the Company's remaining operations in
Tennessee consist only of its Tazewell, Tennessee System.
Sale of the Forsyth System. On March 31, 1999, pursuant to an Asset Purchase
Agreement dated as of February 2, 1999, the Company sold its cable television
system, serving approximately 1,700 subscribers, in Forsyth and Monroe County,
Georgia to the City of Forsyth for $2.3 million in cash.
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<PAGE> 27
The net gains on the above sales are calculated as follows:
<TABLE>
<CAPTION>
Tennessee Forsyth Totals
--------- ------- ------
<S> <C> <C> <C>
Net sale proceeds $14,453,000 $2,292,000 $16,745,000
Basis of assets sold 570,876 288,439 859,315
--------------------------------------------------------
Gain on sale $13,882,124 $2,003,561 $15,885,685
========================================================
</TABLE>
FORWARD-LOOKING STATEMENTS:
From time to time, we may publish forward-looking statements relating to such
matters as anticipated financial performance, business prospects, new products,
and similar matters. These forward-looking statements are subject to risks and
uncertainties.
When we use any of the words "intends", "believes," "expects," "anticipates" or
similar expressions, we are making forward-looking statements. For such
statements we claim the protection of the Private Securities Litigation Reform
Act of 1995 which provides a safe harbor for forward-looking statements.
A variety of factors could cause our actual results and experiences to differ
materially from the anticipated results or other expectations expressed in our
forward-looking statements. Although we believe that our forward-looking
statements are reasonable, you should not place undue reliance on any of these
statements, which speak only as of the date made. You should understand that the
following important factors could cause our results or performance to differ
materially from those expressed in our forward-looking statements.
We could lose subscribers to new technologies. Since 1995, we have experienced
increased competition from new technologies such as wireless cable services and
DBS services. Due to regulatory changes, we also face potential competition from
telephone companies. Many of our competitors have significantly greater
financial resources than us. Not withstanding the various Systems that we have
purchased and sold, our total subscribers have decreased by approximately 5.4%
between December 31, 1996 and December 31, 1999. The Company believes that one
of the primary reasons for this loss in its subscriber base is the increased
availability, affordability and increased marketing efforts of competitive video
services from satellite dishes and other alternatives to traditional hardline
cable service. Specifically, DBS has recently emerged as a significant
competitor with the Company due to several factors including (i) a much heavier
emphasis on marketing campaigns, (ii) a significant reduction in the cost of the
equipment necessary for a customer to receive the DBS service and (iii) recent
legislation that allows certain DBS customers to receive local broadcast
programming (See "Part 1. Business - Competition"). While we believe our
strategy of upgrading certain Systems to provide enhanced video programming,
Internet access, telephony and other advanced telecommunications services will
allow the Company to remain competitive in most of its markets, there can be no
assurance that this will be the case.
Our new lines of business involve additional risk. While we do not have
extensive experience providing Internet access and other advanced
telecommunications services, at December 31, 1999 we had successfully launched
commercial Internet service in a certain portion of every Cluster.
Some of the uncertainties associated with our offering Internet access
through cable are:
- customer acceptance of cable as an alternative to traditional
dial-up Internet access;
- the competitive response of traditional ISPs, online services (such
as The Microsoft Network, CompuServe and America Online) and long
distance inter-exchange carriers (such as AT&T Corp., MCI
Communications Corporation and Sprint Corporation), all of which
currently offer Internet access on a large scale; and
- the possibility that new technologies may be developed which offer
improved performance or other desirable features.
While we are optimistic about the prospects for these new lines of business,
there can be no assurance that we will be successful or that additional cash
flow will be generated.
Our business is extensively regulated. The cable television industry is subject
to extensive governmental regulation, principally by the FCC and local
franchising authorities. Many aspects of such regulation have recently been
extensively revised and are currently the subject of judicial proceedings and
administrative rulemakings, which are potentially significant to us. Moreover,
the regulation of cable television systems, including the rates charged for
cable services, remains a matter of interest to Congress, the FCC and local
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<PAGE> 28
regulatory officials. These regulations, which have removed some barriers to
competition and added materially to the regulatory burdens of cable operators,
related to:
- cable system rates for both basic and certain nonbasic services;
- programming access and exclusivity arrangements;
- access to cable channels by unaffiliated programming services;
- leased access terms and conditions;
- horizontal and vertical ownership of cable systems;
- customer service requirements;
- franchise renewals;
- television broadcast signal carriage and retransmission consent;
- technical standards;
- customer privacy;
- consumer protection issues;
- cable equipment compatibility;
- obscene or indecent programming; and
- requiring subscribers to subscribe to tiers of service other than
basic service as a condition of purchasing premium services.
Under the FCC's rate regulations, most cable systems were required to reduce
their basic service and CPST rates in 1993 and 1994, and have since had their
rate increases governed by a complicated price cap scheme. However, operators
also have the opportunity of bypassing this "benchmark" regulatory scheme in
favor of traditional "cost of service" in cases where the latter methodology
appears favorable.
Because we qualify as a small cable company under FCC rules and have elected to
rely on the cost-of-service rules as and when our Systems are required to
justify their rates for regulated services, we have not implemented the rate
reductions that would otherwise have been required if we were subject to the
FCC's benchmarks. Instead, we were allowed to establish permitted rates under a
simple formula that considers total operating expenses (including amortization
expenses), net rate base, rate of return, channel count and subscribers. So long
as the per channel rate resulting from these inputs for one of our Systems is no
more than $1.24, that System's rates will be presumed reasonable. If the
formula-generated rate exceeds the $1.24, then we will be required to prove the
reasonableness of our calculations. Substantially all of our rates are under the
$1.24 per channel level. We believe that all of our rates in excess of the $1.24
per channel level are reasonable using the formula described above.
FCC rules permit local franchise authorities to review basic service rates, and
under certain circumstances, challenge CPST rates at the FCC. An adverse ruling
in any such proceeding could require us to reduce our rates and pay refunds. A
reduction in our rates or the payment of refunds could have a material adverse
effect on us. Once the maximum permitted rate allowed by FCC rules is being
charged by us in regulated communities, future rate increases may not exceed an
inflation-indexed amount, plus increases in certain costs beyond the cable
operator's control, such as taxes, franchise fees and increased programming
costs. Although the regulation of the CPST expired for all cable systems on
March 31, 1999, critics of the cable television industry have called for the
reinstatement of this regulation and further have urged more rigorous rate
regulation (including limits on programming cost pass-throughs to cable
subscribers) until a greater degree of competition to incumbent cable operators
has developed.
Our franchises are non-exclusive and are subject to renewal. We operate our
Systems under franchises granted by local authorities which are subject to
renewal and renegotiation from time to time. Each franchise is generally granted
for a fixed term ranging from five to 15 years but may be terminated if the
franchisee fails to comply with the material provisions thereof. Our franchises
typically impose conditions relating to the use and operation of the cable
television system, including requirements relating to the payment of fees,
system bandwidth capacity, customer service requirements, franchise renewal and
termination. As of December 31, 1999, we
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<PAGE> 29
had 8 franchises (representing 3.9% of our basic subscribers) expiring prior to
2002 and 35 franchises (representing 25.6% of our basic subscribers) expiring
between 2002 and 2006.
Although we believe that we generally have good relationships with our
franchising authorities, no assurance can be given that we will be able to
retain or renew such franchises or that the terms of any such renewals will be
on terms as favorable to us as our existing franchises. The non-renewal or
termination of franchises relating to a significant portion of our subscribers
could have a material adverse effect on our results of operations.
We must successfully integrate our future acquisitions. An element of our
business strategy is to achieve operational efficiencies by providing advanced
telecommunications services and video services over an expanded subscriber base
within a concentrated geographic area. Consequently, we intend to consider
potential opportunities to acquire or trade cable television systems. Any
acquisition or trade could have an adverse effect upon our results of operations
or cash flow, particularly acquisitions of new systems which must be integrated
with our existing operations. There can be no assurance that we will be able to
integrate successfully any acquired systems with our existing operations or
realize any efficiencies from any acquisition or trade. There can also be no
assurance that any acquisition or trade, if consummated, will improve operating
results or that we will be able to obtain the financing that may be necessary to
fund any acquisition or trade in the future. In addition, any acquisition or
trade will be subject to, among other things, the satisfaction of customary
closing conditions and the receipt of certain third-party or governmental
approvals, including the consent of franchising authorities.
Our insurance coverage has been reduced in Florida and Louisiana. Because of
industry-wide casualty insurance reductions that resulted from insurers' loss
experience with several hurricanes in the southeastern portion of the United
States, our casualty insurance in Florida and Louisiana has been reduced to $1
million per occurrence. We believe that our Systems in Florida and Louisiana are
located in areas that are not subject to a high degree of risk from hurricanes,
or from ice storms (which do pose a significant risk for our Systems in other
areas), and that losses in excess of our existing coverage would be unlikely.
However, if such casualty insurance is inadequate, we could experience a
potential reduction in cash flow in the event of a loss in excess of our policy
limits. If a significant loss were to occur, it could have a material adverse
effect on our financial condition and results of operations.
Our operations are dependent upon the services of management. We rely
significantly on the services of the General Partner and the personnel employed
by or on behalf of the General Partner. We maintain $5 million of key-man life
insurance on Mr. William R. James, who effectively controls the General Partner.
We could be adversely affected, however, if Mr. James or any of Messrs. Trenary,
Shoemaker and Madison were unwilling or unable to continue to make their
services available to us.
There are potential conflicts of interest. The General Partner, which is
controlled by William R. James, is the sole general partner of the Company. With
certain limitations, the General Partner has exclusive authority for the
management and control of our business and operations. It performs management
services for us, for which it is paid an annual fee.
We are subject to possible conflicts of interest arising out of our relationship
with the General Partner and Mr. James. Because we were organized and are
operated by the General Partner, these conflicts will not necessarily be
resolved through arm's-length negotiations but rather may be resolved through
the exercise of the General Partner's judgment consistent with its fiduciary
responsibilities to us and our limited partners. Our Partnership Agreement
provides for a Partnership Advisory Board, one of the functions of which is to
review any potential conflicts of interest involving the General Partner, and
provides that the General Partner may be removed by the limited partners but (so
long as the General Partner is controlled by Mr. James) only if the General
Partner has been found by an independent party to have been engaged in
malfeasance, criminal conduct, wanton, willful neglect or a material breach of
the Partnership Agreement. There are no other procedures for resolving conflicts
between us and the General Partner. The Indenture contains certain restrictions
on transactions between James and Finance Corp. and their subsidiaries and
affiliates.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
No disclosures are required with respect to this item because the Company did
not hold, either during the years ended December 31, 1999 and 1998, or at
December 31, 1999 or 1998, any market risk sensitive instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Pages FS-1 through FS-16 which are included in Item 14. Exhibits, Financial
Statement Schedules, and Reports on Form 8-K of this Annual Report on Form 10-K
for the fiscal year ended December 31, 1999.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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<PAGE> 30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Since its inception in 1988, the Company's business and affairs have been
managed and controlled by the General Partner. The General Partner is managed
and controlled by its three partners, Jamesco Inc., a Michigan corporation (of
which William R. James is the sole shareholder, sole executive officer and sole
director), Trenary Corp., Ltd., a Michigan corporation (of which C. Timothy
Trenary is the sole shareholder, sole executive officer and sole director), and
DKS Holdings, Inc., a Michigan corporation (of which Daniel K. Shoemaker is the
sole shareholder, sole executive officer and sole director). By virtue of these
arrangements, Messrs. James, Trenary and Shoemaker (each a "Director") perform
functions for the Company which are similar to those generally performed for a
corporation by its board of directors. The Directors also constitute all of the
directors of Finance Corp. Through the General Partner, the persons named below
(collectively, the "Executive Officers") perform for the Company functions
similar to those generally performed for a corporation by executive officers
having the titles set forth below:
<TABLE>
<CAPTION>
NAME AGE FUNCTIONS PERFORMED
---------- --- -------------------
<S> <C> <C>
William R. James........................ 66 President and
Chief Executive Officer
C. Timothy Trenary...................... 43 Chief Operating Officer
Daniel K. Shoemaker..................... 37 Chief Financial Officer
Scott A. Madison........................ 42 Director of Engineering
</TABLE>
Messrs. James, Trenary and Shoemaker also constitute all of the executive
officers and directors of Finance Corp.
William R. James has been the sole shareholder and sole director of Jamesco, and
Jamesco has been a partner in the General Partner, since the Company was formed
in 1988. He has performed the functions of President and Chief Executive Officer
for the Company throughout the same period. He has been the President of Finance
Corp. since its formation in 1997.
In January 1986, Mr. James founded James Communications, Inc. ("JCI"), a cable
television company. He served as President and Chief Executive Officer of JCI
from its inception until it was sold in December 1987. From 1979 to 1986, Mr.
James was employed by Capital Cities Communications (which became Capital
Cities/ABC Inc.), during which time he oversaw the development of its cable
division ("Capital Cities Cable"). At the time he left Capital Cities
Communications to found JCI, Mr. James was an Executive Vice President of
Capital Cities Communications and the President of Capital Cities Cable. Prior
to joining Capital Cities Communications, Mr. James was a partner at Touche Ross
& Co. in charge of national manufacturing consulting. Mr. James is a graduate of
Princeton University and graduated from the Harvard University Business School
with distinction.
C. Timothy Trenary was a partner in the General Partner from the formation of
the Company until July 1, 1997, when he contributed his partnership interest to
his wholly-owned corporation, Trenary Corp., Ltd. From 1988 to 1989, Mr. Trenary
performed the functions of Chief Financial Officer for the Company, and, since
1989, he has performed the functions of its Chief Operating Officer. He has also
been a Vice President of Finance Corp. since its formation in 1997. Mr. Trenary
was Vice President of Finance of JCI during 1987. From 1983 to 1986, he was
Operations Manager of the Northern Region of Capital Cities Cable, and from 1981
to 1983, he was Manager of Financial Controls for Capital Cities Cable. Prior to
joining Capital Cities Cable, Mr. Trenary was an auditor with Arthur Young & Co.
Daniel K. Shoemaker was a partner in the General Partner from 1989 until July 1,
1997, when he contributed his partnership interest to his wholly-owned
corporation, DKS Holdings, Inc. He has performed the functions of Chief
Financial Officer for the Company since 1993, and from 1988 to 1993, he served
as its Director of Management Information Systems. He has also been the
Treasurer and Secretary of Finance Corp. since its formation in 1997. From 1985
to 1988, Mr. Shoemaker was a systems engineer in a management consulting group
of Electronic Data Systems Corporation.
Scott A. Madison has served as the Company's Director of Engineering since 1991.
From 1988 to 1991 he was Director of Engineering for C4 Media Companies (cable
television operators), and from 1986 to 1988 he was a Regional Engineer for C4
Media Cable South, L.P.I.
ITEM 11. EXECUTIVE COMPENSATION
The Company does not pay any compensation to the Directors or Executive
Officers. The Partnership Agreement provides compensation to the General Partner
for management services. Under the terms of the Partnership Agreement, the
General Partner is entitled to an annual management fee equal to 4% of the
Company's annual revenues, plus $5 multiplied by the average aggregate number of
subscribers to the Systems owned by the Company during such year. The amount of
the management fee was
-30-
<PAGE> 31
approximately $1,822,000, $1,905,000 and $1,868,000 in 1997, 1998 and 1999,
respectively. No other amounts were paid to the General Partner by the Company
in those years.
Effective December 29, 1999, with the consent of James' Partnership Advisory
Board and more than 96% of the limited partners of James, the limited
partnership agreement was amended and restated in its entirety. In connection
with the adoption of the Partnership Agreement, and with the approval of James'
Partnership Advisory Board and its limited partners, (i) the incentive
compensation payable by James to the general partner pursuant to the 1994
General Partner Incentive Compensation Agreement dated December 29, 1994 was
converted to a 2% Class A limited partnership interest, and (ii) the general
partner was issued an option to acquire a Class B limited partnership interest
of not more than 3.125% and not less than 2.5%.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
James is the record and beneficial owner of all of the issued and outstanding
shares of Finance Corp. The following table sets forth, at December 31, 1999,
the partnership interests in James beneficially owned by: (a) each person known
to James to beneficially own 5% or more of James' total partnership interests;
and (b) each Director, each Executive Officer, and all Directors and Executive
Officers as a group:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF
BENEFICIAL OWNER TYPE OF INTEREST(1) % OF CLASS
------------------------------------------------------ ------------------- ----------
<S> <C> <C>
William R. James(2)............................................... General partnership *
710 North Woodward Avenue, Suite 180 Limited partnership 2.9%
Bloomfield Hills, Michigan 48304
C. Timothy Trenary(3)............................................. General partnership *
710 North Woodward Avenue, Suite 180 Limited partnership *
Bloomfield Hills, Michigan 48304
Daniel K. Shoemaker(4)............................................ General partnership *
710 North Woodward Avenue, Suite 180 Limited partnership *
Bloomfield Hills, Michigan 48304
Scott A. Madison.................................................. None
710 North Woodward Avenue, Suite 180
Bloomfield Hills, Michigan 48304
SCP Acquisition LLC............................................... Limited partnership 88.1%
767 Fifth Avenue, 45th Floor
New York, New York 10153
All Directors and Executive Officers as a group................... General partnership *
Limited partnership 3.2%
</TABLE>
- ----------
* Less than 1.00%.
(1) The general partnership interest represents 0.95% of the Company's total
partnership interest.
(2) Reflects ownership of all of the capital stock of
Jamesco Inc., which holds a 91.5% interest in the General
Partner. Mr. James performs the functions of a Director of the Company. He
also performs the functions of Chief Executive Officer of the Company.
(3) Reflects ownership of all of the capital stock of Trenary Corp., Ltd.,
which holds a 7.5% interest in the General Partner. Mr. Trenary performs
the functions of a Director of the Company. He also performs the functions
of Chief Operating Officer of the Company.
(4) Reflects ownership of all of the capital stock of DKS Holdings, Inc.,
which holds a 1.0% interest in the General Partner. Mr. Shoemaker performs
the functions of a Director of the Company. He also performs the functions
of Chief Financial Officer of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
-31-
<PAGE> 32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
EXHIBITS:
<TABLE>
<CAPTION>
ITEM 601
REGULATION S-K
EXHIBIT REFERENCE
NUMBER EXHIBIT DESCRIPTION
----------------- -------------------
<S> <C>
(2)(a)/(10)(a) Asset Purchase Agreement by and between Fannon Cable T.V., Inc., a
Tennessee Corporation, and James Cable Partners, L.P., a Delaware Limited
Partnership, dated as of June 24, 1998 (incorporated by reference to
Exhibit 2.1 of the registrant's Form 8-K as filed with the Securities and
Exchange Commission on December 22, 1998).
(2)(b)/(10)(b) Asset Purchase Agreement by and between James Cable Partners, L.P., a
Delaware Limited Partnership, and Rapid Communications Partners, L.P.,
a Colorado Limited Partnership, dated as of July 31, 1998
(incorporated by reference to Exhibit 2.1 of the registrant's Form 8-K
as filed with the Securities and Exchange Commission on March 19,
1999).
(3)(a)/(10)(c) Second Amended and Restated Agreement of Limited Partnership of James Cable
Partners, L.P. dated as of December 29, 1999.*
(3)(b) Certificate of Limited Partnership of the Company (incorporated by
reference to Exhibit 3.2 of the registrant's Registration Statement on
Form S-4 as filed with the Securities and Exchange Commission on
September 8, 1997 (registration no. 333-35183)).
(3)(c) Articles of Incorporation of Finance Corp. (incorporated by reference to
Exhibit 3.3 of the registrant's Registration Statement on Form S-4 as filed
with the Securities and Exchange Commission on September 8, 1997
(registration no. 333-35183)).
(3)(d) Bylaws of Finance Corp. (incorporated by reference to Exhibit 3.4 of the
registrant's Registration Statement on Form S-4 as filed with the Securities
and Exchange Commission on September 8, 1997 (registration no. 333-35183)).
(4)(a) Indenture dated as of August 15, 1997 among the Company, Finance
Corp., and United States Trust Company of New York, as Trustee
(including form of Notes) (incorporated by reference to Exhibit 4.1 of
the registrant's Registration Statement on Form S-4 as filed with the
Securities and Exchange Commission on September 8, 1997 (registration
no. 333-35183)).
(4)(b) Credit Agreement dated as of August 15, 1997 among the Company, the
lenders party thereto, NBD Bank as documentation agent and Canadian
Imperial Bank of Commerce as co-agent (incorporated by reference to
Exhibit 4.3 of the registrant's Registration Statement on Form S-4 as
filed with the Securities and Exchange Commission on September 8, 1997
(registration no. 333-35183)).
(4)(c) Company Security Agreement dated as of August 15, 1997 between the
Company and NBD Bank as documentation agent (incorporated by reference
to Exhibit 4.4 of the registrant's Registration Statement on Form S-4
as filed with the Securities and Exchange Commission on September 8,
1997 (registration no. 333-35183)).
(4)(d) Guaranty Agreement dated as of August 15, 1997 by Finance Corp. in favor of
the Lenders and Agents named therein (incorporated by reference to
Exhibit 4.5 of the registrant's Registration Statement on Form S-4 as filed
with the Securities and Exchange Commission on September 8, 1997
(registration no. 333-35183)).
</TABLE>
-32-
<PAGE> 33
<TABLE>
<CAPTION>
ITEM 601
REGULATION S-K
EXHIBIT REFERENCE
NUMBER EXHIBIT DESCRIPTION
----------------- -------------------
<S> <C>
(4)(e) Guarantor Security Agreement dated as of August 15, 1997 between
Finance Corp. and NBD Bank as documentation agent (incorporated by
reference to Exhibit 4.6 of the registrant's Registration Statement on
Form S-4 as filed with the Securities and Exchange Commission on
September 8, 1997 (registration no. 333-35183)).
(4)(f) First Amendment to the Credit Agreement dated as of August 15, 1998
among James Cable Partners, L.P., the lenders party thereto, NBD Bank,
as documentation agent, and Canadian Imperial Bank of Commerce, as
administrative agent (incorporated by reference to Exhibit 4.7 of the
registrant's Form 10-Q as filed with the Securities and Exchange
Commission for the quarterly period ended June 30, 1998).
(4)(g) Second Amendment to the Credit Agreement dated as of December 31, 1999
among James Cable Partners, L.P., the lenders party thereto, Bank One,
Michigan (formerly known as NBD Bank), as documentation agent, and
Canadian Imperial Bank of Commerce, as administrative agent.*
(4)(h) Option Agreement / Option Certificate dated as of December 29, 1999 by and
between James Cable Partners, L.P. and James Communications Partners.*
12 Statement re computation of ratios.*
21 List of subsidiaries of James: James Cable Finance Corp. (James Cable Finance
Corp. has no subsidiaries.)
24 Powers of Attorney.*
27 Financial Data Schedule.*
</TABLE>
--------------------------
* Filed herewith.
Management contracts and compensatory plans or arrangements:
The management contracts and compensatory plans or arrangements required to be
filed as exhibits and included in such list of exhibits are as follows:
<TABLE>
<S> <C>
(3)(a)/(10)(c) Second Amended and Restated Agreement of Limited Partnership of James Cable Partners, L.P.
dated as of December 29, 1999.*
(3)(b) Certificate of Limited Partnership of the Company (incorporated by reference to
Exhibit 3.2 of the registrant's Registration Statement on Form S-4 as filed with
the Securities and Exchange Commission on September 8, 1997 (registration no.
333-35183)).
(4)(h) Option Agreement / Option Certificate dated as of December 29, 1999 by and between James Cable
Partners, L.P. and James Communications Partners.*
</TABLE>
REPORTS ON FORM 8-K:
None.
-33-
<PAGE> 34
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES:
<TABLE>
<CAPTION>
10-K
Report
page(s)
-------
<S> <C>
James Cable Partners, L.P. and Subsidiary:
Independent Auditors' Report............................................................. FS-1
Consolidated balance sheets as of December 31, 1998 and 1999............................. FS-2
Consolidated statements of operations for each of the years ended December 31, 1997,
1998 and 1999............................................................................ FS-3
Consolidated statements of partners' deficit for each of the years ended December 31,
1997, 1998 and 1999...................................................................... FS-4
Consolidated statements of cash flows for each of the years ended December 31, 1997,
1998 and 1999............................................................................ FS-5
Notes to consolidated financial statements............................................... FS-6
James Cable Finance Corp.:
Independent Auditors' Report............................................................. FS-14
Balance sheets as of December 31, 1998 and 1999.......................................... FS-15
Notes to balance sheets.................................................................. FS-16
</TABLE>
Financial Statement Schedules:
Any schedules for which provision is made in Regulation S-X either (i)
are not required under the related instructions or are inapplicable
and, therefore, have been omitted, or (ii) the information required is
included in the consolidated financial statements or the notes thereto
that are a part hereof.
-34-
<PAGE> 35
INDEPENDENT AUDITORS' REPORT
To the Partners of
James Cable Partners, L.P.
Bloomfield Hills, Michigan
We have audited the accompanying consolidated balance sheets of James Cable
Partners, L.P. (a Delaware Limited Partnership) at December 31, 1998 and 1999,
and the related consolidated statements of operations, partners' deficit and
cash flows for each of the three years in the period ended December 31, 1999.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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, such consolidated financial statements present fairly, in all
material respects, the financial position of James Cable Partners, L.P. at
December 31, 1998 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
February 4, 2000
Detroit, Michigan
FS-1
<PAGE> 36
JAMES CABLE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1999
----- -----
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,465,193 $ 5,342,420
Accounts receivable - Subscribers (net of allowance for doubtful
accounts of $43,971 in 1998 and $28,141 in 1999) 3,419,506 3,356,444
Prepaid expenses and other assets (Note 5) 140,426 180,635
Property and equipment: (Note 7)
Cable television distribution systems and equipment 87,266,805 87,448,177
Land and land improvements 306,426 296,681
Buildings and improvements 1,111,621 988,121
Office furniture and fixtures 1,720,616 2,169,720
Vehicles 3,556,304 3,592,938
---------------- ----------------
Total 93,961,772 94,495,637
Less accumulated depreciation (76,026,758) (70,686,387)
---------------- ----------------
Total 17,935,014 23,809,250
Deferred financing costs (net of accumulated amortization of $843,508
in 1998 and $1,474,393 in 1999) 3,367,654 2,736,769
Intangible assets, net (Notes 2 and 7) 18,026,202 16,353,084
Deposits 13,232 20,842
---------------- ----------------
Total assets $ 44,367,227 $ 51,799,444
================ ================
LIABILITIES AND PARTNERS' DEFICIT
Liabilites:
Debt (Note 3) $ 103,500,000 $ 100,000,000
Accounts payable 306,658 272,588
Accrued expenses (Note 5) 2,416,467 2,584,667
Accrued interest on 10-3/4% Senior Notes (Note 3) 4,031,249 4,031,249
Unearned revenue 3,111,739 3,072,305
Subscriber deposits 23,424 21,451
---------------- ----------------
Total 113,389,537 109,982,260
Commitments and contingencies (Notes 4 and 6) --- ---
Partners' deficit:
Limited Partners ("L.P.") (62,650,960) (52,314,823)
General Partner ("G.P.") (6,371,350) (5,867,993)
---------------- ----------------
Total (69,022,310) (58,182,816)
---------------- ----------------
Total liabilities and partners' deficit $ 44,367,227 $ 51,799,444
================ ================
</TABLE>
See notes to consolidated financial statements.
FS-2
<PAGE> 37
JAMES CABLE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenues $ 35,777,675 $ 37,757,809 $ 37,371,831
System operating expenses (excluding
depreciation and amortization) 17,399,790 19,409,691 20,444,576
Non-system operating expenses:
Management fee (Note 5) 1,822,417 1,904,984 1,868,165
Other 762,304 1,054,698 963,114
---------------- ---------------- ----------------
Total non-system operating expenses 2,584,721 2,959,682 2,831,279
Depreciation and amortization 7,929,986 7,561,451 8,013,278
---------------- ---------------- ----------------
Operating income 7,863,178 7,826,985 6,082,698
Interest and other:
Interest expense (9,646,679) (11,383,449) (11,158,350)
Interest income 176,136 357,138 138,524
General partner incentive payment (Note 9) 0 0 (540,000)
Other (Note 3) (232,845) (111,544) (109,063)
---------------- ---------------- ----------------
Total interest and other (9,703,388) (11,137,855) (11,668,889)
---------------- ---------------- ----------------
Loss before gains on sales and extraordinary items (1,840,210) (3,310,870) (5,586,191)
Gains on sales of cable systems (Note 8) 0 0 15,885,685
Extraordinary loss due to debt
refinancing (Note 3) (3,125,012) 0 0
---------------- ---------------- ----------------
Net (loss) income $ (4,965,222) $ (3,310,870) $ 10,299,494
================ ================ ================
</TABLE>
See notes to consolidated financial statements.
FS-3
<PAGE> 38
JAMES CABLE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
<TABLE>
<CAPTION>
Limited General
Partners Partner Total
------------------- ------------------- ------------------
<S> <C> <C> <C>
Balance, December 31, 1996 $ (50,587,123) $ (5,759,095) $ (56,346,218)
Net loss (4,725,402) (239,820) (4,965,222)
Repurchase of warrants (4,187,480) (212,520) (4,400,000)
------------------- ------------------- ------------------
Balance, December 31, 1997 (59,500,005) (6,211,435) (65,711,440)
Net loss (3,150,955) (159,915) (3,310,870)
------------------- ------------------- ------------------
Balance, December 31, 1998 (62,650,960) (6,371,350) (69,022,310)
Net income 9,796,137 503,357 10,299,494
Capital contribution 540,000 0 540,000
=================== =================== ==================
Balance, December 31, 1999 $ (52,314,823) $ (5,867,993) $ (58,182,816)
=================== =================== ==================
</TABLE>
See notes to consolidated financial statements.
FS-4
<PAGE> 39
JAMES CABLE PARTNERS, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net (loss) income $ (4,965,222) $ (3,310,870) $ 10,299,494
Adjustments to reconcile net (loss) income
to net cash from operating activities:
Depreciation 2,932,587 3,940,390 5,534,440
Amortization 4,997,399 3,621,061 2,478,838
Noncash interest expense 647,623 616,302 630,885
Gains on sales of cable systems (15,885,685)
Noncash incentive payment 540,000
Extraordinary item, net of additional
interest 1,894,451 0 0
(Increase) decrease in assets:
Accounts receivable (37,271) (75,161) 63,062
Prepaid expenses 2,128 73,390 (40,209)
Deposits 4,255 2,550 (7,610)
(Decrease) increase in liabilities:
Accounts payable (116,801) 60,823 (34,070)
Accrued expenses (1,095,548) 83,239 168,200
Accrued interest on 10-3/4%
Senior Notes 4,031,249 0 0
Unearned revenue 110,950 123,760 (39,434)
Subscriber deposits (2,394) (1,855) (1,973)
-------------- -------------- --------------
Total adjustments 13,368,628 8,444,499 (6,593,556)
-------------- -------------- --------------
Net cash flows from
operating activities 8,403,406 5,133,629 3,705,938
Cash Flows (used in) from Investing Activities:
Purchase of Fannon Cable T.V., Inc. (7,800,000)
Purchase of Edge Cable T.V. (750,974)
Purchase of several Internet businesses (555,720)
Net proceeds from sales of systems 16,745,000
Additions to property and equipment (7,595,978) (9,171,278) (11,767,017)
-------------- -------------- --------------
Net cash flows (used in) from
investing activities (7,595,978) (16,971,278) 3,671,289
Cash Flows from (used in) Financing Activities:
Principal payments on debt (82,407,796) (3,500,000)
Proceeds from debt borrowings 100,000,000 3,500,000
Payments on capital lease obligation (86,441)
Deferred financing costs (4,111,162) (100,000)
Repurchase of warrants (4,400,000)
-------------- -------------- --------------
Net cash flows from (used in)
financing activities 8,994,601 3,400,000 (3,500,000)
-------------- -------------- --------------
Net Increase (Decrease) in Cash and
Cash Equivalents 9,802,029 (8,437,649) 3,877,227
Cash and Cash Equivalents, Beginning of Year 100,813 9,902,842 1,465,193
-------------- -------------- --------------
Cash and Cash Equivalents, End of Year $ 9,902,842 $ 1,465,193 $ 5,342,420
============== ============== ==============
Supplemental Disclosure of Cash Flow Information
- Cash paid for interest during the period
(Net of amounts capitalized) $ 5,651,010 $ 10,750,000 $ 10,839,835
============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
FS-5
<PAGE> 40
JAMES CABLE PARTNERS, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - James Cable Partners, L.P. (a Delaware limited
partnership) ("James") was formed on January 12, 1988. James has system
locations in Alabama, Colorado, Wyoming, Oklahoma, Texas, Florida,
Tennessee, Louisiana and Georgia. James' principal investment objective is
to realize capital appreciation through the acquisition, ownership,
control, and operations of cable television systems.
James Cable Finance Corp., a Michigan corporation ("Finance Corp."),
was organized on June 19, 1997 and became a wholly-owned subsidiary of
James for the sole purpose of acting as co-issuer with James of the Notes
referred to below (Note 3). References to the "Company" herein are to
James and Finance Corp. consolidated, or to James prior to the
organization of Finance Corp., as appropriate.
PARTNERSHIP AGREEMENT - The following represents certain provisions of the
James Cable Partners, L.P. Second Amended and Restated Agreement of
Limited Partnership dated as of December 29, 1999 (the "Partnership
Agreement"):
Term of Agreement - Unless its term is extended as provided in the
Partnership Agreement, James will be dissolved upon the earliest to occur
of (i) December 31, 2005, (ii) a determination by the general partner that
James should be dissolved, with the approval of 51% of the Class A Limited
Partner interests, (iii) the sale or disposition by James of substantially
all of its assets, (iv) the consent of holders of 51% of the Class A
Limited Partner interests, (v) the removal of the general partner pursuant
to the terms of the Partnership Agreement, or (vi) the bankruptcy,
insolvency, dissolution or withdrawal of the general partner.
Voting Rights - Except as to matters for which consent or approval is
expressly required under the Partnership Agreement, the Limited Partners
have no right to vote on any partnership matters. Where a vote or consent
is required, each Partner is entitled to vote based on its percentage
interest in James.
Contributions - Under the Partnership Agreement, the partners have
made certain contributions to James. The general partner is not required
to lend or advance any funds to James or to make any additional capital
contributions to James. No limited partner is required to lend any funds
to James or to make any capital contributions to James. The Partnership
Agreement provides that no partner of James shall have the right to
withdraw or demand the return of its capital contribution during the term
of James' existence. The general partner is not personally liable for the
return of the capital contributions made by Limited Partners.
Distributions - James has not made distributions to any of the
partners, cash or property, from the date of inception to the current
date. While James does not have plans to make any distributions in the
near future, any distributions made would be subject to the provisions of
both the Partnership Agreement and James' various debt agreements.
FS-6
<PAGE> 41
PROPERTY, PLANT AND EQUIPMENT are recorded at cost. For the year ended
December 31, 1999, the Company capitalized interest of $295,223.
Depreciation is computed using accelerated methods and includes amounts
charged to expense under capital lease obligations. Estimated useful lives
for major categories are as follows:
<TABLE>
<CAPTION>
YEARS
<S> <C>
Buildings and improvements 31.5 and 39
Cable television distribution systems 7
Office furniture and fixtures 5 - 7
Vehicles 5
</TABLE>
INTANGIBLE ASSETS consist of subscriber lists, franchise operating rights
and covenants not to compete acquired in connection with acquisitions.
Also included is goodwill, which is the amount by which the cost of
acquisitions exceeded the fair values assigned to assets acquired.
Intangible assets are amortized using the straight-line method over
periods up to 40 years.
DEFERRED FINANCING COSTS in connection with the refinancing (Note 3) are
being amortized on the straight-line method over 5 years for the credit
facility and 7 years for the 10-3/4% Senior Notes due 2004.
REVENUES are recognized in the period in which the related services are
provided to the subscribers.
PROFITS AND LOSSES are generally allocated in accordance with James'
Partnership Agreement. Currently, profits and losses are allocated
approximately 95% to the limited partners and 5% to the general partner.
STATEMENT OF CASH FLOWS - For purposes of the statement of cash flows, the
Company considers all highly liquid debt instruments purchased with
maturities of ninety days or less at date of purchase to be cash
equivalents.
ESTIMATES - The preparation of the Company's financial statements in
conformity with generally accepted accounting principles requires
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 these estimates.
INCOME TAXES - The financial statements include only those assets,
liabilities and results of operations of the Company which relate to the
business of James Cable Partners, L.P. No recognition has been made of
income taxes since these taxes are the personal responsibility of the
partners.
IMPACT OF RECENTLY ADOPTED ACCOUNTING PRINCIPLES - In June 1998, Statement
of Financial Accounting Standards ("SFAS") No. 133 "Accounting for
Derivative Instruments and Hedging Activities" was issued. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. The standard is effective for the
first quarter of the Company's fiscal year beginning January 1, 2001. The
FS-7
<PAGE> 42
Company does not anticipate that adoption of SFAS No. 133 will have a
material impact on its financial position or results of operations.
FAIR VALUES OF FINANCIAL INSTRUMENTS - The carrying values of cash and
cash equivalents, accounts receivable, accounts payable and the Credit
Facility (Note 3) approximate fair market value due to the short-term of
maturities of these instruments.
The estimated fair value of the Company's Notes (Note 3) have been
determined using available market information. However, considerable
judgement is required in interpreting market data to develop the estimates
of fair value. Accordingly, the estimates presented herein may not be
indicative of the amounts that the Company could realize in a current
market exchange. The use of different assumptions or valuation
methodologies may have a material effect on the estimated fair value
amounts. The fair value of the Notes was estimated using quoted market
prices (in millions).
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1999
------------------------- --------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
The Notes $100.0 $105.5 $100.0 $100.5
</TABLE>
2. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
Franchise operating rights $ 60,292,548 $ 52,995,548
Subscriber lists 13,631,000 12,090,720
Covenants not to compete 13,928,200 12,994,200
Goodwill 18,093,009 16,585,782
Organization costs 1,248,020 1,248,020
------------ ------------
Total 107,192,777 95,914,270
Less accumulated amortization (89,166,575) (79,561,186)
------------ ------------
Total $ 18,026,202 $ 16,353,084
============ ============
</TABLE>
3. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
1998 1999
<S> <C> <C>
10-3/4% Series B Senior Notes due 2004 $ 100,000,000 $ 100,000,000
Bank Credit Facility 3,500,000 ---
----------------- -------------------
Total $ 103,500,000 $ 100,000,000
================= ===================
</TABLE>
THE NOTES - The Company has outstanding an aggregate principal amount of
$100,000,000 of its 10 3/4% Series B Senior Notes due 2004 (the "Notes").
The Notes are general senior unsecured obligations of the Company that
mature on August 15, 2004 and rank equally in right of payment
FS-8
<PAGE> 43
with all other existing and future unsubordinated indebtedness of the
Company and senior in right of payment to any subordinated obligations of
the Company. The Notes are effectively subordinated in right of payment to
all secured indebtedness of the Company. Interest on the Notes accrues at
the rate of 10 3/4% per annum and is payable semi-annually in cash in
arrears on February 15 and August 15, which commenced on February 15,
1998, to holders of record on the immediately preceding February 1 and
August 1. Interest on the Notes accrues from the most recent date to which
interest has been paid. Interest is computed on the basis of a 360-day
year comprised of twelve 30-day months.
There is no public market for the Notes. The Company has not and does not
intend to list the Notes on any securities exchange or to seek approval
for quotation through any automated quotation system.
THE CREDIT FACILITY - The Company has a Credit Facility with two
independent banks acting as the lenders. The Credit Facility is a $20
million revolving credit facility (with an option to increase the amount
of credit available thereunder to $30 million). The Credit Facility
matures on August 15, 2002. Proceeds under the Credit Facility will be
available (i) to provide for working capital and general corporate
purposes, (ii) to fund certain permitted acquisitions of cable television
systems, (iii) to provide for certain permitted repurchases of up to $5
million in the aggregate of limited partnership interests in the Company,
and (iv) to pay transaction fees and expenses. The Credit Facility
requires the Company to maintain the ratio of its total debt to annualized
six-month EBITDA at no more than 7.50 to 1. As of December 31, 1999, this
covenant limited the Company's maximum borrowings thereunder to
approximately $2 million. The Credit Facility requires payments of accrued
interest on a monthly basis throughout the term, with principal payment
due at maturity. The interest rate of the Credit Facility is based on
Prime or one to six month LIBOR rates plus a certain percentage based on
provisions related to debt to earnings ratios and events of default, as
defined. At December 31, 1999 the Company had no outstanding borrowings
under the Credit Facility.
The Credit Facility is secured by a first priority lien on and
security interest in substantially all of the assets of the Company. The
Credit Facility contains certain covenants and provides for certain events
of default customarily contained in facilities of a similar type. The
financial covenants which the Company considers most significant require
it to: (a) maintain an interest coverage ratio (that is, the ratio of
annualized six-month EBITDA to interest expense) of at least 1.1 to 1; (b)
maintain a senior debt ratio (that is, the ratio of debt under the Credit
Facility to annualized six-month EBITDA) of no more than 1.75 to 1; and
(c) maintain the total debt ratio described above. In addition, the second
amendment to the Credit Facility, which is dated December 31, 1999, added
certain restrictions to the amount of capital expenditures that the
Company can make for the remainder of the Credit Facility term. The
Company is in compliance with each of these covenants.
EXTRAORDINARY LOSS - In connection with the prepayment of the prior bank
credit facility and the subordinated notes, the Company realized an
extraordinary loss as follows:
FS-9
<PAGE> 44
<TABLE>
<S> <C>
Write-off of deferred financing costs $1,894,451
Additional interest $1,230,561
-----------------
Total extraordinary loss $3,125,012
=================
</TABLE>
In addition, the Company has paid administrative and other fees to the
debtholders for maintenance and services related to the debt. Amounts paid
in the years ended December 31, 1997, 1998 and 1999 were $234,446,
$113,297 and $110,818, respectively.
4. COMMITMENTS AND CONTINGENCIES
The Company leases office space under operating leases which expire at
varying dates through 2004. Total rental expense, including month-to-month
rentals, was approximately $80,353, $90,897 and $113,556 for the years
ended December 31, 1997, 1998 and 1999, respectively.
The Company is committed to monthly pole rentals of $45,757 as of
December 31, 1999, to various utilities and cities. These agreements are
subject to termination rights by both parties.
The Company is a party to ordinary and routine litigation proceedings
that are incidental to the Company's business. Management believes that
the outcome of all pending legal proceedings will not, in the aggregate,
have a material adverse effect on the financial condition or results of
operations of the Company.
5. RELATED PARTY TRANSACTIONS
The Company has an agreement with the general partner to operate and
manage its cable systems. The fee for management services, in accordance
with the Company's Partnership Agreement, is equal to 4% of annual
revenues plus $5.00 per average annual subscriber. Management fees paid by
the Company to the general partner amounted to $1,822,417, $1,904,984 and
$1,868,165 in the years ended December 31, 1997, 1998 and 1999,
respectively.
Included in prepaid expenses and other assets are amounts receivable
from related parties which total $13,757 and $10,123 for the years ended
December 31, 1998 and 1999, respectively.
Included in accrued expenses are amounts payable to related parties
which total $13,029 and $3,079 for the years ended December 31, 1998 and
1999, respectively.
6. REGULATORY MATTERS
The cable television industry is subject to extensive governmental
regulation on the federal, state and local levels (but principally by the
Federal Communications Commission ("FCC") and by local franchising
authorities). Many aspects of such regulation have recently been
extensively revised and are currently the subject of judicial proceedings
and administrative rulemakings, which are potentially significant to the
Company. In this regard, the Company believes that the regulation of cable
television systems, including the rates charged for cable services,
remains a matter of interest to Congress, the FCC and local regulatory
officials. Critics of the cable television industry continue to seek to
maintain or even tighten cable rate regulation in the absence
FS-10
<PAGE> 45
of widespread effective competition. Accordingly, no assurance can be
given as to what future actions such parties or the courts may take or the
effect thereof on the Company.
Under the FCC's rate regulations, most cable systems were required to
reduce their basic service and cable programming service tiers ("CPST")
rates in 1993 and 1994, and have since had their rate increases governed
by a complicated price cap scheme. Operators also have the opportunity of
bypassing this "benchmark" regulatory scheme in favor of traditional "cost
of service" in cases where the latter methodology appears favorable. The
FCC also established a vastly simplified cost of service methodology for
small cable companies. The 1996 Telecommunications Act terminated rate
regulation of the CPST for all cable systems on March 31, 1999, however,
rate regulation as described below continues to apply to the basic service
tier.
The Company, which qualifies as a small cable company under FCC rules,
has elected to rely on the cost-of service rules as and when the Systems
are required to justify their rates for regulated services and, therefore,
has not implemented the rate reductions that would otherwise have been
required if it were subject to the FCC's benchmarks. Under the
cost-of-service rules applicable to small cable companies, eligible
systems can establish permitted rates under a simple formula that
considers total operating expenses (including amortization expenses), net
rate base, rate of return, channel count and subscribers. If the per
channel rate resulting from these inputs for a cable system is no more
than $1.24, the cable system's rates will be presumed reasonable. If the
formula generated rate exceeds the $1.24, the burden is on the cable
operator to establish the reasonableness of its calculations.
Substantially all of the Company's rates are currently under the $1.24
per channel level, and the Company believes that all of its rates in
excess of the $1.24 per channel level are reasonable using the formula
described above. However, FCC rules permit local franchise authorities to
review basic service rates, and under certain circumstances, challenge
CPST rates at the FCC. An adverse ruling in any such proceeding could
require the Company to reduce its rates and pay refunds. A reduction in
the rates it charges for regulated services or the requirement that it pay
refunds could have a material adverse effect on the Company. Once the
maximum permitted rate allowed by FCC rules is being charged by the
Company in regulated communities, future rate increases may not exceed an
inflation-indexed amount, plus increases in certain costs beyond the cable
operator's control, such as taxes, franchise fees and increased
programming costs.
In addition, certain provisions of the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act") could in the
future have a material adverse effect on the Company's business. In
particular, the 1992 Cable Act conveyed to broadcasters the right
generally to elect either to require (i) the local cable operator to carry
their signal or (ii) that such operator obtain the broadcaster's consent
before doing so. To date, compliance with these provisions has not had a
material effect on the Company, although this result may change in the
future depending on such factors as market conditions, channel capacity
and similar matters when such arrangements are renegotiated. In this
regard, a rulemaking is now pending at the FCC regarding the imposition of
dual digital and analog must carry provisions.
7. ACQUISITION OF CABLE SYSTEM
On December 10, 1998, pursuant to an Asset Purchase Agreement dated as
of June 24, 1998, the Company purchased the Cable Systems (as described
below) of Fannon Cable T.V., Inc.
FS-11
<PAGE> 46
("Fannon") for $7.65 million in cash. A portion of the purchase price was
funded with a $3.5 million draw against James' existing $30 million
revolving bank line of credit (Note 3). The remaining $4.15 million of the
purchase price was funded with cash-on-hand.
The acquired cable television systems (individually a "Cable System"
and collectively the "Cable Systems") serve the communities of New
Tazewell, Tazewell, Harrogate and Cumberland Gap and certain
unincorporated portions of Claiborne County in the State of Tennessee.
Included in the assets purchased were all necessary franchises, the
rights to receive and distribute cable television signals to subscribers
and all of the equipment and other personal and real property necessary
for this reception and distribution of cable television signals to such
communities. James intends to continue to use the assets in the same
manner and for the same purpose as Fannon.
The purchase price of $7.65 million, plus a commision of $150,000 paid
to a broker, has been allocated among the following assets based on their
estimated fair values and are being depreciated or amortized over the
following lives:
<TABLE>
<CAPTION>
PURCHASE DEPRECIATION /
ASSET PRICE ALLOC. AMORTIZATION LIFE
<S> <C> <C>
Land $ 7,953 n/a
Vehicles 28,483 5 Yrs.
Non-Compete Agreement 305,882 5 Yrs.
Goodwill 7,457,682 40 Yrs.
-------------------
Total $ 7,800,000
===================
</TABLE>
The Company's statement of operations for the year ended December 31,
1998 reflects the operations of the Cable Systems for the period from
December 11 through 31, 1998. The following table summarizes the pro forma
financial information of the Company for the years ended December 31, 1997
and 1998 as if the acquisition of Fannon had occurred on January 1, 1997
(unaudited):
<TABLE>
<CAPTION>
1997 1998
---- ----
(in thousands)
<S> <C> <C>
Revenues $ 37,568 $39,447
Loss Before Extraordinary Item (1,629) (3,134)
Net loss (4,754) (3,134)
</TABLE>
This pro forma financial information is not necessarily indicative of
what the actual results of operations of the Company would have been had
the acquisition actually occurred as of January 1, 1997, nor does it
purport to represent the results of the Company for future periods.
FS-12
<PAGE> 47
8. SALES OF CABLE SYSTEMS
On March 5, 1999, pursuant to an Asset Purchase Agreement dated as of
July 31, 1998, the Company sold its cable television systems, serving
approximately 9,500 subscribers, in Pickett County, Scott County, Morgan
County, Roane County, Fentress County and Cumberland County, Tennessee to
Rapid Communications, L.P. for $14.7 million in cash.
On March 31, 1999, pursuant to an Asset Purchase Agreement dated as of
February 2, 1999, the Company sold its cable television system, serving
approximately 1,700 subscribers, in Forsyth and Monroe County, Georgia to
the City of Forsyth for $2.3 million in cash.
The net gains on the above sales are calculated as follows:
<TABLE>
<CAPTION>
Tennessee Forsyth Totals
--------- ------- ------
<S> <C> <C> <C>
Net sale proceeds $14,453,000 $2,292,000 $16,745,000
Basis of assets sold 570,876 288,439 859,315
--------------------------------------------------------
Gain on sale $13,882,124 $2,003,561 $15,885,685
========================================================
</TABLE>
9. OTHER ITEMS
Effective December 29, 1999, with the approval of James' Partnership
Advisory Board and more than 96% of its limited partners, the limited
partnership agreement of James was amended and restated in its entirety.
The James Cable Partners, L.P. Second Amended and Restated Agreement of
Limited Partnership dated as of December 29, 1999 (the "Partnership
Agreement") is substantially similar to James' prior limited partnership
agreement. The most significant changes effected by such amendment and
restatement include the creation of a second class of limited partnership
interests and a reduction, from 96% or 66%, as applicable, to 51%, in the
requisite percentage consent of limited partners necessary to undertake
certain actions.
In connection with the adoption of the Partnership Agreement, and with
the approval of James' Partnership Advisory Board and its limited
partners, (i) the incentive compensation payable by James to the general
partner pursuant to the 1994 General Partner Incentive Compensation
Agreement dated December 9, 1994 was converted to a 2% Class A limited
partnership interest and (ii) the general partner was issued an option to
acquire a Class B limited partnership interest of not more than 3.125% and
not less than 2.5%.
FS-13
<PAGE> 48
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
James Cable Finance Corp.
Bloomfield Hills, Michigan
We have audited the accompanying balance sheets of James Cable Finance Corp. (a
wholly owned subsidiary of James Cable Partners, L.P., a Delaware Limited
Partnership) ("Finance Corp.") at December 31, 1998 and 1999. These balance
sheets are the responsibility of the management of Finance Corp. Our
responsibility is to express an opinion on these balance sheets 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 balance sheets are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheets. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, such balance sheets present fairly, in all material respects,
the financial position of James Cable Finance Corp. at December 31, 1998 and
1999 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
February 4, 2000
Detroit, Michigan
FS-14
<PAGE> 49
JAMES CABLE FINANCE CORP.
(A WHOLLY OWNED SUBSIDIARY OF JAMES CABLE PARTNERS, L.P.,
A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1999
---- ----
ASSETS
<S> <C> <C>
Cash and cash equivalents $1,000 $1,000
====== ======
SHAREHOLDER'S EQUITY
Shareholder's equity - Common stock, no par value (1,000 shares issued and outstanding) $1,000 $1,000
====== ======
</TABLE>
See notes to balance sheets.
FS-15
<PAGE> 50
JAMES CABLE FINANCE CORP.
(A WHOLLY-OWNED SUBSIDIARY OF JAMES CABLE PARTNERS, L.P.,
A DELAWARE LIMITED PARTNERSHIP)
NOTES TO BALANCE SHEETS
1. ORGANIZATION
James Cable Finance Corp. ("Finance Corp."), a Michigan corporation, is a
wholly-owned subsidiary of James Cable Partners, L.P. ("James"), a Delaware
limited partnership, and was organized on June 19, 1997 (the "Date of
Inception") for the sole purpose of acting as co-issuer with James of $100
million aggregate principal amount of the 10-3/4% Senior Notes. Finance Corp.
has nominal assets and does not have (and is not expected to have) any material
operations.
2. STATEMENTS OF OPERATIONS, SHAREHOLDER'S EQUITY AND CASH FLOWS
Since there were no operations in the Finance Corp. from the Date of
Inception through December 31, 1999, a Statement of Operations, a Statement of
Shareholder's Equity and a Statement of Cash Flows have not been presented.
FS-16
<PAGE> 51
JAMES CABLE PARTNERS, L.P.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, James Cable Partners, L.P. has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
JAMES CABLE PARTNERS, L.P.
By: James Communications Partners
General Partner
By: Jamesco, Inc.
Partner
By: /s/ William R. James
---------------------
William R. James
President
Date: March 24, 2000
Pursuant to the requirements of the Securities and 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Person performing functions similar to
/s/ William R. James a director and a principal executive March 24, 2000
--------------------- officer
William R. James
Person performing functions similar to
/s/ C. Timothy Trenary a director March 24, 2000
-----------------------
C. Timothy Trenary
Person performing functions similar to March 24, 2000
/s/ Daniel K. Shoemaker a director, a principal financial
------------------------ officer, and a principal accounting
Daniel K. Shoemaker officer
</TABLE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
(c) No annual report to security holders covering the registrants' last
fiscal year or proxy material has been sent to security holders. If
such report or proxy material is furnished to security holders
subsequent to the filing of this form, the registrants will furnish
copies of such material to the Commission when it is sent to security
holders.
-35-
<PAGE> 52
JAMES CABLE FINANCE CORP.
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.
James Cable Finance Corp.
By: /s/ William R. James
--------------------
William R. James
President
Date: March 24, 2000
Pursuant to the requirements of the Securities and 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Director; President (principal March 24, 2000
/s/ William R. James executive officer)
---------------------
William R. James
/s/ C. Timothy Trenary Director; Vice President March 24, 2000
-----------------------
C. Timothy Trenary
/s/ Daniel K. Shoemaker Director; Treasurer (principal March 24, 2000
------------------------ financial officer and principal
Daniel K. Shoemaker accounting officer)
</TABLE>
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
(c) No annual report to security holders covering the registrants' last
fiscal year or proxy material has been sent to security holders. If
such report or proxy material is furnished to security holders
subsequent to the filing of this form, the registrants will furnish
copies of such material to the Commission when it is sent to security
holders.
-36-
<PAGE> 53
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION
<S> <C>
(3)(a)/(10)(c) Second Amended and Restated Agreement of Limited Partnership of James Cable
Partners, L.P. dated as of December 29, 1999
(4)(g) Second Amendment to the Credit Agreement dated as of December 31, 1999 among
James Cable Partners, L.P., the lenders party thereto, Bank One, Michigan
(formerly known as NBD Bank), as documentation agent, and Canadian Imperial
Bank of Commerce, as administrative agent.
(4)(h) Option Agreement / Option Certificate dated as of December 29, 1999 by and
between James Cable Partners, L.P. and James Communications Partners.
12 Statement re computation of ratios
24 Powers of Attorney
27 Financial Data Schedule
</TABLE>
-37-
<PAGE> 1
EXHIBIT (3)(a)/(10)(c)
JAMES CABLE PARTNERS, L.P.
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
Dated as of December 29, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE ONE...............................................................................1
1.1 Defined Terms....................................................................1
ARTICLE TWO...............................................................................8
2.1 Formation........................................................................8
2.2 Name.............................................................................8
2.3 Place of Business and Office; Registered Agent...................................8
2.4 Purpose..........................................................................9
2.5 Term.............................................................................9
2.6 Qualification in Other Jurisdictions.............................................9
2.7 Transfer of Capital Accounts.....................................................9
ARTICLE THREE............................................................................10
3.1 General Partner.................................................................10
3.2 Limited Partners................................................................10
3.3 Partnership Capital.............................................................11
3.4 Liability of Partners...........................................................12
ARTICLE FOUR.............................................................................13
4.1 Allocation of Net Loss..........................................................13
4.2 Allocation of Net Income........................................................13
4.3 Distributions...................................................................14
4.4 Distributions in Kind...........................................................16
4.5 Distribution of Property........................................................16
4.6 Break Fees......................................................................16
4.7 Withholding.....................................................................16
4.8 Allocations and Distributions Among Limited Partners............................16
4.9 Minimum Gain Chargeback and Qualified Income Offset.............................17
4.10 Special Allocations.............................................................17
4.11 Special Allocations in Subsequent Fiscal Years..................................17
ARTICLE FIVE.............................................................................18
5.1 Management......................................................................18
5.2 Restrictions on the Authority of the General Partner............................20
5.3 Duties and Obligations of the General Partner...................................20
5.4 Other Business of the General Partner...........................................21
5.5 Management Compensation.........................................................22
5.6 Expenses Reimbursement and Indemnification......................................23
5.7 1994 General Partner Incentive Compensation Award...............................25
ARTICLE SIX..............................................................................25
6.1 Selection of the Partnership Advisory Board.....................................25
6.2 Functions of the Partnership Advisory Board.....................................26
6.3 Fees and Expenses of Members of Partnership Advisory Board......................29
ARTICLE SEVEN............................................................................29
7.1 Assignment of the General Partner's Interest....................................29
7.2 No Change in Control or Ineligibility of the General Partner....................29
7.3 Removal of the General Partner..................................................29
7.4 Incapacity or Withdrawal of the General Partner.................................30
7.5 Penalty.........................................................................30
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C> <C>
7.6 Liability of a Withdrawn or Removed General Partner.............................34
7.7 Restriction on Admission of Substitute General Partner..........................34
ARTICLE EIGHT............................................................................34
8.1 Restrictions on Transfers of Interests..........................................34
8.2 Transferees.....................................................................35
8.3 Substituted Limited Partner.....................................................36
8.4 Incapacity of a Limited Partner.................................................37
8.5 Transfers During a Fiscal Year..................................................37
8.6 Elections Under the Internal Revenue Code.......................................37
ARTICLE NINE.............................................................................37
9.1 Dissolution.....................................................................37
9.2 Liquidation.....................................................................38
9.3 Continuation of the Partnership.................................................39
ARTICLE TEN..............................................................................41
10.1 Adoption of Amendments; Limitations Thereon.....................................41
10.2 Amendment of Certificate........................................................44
ARTICLE ELEVEN...........................................................................44
11.1 Method of Giving Consent........................................................44
11.2 Meetings........................................................................44
11.3 Record Dates....................................................................45
11.4 Notices to Limited Partners: Designees; No Special Inducements..................45
ARTICLE TWELVE...........................................................................45
12.1 Power of Attorney...............................................................45
ARTICLE THIRTEEN.........................................................................47
13.1 Records and Accounting..........................................................47
13.2 Annual Reports..................................................................47
13.3 Tax Information.................................................................48
13.4 Interim Reports.................................................................49
13.5 Partnership Funds...............................................................49
13.6 Elections.......................................................................49
13.7 Other Information...............................................................49
ARTICLE FOURTEEN.........................................................................50
14.1 Representations Warranties and Covenants of the Limited Partners................50
14.2 Representations, Warranties and Certain Covenants of the General Partner........50
ARTICLE FIFTEEN..........................................................................52
15.1 Notices.........................................................................52
15.2 Governing Law: Separability of Provisions.......................................53
15.3 Entire Agreement................................................................53
15.4 Headings etc....................................................................53
15.5 Binding Provisions..............................................................53
15.6 No Waiver; Creditor's Rights....................................................53
15.7 Reproduction of Documents.......................................................53
15.8 No Right to Partition...........................................................54
15.9 ERISA Undertakings..............................................................54
15.10 Counterparts....................................................................54
</TABLE>
-ii-
<PAGE> 4
THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP,
dated as of December 29, 1999, by and among JAMES COMMUNICATIONS PARTNERS, a
Michigan general partnership, as General Partner, and those parties which have
been and shall be admitted as Limited Partners.
W I T N E S S E T H:
WHEREAS, James Cable Partners, L.P. (the "Partnership") was formed as a
limited partnership pursuant to an Agreement of Limited Partnership dated as of
January 12, 1988 (the "Original Agreement"); and
WHEREAS, the Original Agreement was amended and restated pursuant to a
First Amended and Restated Agreement of Limited Partnership dated as of
September 21, 1992; and
WHEREAS, the Original Agreement, as so amended and restated, was
further amended pursuant to certain amendments dated as of December 15, 1993,
December 31, 1994, June 30, 1995, and June 30, 1995, respectively; and
WHEREAS, the Original Agreement, as so amended and restated and as so
further amended, was again amended and restated pursuant to an Amended and
Restated Agreement of Limited Partnership dated as of June 30, 1995 which was
further amended by certain amendments dated as of December 29, 1999; and
WHEREAS, the parties to this instrument, who are all of the Partners of
the Partnership, desire to once again amend and restate the Original Agreement,
as amended and restated to date, in its entirety.
NOW THEREFORE, for good and valuable consideration (the receipt and
sufficiency of which are hereby acknowledged), and in consideration of the
mutual covenants and agreements herein made, and intending to be legally bound,
the Partners hereby amend and restate the Original Agreement, as amended and
restated to date, in its entirety, so as to read and provide as follows:
ARTICLE ONE
Defined Terms
1.1 Defined Terms. The defined terms used in this Agreement shall,
unless the context otherwise requires, have the meanings specified in this
Article One.
1.1.1 INTENTIONALLY OMITTED.
1.1.2 "Affiliate" means, when used with reference to a
specified Person, (i) any Control Group Affiliate of the specified
Person, (ii) any Person which is an officer, partner or trustee of, or
serves in a similar capacity with respect to, the specified Person or
of which the specified Person serves in a similar capacity, (iii) any
Person which,
<PAGE> 5
directly or indirectly, is the record or beneficial owner of 10% or
more of any class of voting securities of, or otherwise has a
substantial record or beneficial interest in, the specified Person or
of which the specified Person is directly or indirectly the record or
beneficial owner of 10% or more of any class of voting securities or in
which the specified Person has a substantial beneficial interest, and
(iv) any relative or spouse of the specified Person.
1.1.3 "Agreement" means the Original Agreement as amended
and/or restated prior to the date of this instrument and as amended and
restated by this instrument, and as the same may be subsequently
amended, modified, supplemented and/or restated from time to time.
1.1.4 "Bankruptcy" means the commencement of a voluntary
case under the Bankruptcy Code of 1978, as amended, or commencement of
an involuntary case under the Bankruptcy Code of 1978, as amended, if
such case is not dismissed within 60 days of its commencement.
1.1.5 "Cable Systems" (or, in the singular, "Cable System")
means cable television systems (including, without limitation, all
services now or hereafter provided, or capable of being provided, by
cable television systems (e.g., telecommunication services, telephony,
data processing, Internet access, inter-and intra-network data
services, and the transmission and re-transmission of audio, video,
analog and digital information)).
1.1.6 "Capital Account" means, with respect to any Partner,
the Capital Account for such Partner as of the Effective Date, (i)
increased by the amount of Capital Contributions of such Partner and by
the amount of all Net Income and items of income and gain allocated to
such Partner pursuant to Article Four hereof from and after the
Effective Date, (ii) decreased by the sum of (x) all amounts of cash
and the Fair Market Value of any assets (reduced by the Book Value of
any Partnership liability to which such asset is subject or that is
assumed by such distributee) distributed to such Partner (other than
the management fee) from and after the Effective Date and (y) the
amount of all Net Losses or items of loss, deduction, depreciation and
amortization allocated to such Partner pursuant to Article Four hereof
from and after the Effective Date, and (iii) increased or decreased, as
appropriate, to reflect all adjustments pursuant to this Agreement.
1.1.7 "Capital Contributions" means, with respect to the
General Partner or any Limited Partner, an amount equal to the amount
of money and the fair market value of any asset (reduced by the amount
of any liability to which such asset is subject or which is assumed by
the Partnership) that is actually contributed by such Partner pursuant
to the Agreement and/or the Option, plus any such amount that is deemed
contributed by such Partner pursuant to paragraph 5.7 of this
Agreement.
1.1.8 "Capital Transaction" means, as of any date, (i) any
disposition of an Ownership Interest, or liquidating dividends or other
similar transactions or distributions with respect to an Ownership
Interest, (ii) any sale, lease, exchange, transfer or other
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disposition (other than to the Partnership or any of its subsidiaries)
in any single transaction or series of related transactions, of all or
substantially all of the consolidated assets of the Partnership, and
(iii) any consolidation, merger or business combination transaction
involving the Partnership or any subsidiary of the Partnership.
1.1.9 "Cash Available for Distribution" means, as of any
date, all cash, bank deposits, publicly saleable commercial paper and
other cash equivalents, and publicly traded securities that are
unrestricted in the hands of the Partnership and the Limited Partners,
in each case held by the Partnership at such date from whatever source
derived, other than proceeds of a Capital Transaction, net of the
management fee payable pursuant to paragraph 5.5 hereof and all current
expenses (including debt service payments) required to be paid or borne
by the Partnership pursuant to paragraph 5.6.1 and working capital
reserves pursuant to paragraph 5.1.1(f).
1.1.10 "Consent" means the approval of a Person, given as
provided in paragraph 11.1, to do the act or thing for which the
approval is solicited, or the act of granting such approval, as the
context may require. Reference to the Consent of a specified percentage
in Percentage Interests of the Limited Partners, or any class of
Limited Partners, shall mean the Consent of the Limited Partners, or of
the Limited Partners of such class of Limited Partners, whose then
aggregate Percentage Interests represent not less than the specified
percentage of the then aggregate Percentage Interests of all the
Limited Partners, or of all Limited Partners of such class of Limited
Partners, at the time of such Consent; provided, however, that in
determining the giving or withholding of any Consent of the Limited
Partners, or of the Limited Partners of any class of Limited Partners
(other than the Class B Limited Partners), any Percentage Interests of
the General Partner or any Affiliate of the General Partner as a
Limited Partner shall not be counted (and, accordingly, shall also be
excluded in calculating the aggregate Percentage Interests for the
foregoing purpose).
1.1.11 INTENTIONALLY OMITTED.
1.1.12 "Control" shall have the meaning ascribed to it in
paragraph 7.2.
1.1.13 "Control Group Affiliate" means, when used with
reference to a specified Person, any Person that directly or indirectly
through one or more intermediaries controls or is controlled by or is
under common control with the specified Person.
1.1.14 "Disability" means, when used with reference to a
specified person, such Person's substantial inability, by virtue of
illness, or physical or mental incapacity or disability, to perform
such Person's duties or responsibilities for a continuous period of at
least 90 days within any period of 120 consecutive days. Disability
shall be deemed to occur on the 91st day within such period of 120
consecutive days.
1.1.15 "FCC" means the United States Federal Communications
Commission.
1.1.16 "Fair Market Value" means, with respect to any item,
matter or thing (including, when the reference so requires, the
Partnership or the Ownership Interests),
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the fair market value of such item, matter or thing as determined as
provided in paragraph 6.2 or paragraph 7.5.2 hereof, as applicable.
1.1.17 "Fiscal Year" means the period from and including
January 1 of a calendar year to and including the earlier of (i)
December 31 of such calendar year and (ii) the date on which the
winding up of the Partnership is completed.
1.1.18 "General Partner" means James Communications
Partners, a Michigan general partnership, and/or any other Person which
becomes a successor or additional general partner of the Partnership as
provided in this Agreement, in such Person's capacity as a general
partner of the Partnership.
1.1.19 "Gross Revenues" shall have the meaning ascribed to
it in paragraph 5.5.1 hereof.
1.1.20 "Incapacity" means, as to any Person, such Person's
Bankruptcy, Insolvency, death, dissolution, termination (other than by
merger or consolidation) or Disability; provided, however, that the
Incapacity of the General Partner shall not include any change in the
identity or composition of the partners, directors, shareholders or
members of the General Partner, or any Person that is a partner,
director, shareholder or member of a partner, shareholder, director or
member of the General Partner, that results from the addition,
withdrawal or Incapacity of any partner, director, shareholder or
member of either the General Partner or any such Person.
1.1.21 "Insolvency" shall have the meaning ascribed to it
under the Bankruptcy Code of 1978, as amended.
1.1.22 "Interest" means the entire interest of a Partner in
the Partnership at any particular time, including the right of such
Partner to any and all benefits to which a Partner may be entitled as
provided in this Agreement, together with the obligations of such
Partner to comply with all the terms and provisions of this Agreement.
1.1.23 INTENTIONALLY OMITTED.
1.1.24 "Internal Revenue Code" means the Internal Revenue
Code of 1986, as it may be amended, or any succeeding law.
1.1.25 "Limited Partner" means, as of the date hereof, the
persons and entities identified and named as such on the attached
Schedule A or the attached Schedule B, as applicable, and thereafter,
any Person who is either a Class A Limited Partner or a Class B Limited
Partner at the time of reference thereto, in such Person's capacity as
such a limited partner of the Partnership and so indicated on the books
of the Partnership.
1.1.26 "Liquidating Trustee" shall have the meaning ascribed
to it in paragraph 9.2.1 hereof.
1.1.27 "Net Income" and "Net Loss" means an amount equal to
the Partnership's taxable income or loss for each Fiscal Year,
determined in accordance with
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Section 703(a) of the Internal Revenue Code (for this purpose, all
items of income, gain, loss or deduction required to be stated
separately pursuant to Section 703(a)(1) of the Internal Revenue Code
shall be included in taxable income or loss), with the following
adjustments:
(i) Any income of the Partnership that is exempt
from federal income tax and not otherwise taken into account
in computing Net Income or Net Loss shall be added to such Net
Income or Net Loss;
(ii) Any expenditures of the Partnership described
in Section 705(a)(2)(B) of the Internal Revenue Code or
treated as such expenditures pursuant to Treasury Regulation
Section 1.704-1(b)(2)(iv)(i), shall be taken into account in
computing Net Income or Net Loss (to the extent not otherwise
taken into account);
(iii) Upon the distribution of property by the
Partnership to a Partner, gain or loss attributable to the
difference between the fair market value of the property and
its Book Value shall be treated as recognized;
(iv) Any expenses borne by the General Partner
pursuant to paragraph 5.6.1(b) shall not be taken into account
in computing Net Income or Net Loss; and
(v) Depreciation or amortization shall be computed
with respect to the Book Value of the Partnership's property.
1.1.28 INTENTIONALLY OMITTED.
1.1.29 INTENTIONALLY OMITTED.
1.1.30 "Ownership Interests" means assets comprising Cable
Systems, if held directly by the Partnership, or indirect ownership
interests in partnerships or other entities which are accorded
flow-through tax consequences under the Internal Revenue Code and which
entities hold assets comprising Cable Systems directly.
1.1.31 "Partners" means the General Partner and the Limited
Partners unless otherwise indicated.
1.1.32 "Partnership" means the limited partnership governed
hereby, as such limited partnership may from time to time be
constituted.
1.1.33 "Partnership Act" means the Delaware Revised Uniform
Limited Partnership Act, set forth as Chapter 17 of Title 6 of the
Delaware Code, as amended from time to time.
1.1.34 "Partnership Advisory Board" means that committee of
the Partnership selected, and performing the functions, as provided in
this Agreement.
1.1.35 INTENTIONALLY OMITTED.
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1.1.36 "Percentage Interest" means (i) with respect to the
General Partner, the percentage set forth opposite such Partner's name
on the attached Schedule A, (ii) with respect to any Class A Limited
Partner the percentage set forth opposite such Partner's name on the
attached Schedule A, as adjusted pursuant to the terms of this
Agreement and/or the Option, and (iii) with respect to any Class B
Limited Partner, the percentage set forth opposite such Partner's name
on the attached Schedule B.
1.1.37 "Person" means any individual, partnership,
corporation, unincorporated organization or association, trust
(including the trustees thereof, in their capacity as such) or other
entity.
1.1.38 INTENTIONALLY OMITTED.
1.1.39 INTENTIONALLY OMITTED.
1.1.39A INTENTIONALLY OMITTED.
1.1.39B INTENTIONALLY OMITTED.
1.1.40 "Substituted Limited Partner" means any Person
admitted to the Partnership as a Limited Partner pursuant to the
provisions of paragraph 8.3.
1.1.41 INTENTIONALLY OMITTED.
1.1.42 "Applicable Percentage" means the portion of the
Percentage Interest set forth opposite the name of each Class B Limited
Partner determined in accordance with the provisions of the attached
Schedule C.
1.1.43 "Book Value" means the amount of the adjusted tax
basis of a Partnership asset or liability; provided, however, (i) that
the Book Value of any property contributed to the Partnership by a
Partner shall be initially equal to the fair market value of such
property; and (ii) that the Book Value of the Partnership's properties
and liabilities shall be adjusted to the fair market value of such
property or liability on the date of any revaluation of partnership
property upon the occurrence of a revaluation event specified in
Treasury Regulation Section 1.704-1(b)(2)(iv)(f).
1.1.44 "Class A Limited Partner" means, as of the date
hereof, the persons and entities identified and named as such on the
attached Schedule A, and thereafter, any Person who is a Class A
Limited Partner at the time of reference thereto, in such Person's
capacity as a Class A Limited Partner of the Partnership and so
indicated on the books of the Partnership.
1.1.45 "Class B Limited Partner" means, as of the date
hereof, the persons and entities identified and named as such on the
attached Schedule B, and thereafter, any Person who is a Class B
Limited Partner at the time of reference thereto, in such Person's
capacity as a Class B Limited Partner of the Partnership and so
indicated on the books of the Partnership.
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1.1.46 "Determination Date" means 5:00 p.m. (Detroit,
Michigan time) on September 30, 2000; provided, however, that if the
Partnership and a third Person shall have executed and delivered a
written instrument evidencing a serious, bona fide proposal for either
(i) a sale, lease, exchange, transfer or other disposition (other than
to the Partnership or any of its subsidiaries) in any single
transaction or series of related transactions, of all or substantially
all of the consolidated assets of the Partnership or (ii) a
consolidation, merger or business combination transaction involving the
Partnership or any subsidiary of the Partnership (for purposes of this
paragraph 1.1.45, any transaction described in clause (i) or (ii) above
is a "business combination transaction") then the Determination Date
shall be 5:00 p.m. (Detroit, Michigan time) on that date that is one
day after the later of (x) the date on which such business combination
transaction is completed and (y) the date on which an instrument
evidencing the cancellation of the certificate of limited partnership
of the Partnership is filed pursuant to paragraph 9.2.3 hereof;
provided, further, however, that if such business combination
transaction is not completed by 5:00 p.m. (Detroit, Michigan time) on
that date that is 13 months after the date of such written instrument,
the Determination Date shall be 5:00 p.m. (Detroit, Michigan time) on
September 30, 2000.
1.1.47 "Effective Date" means the date first above written.
1.1.48 "First Hurdle Amount" means (i) with respect to any
distribution or allocation made pursuant to paragraph 4.2 or 4.3.3
hereof after the Effective Date and on or before the Determination
Date, an amount equal to $1,500,000, and (ii) with respect to any
distribution or allocation made pursuant to paragraph 4.2 or 4.3.3
hereof after the Determination Date, an amount equal to the First
Hurdle Variable Amount.
1.1.49 "First Hurdle Variable Amount" means an amount equal
to the product of (x) the Applicable Percentage and (y) the difference
between Net Income or the net proceeds of the Capital Transaction, as
applicable, and $62,200,000.
1.1.50 "Fixed Amount" means an amount equal to $1,500,000.
1.1.51 "Fourth Hurdle Amount" means (i) with respect to any
distribution or allocation made pursuant to paragraph 4.2 or 4.3.3
hereof after the Effective Date and on or before the Determination
Date, an amount equal to $0, and (ii) with respect to any distribution
or allocation made pursuant to paragraph 4.2 or 4.3.3 hereof after the
Determination Date, an amount equal to the Fourth Hurdle Variable
Amount.
1.1.52 "Fourth Hurdle Variable Amount" means an amount equal
to the product of (x) the Applicable Percentage and (y) the difference
between Net Income or the net proceeds of the Capital Transaction, as
applicable, and an amount equal to $62,200,000 plus a compounded return
of 14% per annum on $62,200,000 since the Effective Date.
1.1.53 "Issuance Items" shall have the meaning ascribed to
it in paragraph 4.10 hereof.
1.1.54 INTENTIONALLY OMITTED.
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1.1.55 "Option" means the option granted to James
Communications Partners by the Partnership pursuant to the Option
Agreement of even date herewith between James Communication Partners
and the Partnership.
1.1.56 INTENTIONALLY OMITTED.
1.1.57 "Second Hurdle Amount" means (i) with respect to any
distribution or allocation made pursuant to paragraph 4.2 or 4.3.3
hereof after the Effective Date and on or before the Determination
Date, an amount equal to $0, and (ii) with respect to any distribution
or allocation made after the Determination Date, an amount equal to the
Second Hurdle Variable Amount.
1.1.58 "Second Hurdle Variable Amount" means an amount equal
to the product of (x) the Applicable Percentage and (y) the difference
between Net Income or the net proceeds of the Capital Transaction, as
applicable, and an amount equal to $62,200,000 plus a compounded return
of 10% per annum on $62,200,000 since the Effective Date.
1.1.59 "Third Hurdle Amount" means (i) with respect to any
distribution or allocation made pursuant to paragraph 4.2 or 4.3.3.
hereof after the Effective Date and on or before the Determination
Date, an amount equal to $0, and (ii) with respect to any distribution
or allocation made pursuant to paragraph 4.2 or 4.3.3 hereof after the
Determination Date, an amount equal to the Third Hurdle Variable
Amount.
1.1.60 "Third Hurdle Variable Amount" means an amount equal
to the product of (x) the Applicable Percentage and (y) the difference
between Net Income or the net proceeds of the Capital Transaction, as
applicable, and an amount equal to $62,200,000 plus a compounded return
of 12% per annum on $62,200,000 since the Effective Date.
ARTICLE TWO
Organization
2.1 Formation. The parties hereby agree to amend and restate all
of the terms of the Partnership pursuant to the provisions of the Partnership
Act as provided in this Agreement. The rights and liabilities of the Partners
shall be as provided in said Partnership Act, except as herein otherwise
expressly provided.
2.2 Name. The name of the Partnership shall be James Cable
Partners, L.P. However, the business of the Partnership may be conducted, upon
compliance with all applicable laws, under any other name or names (other than
the name of a Limited Partner) designated in writing by the General Partner to
the Limited Partners, provided such name contains such words as may be required
by applicable state law.
2.3 Place of Business and Office; Registered Agent. The
Partnership shall maintain a registered office at The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County,
Delaware 19801. The Partnership shall maintain its
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<PAGE> 12
principal office at 710 North Woodward Avenue, Suite 180, Bloomfield Hills,
Michigan 48304. The General Partner may at any time change the location of the
Partnership's offices and may establish additional offices. Notice of any such
change shall be given to the Limited Partners on or before the date of any such
change. The name and address of the Partnership's registered agent is The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801.
2.4 Purpose. The principal investment objective of the Partnership
is to realize capital appreciation through the ownership, control and operation
of assets comprising Cable Systems. Such ownership, control and operation may be
direct, through the direct acquisition and holding of such assets, or indirect
through the acquisition and holding of ownership interests in partnerships or
other entities which are accorded flow-through tax treatment under the Internal
Revenue Code and which entities hold such assets directly. In furtherance of the
foregoing objective, the Partnership may acquire, own, operate, expand, finance,
and ultimately sell and dispose of such operating Cable Systems and to do such
other activities as are incidental or necessary in connection with the
foregoing. The Partnership will not build new franchises (except in limited
circumstances where the new franchise is reasonably approximate to an
already-owned Cable System).
2.5 Term. The Partnership was organized pursuant to the Original
Agreement on January 12, 1988. The General Partner and the Limited Partners
hereby agree to continue the Partnership as a limited partnership pursuant to
the Agreement. The Partnership shall continue in full force and effect until
December 31, 2005, or until dissolution prior thereto pursuant to the provisions
hereof.
2.6 Qualification in Other Jurisdictions. The General Partner
shall cause the Partnership to be qualified or registered under assumed or
fictitious name or names or foreign limited partnership statutes or similar laws
in any jurisdiction in which the Partnership owns property or transacts business
if such qualification or registration is necessary in order to protect the
limited liability of the Limited Partners or to permit the Partnership lawfully
to own property or transact business, and shall cause the Partnership not to
transact business in any such jurisdiction until it is so qualified or
registered. The General Partner shall execute, file and publish all such
certificates, notices, statements or other instruments necessary to permit the
Partnership to conduct business as a limited partnership in all jurisdictions
where the Partnership elects to do business and to maintain the limited
liability of the Limited Partners.
2.7 Transfer of Capital Accounts. Upon the completion of the
transactions contemplated by the Limited Partnership Interest Purchase Agreement
dated as of December 29, 1999 by and among SCP James Acquisition LLC, a Delaware
limited liability company, the Partnership, and the Sellers listed on Schedule 1
thereto, SCP James Acquisition LLC shall succeed to the Capital Accounts of the
Sellers.
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ARTICLE THREE
Partners and Capital
3.1 General Partner.
3.1.1 The General Partner shall be as defined in paragraph
1.1.18 hereof.
3.1.2 The General Partner shall not be required to lend any
funds to the Partnership or to make any capital contribution or
infusion to the Partnership; provided, however, that if the General
Partner lends funds to the Partnership, the terms of such lending must
be as favorable to the Partnership as the terms that could have been
obtained at the time of such lending from a Person that was not the
General Partner or an Affiliate of the General Partner.
3.2 Limited Partners.
3.2.1 As of the date hereof, the Limited Partners of the
Partnership are as set forth in Schedule A and Schedule B attached
hereto. After the date hereof, the Limited Partners of the Partnership
shall be as set forth in Schedule A and Schedule B hereto, as the same
may be amended from time to time.
3.2.2 Notwithstanding any provision herein to the contrary,
no Limited Partner shall be required to lend any funds to the
Partnership or to make any capital contribution or infusion to the
Partnership.
3.2.3 The Limited Partners and any such Limited Partners'
directors, officers or any partners thereof, except the General Partner
as a Limited Partner, (i) shall not, except as permitted under
paragraph 13.1.1 hereof, engage in communication with the General
Partner or any licensee of Cable Systems owned by the Partnership on
matters pertaining to the day to day management of Cable Systems owned
by the Partnership or participate in, or take part in the management or
operation of, or perform any services for the Partnership business;
(ii) shall not act as employee, agent or independent contractor of the
Partnership in matters relating to the Cable Systems owned by the
Partnership; provided, however, that a Limited Partner may act as a
surety or lender to the Partnership, conduct routine insurance or
banking transactions with the Partnership, and maintain cash collateral
accounts on behalf of the Partnership; and (iii) shall have no right or
authority to act for or bind the Partnership; provided, however, that
this clause shall not limit the right of the Limited Partners under
paragraph 3.2.6 hereof, acting with the requisite Consent of the
Limited Partners, or any class of limited partners, as applicable, to
effect, without the Consent of the General Partner, either a sale,
lease, exchange, transfer or other disposition in any single
transaction or series of related transactions, of all or substantially
all of the consolidated assets of the Partnership or a consolidation,
merger or business combination transaction involving the Partnership.
3.2.4 Each Limited Partner shall use its best efforts not
to cause the Partnership to violate the provisions of 47 U.S.C. 533
(1987) and 47 C.F.R. ss.ss. 63.54-63.58 of the FCC regulations or any
successor provisions thereof, provided, however, that nothing in
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<PAGE> 14
this paragraph 3.2.4 shall be construed as prohibiting any Limited
Partner from investing in any entity not subject to such provisions,
including, without limitation, companies that provide common carrier
services which are exclusively interexchange.
3.2.5 Unless named in this Agreement, or unless admitted to
the Partnership as a General Partner or a Limited Partner, as provided
in this Agreement, no Person shall be considered a Partner. The
Partnership and the General Partner need deal only with Persons so
named or admitted as Partners. They shall not be required to deal with
any other Person merely because of an assignment or transfer of an
Interest in the Partnership to such Person or by reason of the
Incapacity of a Partner; provided, however, that any distribution by
the Partnership to the Person shown on the Partnership records as a
Partner or to its legal representatives, or to the assignee of the
right to receive Partnership distributions as provided herein, shall
acquit the Partnership and the General Partner of all liability to any
other Person who may be interested in such distribution by reason of
any other assignment by the Partner or by reason of his Incapacity, or
for any other reason.
3.2.6 The Class A Limited Partners shall have the right,
acting with the Consent of at least 51% in Percentage Interests of the
Class A Limited Partners, to effect, without the Consent of the General
Partner, either (i) a sale, lease, exchange, transfer or other
disposition in any single transaction or series of related
transactions, of all or substantially all of the consolidated assets of
the Partnership or (ii) a consolidation, merger or business combination
transaction involving the Partnership; provided, however, that no such
transaction described in clause (i) or clause (ii) hereof shall be
effected unless the General Partner shall have been given at least 30
days' prior written notice of such transaction.
3.3 Partnership Capital.
3.3.1 If the General Partner shall determine in good faith
that it would be in the interests of the Partnership to obtain
additional infusions of capital from the Partners, the General Partner
shall deliver to each Partner a written request for capital infusions
describing the circumstances that have given rise to such request and
the terms and conditions of the proposed additional capital infusions,
and offering to all Partners the opportunity to make a commitment to
make or to make additional capital infusions on a pro rata basis
(determined based on their Percentage Interests at the time of such
request) by a date no earlier than 30 days after the date of such
request. In the event any Partner shall fail to respond by the date
stated in such request or shall decline to make such requested
commitment or capital infusion, the General Partner shall promptly
provide an additional written request to the non-declining Partners of
the amount of the resulting shortfall and shall offer to all
non-declining Partners the opportunity to increase the amounts of their
commitments or capital infusions on a pro rata basis and, in the event
any non-declining Partner shall fail to respond by the date stated in
such request or shall decline such additional request, the General
Partner shall continue to provide such further additional written
requests to the remaining non-declining Partners until a sufficient
number of Partners shall have agreed to make commitments or capital
infusions that the General Partner determines that such commitments or
capital infusions should satisfy the
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interests of the Partnership. Notwithstanding the foregoing, no
non-recourse creditor of the Partnership will be permitted to make or
increase its capital infusions to the extent that such capital infusion
would cause such creditor's direct, indirect or attributed interest for
purposes of Section 752 of the Internal Revenue Code and the Treasury
Regulations thereunder, in any item of partnership income or loss to
equal or exceed 10%.
3.3.2 No Partner shall have any right to demand the return,
reduction or change of its Capital Account, except upon dissolution of
the Partnership pursuant to Article Nine hereof and then only to the
extent permitted by Article Nine hereof.
3.3.3 Without the Consent of all Partners, no Partner shall
have the right to demand and receive property other than cash.
3.3.4 INTENTIONALLY OMITTED.
3.4 Liability of Partners.
3.4.1 Except as provided in Sections 17-303 and 17-607 of
the Partnership Act, a Limited Partner shall not be required to lend
any funds to the Partnership or to make any further capital
contributions or infusions to the Partnership or to repay to the
Partnership, any Partner or any creditor of the Partnership, all or any
fraction of any negative amount of such Limited Partner's Capital
Account or any amount returned to the Partners as a partial return of
their capital contributions or infusions. Except as provided in
Sections 17-303 and 17-607 of the Partnership Act, no Limited Partner
shall have any personal liability whatsoever in its capacity as a
Limited Partner, whether to the Partnership, to any of the Partners or
to the creditors of the Partnership, for the debts, liabilities,
contracts or any other obligations of the Partnership or for any losses
of the Partnership.
3.4.2 Except as provided in Sections 17-303 and 17-607 of
the Partnership Act, no distribution to any Limited Partner of Cash
Available for Distribution pursuant to paragraph 4.3 shall be deemed a
return or withdrawal of capital, and no Limited Partner shall be
obligated to pay any such amount to or for the account of the
Partnership or any creditor of the Partnership.
3.4.3 Except as provided in paragraph 5.6.2, neither the
General Partner nor any of its Affiliates shall have any personal
liability to any Limited Partner.
3.4.4 No Limited Partner shall be liable for any deficit in
its Capital Account, whether upon liquidation or otherwise. If,
however, the General Partner has a deficit balance in its Capital
Account following the liquidation of its interest in the Partnership
(as defined in Treasury Regulation Section 1.704-1(b)(2)(ii)(g)), after
taking into account all Capital Account adjustments for the Fiscal Year
during which such liquidation occurs, the General Partner is
unconditionally obligated to restore the amount of such deficit balance
to the Partnership by the end of such Fiscal Year or, if later, within
90 days after the date of such liquidation in accordance with Treasury
Regulation Section 1.704-1(b)(2)(ii)(b)(2). Any amount so repaid shall,
upon liquidation of the Partnership, be paid
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to creditors of the Partnership or distributed to other Partners in
accordance with their positive Capital Account balances as provided in
paragraph 9.2 hereof.
ARTICLE FOUR
Allocation of Net Loss and
Net Income; Distributions
4.1 Allocation of Net Loss.
4.1.1 For purposes of and prior to making allocations of
Net Loss, Capital Accounts shall be determined as of the end of the
Fiscal Year, after taking into account all adjustments and allocations
pursuant to paragraphs 3.3, 4.1.3 and 4.9 hereof and all distributions
during the Fiscal Year.
4.1.2 Subject to the next sentence and to paragraphs 4.1.3,
4.9 and 4.10 hereof, Net Loss shall be allocated only to the General
Partner and the Class A Limited Partners and shall be allocated among
such Partners pro rata in accordance with their respective Percentage
Interests. Net Loss shall be allocated so as to comply with the
"alternate test for economic effect" in Treasury Regulation Section
1.704-1(d) and in accordance with the requirements of the Internal
Revenue Code regarding "qualified income offsets."
4.1.3 (a) Depreciation and amortization deductions with
respect to Partnership assets that secure indebtedness of the
Partnership, where any Partner (or an affiliate of such Partner) (the
"Lending Partner") is the lender or guarantor of the indebtedness
("Partner Indebtedness") shall be specially allocated to the Lending
Partner to the extent required by Treasury Regulation Sections
1.704-2(i).
(b) If a Lending Partner is specially allocated
depreciation or amortization deductions corresponding to Partner
Indebtedness pursuant to paragraph 4.1.3(a), items of income and gain
shall be specially allocated to the Lending Partner in an amount equal
to the decrease in the excess, if any, of the principal amount of such
Partner Indebtedness over the aggregate adjusted tax basis of the
Partnership assets securing such Partner Indebtedness, in the Fiscal
Year (and, if necessary, subsequent Fiscal Years) in which such excess
decreases or in which the assets are disposed of; provided, however,
that the aggregate income and gain allocated to a Partner pursuant to
this paragraph 4.1.3(b) shall not exceed the aggregate of the
depreciation and amortization deductions allocated to the Partner
pursuant to paragraph 4.1.3(a).
4.2 Allocation of Net Income.
4.2.1 For purposes of and prior to making allocations of
Net Income, Capital Accounts shall be determined as of the end of the
Fiscal Year, after taking into account adjustments and allocations
pursuant to paragraphs 3.3, 4.1.3 and 4.9 hereof, and all distributions
during the Fiscal Year.
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4.2.2 Subject to paragraphs 4.1.3, 4.9 and 4.10 hereof, Net
Income from and after the date first above written shall be allocated
among the Partners in the following order of priority:
(a) First, until no Partner shall have a negative Capital
Account balance, to all Partners with negative Capital Account
balances, ratably based on their Capital Account balances.
(b) Second, to the General Partner and the Class A
Limited Partners, in accordance with their respective Percentage
Interests, until there shall have been allocated to the General Partner
and the Class A Limited Partners an aggregate of $62,200,000.
(c) Third, to the Class B Limited Partners, in accordance
with their respective Percentage Interests, until there shall have been
allocated to the Class B Limited Partners an aggregate amount equal to
the First Hurdle Amount.
(d) Fourth, provided that the portion of Net Income
comprised of the net proceeds of Capital Transactions is equal to or
greater than an amount equal to $62,200,000 plus a compounded return of
10% per annum on $62,200,000 since the date first above written, to the
Class B Limited Partners, in accordance with their respective
Percentage Interests, until there shall have been allocated to the
Class B Limited Partners an aggregate amount equal to the Second Hurdle
Amount.
(e) Fifth, provided that the portion of Net Income
comprised of the net proceeds of Capital Transactions is equal to or
greater than an amount equal to $62,200,000 plus a compounded return of
12% per annum on $62,200,000 since the date first above written, to the
Class B Limited Partners, in accordance with their respective
Percentage Interests, until there shall have been allocated to the
Class B Limited Partners an aggregate amount equal to the Third Hurdle
Amount.
(f) Sixth, provided that the portion of Net Income
comprised of the net proceeds of Capital Transactions is equal to or
greater than an amount equal to $62,200,000 plus a compounded return of
14% per annum on $62,200,000 since the date first above written, to the
Class B Limited Partners, in accordance with their respective
Percentage Interests, until there shall have been allocated to the
Class B Limited Partners an aggregate amount equal to the Fourth Hurdle
Amount.
(g) Seventh, to the General Partner and the Class A
Limited Partners, in accordance with their respective Percentage
Interests, until all of the remaining Net Income shall have been
allocated.
4.3 Distributions.
4.3.1 Except as provided in paragraph 9.2.2 hereof, all
distributions of Cash Available for Distribution shall be made only to
the General Partner and the Class A
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Limited Partners and shall be made to such Partners pro rata in
accordance with their respective Percentage Interests.
4.3.2 Cash Available for Distribution for each Fiscal Year
quarter shall be distributed to the Partners promptly within 45 days
after the end of such Fiscal Year quarter. The net proceeds of any
Capital Transaction (including any securities permitted by paragraph
5.1.1(b) hereof to be received in the Capital Transaction), after any
payments of principal, interest and other charges on indebtedness,
shall be distributed to the Partners promptly after receipt of such
proceeds.
4.3.3 Except as provided in paragraph 9.2.2 hereof, all
distributions of the net proceeds of any Capital Transaction shall be
made as follows:
(a) First, to the General Partner and the Class A Limited
Partners, in accordance with their respective Percentage Interests,
until there shall have been distributed to the General Partner and the
Class A Limited Partners since the Effective Date an aggregate of
$62,200,000.
(b) Second, to the Class B Limited Partners until there
shall have been distributed to the Class B Limited Partners since the
Effective Date an aggregate amount equal to the First Hurdle Amount.
(c) Third, provided that the net proceeds of all Capital
Transactions for all Fiscal Years since the Effective Date are equal to
or greater than an amount equal to $62,200,000 plus a compounded return
of 10% per annum on $62,200,000 since the date first above written, to
the Class B Limited Partners until there shall have been distributed to
the Class B Limited Partners an aggregate amount equal to the Second
Hurdle Amount.
(d) Fourth, provided that the net proceeds of all Capital
Transactions for all Fiscal Years since the Effective Date are equal to
or greater than an amount equal to $62,200,000 plus a compounded return
of 12% per annum on $62,200,000 since the date first above written, to
the Class B Limited Partners until there shall have been distributed to
the Class B Limited Partners an aggregate amount equal to the Third
Hurdle Amount.
(e) Fifth, provided that the net proceeds of all Capital
Transactions for all Fiscal Years since the Effective Date are equal to
or greater than an amount equal to $62,200,000 plus a compounded return
of 14% per annum on $62,200,000 since the date first above written, to
the Class B Limited Partners until there shall have been distributed to
the Class B Limited Partners an aggregate amount equal to the Fourth
Hurdle Amount.
(f) Sixth, to the General Partner and the Class A Limited
Partners, in accordance with their respective Percentage Interests,
until all of the remaining net proceeds of such Capital Transaction
shall have been distributed.
4.3.4 Notwithstanding the provisions contained in
paragraphs 4.3.2, 4.3.3 and 4.4 hereof, as long as any indebtedness or
other obligation remains outstanding under
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either the Credit Agreement dated as of August 15, 1997 among the
Partnership, the lenders listed therein, NBD Bank, as Documentation
Agent, and Canadian Imperial Bank of Commerce, as Administration Agent,
as amended, or the Indenture dated as of August 15, 1997 among the
Partnership and James Cable Finance Corp., as issuers, and United
States Trust Company of New York, as trustee, distributions from Cash
Available for Distribution, net proceeds from Capital Transactions, and
distributions in kind, shall be made only if and to the extent
allowable under the terms of such credit agreement, or such indenture,
or any documents related thereto.
4.4 Distributions in Kind. Distributions shall not be made in kind
unless the property to be distributed consists of publicly saleable commercial
paper and other cash equivalents or publicly traded securities that are
unrestricted in the hands of the Partnership and the Limited Partners. Such
property shall be distributed in accordance with paragraph 4.3 hereof as if such
property were sold for its Fair Market Value and an amount of cash equal to the
Fair Market Value thereof were distributed for such Fiscal Year. If any such
distribution is made at a time when the Fair Market Value of such property has
not been finally determined as provided in paragraph 6.2 hereof or the results
of the Partnership's Fiscal Year with respect to which such distribution is made
have not been definitively calculated, then the General Partner shall withhold
from such distribution such portion of such property as is necessary as a
reasonable reserve in respect of such distribution pending the final
determination of the allocation of such distribution. If a distribution is made
both in cash and in kind, such distribution shall be made so that, to the
fullest extent practicable, the percentage of the cash and other property
distributed to each Partner is identical.
4.5 Distribution of Property. For purposes of this Agreement, if
property other than cash is distributed to any Partner under paragraph 4.4, such
Partner shall be treated as receiving an amount of cash equal to the Fair Market
Value of the property; and the excess, if any, of the Fair Market Value of the
property over its adjusted tax basis to the Partnership, or the excess, if any,
of the adjusted tax basis of the property to the Partnership over its Fair
Market Value, shall be included in computing Net Income or Net Loss, or Other
Income or Other Loss as appropriate, for all purposes of this Agreement.
4.6 Break Fees. INTENTIONALLY OMITTED.
4.7 Withholding. The Partnership shall withhold all amounts
required to be withheld by law. Any amounts withheld shall be treated as
distributed to such Partner for all purposes of this Agreement; provided,
however, that if the amount required to be withheld exceeds the amount otherwise
currently distributable to a Partner, such excess shall be treated as a loan by
the Partnership to such Partner, such loan to be repaid out of future
distributions to such Partners, with interest at the "Federal long-term rate"
(as defined in Section 1274 of the Internal Revenue Code).
4.8 Allocations and Distributions Among Limited Partners.
Allocations or distributions to the Class A Limited Partners shall be allocated
or distributed among the Class A Limited Partners in proportion to their
respective Percentage Interests. Allocations or distributions to the Class B
Limited Partners shall be allocated or distributed among the Class B Limited
Partners in proportion to their respective Percentage Interests.
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4.9 Minimum Gain Chargeback and Qualified Income Offset.
Notwithstanding any other provision of this Article Four:
(a) if there is a net decrease in "partnership minimum
gain" (within the meaning of Treasury Regulation Section
1.704-1(b)(4)(iv)(c)) during a Fiscal Year, all Limited Partners with
deficit balances in their Capital Accounts at the end of such Fiscal
Year (excluding items described in Treasury Regulation Section
1.704-1(b)(4)(iv)(e)) shall be allocated, before any other allocations
of Partnership items for such Fiscal Year, items of income and gain for
such Fiscal Year (and, if necessary, subsequent Fiscal Years), in the
amount and in the proportions necessary to eliminate such deficits (as
defined in and to the extent required by Treasury Regulation Section
1.704-1(b)(4)(iv)(e) as quickly as possible; the foregoing is intended
to be a "minimum gain chargeback" provision as described in Treasury
Regulation Section 1.704-1(b)(4)(iv)(e), and shall be interpreted and
applied in all respects in accordance with that section; and
(b) if during any taxable year of the Partnership any
Limited Partner unexpectedly receives an adjustment, allocation or
distribution described in Treasury Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6), there shall be allocated to such
Limited Partner items of income and gain (consisting of a pro rata
portion of each item of Partnership income, including gross income and
gain for such year) in an amount and manner sufficient to eliminate
such Limited Partner's deficit Capital Account balance (as defined in
and to the extent required by Treasury Regulation Section
1.704-1(b)(4)(iv)(e)) as quickly as possible; the foregoing is intended
to be a "qualified income offset" provision as described in Treasury
Regulation Section 1.704-1(b)(2)(ii)(d), and shall be interpreted and
applied in all respects in accordance with that Section.
4.10 Special Allocations. Notwithstanding the allocation provisions
of paragraphs 4.1 and 4.2 hereof: (i) in the event of any adjustment of any
Partner's Capital Account pursuant to paragraph 3.3 hereof and Reg. ss.
1.704-1(b)(2)(iv) based upon a revaluation of any asset, subsequent allocations
of taxable income, gain, loss and deduction with respect to such asset shall
take account of any difference, on the date of adjustment, between the adjusted
basis of such asset for federal income tax purposes and its fair market value in
accordance with Section 704(c) of the Internal Revenue Code and the regulations
thereunder; and (ii) any loss, or deduction realized as a direct or indirect
result of the issuance of an interest in the Partnership by the Partnership to a
Partner (the "Issuance Items") shall be specially allocated among the Partners
so that, to the extent possible, the net amount of such Issuance Items, together
with all other allocations under this Agreement to each Partner, shall be equal
to the net amount that would have been allocated to each such Partner if the
Issuance Items had not been realized.
4.11 Special Allocations in Subsequent Fiscal Years.
Notwithstanding the allocation provisions of Section 4.1 and 4.2 hereof, in the
event of a sale of all or substantially all of the assets of the Partnership or
other similar liquidating transaction, Partnership income, gain, loss and
deduction shall be allocated so as to cause each Partner's Capital Account
balance to equal, as nearly as possible, the amount distributable to such
Partner pursuant to paragraph 4.3.3.
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ARTICLE FIVE
Rights and Duties of the General Partner
5.1 Management.
5.1.1 Except as otherwise expressly provided herein or by
law, the General Partner is hereby vested with the full, exclusive and
complete right, power and discretion to operate, manage and control the
affairs of the Partnership and to make all decisions affecting
Partnership affairs, as deemed proper, convenient or advisable by the
General Partner to carry on the business of the Partnership as
described in paragraph 2.4 hereof, and the General Partner shall have
all of the rights, powers and obligations of a general partner of a
limited partnership under the Partnership Act and otherwise as provided
by law. Without limiting the generality of the foregoing, all of the
Partners hereby specifically agree and Consent that the General Partner
may, on behalf of the Partnership, at any time, and without further
notice to or Consent from any Limited Partner, do or cause the
Partnership, and the Cable Systems, if operated as separate entities,
to do the following:
(a) make investments consistent with the purposes of the
Partnership, FCC rules and regulations and other applicable laws;
(b) sell all or any part of an Ownership Interest, for
cash, publicly saleable commercial paper and other cash equivalents or
publicly traded securities that are unrestricted in the hands of the
Limited Partners; provided, however, that all or substantially all of
the Ownership Interests (other than Ownership Interests in the last
remaining Cable System) may not be sold in any one transaction or
several related transactions except with the prior written Consent of
at least 51% in Partnership Interests of the Class A Limited Partners;
(c)(i) incur or assume indebtedness (including, without
limitation, guarantees), whether on a recourse or a non-recourse basis,
(w) to finance the acquisition or disposition of Ownership Interests,
(x) to finance capital expenditures, (y) to finance working capital,
and (z) to refinance any of the foregoing or any indebtedness now or
hereafter outstanding;
(ii) in connection with (x) financings pursuant to clause
(i) above, issue notes, debentures, other debt securities, mortgages,
pledges, and other security interests on Ownership Interests or
underlying Cable System assets and income therefrom to secure and
provide for the repayment of such indebtedness, and (y) transactions
pursuant to clause (i) above and this clause (ii), pay any legal fees
and expenses (including legal fees and expenses of lenders), the cost
of any credit report or appraisals, recording or filing fees,
commitment, stand-by or similar fees paid to lenders and other usual
and necessary expenses in connection with secured borrowings;
(iii) acquire financial instruments, including interest
rate futures contracts and options thereupon, and arrange other
contracts such as interest rate swaps, so as to protect the Partnership
against increases in interest rates with respect to floating rate
loans;
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<PAGE> 22
provided, however, that the sum of indebtedness owed by the
Partnership, including debt refinanced, pursuant to clauses (w), (x),
(y) and (z) of paragraph 5.1.1(c)(i) hereof, shall not exceed
$120,000,000.
(d) perform, or arrange for the performance of, the
management and administrative services necessary for the operations of
the Partnership but shall not receive and its Affiliates shall not
receive any salary or other compensation therefor except pursuant to
paragraph 5.5 hereof or with Partnership Advisory Board approval,
pursuant to paragraph 6.2 hereof (and distributions pursuant to
paragraphs 4.3, 4.4 and 9.2.2 hereof);
(e) directly or through its Control Group Affiliates
manage the Ownership Interests, including, but not limited to,
administer investments actually made by the Partnership and the
ultimate realization of those investments and provide, or arrange for
the provision of, managerial assistance to the Cable Systems owned
directly or indirectly thereby, but shall not receive, and its
Affiliates shall not receive, any salary or other compensation therefor
except pursuant to paragraph 5.5 hereof (and distributions pursuant to
paragraphs 4.3, 4.4 and 9.2.2 hereof);
(f) incur all expenditures permitted by this Agreement;
and, to the extent that funds of the Partnership are available, pay all
expenses, debts and obligations of the Partnership, and, in connection
therewith, establish a working capital reserve;
(g) employ and dismiss from employment any and all
consultants, custodians of the assets of the Partnership or other
agents;
(h) enter into, execute, amend, supplement, acknowledge
and deliver any and all contracts, agreements (other than amendments or
supplements to this Agreement except as permitted in Article Ten
hereof) or other instruments as the General Partner shall determine to
be appropriate in furtherance of the purposes of the Partnership;
(i) make temporary investments in (i) United States
government and agency obligations, (ii) commercial paper rated not
lower than P-1, (iii) interest-bearing deposits maturing within 1 year
in member banks of the Federal Reserve System with an unrestricted
surplus of at least $250,000,000, and (iv) money market mutual funds
with assets of not less than $750,000,000, substantially all of which
assets consist of items described in one or more of the foregoing
clauses (i), (ii) and (iii);
(j) admit an assignee of all or any fraction of a Limited
Partner's Interest to be a Substituted Limited Partner in the
Partnership pursuant to and subject to the terms of paragraph 8.3
hereof;
(k) make any reasonable election under federal, state and
local tax laws;
(l) act as the "tax matters partner" of the Partnership,
as such term is defined in Section 6231(a)(7) of the Internal Revenue
Code, and exercise any authority permitted the tax matters partner
under the Internal Revenue Code; and
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<PAGE> 23
(m) increase or decrease the Capital Accounts of the
Partners pursuant to this Agreement.
5.1.2. Third parties dealing with the Partnership may rely
conclusively upon any certificate of the General Partner to the effect that it
is acting on behalf of the Partnership. The signature of the General Partner
shall be sufficient to bind the Partnership in every manner to any agreement or
on any document, including, but not limited to, documents drawn or agreements
made in connection with the acquisition or disposition of any Ownership
Interests or other properties in furtherance of the purposes of the Partnership.
5.2 Restrictions on the Authority of the General Partner. Without
the Consent of at least 51% in Percentage Interests of the Class A Limited
Partners, (i) the General Partner shall not have the authority to admit a Person
as a Partner except as provided in this Agreement or the Option, and (ii) the
General Partner shall not, and shall not cause any Cable Systems owned by the
Partnership to, engage in any transactions with itself or any of its Affiliates,
on behalf of the Partnership or involving assets or property of the Partnership
including without limitation, such Cable Systems, except as expressly authorized
in this Agreement or the Option or approved in advance by the Partnership
Advisory Board. Without the Consent of at least 51% in Percentage Interests of
the Class A Limited Partners, the General Partner shall not have the authority
to dismiss from employment or replace the accountants of the Partnership.
5.3 Duties and Obligations of the General Partner.
5.3.1 INTENTIONALLY OMITTED.
5.3.2 The General Partner shall take all action which may
be necessary or appropriate for the continuation of the Partnership's
valid existence as a limited partnership under the laws of the State of
Delaware and of each other jurisdiction in which such existence is
necessary to protect the limited liability of the Limited Partners and
to enable the Partnership to conduct the business in which it is
engaged.
5.3.3 The General Partner shall at all times conduct its
affairs and those of the Partnership and shall cause the affairs of all
of its Control Group Affiliates to be conducted in such a manner that
neither any Limited Partner nor any Affiliate of any Limited Partner
will have any personal liability with respect to any Partnership
liability or obligation.
5.3.4 The General Partner shall prepare or cause to be
prepared and shall file on or before the due date (or any extension
thereof) any federal, state or local tax returns required to be filed
by the Partnership. The General Partner shall cause the Partnership to
pay any taxes payable by the Partnership (it being understood that the
expenses of preparation and filing of such tax returns, and the amounts
of such taxes, are expenses of the Partnership and not of the General
Partner); provided, however, that the General Partner shall not be
required to cause the Partnership to pay any tax so long as the General
Partner or the Partnership is in good faith and by appropriate legal
proceedings contesting the validity, applicability or amount thereof
and such contest does not materially endanger any right or interest of
the Partnership.
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5.3.5 The General Partner shall, from time to time, submit
to any appropriate state securities administrator, or to the Securities
and Exchange Commission pursuant to Regulation D under the Securities
Act of 1933, as amended, all documents, papers, statistics, forms and
reports required to be filed therewith or submitted thereto, provided,
that the Limited Partners shall cooperate and provide to the General
Partner such information as may reasonably be necessary to permit the
General Partner to make complete filings or submissions of such nature.
5.3.6 The General Partner will take such actions as are
reasonable and necessary under the circumstances to preserve and
maintain the Ownership Interests, including, without limitation,
insuring the Ownership Interests in a manner and to the extent
commercially reasonable and maintaining a $5,000,000 key man life
insurance policy on William R. James payable to the Partnership.
5.3.7 As "tax matters partner," the General Partner: (i)
shall consult with and consider the views of the Partnership Advisory
Board prior to taking any material action in its capacity as the tax
matters partner; (ii) shall not settle any audit or judicial proceeding
without the Consent of the Partnership Advisory Board; (iii) shall
promptly furnish the Partnership Advisory Board with all copies of
material documents and notices received in connection with an
administrative or judicial proceeding relating to income tax matters of
the Partnership; and (iv) shall notify promptly the Partnership
Advisory Board: (A) if the General Partner causes an amended return to
be filed on behalf of the Partnership with respect to any Fiscal Year
of the Partnership; (B) if the General Partner extends the statute of
limitations on assessments with respect to any taxable year of the
Partnership; (C) if any tax return of the Partnership is audited or if
any adjustments to any such return are proposed in writing; and (D) if
the General Partner enters into a settlement agreement relating to any
items of Partnership income, gain, loss, deduction or credit for any
taxable year of the Partnership.
5.4 Other Business of the General Partner. The General Partner and
its Control Group Affiliates, including, without limitation, William R. James,
shall devote to the business and affairs of the Partnership a substantial
portion of their time so as to conduct such business and affairs in accordance
with the purposes stated in paragraph 2.4 hereof and its duties pursuant to
paragraph 5.3 hereof and shall not and its Affiliates shall not engage in or
possess any interest in other business ventures of any kind, nature or
description, independently or with others, that are competitive with the
Partnership; except that:
(i) the General Partner or any of its Affiliates
may act as general partner of other funds with similar
investment objectives to the fund established pursuant to this
Agreement, provided, however, that no such other fund may
acquire Cable Systems in the geographic area served by the
Partnership's Cable Systems; and
(ii) the General Partner, singly or as a group under
Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), or any of its Affiliates, singly or
as a group under Section 13(d)(3) of the 1934 Act, may own
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up to 5% of the outstanding stock of any company whose stock
is regularly traded.
Notwithstanding the foregoing, the General Partner will promptly
furnish the Partnership Advisory Board with information on a
confidential basis as to any investment in Cable Systems made by it or
any of its Control Group Affiliates, for its or such Control Group
Affiliate's own account or for others based upon its or such Control
Group Affiliate's recommendations. If the General Partner or a Control
Group Affiliate of the General Partner commences another such fund or
funds having the same purposes during the term of the Partnership or
one year after the termination of the Partnership, the General Partner
agrees to, or agrees to cause such Control Group Affiliate to, offer to
such Persons who are Class A Limited Partners the opportunity to invest
in or purchase, outside the Partnership the equivalent of Interests in
such other fund or funds, in the first instance, pro rata, such pro
rata amount to be offered to each such Class A Limited Partner
determined by multiplying the aggregate amount of equivalents of
interests in such fund or funds by a fraction of which (a) the
numerator shall be such Class A Limited Partner's Percentage Interest
and (b) the denominator shall be the aggregate of all Class A Limited
Partners' Percentage Interests. The terms and conditions of such offer
may be determined by the General Partner or its Control Group Affiliate
and may differ from the terms and conditions of this Agreement and any
such fund will be wholly separate and distinct from the Partnership.
Such offer shall be accepted by each such Person who is a Class A
Limited Partner in whole or not at all within 30 days of receipt of
notice of such offer by such Person. If acceptance by such Person is
not received by the offeror within such 30 days at the address
specified for response in such notice, the offeror may deem such offer
to be rejected by such Person.
5.5 Management Compensation.
5.5.1 The General Partner shall be permitted to take from
the aggregate gross operating revenues generated by the Cable Systems
owned directly or indirectly by the Partnership during the period that
such Cable Systems are owned by the Partnership as are proportionate to
the Partnership's share of economic benefits and losses thereof ("Gross
Revenues") a management fee equal to 4% of Gross Revenues for such
Fiscal Year, payable monthly, in arrears, on the basis of the previous
month's Gross Revenues. For purposes of this subparagraph 5.5.1, "Gross
Revenues" shall not include interest or other returns on temporary
investments made pursuant to subparagraph 5.1.1(i) hereof or proceeds
of any Capital Transaction. In the event that an overpayment or
underpayment shall occur as a result of aggregated monthly payments
which exceed or fall short of, as the case may be, 4% of Gross Revenues
for a Fiscal Year, such overpayment or underpayment shall be deducted
or added to, as applicable, from the next succeeding monthly payments
(and each succeeding month thereafter if not used up by the prior
month's payment).
5.5.2 Upon removal, the General Partner shall be entitled
to retain that portion of the compensation paid to it pursuant to
paragraph 5.5.1, determined on the basis of the entire Fiscal Year
during which the General Partner was removed, prorated through the
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time of such removal, but shall not be entitled to any management
compensation with respect to any periods subsequent to the effective
date of such removal.
5.6 Expenses Reimbursement and Indemnification.
5.6.1 (a) The Partnership shall bear or pay (or reimburse
the General Partner for its payment of) the following expenses relating
to its operations: (i) ordinary and normal operating expenses of Cable
Systems owned by the Partnership as are proportionate to the
Partnership's share of economic benefits and losses thereof, including
debt service payments on debt outstanding on or after the date hereof
or incurred or assumed pursuant to paragraph 5.1.1(c)(i) hereof
(provided, however, that such expenses shall be paid solely out of
operating reserves and revenues of Cable Systems owned by the
Partnership), (ii) legal and accounting fees of the Partnership, (iii)
fees and expenses of the Partnership Advisory Board, (iv) taxes, if
any, imposed on the Partnership in respect of its operations or income,
(v) all legal and accounting fees and expenses, and all fees and
expenses of brokers and finders, that are incurred in connection with
dispositions of Ownership Interests, (vi) commitment and other fees and
expenses (including counsel fees) paid to, or on behalf of, banks,
investment banks, insurance companies or other lenders or investors in
connection with arranging for the financing or refinancing of debt now
or hereafter outstanding or incurred or assumed pursuant to paragraph
5.1.1(c)(i) hereof, (vii) operating expenses of the General Partner's
headquarters facilities of the type that would be borne by each Cable
System owned by the Partnership individually if management of all such
Cable Systems was not centralized at such headquarters facilities for
each Fiscal Year in an amount up to $5.00 multiplied by the average
aggregate number of subscribers to Cable Systems owned by the
Partnership during such Fiscal Year, and the General Partner shall be
entitled to reimbursement of any such expenses so paid by the General
Partner on behalf of the Partnership. The Partnership shall also bear
or pay (or reimburse the General Partner for its payment of) the costs
and expenses of the Appraiser as this term is defined in the Incentive
Compensation Agreement.
(b) The General Partner or an Affiliate thereof, and not
the Partnership or Cable Systems owned by the Partnership, shall bear
or pay all expenses relating to the operation of the Partnership not
borne by the Partnership pursuant to paragraph 5.6.1(a) above.
5.6.2 Provided they shall act in good faith and with that
degree of care which an ordinary prudent Person in a like position
would use under similar circumstances, the General Partner and its
Control Group Affiliates and any officer, partner, agent or employee of
the foregoing shall not be liable to any other Partner or the
Partnership (i) for any mistake in judgment, (ii) for any action or
inaction taken or omitted in good faith reliance on the provisions of
this Agreement or for a purpose which the General Partner or such
Person reasonably believed to be consistent with the best interests of
the Partnership, or (iii) for any loss due to the mistake, action,
inaction, negligence, dishonesty, fraud or bad faith of any broker or
other agent, provided that such broker or other agent is not and was
not a Control Group Affiliate of the General Partner and was selected,
engaged or retained by the General Partner or such Person with
reasonable care;
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provided, however, that the General Partner shall be liable to, and
shall indemnify and hold harmless, any other Partner or the Partnership
for (i) any penalties imposed on such other Partner or Partners
(whether in their capacity as such or otherwise) or the Partnership
(which are not set aside or judicially reversed) by any governmental
body as a consequence of acts or omissions by the General Partner or
its Control Group Affiliates before the date of the Original Agreement,
regardless of whether the Partner could have avoided the penalty by its
own action, and (ii) any breach of the General Partner's
representations, warranties or covenants contained in paragraph 14.2
hereof and notwithstanding any other provision of this Agreement to the
contrary, the Partnership shall not indemnify the General Partner or
any Control Group Affiliate of the General Partner for such liability
or indemnity and shall bear no cost or expense in connection therewith,
including, without limitation, costs, fees or expenses of setting such
penalty aside or obtaining judicial reversal thereof. The General
Partner may consult with legal counsel and accountants in respect of
Partnership affairs and, except in respect of matters in which there is
a conflict of interest, shall be fully protected and justified in any
action or inaction which is taken or omitted in good faith, in reliance
upon and in accordance with the opinion or advice of such counsel or
accountants, provided that they shall have been selected with
reasonable care. In respect of conflicts of interest, the General
Partner shall be subject to the review of the Partnership Advisory
Board pursuant to Article Six hereof, and approval by a majority of the
members thereof shall fully protect and justify the General Partner's
entering into any transaction with an Affiliate in good faith, in
reliance upon and in accordance with such approval. In determining
whether the General Partner or any of its Affiliates acted in good
faith and with the requisite degree of care, each such Person shall be
entitled to rely on reports and written statements of the directors,
officers and employees of a Person in which the Partnership holds
Ownership Interests unless the General Partner has reason to believe
that such reports or statements are not true and complete. For the
purposes of clauses (i), (ii) and (iii) of the first sentence of this
paragraph 5.6.2, the directors, officers and employees of a Person in
which the Partnership holds Ownership Interests shall not, solely by
virtue of such holding, be deemed to be Affiliates of the General
Partner.
5.6.3 The Partnership shall, to the fullest extent permitted
by law, indemnify and hold harmless the General Partner and each of its
Control Group Affiliates, each member of the Partnership Advisory Board
and the Liquidating Trustee (and their respective heirs and legal and
personal representatives) who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative
(including any action by or in the right of the Partnership), by reason
of any acts or omissions or alleged acts or omissions arising out of
such Person's activities as the General Partner, as a Control Group
Affiliate of the General Partner, as a member of the Partnership
Advisory Board, as the Liquidating Trustee or as an officer, director,
consultant or other advisor to a Cable System owned by the Partnership,
if such activities were performed in good faith either on behalf of the
Partnership or consistent with the best interests of the Partnership
and in a manner reasonably believed by such Person to be within the
scope of the authority conferred by this Agreement or by law or by the
Consent of at least 51% in Percentage Interests of the Class A Limited
Partners, against losses, damages or expenses for which such Person has
not otherwise been reimbursed (including attorneys' fees, judgments,
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fines and amounts paid in settlement) actually and reasonably incurred
by such Person in connection with such action, suit or proceeding, so
long as such Person was not guilty of gross negligence, willful
misconduct or any other like breach of fiduciary duty as General
Partner under this Agreement with respect to such acts or omissions
and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, and provided that
the satisfaction of any indemnification and any holding harmless shall
be from and limited to Partnership assets and no Limited Partner shall
have any personal liability (beyond the amount of any capital
contributions or infusions actually made) on account thereof, and
provided, further, that any Person entitled to indemnification from the
Partnership hereunder shall first seek recovery under any insurance
policies by which such Person is covered and, if other than the General
Partner, shall obtain the written consent of the General Partner prior
to entering into any compromise or settlement which would result in an
obligation of the Partnership to indemnify such Person, and provided,
further, that if liabilities arise out of the conduct of the business
and affairs of the Partnership and any other Person for which the
Person entitled to indemnification from the Partnership hereunder was
then acting in a similar capacity, the amount of the indemnification
provided by the Partnership shall be limited to the Partnership's
proportionate share thereof as determined in good faith by the General
Partner in light of its fiduciary duties as General Partner under this
Agreement to the Partnership and the Limited Partners. For the purposes
of this paragraph 5.6.3, the Partnership's coventurers or partners in a
Cable System owned by the Partnership shall not be deemed to be
Affiliates of the General Partner.
5.7 1994 General Partner Incentive Compensation Award. Pursuant to the
1994 General Partner Incentive Compensation Agreement dated as of December 31,
1994 between the Partnership and the General Partner (the "1994 Incentive
Compensation Agreement"), the Partnership agreed to pay to the General Partner,
in addition to the amounts described in paragraphs 5.5.1 and 5.6.1 (a) hereof,
but subject to certain vesting requirements specified therein, the Incentive
Compensation Amount (defined herein as in the Incentive Compensation Agreement).
The Incentive Compensation Amount has fully vested. Upon the vesting of the 1994
Incentive Compensation Amount, which had a value of $540,000, and, in exchange
for such amount, effective December 31, 1997 the General Partner was granted a
limited partnership interest equal to 2.0% of all of the then issued and
outstanding limited partnership interests. The limited partnership interest so
granted to the General Partner is included in the Percentage Interest shown on
the attached Schedule A for James Communications Partners as a Class A Limited
Partner.
ARTICLE SIX
The Partnership Advisory Board
6.1 Selection of the Partnership Advisory Board. The Partnership
Advisory Board shall consist of not more than five members. One member shall be
designated and approved by the General Partner, and four members shall be
designated and approved by the Consent of at least 51% in Percentage Interests
of the Class A Limited Partners; provided, however, that no member of the
Partnership Advisory Board shall be an Affiliate of the General Partner. The
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removal of any member of the Partnership Advisory Board may be proposed at any
time by any Class A Limited Partner, and, if so proposed, such member will be
removed from the Partnership Advisory Board if the Consent of at least 51% in
Percentage Interests of the Class A Limited Partners is obtained to remove such
member; provided, however, that the member of the Partnership Advisory Board
designated and approved by the General Partner may be removed and replaced only
by the General Partner. Members of the Partnership Advisory Board shall serve
for the duration of the Partnership or until their resignation, removal, or
Incapacity. In the event of a vacancy on the Partnership Advisory Board, the
party who designated and approved the member vacating his position shall
designate and approve a new member, who shall serve on the terms described
above. On or before January 15, 2000, the Class A Limited Partners shall hold a
special meeting for the purposes of (i) designating and approving the four
members to be designated and approved by the Class A Limited Partners and (ii)
ratifying, in accordance with the Indenture, the execution, delivery and terms
of this Agreement and of the Option.
6.2 Functions of the Partnership Advisory Board.
6.2.1 The functions of the Partnership Advisory Board will be
(i) to review and approve or disapprove the valuation of the Fair
Market Value of Partnership assets (including Ownership Interests) as
determined by the General Partner when a determination of Fair Market
Value is required by the terms of this Agreement, (ii) to review the
annual audited financial statements of the Partnership, (iii) to review
and approve or disapprove any potential conflicts of interest of the
General Partner or any Affiliate thereof and (iv) to advise the General
Partner on such other matters, including investment advice, about which
the General Partner may from time to time, in its sole discretion,
determine to consult the Partnership Advisory Board. A quorum of the
Partnership Advisory Board shall consist of three Partnership Advisory
Board members, which quorum must be present at all Partnership Advisory
Board meetings or telephone conference calls. The Partnership Advisory
Board shall meet at least once each calendar quarter, such meetings to
occur on the first Tuesday that is a business day in each of February,
May, August and November, unless rescheduled with consent of at least
three members, notice of rescheduling to be given to all members 5 days
before such regularly scheduled meeting. The Partnership Advisory Board
may hold special meetings, which meetings may be called by at least two
members of the Partnership Advisory Board or by the General Partner,
when appropriate. Notice of a special meeting must be provided to all
members of the Partnership Advisory Board who did not call such special
meeting, at least 2 days prior to the scheduled date of such special
meeting, and matters considered and voted upon at such meeting shall be
limited to matters set forth in the notice, provided, however, that any
such member may waive such notice and voting limitations by attendance
or in writing. Members may participate in a meeting by means of
conference telephone or similar communications equipment by means of
which all participating members can hear each other, and participation
in a meeting by such means shall be deemed to constitute presence in
person at the meeting. If the party designating a member so permits,
such member may be represented at meetings by proxy.
6.2.2 The Partnership Advisory Board shall act by the vote of
a majority of its members, except as otherwise specified in this
Agreement. Action of the Partnership Advisory Board may be taken at a
meeting, or by written approval of a majority of
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members (or the requisite number of members as specified elsewhere in
this Agreement) with all members being promptly notified of any action
taken by written approval, or by means of conference telephone or
similar communications equipment by means of which all participating
members can hear each other. Except as provided in paragraphs 6.2.1 and
6.2.3 below, the recommendations of the Partnership Advisory Board
shall be advisory only and shall not obligate the General Partner to
act in accordance therewith. Any member of the Partnership Advisory
Board may resign by giving to the General Partner and the other members
of the Partnership Advisory Board 30 days' prior written notice. Any
vacancy in the Partnership Advisory Board, whether created by such a
resignation or by the death of any member or otherwise, shall promptly
be filled as provided in paragraph 6.1 hereof.
6.2.3 For all purposes of this Agreement other than paragraph
7.5.2 hereof, the calculation of the Fair Market Value of any Ownership
Interests or of property to be received in exchange for any Ownership
Interests or pursuant to any Capital Transaction shall initially be
made by the General Partner, who shall supply the Partnership Advisory
Board with all such information and data as shall be requested to
enable the Partnership Advisory Board to reach an informed judgment
with respect thereto. In the event the Partnership Advisory Board shall
disagree with any valuation made by the General Partner and the General
Partner shall not accept the valuation proposed by the Partnership
Advisory Board, the matter shall be settled by appraisal as provided in
paragraph 6.2.4 below. Any valuation made in accordance with the
provisions of this paragraph 6.2.3 shall be made in writing and a copy
thereof given to each Limited Partner. Regardless of whether the
Partnership Advisory Board has approved the General Partner's
valuation, each Limited Partner shall have 30 days after receipt of
such valuation within which it may advise the General Partner in
writing of its objection to any valuation other than one which has been
settled by appraisal and if Limited Partners of any class of Limited
Partners (excluding the General Partner, if it is also a Limited
Partner, or any Affiliate thereof) whose Percentage Interests at the
time represent not less than 51% of the aggregate Percentage Interests
of the then Limited Partners of such class of Limited Partners
(excluding the General Partner, if it is also a Limited Partner, or any
Affiliate thereof) so advise the General Partner of any such objection
and if the Limited Partners so objecting and the General Partner are
unable to agree upon a valuation, the matter shall be determined by
appraisal as provided in paragraph 6.2.4 below. In determining the
value of the Partnership or the Fair Market Value of any Ownership
Interests or of property received in exchange for any Ownership
Interests or pursuant to any Capital Transaction, the following
principles shall apply: (i) The valuation of a Cable System will be
based on a going concern basis, in conformity with standard appraisal
techniques, applying the market factors then relevant, and other assets
and other securities not subject to valuation as described below, shall
be valued similarly; (ii) securities which are freely tradable and the
principal market for which (measured by the average daily volume over
the preceding four trading weeks) is either the New York Stock Exchange
or the American Stock Exchange or which are quoted on the National
Market System of the National Association of Securities Dealers, Inc.
shall be valued at their last reported closing sale price, prior to the
date of determination on such exchange, or, if no sales occurred on
such day, at the mean between the closing "bid" and "asked" prices on
such day; and (iii) securities which are freely tradable and the
principal market for which is
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some other national securities exchange or the over-the-counter market
(but which are not quoted on the National Market System) shall be
valued at their last reported closing sale price, regular way, prior to
the date of determination on the principal national securities exchange
on which they are traded, or, if no sales occurred on such day, at the
mean between the closing "bid" and "asked" prices on such day, or, if
the principal market for such securities is, or is deemed to be, in the
over-the-counter market, at their average closing "bid" price as
published by the National Association of Securities Dealers Automated
Quotation System, or if such price is not so published, at the mean
between their closing "bid" and "asked" prices, if available, which
prices may be obtained from any reputable broker or dealer. For all
purposes of this Agreement, Fair Market Value shall be determined after
considering all factors which might reasonably affect the sales price
of such Ownership Interests or other assets or securities, including,
without limitation, if and as appropriate, the anticipated impact on
current market prices of immediate sale, the lack of a market for such
Ownership Interests or assets or securities and the impact on present
value of, among others, the length of time before any such sales may
become possible and the cost and complexity of any such sales. For all
purposes of this Agreement, all valuations which have been determined
in accordance with the terms of this paragraph 6.2.3 shall be final and
conclusive on the Partnership and all Partners, their successors and
assigns. In determining the value of assets in accordance with the
provisions of this paragraph 6.2.3, the General Partner and the
Partnership Advisory Board may obtain and rely on information provided
by any source or sources reasonably believed to be accurate.
6.2.4 Any controversy arising out of a valuation which shall
be submitted to appraisal as provided for by paragraph 6.2.3 above
shall be settled in New York, New York by an appraisal undertaken by
two independent nationally recognized experts in the cable television
field, to determine the Fair Market Value of the Partnership, the
Ownership Interests, or other assets or securities to be appraised. One
such appraiser shall be appointed by the General Partner, and the other
by the Consent of 51% in Percentage Interests of the Class A Limited
Partners, and the deliberations of the appraisers shall commence
forthwith following their appointment. If the disparity between the
Fair Market Value determined by the two appraisers is less than or
equal to 5% of such Fair Market Value, the final Fair Market Value
shall be the average of the two Fair Market Values. If the disparity
between the determination of Fair Market Value by each of the two
appraisers is greater than 5%, they shall select a third appraiser
possessing similar qualifications. If they cannot agree upon a third
appraiser within 25 days of the commencement of their original
deliberations to determine Fair Market Value, the third appraiser shall
be selected by the American Arbitration Association, and such third
appraiser, within 20 days of appointment, shall make its determination
of Fair Market Value. The final Fair Market Value shall be whichever
Fair Market Value of the first two appraisers is closest to the Fair
Market Value as determined by the third appraiser so long as the
disparity between the third Fair Market Value and the earlier Fair
Market Value to which it is closest is less than or equal to 20% of
such earlier Fair Market Value. If the disparity is greater than 20%,
then the Fair Market Value shall be the average of the two Fair Market
Values that are closest. The valuation decision of such appraisers
shall be final and conclusive on the Partnership and all Partners. The
cost
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of any such appraisal shall be borne equally by the Partnership (as a
Partnership expense) and the General Partner.
6.3 Fees and Expenses of Members of Partnership Advisory Board. Members
of the Partnership Advisory Board shall be entitled to reimbursement from the
Partnership for their reasonable travel and other out-of-pocket expenses
incurred in connection with the performance of their duties as members of the
Partnership Advisory Board, and members of the Partnership Advisory Board not
otherwise affiliated with the General Partner or any of the Limited Partners
shall be entitled to a fee of $1,000 for each meeting of the Partnership
Advisory Board attended by said member.
ARTICLE SEVEN
Transferability of the General Partner's Interest
7.1 Assignment of the General Partner's Interest. Unless any assignment
or transfer is to a Person controlled by William R. James, without the prior
Consent of at least 51% in Percentage Interests of the Class A Limited Partners,
the General Partner shall not assign, sell or otherwise dispose of all or a
fraction of its Interest as General Partner in the Partnership, or enter into
any agreement as a result of which any Person shall have a general partner
interest in the Partnership, provided, however, that changes in the composition
of the partners constituting the partnership which is the General Partner shall
be permitted, including additions to and subtractions from the partnership,
except as prohibited in paragraph 7.2 hereof, provided further, however, that no
dispositions, agreements or changes in composition otherwise permitted by the
foregoing shall be permitted without the prior approval of the FCC (if required)
and if not in compliance with other applicable laws.
7.2 No Change in Control or Ineligibility of the General Partner.
Unless the prior Consent of 51% in Percentage Interests of the Class A Limited
Partners is given, or unless there occurs (x) the death of William R. James or
(y) the Disability of William R. James, William R. James (or a corporation 100%
of the voting stock of which is owned by him) shall at all times either (i) own
at least a 51% interest in the profits and losses of and distributions from, and
control, the General Partner or (ii) be the sole General Partner (either of
clause (i) or (ii) above constituting "Control" of the General Partner).
7.3 Removal of the General Partner.
7.3.1 The General Partner may not be removed, directly or
indirectly, except the General Partner shall be removed (a) upon a
finding by an independent party (which party shall be selected by the
Consent of at least 51% in Percentage Interests of the Class A Limited
Partners but which party shall not be an Affiliate of any Limited
Partner or the General Partner) that the General Partner has engaged in
or is engaging in malfeasance, criminal conduct or wanton, willful
neglect; or (b) upon a determination by a court or other official body
of competent jurisdiction that the General Partner has engaged in the
conduct described in clause (a) above, or a material breach of this
Agreement by the General Partner. In addition to the events described
in (a) and (b), but only in the event of the Incapacity of William R.
James, or if the General Partner ceases to be Controlled by
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William R. James, the General Partner may be removed upon the Consent
of at least 51% in Percentage Interests of the Class A Limited Partners
(excluding the General Partner, if it is also a Limited Partner, or any
Affiliate thereof) to the removal of the General Partner.
7.3.2 Any removal of the General Partner shall become and be
effective only on the date determined in accordance with paragraph
7.5.2 hereof.
7.4 Incapacity or Withdrawal of the General Partner. In the event of
the Incapacity or withdrawal of the General Partner, the Partnership shall be
dissolved, except as provided in paragraph 9.3.1 hereof.
7.5 Penalty.
7.5.1 Regardless of any vote to continue the Partnership
pursuant to paragraph 9.3.1 hereof, if William R. James (or a
corporation 100% of the voting stock of which is owned by him) shall
cease to Control the General Partner, except as otherwise permitted in
paragraph 7.2 hereof, then the General Partner Interest of the General
Partner shall be divided into two components: (i) 25% shall be
allocated proportionately to the Class A Limited Partners thereby
increasing their respective Class A Limited Partnership Interests (and
the Capital Accounts and Percentage Interests of the Class A Limited
Partners, shall be automatically adjusted to reflect such increase),
and (ii) 75% thereof shall be retained by the General Partner or, if
the Partnership is continued as provided in paragraph 9.3 hereof, shall
be purchased by the newly appointed General Partner for the lesser of
(x) 75% of the Capital Account of the General Partner (calculated as
provided in the second to last sentence of paragraph 9.3.1 hereof),
less the amount of any distributions made to the General Partner
subsequent to the end of the month as of the end of which its Capital
Account was so calculated or (y) 75% of the amount of the General
Partner's Capital Contribution, less all distributions actually made by
the Partnership to the General Partner pursuant to paragraph 4.3
hereof.
7.5.2 Notwithstanding anything to the contrary express or
implied in this Agreement, in the event that James Communications
Partners is removed as the General Partner and such removal is not
based upon (i)(A) a finding by an independent party (which party shall
be selected by the Consent of at least 51% in Percentage Interests of
the Class A Limited Partners but which party shall not be an Affiliate
of any Class A Limited Partner or the General Partner) that the General
Partner has engaged in or is engaging in malfeasance, criminal conduct
or wanton, willful neglect, or (B) a determination by a court or other
official body of competent jurisdiction that the General Partner has
either engaged in or is engaging in malfeasance, criminal conduct or
wanton, willful neglect or has materially breached this Agreement, or
(ii) in the event of the Incapacity of William R. James, or if the
General Partner ceases to be Controlled by William R. James, the
Consent of at least 51% in Percentage Interests of the Class A Limited
Partners (in each case described in clause (i) and clause (ii), an
"Unwarranted Removal"), then the provisions of this paragraph 7.5.2
shall apply.
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(a) No Unwarranted Removal shall become effective unless and
until the Partnership shall have (i) purchased from the General Partner
(w) the General Partner's general partner interest, (x) the General
Partner's Class A Limited Partner Interest, (y) the General Partner's
Class B Limited Partner Interest, and (z) provided it shall not have
been previously exercised, the Option, and (ii) paid to the General
Partner, in addition to the purchase price for the items listed in
clause (i) of this sentence, $1,000,000. No such removal shall become
effective until the date (the "Payment Date") that the Partnership
makes such purchase and payment. Any removal of the General Partner
that is based upon (i)(A) a finding by an independent party (which
party shall be selected by the Consent of at least 51% in Percentage
Interests of the Class A Limited Partners but which party shall not be
an Affiliate of any Class A Limited Partner or the General Partner)
that the General Partner has engaged in or is engaging in malfeasance,
criminal conduct or wanton, willful neglect, or (B) a determination by
a court or other official body of competent jurisdiction that the
General Partner has either engaged in or is engaging in malfeasance,
criminal conduct or wanton, willful neglect or has materially breached
this Agreement, or (ii) in the event of the Incapacity of William R.
James, or if the General Partner ceases to be Controlled by William R.
James, the Consent of at least 51% in Percentage Interests of the Class
A Limited Partners, shall be effective automatically immediately upon
any such finding, determination or Consent, as applicable.
(b) The purchase price of the items listed in clause (i) of
paragraph 7.5.2(a) shall be equal to the aggregate of the Fair Market
Values of such items, which Fair Market Values shall be based on the
Fair Market Value of the entire equity value of the Partnership.
(c) For all purposes of this Agreement, the calculation of the
Fair Market Value of the items listed in clause (i) of paragraph 7.5.2
(a) hereof and of the entire equity value of the Partnership shall
initially be made by the General Partner, who shall supply the
Partnership Advisory Board with all such information and data as shall
be requested to enable the Partnership Advisory Board to reach an
informed judgment with respect thereto. In the event the Partnership
Advisory Board shall disagree with any valuation made by the General
Partner and the General Partner shall not accept the valuation proposed
by the Partnership Advisory Board, the matter shall be settled by
appraisal as provided in paragraph 7.5.2(d) below. Any valuation made
in accordance with the provisions of this paragraph 7.5.2(c) shall be
made in writing and a copy thereof given to each Limited Partner.
Regardless of whether the Partnership Advisory Board has approved the
General Partner's valuation, each Class A Limited Partner shall have 30
days after receipt of such valuation within which it may advise the
General Partner in writing of its objection to any valuation other than
one which has been settled by appraisal and if Class A Limited Partners
(excluding the General Partner, if it is also a Class A Limited
Partner, or any Affiliate thereof) whose Percentage Interests at the
time represent not less than 51% of the aggregate Percentage Interests
of the then Class A Limited Partners (excluding the General Partner, if
it is also a Class A Limited Partner, or any Affiliate thereof) so
advise the General Partner of any such objection and if the Class A
Limited Partners so objecting and the General Partner are unable to
agree upon a valuation, the matter shall be determined by appraisal as
provided in paragraph 7.5.2(d) below. In determining the Fair Market
Value of the items listed in clause (i) of paragraph
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7.5.2(a) or the Fair Market Value of the entire equity value of the
Partnership, the following principles shall apply: (i) The valuation of
a the Partnership will be based on a going concern basis, in conformity
with standard appraisal techniques, applying the market factors then
relevant, and other assets and other securities not subject to
valuation as described below, shall be valued similarly; (ii)
securities which are freely tradable and the principal market for which
(measured by the average daily volume over the preceding four trading
weeks) is either the New York Stock Exchange or the American Stock
Exchange or which are quoted on the National Market System of the
National Association of Securities Dealers, Inc. shall be valued at
their last reported closing sale price, prior to the date of
determination on such exchange, or, if no sales occurred on such day,
at the mean between the closing "bid" and "asked" prices on such day;
and (iii) securities which are freely tradable and the principal market
for which is some other national securities exchange or the
over-the-counter market (but which are not quoted on the National
Market System) shall be valued at their last reported closing sale
price, regular way, prior to the date of determination on the principal
national securities exchange on which they are traded, or, if no sales
occurred on such day, at the mean between the closing "bid" and "asked"
prices on such day, or, if the principal market for such securities is,
or is deemed to be, in the over-the-counter market, at their average
closing "bid" price as published by the National Association of
Securities Dealers Automated Quotation System, or if such price is not
so published, at the mean between their closing "bid" and "asked"
prices, if available, which prices may be obtained from any reputable
broker or dealer. For all purposes of this paragraph 7.5.2, such Fair
Market Value shall be determined after considering all factors which
might reasonably affect the sales price of the assets or securities of
the Partnership, including, without limitation, if and as appropriate,
the anticipated impact on current market prices of immediate sale, the
lack of a market for such assets of securities and the impact on
present value of, among others, the length of time before any such
sales may become possible and the cost and complexity of any such
sales. For all purposes of this paragraph 7.5.2, all valuations which
have been determined in accordance with the terms of this paragraph
7.5.2 shall be final and conclusive on the Partnership and all
Partners, their successors and assigns. In determining the value of
assets in accordance with the provisions of this paragraph 7.5.2, the
General Partner and the Partnership Advisory Board may obtain and rely
on information provided by any source or sources reasonably believed to
be accurate.
(d) Any controversy arising out of a valuation which shall be
submitted to appraisal as provided for by paragraph 7.5.2 (c) above
shall be settled in New York, New York by an appraisal undertaken by
two independent nationally recognized experts in the cable television
field, to determine the Fair Market Value of the entire equity value of
the Partnership and the items to be appraised. One such appraiser shall
be appointed by the General Partner, and the other shall be appointed
by the Consent of at least 51% in Percentage Interests of the Class A
Limited Partners, and the deliberations of the appraisers shall
commence forthwith following their appointment. If the disparity
between the Fair Market Value determined by the two appraisers is less
than or equal to 5% of such Fair Market Value, the final Fair Market
Value shall be the average of the two Fair Market Values. If the
disparity between the determination of Fair Market Value by each of the
two appraisers is greater than 5%, they shall select a third appraiser
possessing similar qualifications. If they cannot agree upon a third
appraiser within 25
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days of the commencement of their original deliberations to determine
Fair Market Value, the third appraiser shall be selected by the
American Arbitration Association, and such third appraiser, within 20
days of appointment, shall make its determination of Fair Market Value.
The final Fair Market Value shall be whichever Fair Market Value of the
first two appraisers is closest to the Fair Market Value as determined
by the third appraiser so long as the disparity between the third Fair
Market Value and the earlier Fair Market Value to which it is closest
is less than or equal to 20% of such earlier Fair Market Value. If the
disparity is greater than 20%, then the Fair Market Value shall be the
average of the two Fair Market Values that are closest. The valuation
decision of such appraisers shall be final and conclusive on the
Partnership and all Partners. The cost of any such appraisal shall be
borne equally by the Partnership (as a Partnership expense) and the
General Partner.
(e) In the event that the Fair Market Value of the Partnership
is determined to be $62,200,000 or more, then all sums payable to the
General Partner pursuant to this paragraph 7.5.2 with respect to the
items listed in clause (i) of paragraph 7.5.2(a) hereof shall be paid
in cash on the Payment Date. In the event that the Fair Market Value of
the Partnership is determined to be less than $62,200,000, then the
sums payable to the General Partner pursuant to this paragraph 7.5.2
with respect to the items listed in clause (i) of paragraph 7.5.2(a)
hereof shall be evidenced by, and paid pursuant to, a promissory note
dated the Payment Date, made payable to the order of the General
Partner and having an initial stated principal balance equal to the
aggregate Fair Market Value of such items (the "First Note"). The
$1,000,000 payable to the General Partner pursuant to clause (ii) of
paragraph 7.5.2(a) hereof shall be evidenced by, and paid pursuant to,
a promissory note dated the Payment Date, made payable to the order of
the General Partner and having an initial stated principal balance
equal to $1,000,000 (the "Second Note"). The First Note shall provide
for the payment of the unpaid principal thereof, and all accrued and
unpaid interest thereon, in twelve consecutive monthly installments.
The first six of such installments shall consist of only accrued and
unpaid interest. The last six of such installments shall consist of
unpaid principal and accrued and unpaid interest and shall be in
amounts sufficient to repay, in full, the First Note in full on that
date that is one year after the Payment Date. Each such installment
shall be due on the 15th day of each month and the entire unpaid
principal balance, and all accrued and unpaid interest thereon, due on
that date that is one year after the Payment Date. The First Note shall
bear interest on the unpaid principal balance at a per annum rate equal
to the "applicable federal rate" in effect on the Payment Date, and
shall otherwise be acceptable in form and substance to the General
Partner. The Second Note shall provide for the payment of the principal
balance thereof, and all accrued and unpaid interest thereon, in twelve
equal monthly installments (with each such installment due on the 15th
day of each month and the entire unpaid principal balance, and all
accrued and unpaid interest thereon, due on that date that is one year
after the Payment Date), shall bear interest on the unpaid principal
balance at a per annum rate equal to the "applicable federal rate" in
effect on the Payment Date, and shall otherwise be acceptable in form
and substance to the General Partner.
(f) Following any removal of James Communications Partners as
General Partner, this Agreement may not, and shall not be altered,
amended, restated, modified or
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changed in any way that causes or could cause a reduction in the amount
of cash or property payable to James Communications Partners to upon
any liquidation of the Partnership without the consent of James
Communications Partners.
7.6 Liability of a Withdrawn or Removed General Partner. Any General
Partner which shall suffer Incapacity, withdraw or be removed from the
Partnership, or which shall sell, transfer or assign its General Partner's
Interest, shall remain liable for obligations and liabilities incurred by it as
General Partner prior to the time such Incapacity, withdrawal, removal, sale,
transfer or assignment shall have become effective, but it shall be free of any
obligation or liability incurred on account of the activities of the Partnership
from and after the time such Incapacity, withdrawal, removal, sale, transfer or
assignment shall have become effective.
7.7 Restriction on Admission of Substitute General Partner. No
substitute General Partner shall be admitted to the Partnership pursuant to this
Article Seven unless an opinion of responsible counsel (who may be counsel for
the Partnership) is delivered to the Partnership stating that admission of the
substitute General Partner will not cause the Partnership to lose its status as
a Partnership for federal income tax purposes.
ARTICLE EIGHT
Transferability of a Limited Partner's Interest
8.1 Restrictions on Transfers of Interests.
8.1.1 Notwithstanding any other provisions of this paragraph
8.1, no sale, exchange, transfer, assignment or other disposition
(collectively, a "Transfer") of all or any fraction of a Limited
Partner's Interest may be made unless (a) such Transfer is effective as
of the end of a fiscal quarter, (b) the General Partner gives its
Consent (which Consent may be granted or withheld in the sole
discretion of the General Partner) to such Transfer, and (c) in the
opinion of responsible counsel (who may be counsel for the
Partnership), satisfactory in form and substance to the General Partner
(which opinion may be waived, in whole or in part, at the discretion of
the General Partner provided that prompt notice of such waiver is given
by the General Partner to the Limited Partners),
(i) such Transfer, when added to the total of all
other Transfers of Interests within the preceding 12 months,
would not result in the Partnership being considered to have
terminated within the meaning of Section 708 of the Internal
Revenue Code;
(ii) such Transfer would not violate the Securities
Act of 1933, as amended, or any state securities or "Blue Sky"
laws applicable to the Partnership or the Interest to be the
subject of such Transfer;
(iii) such Transfer would not cause the Partnership to
lose its status as a partnership for federal income tax
purposes or cause the Partnership to become subject to the
Investment Company Act of 1940, as amended (the "1940 Act");
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(iv) such Transfer would not cause the equity
participation in the Partnership by "benefit plan investors"
to be "significant" as such terms are defined in section
2510.3-101(f)(2) and section 2510.3-101(f)(1), respectively,
of Part 2510 of Chapter XXV, Title 29 of the Code of Federal
Regulations; and
any such opinion of counsel is delivered in writing to the Partnership
not less than 10 days prior to the date of the Transfer; provided,
however, that (x) the foregoing provisions of this paragraph 8.1.1
shall not apply to a Transfer by a Limited Partner to another Partner
or to a Person which succeeds to its business substantially in its
entirety or which, directly or indirectly, owns a majority of the
outstanding equity securities of such Limited Partner or is a
majority-owned subsidiary of such Limited Partner (or of the Person of
which such Limited Partner, directly or indirectly, is a majority-owned
subsidiary), (y) any Limited Partner subject to insurance laws
governing disposition of assets may make a Transfer of its Interest to
a financial institution of equivalent quality and standing and (z) any
Limited Partner that is a tax-exempt organization under Section 501 of
the Internal Revenue Code may make a Transfer of its Interest if such a
disposition is called for by a governmental agency, including the
Internal Revenue Service. The General Partner agrees to cooperate with
any Limited Partner making a Transfer by providing promptly such
records and other factual information as may be reasonably requested
with respect to any proposed Transfer. Each Limited Partner hereby
severally agrees that it will not Transfer all or any fraction of its
Interest in the Partnership, except as permitted by this Agreement.
8.1.2 No Interest nor any part thereof shall be the subject of
a Transfer to a minor or an incompetent except in trust, pursuant to
the Uniform Gifts to Minors Act, or by will, trust agreement or
intestate succession.
8.1.3 Each Limited Partner agrees that it will, prior to the
time the General Partner Consents to a Transfer of Interest by that
Limited Partner, pay all reasonable expenses, including attorneys'
fees, incurred by the Partnership in connection with such Transfer.
8.2 Transferees.
8.2.1 The Partnership shall not recognize for any purpose any
purported Transfer of all or any fraction of the Interest of a Limited
Partner unless the provisions of paragraph 8.1 shall have been complied
with and there shall have been filed with the Partnership a dated
notice of such Transfer, in form satisfactory to the General Partner,
executed and acknowledged by both the Limited Partner making, and the
Person accepting, such Transfer (such Limited Partner making, a
"Transferor" and such Person accepting, a "Transferee"), and such
notice (i) contains the acceptance by the Transferee of all of the
terms and provisions of this Agreement and its agreement to be bound
thereby by executing a counterpart hereof and (ii) represents that such
Transfer was made in accordance with all applicable laws and
regulations.
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8.2.2 Unless and until a Transferee of an Interest becomes a
Substituted Limited Partner, such Transferee shall not be entitled to
give Consents with respect to such Interest.
8.2.3 Subject to paragraph 8.2.4 hereof, any Transferor which
shall Transfer all of its Interest shall cease to be a Limited Partner,
except that, unless and until a Substituted Limited Partner is admitted
in its stead, such Transferor shall retain the statutory rights of an
assignor of a limited partner's interest under the Partnership Act and
shall be entitled to give Consents with respect to such Interest.
8.2.4 Anything herein to the contrary notwithstanding, both
the Partnership and the General Partner shall be entitled to treat the
Transferor of an Interest as the absolute owner thereof in all
respects, and shall incur no liability for distributions made in good
faith to it, until such time as a notice that conforms to the
requirements of paragraph 8.2.1 hereof has been received by the
Partnership and accepted by the General Partner.
8.2.5 A Person who is the Transferee of all or any fraction of
the Interest of a Transferor as permitted hereby but does not become a
Substituted Limited Partner and who desires to make a further Transfer
of such Interest, shall be subject to all of the provisions of this
Article Eight to the same extent and in the same manner as any Limited
Partner desiring to make a Transfer of its Interest.
8.3 Substituted Limited Partner.
8.3.1 No Limited Partner shall have the right to substitute a
purchaser, assignee, transferee, donee, heir, legatee, distributee or
other recipient of all or any fraction of such Limited Partner's
Interest as a Limited Partner in its place. Any such purchaser,
assignee, transferee, donee, heir, legatee, distributee or other
recipient of an Interest (whether pursuant to a voluntary or
involuntary Transfer) shall be admitted to the Partnership as a
Substituted Limited Partner only upon the Consent of the General
Partner (which Consent may be granted or withheld in the sole
discretion of the General Partner) and only upon (i) satisfying the
requirements of paragraphs 8.1 and 8.2 hereof and (ii) an amendment (x)
to Schedule A to this Agreement and (y) if required by then-effective
law, to the Partnership's certificate of limited partnership, recorded
in the proper records of each jurisdiction in which such recordation is
necessary to qualify the Partnership to conduct business or to preserve
the limited liability of the Limited Partners.
8.3.2 Each Substituted Limited Partner, as a condition to its
admission as a Limited Partner, shall execute and acknowledge such
instruments, in form and substance satisfactory to the General Partner,
as the General Partner reasonably deems necessary or desirable to
effectuate such admission and to confirm the agreement of the
Substituted Limited Partner to be bound by all the terms and provisions
of this Agreement with respect to the Interest acquired. All reasonable
expenses, including attorneys' fees, incurred by the Partnership in
this connection shall be borne by such Substituted Limited Partner.
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8.3.3 Until a Transferee shall have been admitted to the
Partnership as a Substituted Limited Partner pursuant to paragraph
8.3.1 hereof, such Transferee shall be entitled to all of the rights of
an assignee of a limited partner interest under the Partnership Act.
8.4 Incapacity of a Limited Partner. In the event of the Incapacity of
a Limited Partner, the Partnership shall not be terminated, and the Limited
Partner's trustee in bankruptcy or other legal representative shall have only
the rights of a transferee of the right to receive Partnership distributions
applicable to the Interest of such Limited Partner as provided herein. Any
Transfer from such trustee in bankruptcy or legal representative shall be
subject to the provisions of this Agreement.
8.5 Transfers During a Fiscal Year. In the event of the Transfer of a
Limited Partner's Interest at any time other than the end of a Fiscal Year, the
distributive shares of the various items of Partnership profit, income, gain,
deduction, loss, credit and allowance as computed for federal income tax
purposes shall be allocated between the Transferor and the Transferee in the
ratio of the number of days in the Fiscal Year before and after the Transfer,
unless the Transferor and the Transferee shall (i) have given the Partnership
written notice, on or before the January 15 following the year in which such
Transfer occurred, stating their agreement that such allocation shall be made on
some other basis permitted for federal income tax purposes, and (ii) agree to
reimburse the Partnership for any incremental accounting fees and other expenses
incurred by the Partnership in making such allocation.
8.6 Elections Under the Internal Revenue Code. In the event of a
transfer of all or any part of a Limited Partner's Interest by sale or exchange,
the General Partner shall, at the request of such Limited Partner or its
successors in interest, cause the Partnership to elect (unless such election has
theretofore been made), pursuant to Section 754 of the Internal Revenue Code, to
adjust the basis of the Partnership's assets as provided by Sections 734 and 743
of the Internal Revenue Code; provided that either such Limited Partner or its
successor in interest makes provisions, reasonably satisfactory to the General
Partner, to reimburse the Partnership for all costs and expenses incurred by the
Partnership by virtue of such election and transfer. Thereafter, any additional
expenses incurred in connection with any subsequent transfer as a result of such
election shall be paid by the subsequent transferee. The Partnership shall
provide such Limited Partners, transferees or such successors with appropriate
verification of such costs and expenses. Nothing herein shall prevent the
General Partner from making an election pursuant to Section 754 of the Internal
Revenue Code at any other time.
ARTICLE NINE
Dissolution, Liquidation and
Termination of the Partnership
9.1 Dissolution. The Partnership shall be dissolved, wound up and
terminated upon the happening of any of the following events, except as provided
in paragraph 9.3.1 hereof:
(i) the expiration of its term;
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(ii) upon at least 30 days' prior written notice to the Limited
Partners of the election to dissolve the Partnership by the General
Partner; provided that at least 51% in Percentage Interests of the
Class A Limited Partners shall Consent thereto;
(iii) upon the sale or other disposition by the Partnership of all
or substantially all of the Ownership Interests it owns on the date
hereof;
(iv) upon at least 30 days' prior written notice to the General
Partner of the election to dissolve the Partnership by the Class A
Limited Partners; provided that at least 51% in Percentage Interests of
the Class A Limited Partners Consent to such election and dissolution.
(v) the removal of the General Partner pursuant to paragraph 7.3
hereof;
(vi) the Incapacity or withdrawal of the General Partner; or
(vii) termination required by operation of law.
Dissolution of the Partnership shall be effective on the day on which
the event occurs giving rise to the dissolution, but the Partnership shall not
terminate until the certificate of limited partnership of the Partnership has
been canceled and the assets of the Partnership have been distributed as
provided in paragraph 9.2 hereof.
9.2 Liquidation.
9.2.1 Upon dissolution of the Partnership, either the General
Partner or a Person designated and approved to act as a liquidating
trustee by the Consent of at least 51% in Percentage Interests of the
Class A Limited Partners (the General Partner or such designated and
approved Person being the "Liquidating Trustee") shall wind up the
affairs of the Partnership and proceed within a reasonable period of
time to sell or otherwise liquidate the assets of the Partnership and,
after paying or making due provisions by the setting up of reserves for
all liabilities to creditors of the Partnership to distribute the
assets among the Partners in accordance with the provisions for the
making of distributions set forth in this Agreement. Notwithstanding
the foregoing, in the event that the Liquidating Trustee shall, in its
absolute discretion, determine a sale or other disposition of part or
all of the Partnership's investments would cause undue loss to the
Partners or otherwise be impractical, the Liquidating Trustee may
either defer liquidation of, and withhold from distribution for a
reasonable time, any such investments or distribute part or all of such
investments, pro rata, to the Partners in kind in accordance with
paragraph 4.4 hereof.
9.2.2. In the Fiscal Year that the Partnership is dissolved,
Net Income, Net Loss and any items specially allocated pursuant to
paragraphs 4.1, 4.9 or 4.11 hereof shall be credited or charged to the
Capital Accounts of the Partners in accordance with the provisions of
Article Four hereof. In determining such Net Income, Net Loss, items
specially allocated and the Capital Accounts of the Partners, if the
Fair Market Value of Partnership assets to be distributed in kind
exceeds ("book gain") or is less than ("book loss") the Partnership tax
basis of such assets, to the extent not otherwise recognized to
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the Partnership, such book gain or book loss shall be taken into
account in computing Net Income or Net Losses for such Fiscal Year for
all purposes of crediting or charging the Capital Accounts of the
Partners as if such assets had been sold. Thereupon, all of the
remaining assets of the Partnership, or the proceeds therefrom,
following such dissolution shall be distributed or used as follows and
in the following order of priority:
(i) for the payment of the debts and liabilities of
the Partnership and the expenses of liquidation (other than
liabilities for distributions to Partners);
(ii) to the setting up of any reserves which the
Liquidating Trustee may deem reasonably necessary for any
contingent or unforeseen liabilities or obligations of the
Partnership; and
(iii) to the Partners, in proportion to the positive
balances in their Capital Accounts (as determined after any
adjustment to the Capital Accounts of the Partners pursuant to
this paragraph 9.2.2). (For purposes of the foregoing, any
distribution of property other than cash shall be treated as a
distribution of cash in the amount of the Fair Market Value of
the property distributed.)
9.2.3 When the Liquidating Trustee has complied with the
foregoing liquidation plan, the Partners shall execute, acknowledge and
cause to be filed an instrument evidencing the cancellation of the
certificate of limited partnership of the Partnership.
9.3 Continuation of the Partnership.
9.3.1. If any event described in paragraph 9.1(i), (iii), (v),
or (vi) hereof occurs, then within 90 days after the occurrence of such
event the Limited Partners shall hold a meeting and shall vote whether
to continue the Partnership.
(a) In the case of an event described in paragraph
9.1(i), the Consent of at least 51% in Percentage Interests of
the Class A Limited Partners and of the General Partner shall
be required to continue the Partnership.
(b) In the case of an event described in paragraph
9.1(iii) hereof, the Partnership will be continued if legally
permissible with the General Partner as General Partner if at
least 51% in Percentage Interests of the Class A Limited
Partners, and the General Partner, give their Consent thereto.
If the General Partner does not give its Consent to continue,
at least 51% in Percentage Interests of the Class A Limited
Partners (excluding the General Partner, or any Affiliate
thereof) may at such time elect a new General Partner, to
serve as the General Partner of the Partnership, and such
event shall be deemed to have occurred immediately prior to
the occurrence of the event requiring such meeting and
Consent.
(c) A Consent of at least 51% in Percentage Interests
of the Class A Limited Partners in the case of the events
described in paragraphs 9.1 (v) or (vi) hereof shall be
necessary to continue the Partnership. In the event that such
Consent is given, at least 51% in Percentage Interests of the
Class A Limited
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Partners (excluding the General Partner, if it is also a
Limited Partner, or any Affiliate thereof) shall at such time
elect a new General Partner, to serve as the General Partner
of the Partnership, and such election shall be deemed to have
occurred immediately prior to the occurrence of the event
requiring such meeting and Consent. If, in the case of the
events described in paragraph 9.1 (vi) hereof, William R.
James shall not be in a condition of Incapacity the new
General Partner, if one is elected, shall be, in William R.
James' sole discretion, either William R. James, a corporation
100% of the voting stock of which is owned by William R.
James, or a Person controlled by William R. James.
In each of clauses (a), (b) and (c) above, provided the
requisite Consent of the Class A Limited Partners is obtained, each
Limited Partner shall be deemed to have given its Consent to the
continuation, and the Partnership shall continue to own and the General
Partner (or the new General Partner, as the case may be) shall continue
to manage the Ownership Interests.
9.3.2 Upon the General Partner, or William R. James, ceasing
to be the General Partner of the Partnership as provided in this
Agreement, its, or his, liability as the General Partner shall cease as
provided in the Partnership Act, and the Partnership shall promptly
file an amendment to the Partnership's certificate of limited
partnership and otherwise take all steps reasonably necessary under the
Partnership Act to cause such cessation of liability.
9.3.3 Upon the General Partner ceasing to be the General
Partner of the Partnership as provided in this Agreement (unless
William R. James or a corporation 100% of the voting stock of which is
owned by him becomes sole General Partner), the General Partner and its
Affiliates shall resign from all directorships, officerships and
engagements held by them in any Person in which the Partnership then
holds Ownership Interests; provided that neither the General Partner
nor any of its Affiliates shall be entitled to compensation solely for
the act of its resignation from any such position in any such Person.
9.3.4 If the Partnership shall not be continued in accordance
with paragraph 9.3.1 hereof, it shall be dissolved, wound up and
terminated in accordance with paragraphs 9.1 and 9.2 hereof.
9.3.5 No General Partner shall be admitted to the Partnership
pursuant to this paragraph 9.3 hereof unless an opinion of responsible
counsel (who may be counsel for the Partnership) is delivered to the
Partnership stating that admission of such General Partner will not
cause the Partnership to lose its status as a Partnership for federal
income tax purposes.
9.3.6 Upon the General Partner ceasing to be the General
Partner of the Partnership as provided in this Agreement, the General
Partner's general partner interest in the Partnership shall
automatically be converted to an additional Interest as a Class A
Limited Partner of the Partnership, with a Percentage Interest in the
Partnership so converted equal to the Percentage Interest attributable
to the General Partner's general
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partner Interest on the date on which the General Partner ceased being
the General Partner; provided, however, that this paragraph 9.3.6 shall
not apply if the General Partner ceases to be the General Partner of
the Partnership and the provisions of paragraph 7.5 hereof apply.
ARTICLE TEN
Amendments
10.1 Adoption of Amendments; Limitations Thereon.
10.1.1 Except as provided in paragraphs 3.3, 5.2, 8.3.1(ii)
and 10.1 hereof, this Agreement is subject to alteration, amendment,
modification or change only with the written Consent of the General
Partner and at least 51% in Percentage Interests of Class A Limited
Partners, or at least 51% in Percentage Interests of Class A Limited
Partners without the Consent of the General Partner; provided, however,
and notwithstanding anything to the contrary herein, that no
alteration, amendment, modification or change to this Agreement may:
(i) add to, detract from or otherwise modify the
purposes of the Partnership without the Consent of all of the
Partners;
(ii) require any Partner to make any loan or capital
contribution or infusion to the Partnership; convert a Limited
Partner's Interest into a General Partner's Interest; modify
the limited liability of a Limited Partner; or increase the
liabilities or responsibilities of any Partner under this
Agreement; in each case, without the Consent of each such
affected Partner;
(iii) alter the Interest of any Class A Limited
Partner in income, gains and losses or amend or modify any
portion of Article Four without the Consent of at least 51% in
Percentage Interests of Class A Limited Partners; provided,
however, (x) that any such alteration, amendment or
modification shall affect each Class A Limited Partner on a
pro rata basis (determined based on the Percentage Interests
of such Class A Limited Partners at the time of such
alteration, amendment or modification), (y) that neither the
admission of additional Class A Limited Partners in accordance
with the terms of this Agreement nor the issuance or vesting
of additional Limited Partner Interests pursuant to paragraph
3.3 hereof, the attached Schedule C or the Option shall
constitute such an alteration, amendment or modification, and
(z) that no sale, lease, exchange, transfer or other
disposition (other than to the Partnership or any of its
subsidiaries) in any single transaction or series of related
transactions, of all or substantially all of the consolidated
assets of the Partnership, and no consolidation, merger or
business combination transaction involving the Partnership or
any subsidiary of the Partnership, in each case whether with
or without the Consent of the General Partner, shall
constitute such an alteration, amendment or modification;
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(iv) alter the Interest of any Class B Limited
Partner in income, gains and losses or amend or modify any
portion of Article Four without the Consent of at least 51% in
Percentage Interests of Class B Limited Partners; provided,
however, (x) that any such alteration, amendment or
modification shall affect each Class B Limited Partner on a
pro rata basis (determined based on the Percentage Interests
of the Class B Limited Partners at the time of such
alteration, amendment or modification), (y) that neither the
admission of additional Class B Limited Partners in accordance
with the terms of this Agreement nor the issuance of
additional Limited Partner Interests pursuant to paragraph 3.3
hereof, the attached Schedule C or the Option shall constitute
such an alteration, amendment or modification, and (z) that no
sale, lease, exchange, transfer or other disposition (other
than to the Partnership or any of its subsidiaries) in any
single transaction or series of related transactions, of all
or substantially all of the consolidated assets of the
Partnership, and no consolidation, merger or business
combination transaction involving the Partnership or any
subsidiary of the Partnership, in each case whether with or
without the Consent of the General Partner, shall constitute
such an alteration, amendment or modification;
(v) alter the Interest of the General Partner in
income, gains and losses or amend or modify any portion of
Article Four without the Consent of the General Partner;
provided, however, (y) that neither the admission of
additional Limited Partners in accordance with the terms of
this Agreement nor the issuance of additional Limited Partner
Interests pursuant to paragraph 3.3 hereof, the attached
Schedule C or the Option shall constitute such an alteration,
amendment or modification, and (z) that no sale, lease,
exchange, transfer or other disposition (other than to the
Partnership or any of its subsidiaries) in any single
transaction or series of related transactions, of all or
substantially all of the consolidated assets of the
Partnership, and no consolidation, merger or business
combination transaction involving the Partnership or any
subsidiary of the Partnership, in each case whether with or
without the Consent of the General Partner, shall constitute
such an alteration, amendment or modification;
(vi) alter, amend, modify or change any portion of
Article Eight in a manner that would further restrict the
transferability of the Interest of any Limited Partner without
the Consent of all Limited Partners;
(vii) alter, amend, modify or change any provisions
hereof which require the Consent, action or approval of a
specified percentage in Percentage Interests of the Limited
Partners, or any class of Limited Partners, or of the General
Partner, or of James Communications Partners, without the
Consent of such specified percentage of Percentage Interests
of such Limited Partners, or such class of Limited Partners,
or of the General Partner, or of James Communications
Partners, as applicable;
(viii) alter, amend, modify or change the provisions
of Article One or Article Nine hereof, or paragraphs 3.3, 5.3,
5.4, 5.5, 5.6, 5.7, 6.1, 6.2, 7.1, 7.2, 7.3.2, 7.5, or 7.6
hereof, or the attached Schedule C, or, subject to paragraph
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10.1.1(vi) hereof, this paragraph 10.1, without the Consent of
at least 51% in Percentage Interests of the Class A Limited
Partners and of the General Partner; provided, however, and
notwithstanding anything to the contrary herein, that
following any removal of James Communications Partner as
General Partner, paragraph 7.5.2 hereof may not be amended
without the consent of James Communications Partners.
(ix) extend the term of the Partnership without the
Consent of at least 51% in Percentage Interests of the Class A
Limited Partners and of the General Partner; or
(x) expand the Limited Partners' rights or powers
beyond the applicable standards of the FCC for exempting a
Limited Partner's investment in the Partnership from
attribution under 47 U.S.C. 553A (1987) and 47 C.F.R. ss.ss.
76.501 or any successor provisions thereof.
10.1.2 In addition to any amendments otherwise authorized
hereby, this Agreement may be amended from time to time by the General
Partner without the Consent of any of the Limited Partners (i) to add
to the representations, duties or obligations of the General Partner or
surrender any right or power granted to the General Partner herein;
(ii) to cure any ambiguity or correct or supplement any provisions
hereof which may be inconsistent with any other provision hereof, or
correct any printing, stenographic or clerical errors or omissions;
(iii) to admit one or more Substituted Limited Partners substituted
therefor and withdraw one or more Limited Partners, in accordance with
the terms of this Agreement; (iv) to amend Schedule A or Schedule B
hereto, as applicable, to provide any necessary information regarding
any Partner, any successor General Partner hereof or any Substituted
Limited Partner; (v) as provided in paragraph 8.3.1(ii); and (vi) to
reflect any change in the amount of the Capital Accounts or the
Percentage Interest of any Partner in accordance with the terms of this
Agreement; provided, however, that no amendment shall be adopted
pursuant to this paragraph 10.1.2 unless (a) in the case of any
amendment referred to in clause (i) or (ii) of this paragraph, such
amendment would not alter the Interest of a Partner in income, gains or
losses or distributions and such amendment is for the benefit of, or
not adverse to, the Interests of the Limited Partners, and (b) such
amendment would not, in the opinion of counsel for the Partnership,
alter, or result in the alteration of, the limited liability of the
Limited Partners or the status of the Partnership as a partnership for
federal income tax purposes. The General Partner shall send each
Limited Partner a copy of any amendment adopted pursuant to this
paragraph 10.1.2.
10.1.3 Upon the adoption of any amendment to this Agreement,
the amendment shall be executed by the General Partner and all of the
Limited Partners and, if required by law, shall be recorded in the
proper records of the State of Delaware and of each jurisdiction in
which recordation is necessary for the Partnership to conduct business
or to preserve the limited liability of the Limited Partners. Any such
amendment may be executed by the General Partner on behalf of the
Limited Partners pursuant to the power of attorney granted in paragraph
12.1 hereof.
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10.2 Amendment of Certificate. In the event this Agreement shall be
amended pursuant to this Article Ten, the General Partner shall amend the
certificate of limited partnership of the Partnership to reflect such change if
such amendment is required by law or if the General Partner deems such amendment
to be desirable and shall make any other filings or publications required by law
or desirable to reflect such amendment, including any required filing for
recordation of any certificate of limited partnership or other instrument or
similar document of the type contemplated by paragraph 2.6 hereof.
ARTICLE ELEVEN
Consents, Voting and Meetings
11.1 Method of Giving Consent. Any Consent of a Partner may be given as
follows:
(i) by a written instrument labeled a "Consent" and given by such
Partner at or prior to the doing of the act or thing for which the
Consent is solicited, provided that such Consent shall not have been
nullified by either notice to the General Partner by such Partner at or
prior to the time of, or the negative vote by such Partner at, any
meeting held to consider the doing of such act or thing; or
(ii) by the affirmative vote by such Partner to the doing of the
act or thing for which the Consent is solicited at any meeting called
and held to consider the doing of such act or thing.
11.2 Meetings
11.2.1 (a) An annual meeting of Limited Partners for the review of
Partnership matters and the transaction of such business as may
properly come before it shall be held at such location in New York City
or other location reasonably accessible to all the Limited Partners as
shall be designated from time to time by the General Partner and set
forth in the notice of meeting. The meeting shall be held on the second
Tuesday of May of each and every year through and including the last
year of the term of the Partnership, at 10:00 o'clock a.m. New York
City time or such other reasonable time as shall be designated in such
notice. Written notice of the place, date and time of the meeting shall
be given, either personally or by mail, to all Limited Partners not
less than 10 nor more than 60 days before the date of the annual
meeting. If mailed, the notice shall be addressed to each such Limited
Partner at the address shown for such Partner in the records of the
Partnership. The attendance by any Partner at an annual meeting in
person or by proxy without objecting at the beginning of the meeting to
the lack of notice of such meeting shall constitute a waiver of notice
by such Partner.
(b) Special meetings of Limited Partners may be called at any time
by the General Partner or any two Limited Partners for any purpose,
including the consideration of a matter for which a Consent is being
solicited or sought. Written notice of a special meeting stating the
place in New York City, the date and hour of the meeting, the purpose
or purposes for which it is called, and the names of the Partners by
whom or at whose direction the meeting is called, shall be given, to
each Limited Partner in the same
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manner as notice of the annual meeting. The attendance by any Partner
at a special meeting in person or by proxy meeting objecting at the
beginning of the meeting to the lack of notice of such meeting shall
constitute a waiver of notice by such Partner.
(c) Limited Partners may participate in a meeting by means of
conference telephone or similar communications equipment by means of
which all members can hear each other, and participation in a meeting
by such means shall be deemed to constitute presence in person at a
meeting.
11.3 Record Dates. The General Partner may set in advance a date for
determining the Limited Partners entitled to notice of and to vote at any
meeting. All record dates shall not be more than 60 days before the date of the
meeting to which such record date relates.
11.4 Notices to Limited Partners: Designees; No Special Inducements.
The General Partner shall give all of the Limited Partners notice, in a notice
of meeting or otherwise, of any proposal or other matter required by any
provision of this Agreement or by law to be submitted for the consideration and
approval of the Limited Partners. Such notice shall include any information
required by the relevant provision of this Agreement or by law. Neither the
General Partner nor the Partnership shall solicit, request or negotiate for or
with respect to any proposed waiver or amendment of any of the provisions of
this Agreement or the Partnership's certificate of limited partnership or any
Consent by the Limited Partners unless each Limited Partner shall be informed
thereof by the General Partner or the Partnership, as the case may be, and shall
be afforded the opportunity of considering the same and shall be supplied with
sufficient information to enable it to make an informed decision with respect
thereto, provided, however, that upon obtaining the requisite Consents to take a
particular action, the General Partner may take such action before polling the
remaining Limited Partners provided that such remaining Limited Partners are
promptly advised by the General Partner of such action taken and of the identity
of the Limited Partners who have Consented thereto. Each Limited Partner shall
designate an individual or individuals to receive notices, attend meetings, give
consents and otherwise act on its behalf in matters regarding this Agreement and
the Partnership. Such individual or individuals so designated by a Limited
Partner may be removed at any time by the Limited Partner upon notice to the
General Partner. Neither the General Partner nor the Partnership shall, directly
or indirectly, pay or cause to be paid any remuneration, fee or other
consideration to any Limited Partner for or as an inducement to the entering
into by such Limited Partner of any waiver or amendment of any of the terms and
provisions of this Agreement or the Partnership's certificate of limited
partnership or the giving of any Consent, unless such remuneration is
concurrently paid on the same terms, in proportion to their respective Capital
Accounts to all the then Limited Partners.
ARTICLE TWELVE
Power of Attorney
12.1 Power of Attorney.
12.1.1 Each Limited Partner, by its execution hereof, hereby
irrevocably makes, constitutes and appoints the General Partner and
William R. James as its true and lawful
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agents and attorneys-in-fact, with full power of substitution and full
power and authority in its name, place and stead, to make, execute,
sign, acknowledge, swear to, record and file (i) any amendment to this
Agreement which has been adopted as herein provided; (ii) the original
certificate of limited partnership of the Partnership and all
amendments thereto required or permitted by law or the provisions of
this Agreement; (iii) all certificates and other instruments deemed
advisable by the General Partner to carry out the provisions of this
Agreement and applicable law or to permit the Partnership to become or
to continue as a limited partnership or partnership wherein the Limited
Partners have limited liability in each jurisdiction where the
Partnership may be doing business; (iv) all instruments that the
General Partner deems appropriate to reflect a change or modification
of this Agreement or the Partnership in accordance with this Agreement
including, without limitation, the admission of additional Limited
Partners or the substitution of assignees as Substituted Limited
Partners pursuant to the provisions of this Agreement; (v) all
conveyances and other instruments or papers deemed advisable by the
General Partner, including, without limitation, those to effect the
dissolution and termination of the Partnership in accordance with the
provisions of this Agreement; (vi) all fictitious or assumed name
certificates required or permitted to be filed on behalf of the
Partnership; and (vii) all other instruments or papers which may be
required or permitted by law to be filed on behalf of the Partnership
that are not inconsistent with the terms of this Agreement; provided,
however, that the foregoing power of attorney shall not give the
General Partner the right to do anything that diminishes the powers or
increases the liabilities of the Limited Partners.
12.1.2 The foregoing power of attorney:
(a) is coupled with an interest, shall be irrevocable
and shall survive and not be affected by the subsequent
disability or the Incapacity of each Limited Partner;
(b) may be exercised by the General Partner or
William R. James either by signing separately as
attorney-in-fact for each Limited Partner or, after listing
all of the Limited Partners executing an instrument, by a
single signature of the General Partner or William R. James
acting as attorney-in-fact for all of them; and
(c) shall survive the delivery of an assignment by a
Limited Partner of the whole or any fraction of its Interest;
except that, where the assignee of the whole of such Limited
Partner's Interest has been approved by the General Partner
for admission to the Partnership as a Substituted Limited
Partner, the power of attorney of the assignor shall survive
the delivery of such assignment for the sole purpose of
enabling the General Partner or William R. James to execute,
swear to, acknowledge and file any instrument necessary or
appropriate to effect such substitution.
12.1.3 Each Limited Partner shall execute and deliver to the
General Partner within 15 days after receipt of the General Partner's
request therefor such further designations, powers-of-attorney and
other instruments as the General Partner reasonably
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deems necessary to carry out the terms of this Agreement, provided that
they are not inconsistent with the terms of this Agreement and that the
foregoing shall not given the General Partner the right to do anything
that diminishes the powers or increases the liabilities of the Limited
Partners.
ARTICLE THIRTEEN
Records and Accounting; Reports; Fiscal Affairs
13.1 Records and Accounting.
13.1.1 Proper and complete records and books of account of the
business of the Partnership, including a list of the names, addresses
and Interests of all Limited Partners, shall be maintained at the
Partnership's principal place of business. Any Partner, or its duly
authorized representatives, shall be entitled to a copy of the list of
names, addresses and Interests of the Limited Partners, provided such
information shall be used only for Partnership purposes. Each Limited
Partner and its duly authorized representatives may, in connection with
any purpose reasonably related to its Interest as a Limited Partner,
visit and inspect any of the properties of the Partnership or the
General Partner, examine their books of account, records, reports and
other papers (to the extent the same pertain to the Partnership) which
are not legally required to be kept confidential or secret, make copies
and extracts therefrom, and request information relating to the
affairs, finances and accounts of the Partnership from the General
Partner and the independent public accountants of the Partnership (and
by this provision the Partnership authorizes said accountants to
provide information to each Limited Partner regarding the finances and
affairs of the Partnership), all at such reasonable times and as often
as may be reasonably requested; provided, however, that the Limited
Partners shall not have the authority to direct or control such
independent public accountants. The General Partner shall use its best
efforts to cause each Person in which the Partnership then holds
Ownership Interests to afford similar rights to information to any
Limited Partner (and its duly authorized representatives) which may
request to exercise such rights, provided, however, that the Limited
Partners shall not have the authority to direct or control such
Persons.
13.1.2 The books and records of the Partnership shall be kept
on the accrual basis of accounting, and the accrual basis of accounting
shall be followed by the Partnership for federal income tax purposes.
The taxable year of the Partnership shall be its Fiscal Year.
13.2 Annual Reports.
13.2.1 Within 90 days after the end of each Fiscal Year, the
General Partner shall cause to be delivered to each Person who was a
Partner at any time during the Fiscal Year, an annual report containing
the following:
(i) financial statements of the Partnership,
including, without limitation, a balance sheet as of the end
of the Fiscal Year and statements of income, Partners' equity
and changes in financial position for such Fiscal Year,
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which shall be prepared in accordance with generally accepted
accounting principles consistently applied and shall be
certified by a firm of independent certified public
accountants of recognized national standing;
(ii) a statement, in reasonable detail, showing the
Capital Account of each Partner and computing the
distributions to each Partner during such Fiscal Year;
(iii) a report containing a description of material
events regarding the business of the Partnership (including
material developments in the investments made by the
Partnership) during such Fiscal Year, a general description of
the business, and an overview of the investment activities, of
the Partnership during such Fiscal Year, including valuations
of Ownership Interests, and, with respect to the fourth
quarter of such Fiscal Year, the description required by
paragraph 13.4(a)(ii);
(iv) a calculation of the Management Fee for such
Fiscal Year;
(v) a statement of the amount of reimbursement for
operating expenses incurred during such Fiscal Year under
paragraph 5.6.1(vii) hereof and documentation of the
calculation of the average aggregate number of subscribers
during such Fiscal Year made in connection therewith; and
(vi) a statement, accompanied by a certificate of the
General Partner, as to the Fair Market Value of the
Partnership's Ownership Interests as of the end of such Fiscal
Year;
and shall also so deliver, with respect to each Person in which the
Partnership then holds Ownership Interests, copies of a balance sheet
as of the end of such Person's fiscal year and statements of income,
retained earnings and sources of funds for such fiscal year, all
accompanied by a report thereon of the Partnership's independent public
accountants.
13.2.2 The assets of the Partnership, to the extent they are
in the form of securities (including Ownership Interests), shall be
valued in accordance with the provisions of paragraph 6.2 hereof. All
other assets of the Partnership shall be valued at their "Fair Market
Value," except that for all purposes of this Agreement, no value shall
ever be attributed to the firm name of the Partnership, or the right of
its use, or to the good will appertaining to the Partnership or its
business, either during the continuation of the Partnership or in the
event of its dissolution and termination. Liabilities shall be
determined in accordance with the method of accounting employed by the
Partnership and may include reserves for estimated accrued expenses and
reserves for unknown or unfixed liabilities or contingencies.
13.3 Tax Information. Within 75 days after the end of each Fiscal Year,
the General Partner will cause to be delivered to each Person who was a Partner
at any time during such Fiscal Year, a Form K-l and such other information, if
any, with respect to the Partnership as may be necessary for the preparation of
such Partner's federal or state income tax (or
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information) returns, including a statement showing each Partner's share of
income, gain or loss and credits for such Fiscal Year for federal or state
income tax purposes.
13.4 Interim Reports. (a) Within 45 days after the end of each quarter
of each Fiscal Year excepting the fourth quarter, the General Partner shall
cause to be delivered to each Person who was a Partner at any time during such
quarter, a report containing (i) an overview of the Partnership's portfolio,
including a summary of all Cable Systems in which investments were made by the
Partnership during such quarter; (ii) a description of such investment and the
terms thereof; (iii) a description of any material event regarding the business
of the Partnership (including material developments in the investments made by
the Partnership) during such quarter; and (iv) an unaudited balance sheet and
statement of income for such quarter.
(b) Ten days after the consummation of the acquisition of any Ownership
Interests, the General Partner shall cause to be delivered to each Person who
was a partner at the time of such acquisition a report summarizing the Cable
System(s) in which such investments were made and the material terms of such
investments.
13.5 Partnership Funds. The funds of the Partnership may be deposited
in the name of the Partnership in one or more bank accounts in one or more
member banks of the Federal Reserve System with an unrestricted surplus of at
least $250,000,000, provided, however, that Partnership funds may be deposited
in any bank insured by the Federal Deposit Insurance Corporation for a period
not to exceed 30 days and, provided that at no time shall the amount of the
deposit in any account exceed the Federal Deposit Insurance Corporation's
coverage limitation in respect of such account. Withdrawals therefrom shall be
made upon such signature(s) as the General Partner may designate. No funds of
the Partnership shall be kept in any account other than a Partnership account;
funds shall not be commingled with the funds of any other Person; and the
General Partner shall not employ, or permit any other Person to employ, such
funds in any manner except for the benefit of the Partnership. The General
Partner will appoint a member bank or banks of the Federal Reserve System having
an unrestricted surplus of at least $250,000,000 to serve as custodian or
custodians of all securities held by the Partnership and may from time to time
and in its sole discretion, change such appointment to a different member bank
or banks.
13.6 Elections. The determinations of the General Partner with respect
to the treatment of any item or its allocation for federal, state or local tax
purposes shall be binding upon all of the Partners so long as such determination
shall not be inconsistent with any express term hereof and provided that the
Partnership's accountants shall not disagree therewith.
13.7 Other Information. With reasonable promptness, the General Partner
will deliver such other information available to the General Partner, including
financial statements and computations relating to any Person in which the
Partnership then holds Ownership Interests, as any Limited Partner may from time
to time reasonably request.
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ARTICLE FOURTEEN
Representations Warranties and Covenants of the Partners
14.1 Representations Warranties and Covenants of the Limited Partners. Each
Limited Partner is fully aware that the Partnership and the General Partner are
relying upon the exemption from registration provided by Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"), and upon the truth
and accuracy of the following representations by each of the Limited Partners:
Each of the Limited Partners hereby represents and warrants that (i) its
Interest in the Partnership was being acquired for investment and not with a
view to the distribution or sale thereof, subject, however, to any requirement
of law that the disposition of its property shall at all times be within its
control; and (ii) unless an asterisk appears next to its name on the signature
page hereto, no portion of the assets invested by it in the Partnership may
consist of assets of an employee benefit plan as defined in section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (whether
or not such plan is subject to Title I of ERISA) or described in section
4975(e)(1) of the Internal Revenue Code, nor is it an entity whose underlying
assets may include plan assets by reason of a plan's investment in the entity,
determined after giving effect to the regulation issued by the Department of
Labor at section 2510.3-101 of Part 2510 of Chapter XXV, Title 29 of the Code of
Federal Regulations.
14.2 Representations, Warranties and Certain Covenants of the General
Partner. The General Partner represents, warrants and covenants to each Limited
Partner that:
(a) Upon the filing of the Partnership's certificate of limited
partnership with the Secretary of State of Delaware, the Partnership will
be a duly organized and validly existing limited partnership under the laws
of the State of Delaware with full power and authority to conduct its
business as contemplated-in this Agreement.
(b) The General Partner is a duly organized and validly existing
partnership under the laws of the State of Michigan, with full power and
authority to perform its obligations herein.
(c) All action required to be taken by the General Partner and the
Partnership as a condition to the issuance and sale of the Interests in the
Partnership being purchased by the Limited Partners has been taken, the
Interest in the Partnership of each Limited Partner represents a duly and
validly issued limited partnership interest in the Partnership; and each
Limited Partner of the Partnership is entitled to all the benefits of a
Limited Partner under this Agreement and the Partnership Act.
(d) This Agreement has been duly authorized, executed and delivered
by the General Partner and, upon due acceptance by each of the Limited
Partners, will constitute the valid and legally binding agreement of the
General Partner enforceable in accordance with its terms against the
General Partner.
(e) The execution and delivery of this Agreement by the General
Partner and the performance of its duties and obligations hereunder do not
result in a breach of any of the terms, conditions or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, credit
agreement, note or other evidence of indebtedness, or any
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lease or other agreement or understanding, or any license, permit,
franchise or certificate, to which the General Partner is a party or by
which it is bound or to which its properties are subject, or require any
authorization or approval under or pursuant to any of the foregoing, or
violate any statute, regulation, law, order, writ, injunction, judgment or
decree to which the General Partner is subject.
(f) The General Partner is not in default (nor has any event
occurred which with notice, lapse of time, or both, would constitute a
default) in the performance of any obligation, agreement or condition
contained in this Agreement, any indenture, mortgage, deed of trust, credit
agreement, note or other evidence of indebtedness or any lease or other
agreement or understanding, or any license, permit, franchise or
certificate, to which it is a party or by which it is bound or which its
properties are subject, nor is it in violation of any statute, regulation,
law, order, writ, injunction, judgment or decree to which it is subject,
which default or violation would materially adversely affect the business
or financial condition of the General Partner or the Partnership or impair
its ability to carry out its obligations under this Agreement.
(g) There is no litigation, investigation or other proceeding
pending or, to the knowledge of the General Partner, threatened against the
General Partner or any of its Affiliates which, if adversely determined,
would materially adversely affect the business or financial condition of
the General Partner.
(h) No consent, approval or authorization of, or filing,
registration or qualification with, any court or governmental authority on
the part of the General Partner or the Partnership (collectively,
"Governmental Consents") is required for the execution and delivery of this
Agreement by the General Partner, the performance of its or the
Partnership's obligations and duties hereunder, or the issuance of
Interests in the Partnership as contemplated hereby, except (i) any
Governmental Consents which may be required of the Partnership solely by
virtue of the nature of any Limited Partner; and (ii) any filings required
under federal and state securities laws.
(i) The initial general partners of the General Partner were one
Michigan Subchapter S corporation, Jamesco, Inc. (100% of the voting stock
of which was owned by William R. James) and two individuals, Jim Randolph
and C. Timothy Trenary. The present general partners of the General Partner
are Jamesco, Inc., Trenary Corp., Ltd. (100% of the voting stock of which
is owned by C. Timothy Trenary), and DKS Holdings, Inc. (100% of the voting
stock of which is owned by Daniel K. Shoemaker). Neither the General
Partner, the present general partners nor William R. James are in a
condition of Incapacity. The General Partner will promptly give the Limited
Partners notice of any change in the general partners of the General
Partner or any changes in stock ownership thereof, or the material terms of
the general partnership agreement. William R. James (or his personal
representative should he die or suffer Disability of such nature that he
cannot or does not notify the Partnership) will promptly, and in no event
later than 3 days thereafter, give the Limited Partners notice if he ceases
to have Control of the General Partner. Except as previously disclosed to
the Limited Partners in writing, none of the General Partner, its present
general partners, or Messrs. James, Trenary or Shoemaker or any Affiliates
thereof are subject to any covenants not to
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compete or similar agreements relating to Cable Systems. Each of the
Partnership, the General Partner and its Affiliates shall use its best
efforts not to cause the Partnership to violate the provisions of 47 U.S.C.
533 (1987 ) and 47 C.F.R. ss 63.54-63.58 of the FCC regulations or any
successor provisions thereof, and to conduct the business of the
Partnership in accordance with all other federal, state and local laws and
regulations applicable to the cable industry. The General Partner agrees to
cause each holder of a general partnership interest in the General Partner
to disclose to the Partnership Advisory Board any change in ownership
thereof and, in the case of a holder that is a corporation or other entity,
to disclose any changes in the share or other equity ownership of such
entity, in all cases substantially contemporaneously with entering into a
binding agreement to transfer such ownership. Each of the Limited Partners
has been supplied a true, complete and accurate copy of the General
Partnership Agreement of the General Partner, and upon the request of any
Limited Partner, each Limited Partner shall receive a true, complete and
accurate copy of any amendment thereto. Such copies shall also be provided
substantially contemporaneously upon effectiveness thereof to all members
of the Partnership Advisory Board.
(j) At all time either or both of the following statements is or
will be true with respect to the Partnership: (x) the Partnership is an
"operating company" or a "venture capital operating company", as such terms
are defined in section 2510.3-101 (c) or (d), respectively, of Part 2510 of
Chapter XXV, Title 29 of the Code of Federal Regulations; or (y) the equity
participation in the Partnership by "benefit plan investors" is not
"significant" as such terms are defined in section 2510.3-101(f)(2) and
section 2510.3-101(f)(1), respectively, of such regulations.
ARTICLE FIFTEEN
Miscellaneous
15.1 Notices.
15.1.1 Any Notice to any Limited Partner shall be at the address of
such Partner set forth in Schedule A or Schedule B hereto, as applicable,
or such other mailing address of which such Limited Partner shall advise
the General Partner in writing. Any notice to the Partnership or the
General Partner shall be at the principal office of the Partnership as set
forth in paragraph 2.3 hereof. The General Partner may at any time change
the location of such office. Notice of any such change shall be given to
the Partners on or before the date of any such change.
15.1.2 Any notice shall be deemed to have been duly given if
personally delivered or sent by United States mails as described below or
by telegram or telex confirmed by letter and will be deemed received,
unless earlier received, (i) if sent by certified or registered mail,
return receipt requested, when actually received, (ii) if sent by United
States Express Mail or overnight courier, when actually received, (iii) if
sent by telegram or telex or facsimile transmission, on the date sent
provided confirmatory notice
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is sent by United States Express Mail or overnight courier, and (iv) if
delivered by hand, on the date of the receipt.
15.1.3 In any circumstance where notice, information or reports are
required under the terms of this Agreement to be sent to the Limited
Partners, such notice, information or reports shall, at the same time, be
given to Sandler as though Sandler were a Limited Partner.
15.2 Governing Law: Separability of Provisions. It is the intention of the
parties that the internal laws of the State of Delaware and, in particular, the
provisions of the Partnership Act shall govern the validity of this Agreement,
the construction of its terms and interpretation of the rights and duties of the
parties. If any provision of this Agreement shall be held to be invalid, the
remainder of this Agreement shall not be affected thereby.
15.3 Entire Agreement. This instrument amends and restates the Original
Agreement, as amended and restated prior to the date hereof, in its entirety. It
is the intent and purpose of the Partners, by executing this instrument, to
ratify, confirm and reaffirm Original Agreement and all of its terms and
provisions, all as amended and restated to date, in their entirety, all as
amended and restated by this instrument. This instrument constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter of this
instrument and the Partnership. There are no representations, agreement,
arrangements or understandings, oral or written, between or among the Partners
relating only to the subject matter of this Agreement which are not fully
expressed herein. This Agreement may not be modified or amended other than
pursuant to Article Ten hereof.
15.4 Headings etc. The headings in this Agreement are inserted for
convenience of reference only and shall not affect the interpretation of this
Agreement. Wherever from the context it appears appropriate, each term stated in
either the singular or the plural shall include the singular and the plural, and
pronouns stated in either the masculine or the neuter gender shall include the
masculine, the feminine and the neuter.
15.5 Binding Provisions. The covenants and agreements contained herein
shall be binding upon and inure to the benefit of the heirs, executors,
administrators, personal or legal representatives, successors and assigns of the
respective parties hereto.
15.6 No Waiver; Creditor's Rights. The failure of any Partner to seek
redress for violation, or to insist on strict performance, of any covenant or
condition of this Agreement shall not prevent a subsequent act which would have
constituted a violation from having the effect of an original violation. To the
extent amounts shall be owing to a Partner and not paid pursuant to the terms of
this Agreement or any other instrument to which any entity in which the
Partnership has an Ownership Interest is a party, such Partner shall not be
precluded by virtue of its status as a Partner from bringing an action or
otherwise seeking to enforce any remedies that it may have at law or in equity
against the Partnership or the General Partner or such other entity and shall
not be liable for any loss resulting from such actions to the Partnership or any
Partners.
15.7 Reproduction of Documents. This Agreement and all documents relating
thereto, including, without limitation, Consents, waivers, amendments and
modifications which may
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hereafter be executed, and certificates and other information previously or
hereafter furnished to any Limited Partner, may be reproduced by it by any
photographic, photostatic, microfilm, micro-card, miniature photographic or
other similar process, and any Limited Partner may destroy any original document
so reproduced. The Partnership, the General Partner and each Limited Partner
agree and stipulate that any such reproduction shall be admissible in evidence
as the original itself in any judicial or administrative proceeding (whether or
not the original is in existence and whether or not such reproduction was made
by a Limited Partner in the regular course of business) and that any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence.
15.8 No Right to Partition. The Partners, on behalf of themselves and their
shareholders, partners, heirs, executors, administrators, personal or legal
representatives, successors and assigns, if any, hereby specifically renounce,
waive and forfeit all rights, whether arising under contract or statute or by
operation of law, to seek, bring or maintain any action in any court of law or
equity for partition of the Partnership or any asset of the Partnership, or any
interest which is considered to be Partnership property, regardless of them
manner in which is considered to be Partnership property, regardless of the
manner in which title to any such property may be held.
15.9 ERISA Undertakings. If the assets of the Partnership at any time are
"plan assets" for the purposes of Title I of ERISA or Section 4975 of the
Internal Revenue Code with respect to any employee benefit plan subject to
either such provision: (i) each Limited Partner which is, directly or
indirectly, such a plan or the fiduciary of such plan shall, at the request of
the General Partner, identify to the General Partner the parties in interest and
is a disqualified persons (as defined in sections 3 of ERISA and 4975 of the
Internal Revenue Code, respectively) with respect to any such plan whose
identity or character is such that such Limited Partner might reasonably expect,
based solely on such person's relationship to the plan or fiduciary, the
Partnership to have non-exempt dealings with such person; and (ii) the General
Partner shall take any action that may be necessary to assure that the
operations of the Partnership will not involve a prohibited transaction under
Section 406 of ERISA or Section 4975 of the Internal Revenue Code with respect
to any such plan or any fiduciary thereof.
15.10 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same instrument, provided that each such counterpart shall be executed
by the General Partner.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-54-
<PAGE> 58
IN WITNESS WHEREOF, the undersigned have hereunto set their respective
hands as of the date first above written.
By: JAMES COMMUNICATIONS PARTNERS,
General Partner of James Cable Partners, L.P. and a
Michigan general partnership
By: JAMESCO, INC., a general partner of James
Communications Partners and a Michigan
corporation
By:
------------------------------------------------
William R. James
President of Jamesco, Inc.
-55-
<PAGE> 59
SIGNATURE PAGE TO THE JAMES CABLE PARTNERS, L.P.
SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
IN WITNESS WHEREOF, the undersigned have hereunto set their respective
hands as of the day of December, 1999.
---
-----------------------------------------
Print Name of Class A Limited Partner
By: Signature of Limited Partner
or Authorized Signatory
-----------------------------------------
Print Name of Authorized Signatory
-----------------------------------------
Title of Authorized Signatory
-56-
<PAGE> 60
SIGNATURE PAGE TO THE JAMES CABLE PARTNERS, L.P.
SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
IN WITNESS WHEREOF, the undersigned have hereunto set their respective
hands as of the day of December, 1999.
-------
-----------------------------------------
Print Name of Class B Limited Partner
By: Signature of Limited Partner
or Authorized Signatory
-----------------------------------------
Print Name of Authorized Signatory
-----------------------------------------
Title of Authorized Signatory
-57-
<PAGE> 61
SCHEDULE A
GENERAL PARTNER
AND
CLASS A LIMITED PARTNERS
<TABLE>
<CAPTION>
General Partner:
Name and Address Percentage Interest
- ---------------- -------------------
<S> <C>
James Communications Partners 0.9483%
710 N. Woodward Ave.
Bloomfield Hills, Michigan 48304
Class A Limited Partners:
</TABLE>
<TABLE>
<CAPTION>
Name and Address Percentage Interest
- ---------------- -------------------
<S> <C>
SCP James Acquisition LLC 88.1231%
c/o Sandler Capital Management
767 Fifth Avenue, 45th Floor
New York, New York 10153
Attention: Douglas E. Schimmel
James Communications Partners 3.1971%
710 N. Woodward Ave.
Bloomfield Hills, Michigan 48304
Harvey Sandler 1.7413%
c/o Sandler Capital Management
767 Fifth Avenue, 45th Floor
New York, New York 10153
Attention: Douglas E. Schimmel
1998 Kornreich Trust 1.3131%
c/o Sandler Capital Management
767 Fifth Avenue, 45th Floor
New York, New York 10153
Attention: Douglas E. Schimmel
Mike Marocco 1.2886%
c/o Sandler Capital Management
767 Fifth Avenue, 45th Floor
New York, New York 10153
Attention: Douglas E. Schimmel
</TABLE>
A-1
<PAGE> 62
<TABLE>
<CAPTION>
Name and Address Percentage Interest
- ---------------- -------------------
<S> <C>
James Greenwald 0.4639%
c/o Sandler Capital Management
767 Fifth Avenue, 45th Floor
New York, New York 10153
Attention: Douglas E. Schimmel
John T. Woodruff 0.4639%
c/o Sandler Capital Management
767 Fifth Avenue, 45th Floor
New York, New York 10153
Attention: Douglas E. Schimmel
Leon Meyers 0.4357%
c/o Sandler Capital Management
767 Fifth Avenue, 45th Floor
New York, New York 10153
Attention: Douglas E. Schimmel
Barry Lewis 0.4315%
c/o Sandler Capital Management
767 Fifth Avenue, 45th Floor
New York, New York 10153
Attention: Douglas E. Schimmel
Windsong Partners 0.3991%
c/o Sandler Capital Management
767 Fifth Avenue, 45th Floor
New York, New York 10153
Attention: Douglas E. Schimmel
Andrew Sandler 0.2818%
c/o Sandler Capital Management
767 Fifth Avenue, 45th Floor
New York, New York 10153
Attention: Douglas E. Schimmel
Woodland Partners 0.1995%
c/o Sandler Capital Management
767 Fifth Avenue, 45th Floor
New York, New York 10153
Attention: Douglas E. Schimmel
</TABLE>
A-2
<PAGE> 63
<TABLE>
<CAPTION>
Name and Address Percentage Interest
- ---------------- -------------------
<S> <C>
Barry Fingerhut 0.1995%
c/o Sandler Capital Management
767 Fifth Avenue, 45th Floor
New York, New York 10153
Attention: Douglas E. Schimmel
Irwin Leiber 0.1995%
c/o Sandler Capital Management
767 Fifth Avenue, 45th Floor
New York, New York 10153
Attention: Douglas E. Schimmel
Doug Schimmel 0.1559%
c/o Sandler Capital Management
767 Fifth Avenue, 45th Floor
New York, New York 10153
Attention: Douglas E. Schimmel
Hannah Stone 0.1559%
c/o Sandler Capital Management
767 Fifth Avenue, 45th Floor
New York, New York 10153
Attention: Douglas E. Schimmel
Harold T. King 0.0022%
</TABLE>
A-3
<PAGE> 64
SCHEDULE B
CLASS B LIMITED PARTNERS
<TABLE>
<CAPTION>
Initial
Name and Address Percentage Interest Capital Account
- ---------------- ------------------- ---------------
<S> <C> <C>
James Communications Partners 2.625% $6,221.00
710 N. Woodward Ave.
Bloomfield Hills, Michigan 48304
</TABLE>
B-1
<PAGE> 65
SCHEDULE C
APPLICABLE PERCENTAGE
The Percentage Interest of all Class B Limited Partners, as Class B Limited
Partners, is 2.625%, as set forth on the attached Schedule B on the date of this
Agreement. As of any date of determination, the portion of such Percentage
Interest that is the Applicable Percentage for purposes of this Agreement shall
be determined in accordance with the provisions set forth on this Schedule C.
(a) Until 5:00 p.m. (Detroit, Michigan time) on December 28, 2000, the
Applicable Percentage shall be equal to 0%. From and after 5:00 p.m. (Detroit,
Michigan time) on December 28, 2000 and until 5:00 p.m. (Detroit, Michigan time)
on December 28, 2001, the Applicable Percentage shall be equal to one-fourth of
such Percentage Interest (0.65625%). From and after 5:00 p.m. (Detroit, Michigan
time) on December 28, 2001 and until 5:00 p.m. (Detroit, Michigan time) on
December 28, 2002, the Applicable Percentage shall be equal to one-half of such
Percentage Interest (1.3125%). From and after 5:00 p.m. (Detroit, Michigan time)
on December 28, 2002 and until 5:00 p.m. (Detroit, Michigan time) on December
28, 2003, the Applicable Percentage shall be equal to three-fourths of such
Percentage Interest (1.96875%). From and after 5:00 p.m. (Detroit, Michigan
time) on December 28, 2003 the Applicable Percentage shall be equal to such
Percentage Interest (2.625%). Notwithstanding anything to the contrary express
or implied in this Schedule C or the Agreement, upon a "Change of Control" (as
hereinafter defined) the Applicable Percentage shall be, and shall be deemed to
be, equal to such Percentage Interest (2.625%).
(b) As used in this Schedule C, the following terms shall have the
following meanings:
"Asset Sale" means the consummation of any sale, lease, exchange,
transfer or other disposition (other than to the Partnership or any of its
subsidiaries) in any single transaction or series of related transactions,
of all or substantially all of the consolidated assets of the Partnership
and with respect to which the General Partner does not Consent.
"Change of Control" means (i) any Asset Sale, or (ii) any LP
Transfer, or (iii) any Merger.
"LP Transfer" means the acquisition, or agreement to acquire, in one
transaction or a series of related transactions, by any person, entity or
"group" (as such term is defined or used in Section 13d(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of
ownership (including beneficial ownership (as such term is defined or used
in Rule 13d-3 under the Exchange Act)), directly or indirectly (including
rights or options to acquire such ownership), of any Interests of any Class
A Limited Partner if, as a result of such acquisition, such person, entity
or group, together with its "affiliates" (as such term is defined or used
in Rule 12b-2 under the Exchange Act) and "associates" (as such term is
defined or used in Rule 12b-2 under the Exchange Act), would own (including
beneficial ownership), directly or indirectly (including rights or
C-1
<PAGE> 66
options to acquire such ownership), 50% or more of the Interests of all
Class A Limited Partners then outstanding. For purposes of the foregoing
definition: (i) the formation of a group by, or that includes, one or more
Limited Partners shall be deemed to be an acquisition by each member of the
group of all of the Interests owned (including beneficial ownership),
directly or indirectly (including rights or options to acquire such
ownership), by every other member of the group; and (ii) neither the
execution and delivery of the Limited Partnership Interest Purchase
Agreement of even date herewith by and among SCP James Acquisition LLC, a
Delaware limited liability company, the Partnership and the Sellers listed
on Schedule 1 thereto, nor the completion of the transactions contemplated
by such instrument, shall constitute a "LP Transfer."
"Merger" means the consummation any consolidation, merger or
business combination transaction involving the Partnership or any
subsidiary of the Partnership and with respect to which the General Partner
does not Consent.
C-2
<PAGE> 1
Exhibit (4)(g)
JAMES CABLE PARTNERS, L.P.
SECOND AMENDMENT TO CREDIT AGREEMENT
This SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated as of
December 31, 1999 and entered into by and among JAMES CABLE PARTNERS, L.P., a
Delaware limited partnership (the "Company"), THE FINANCIAL INSTITUTIONS LISTED
ON THE SIGNATURE PAGES HEREOF (each individually referred to herein as a
"Lender" and collectively as "Lenders"), BANK ONE, MICHIGAN, formerly known as
NBD BANK ("NBD"), as documentation agent for Lenders (in such capacity,
"Documentation Agent") and CANADIAN IMPERIAL BANK OF COMMERCE ("CIBC"), as
administrative agent for Lenders (in such capacity, "Administrative Agent").
WITNESSETH:
WHEREAS, the parties hereto are parties to a Credit Agreement dated as of
August 15, 1997, as amended (the "Agreement"); and
WHEREAS, the Agreement amended and restated the Original Credit Agreement
in its entirety; and
WHEREAS, the parties desire to amend the Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Company, Lenders and Agents agree
that the Agreement and the Original Credit Agreement, as amended and restated by
the Agreement, shall be amended as follows:
1. The following new definition is added in appropriate alphabetical order
to Section 1.1 of the agreement:
"Capital Expenditures" means, without duplication, any expenditures for
any purchase or other acquisition of any asset which would be
classified as a fixed or capital asset on a consolidated balance sheet
of the Company and its Subsidiaries prepared in accordance with GAAP.
2. Section 2.2(A) is amended by modifying the table contained therein
setting forth the Applicable Margin as follows:
<TABLE>
<CAPTION>
Applicable Margin
Total Debt to Adjusted EBITDA Ratio --------------------------------------------------
Base Rate Loan Eurodollar Rate Loan
------------------------ -------------------------
<S> <C> <C>
(A) Greater than or equal to 5.50:1.00 1.50% 2.75%
(B) Greater than or equal to 5.00:1.00 but less
than 5.50:1.00 1.25% 2.50%
(C) Greater than or equal to 4.50:1.00 but less
than 5.00:1.00 1.00% 2.25%
(D) Greater than or equal to 4.00:1.00 but less
than 4.50:1.00 0.75% 2.00%
(E) Less than 4.00:1.00 0.50% 1.75%
</TABLE>
3. Section 6.6(A) of the Agreement shall be restated as follows:
6.6 Financial Covenants.
A. Total Debt Coverage. Company will not permit the ratio of (y)
Consolidated Total Debt as of any day during the periods set
forth below to (z) Consolidated Adjusted EBITDA for the most
recently ended six consecutive month period ended as of such
day multiplied by 2 to be greater than the correlative ratio
indicated in the table below:
<PAGE> 2
<TABLE>
<CAPTION>
Consolidated Total Debt to
Period Consolidated Adjusted EBITDA
<S> <C>
From and including August 6, 1998 through and
including December 30, 2000 7.50:1.00
From and including December 31, 2000 through and
including December 30, 2001 7.25:1.00
From and including December 31, 2001 and
thereafter 7.00:1.00
</TABLE>
4. A new Section 6.14 is added to the Credit Agreement as follows:
6.14 Capital Expenditures. The Company shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly, make any Capital
Expenditure if the aggregate Capital Expenditures made by the Company
or any of its Subsidiaries during any fiscal year of the Company would
exceed, on a consolidated basis for the Company and its Subsidiaries,
an amount equal to $15,000,000 for the fiscal year of the Company
ending December 31, 2000, $7,000,000 for the fiscal year of the Company
ending December 31, 2001, or $5,000,000 for any fiscal year thereafter,
plus, in each case, the amount of Capital Expenditures allowed for the
Company and its Subsidiaries for the previous fiscal year (without
giving effect to any increase in the amount thereof caused by this
clause, and commencing with the fiscal year ending December 31, 2001)
minus the amount of Capital Expenditures of the Company and its
Subsidiaries for such previous fiscal year.
5. The Company represents and warrants to the Lenders that:
(a) The execution, delivery and performance of this Amendment is
within its powers, has been duly authorized and is not in
contravention with any law, of the terms of its partnership
agreement or any undertaking to which it is a party or by which it
is bound.
(b) This Amendment is the legal, valid and binding obligation of the
Company enforceable against it in accordance with the terms
hereof.
(c) After giving effect to the amendments herein contained, the
representations and warranties contained in Section 4 of the
Credit Agreement and in the other Loan Documents are true on and
as of the date hereof with the same force and effect as if made on
and as of the date hereof.
(d) No Event of Default or Potential Event of Default exists or has
occurred and is continuing on the date hereof.
6. This amendment shall not become effective until each of the following
has been satisfied:
(a) This Amendment shall be signed by the Company and the Lenders.
(b) Each of the Guarantors shall have executed the Consent and
Agreement at the end of this Amendment.
7. Except as expressly amended hereby, the Company agrees that the Loan
Documents are ratified and confirmed and shall remain in full force and
effect and that it has not setoff, counterclaim, defense or other claim
or dispute with respect to any of the Loan Documents or the
transactions contemplated thereby.
8. It is expressly acknowledged and agreed that all parties have been
represented by counsel and have participated in the negotiation and
drafting of this Amendment and the Agreement, and that there shall be
no presumption against any party on the ground that such party was
responsible for preparing this Amendment and the Agreement or any part
of it.
9. This Amendment may be executed in counterparts, all of which shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each of the parties and delivered to
the other parties, it being understood that all parties need not sign
the same counterpart.
<PAGE> 3
10. This Amendment amends the Agreement. It is the intent and purpose of
the parties to this Amendment, by executing this Amendment, to ratify,
confirm and reaffirm the Agreement and all of its terms and provisions
as amended by this Amendment. This Amendment and the Agreement
(including the documents and the instruments referred to in this
Amendment and the Agreement) constitute the entire agreement and
supersedes all prior agreements and understandings, both written and
oral, among the parties with respect to the subject matter of this
Amendment and the Agreement. All capitalized terms not otherwise
defined in this Amendment shall be defined in this Amendment as in the
Agreement.
11. THIS AMENDEMENT AND THE AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN, WITHOUT REGARD TO
ANY APPLICABLE CONFLICTS OF LAW PRINCIPLES.
12. Any term or provision of this Amendment which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability
without rendering invalid or unenforceable the remaining terms and
provisions of this Amendment or affecting the validity or
enforceability of any of the terms or provisions of this Amendment in
any other jurisdiction. If any provision of this Amendment is so broad
as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective officers hereunto duly
authorized as of the date written above.
COMPANY:
JAMES CABLE PARTNERS, L.P.
By: James Communications Partners, its General Partner
By: DKS Holdings, Inc., a General Partner
By: /s/ Daniel K. Shoemaker
-------------------------
Daniel K. Shoemaker, President
CANADIAN IMPERIAL BANK OF COMMERCE,
As Lender and as Administrative Agent
By: /s/ Harold Birk
-----------------
Harold Birk, Executive Director
CIBC World Markets Corp., As Agent
BANK ONE, MICHIGAN,
As Lender and as Documentation Agent
By: /s/ William H. Canney
-----------------------
William H. Canney, First Vice President
<PAGE> 1
EXHIBIT (4)(h)
NEITHER THIS AGREEMENT NOR THE OPTION HAS BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.
NEITHER THIS AGREEMENT NOR THE OPTION MAY BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT THERETO UNDER
SUCH ACT AND APPLICABLE LAWS OR SOME OTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR AN OPINION OF COUNSEL
SATISFACTORY TO THE GENERAL PARTNER OF THE GRANTOR THAT SUCH REGISTRATION IS
NOT REQUIRED.
OPTION AGREEMENT/OPTION CERTIFICATE
THIS OPTION AGREEMENT/OPTION CERTIFICATE (this "Agreement"), dated as
of December 29, 1999 by and between JAMES CABLE PARTNERS, L.P., a Delaware
limited partnership ("Grantor"), and JAMES COMMUNICATIONS PARTNERS, a
Michigan general partnership ("Purchaser"),
WITNESSETH:
WHEREAS, the Grantor desires to grant to the Purchaser, and the
Purchaser desires to acquire from the Grantor, an option to purchase a Class
A Limited Partner Interest from the Grantor upon and subject to the terms of
this Agreement (the "Option").
NOW, THEREFORE, in consideration of the foregoing, and the payment by
the Purchaser to the Grantor of the Option Consideration, and of the
covenants and agreements contained in this Agreement, as well as for other
good and valuable consideration (the receipt and sufficiency of which are
hereby acknowledged), the Grantor and the Purchaser agree as follows:
ARTICLE 1
DEFINITIONS
All capitalized terms not otherwise defined in this Agreement shall be
defined in this Agreement as in the Partnership Agreement. The meanings of
all capitalized terms
<PAGE> 2
are applicable to the singular as well as to the plural forms of such terms
as well as to the feminine and neuter genders of such terms.
"Dollars" or "$" means the coin or currency of the United States of
America as at the time of payment is legal tender for the payment of public
and private debts.
"Equity Value" shall mean the aggregate fair market value, in Dollars,
of all Class A Limited Partner Interests outstanding on the date immediately
preceding the Exercise Date which aggregate fair market value shall be
determined in accordance with the provisions of Section 4.1 of this
Agreement.
"Exercise Price" means an amount, in Dollars, equal to .625% of the
Equity Value.
"Indenture" means the Indenture dated as of August 15, 1997 among James
Cable Partners, L.P. and James Cable Finance Corp., as issuers, and United
States Trust Company of New York, as trustee.
"Net Exercise Price" means an amount equal to $1.
"Net Option Equity Value" means an amount, in Dollars, equal to the
product of (i) Equity Value and (ii) 2.5%.
"Option Consideration" means (i) the sum of $25,000 paid by the
Purchaser to the Grantor concurrently with the execution and delivery of
this Agreement, (ii) the Purchaser's consent, in its capacity as General
Partner, to the transactions contemplated by the Sale Agreement, (iii) the
Purchaser's consent to the transactions contemplated by, and its execution
of, in each case in its capacity as General Partner and in its capacity as a
Limited Partner, of the Partnership Agreement; and (iv) the covenants and
agreements of Purchaser contained in this Agreement.
"Option Equity Value" means an amount, in Dollars, equal to the product
of (i) Equity Value and (ii) 3.125%.
"Option Period" means the period beginning on the date first above
written and ending at 5:00 p.m. (Detroit, Michigan time) on that date that
is the first to occur of the date of dissolution the Grantor and December
31, 2010.
"Partnership Agreement" means the Second Amended and Restated Agreement
of Limited Partnership of James Cable Partners, L.P., a Delaware limited
partnership, dated December 29, 1999 (including, without limitation,
Schedule A, B, and C thereto), as the same may be amended from time to time.
-2-
<PAGE> 3
"Payment Date" means that date that is 30 days after the Exercise Date.
"Sale Agreement" means the Limited Partnership Interest Purchase
Agreement dated December 29, 1999 among SCP James Acquisition LLC, a
Delaware limited liability company, Grantor and the sellers listed on
Schedule 1 thereto.
ARTICLE 2
OPTION TERMS
2.1 Grant and Purchase of the Option. For the Option Consideration, the
receipt and payment of which are hereby acknowledged by the Grantor and the
Purchaser, the Grantor hereby grants and sells to the Purchaser, and the
Purchaser hereby acquires and purchases from the Grantor, the Option. The
Option entitles the Purchaser, pursuant and subject to the terms of this
Agreement, to purchase from Grantor a Class A Limited Partner Interest
having a Percentage Interest determined in accordance with the terms of this
Agreement.
The Option was granted and sold to the Purchaser solely in
consideration of the payment of the Option Consideration. The Option was not
granted or sold for any services performed, or to be performed, by the
Purchaser or any other person or entity.
2.2 Exercise of Option.
(a) The Option is exercisable by the Purchaser only in whole, and
not in part, and only during the Option Period. The Purchaser shall
exercise the Option by surrendering this Agreement and a completed and
duly executed Notice of Exercise (in the form attached hereto as Annex
A) to the Grantor at the principal executive office of the Grantor.
Concurrently with such surrender of this Agreement and such Notice of
Exercise to the Grantor, the Purchaser shall deliver a copy of the same
to the Grantor's Partnership Advisory Board pursuant to Section 4.2
hereof. The Exercise Price or the Net Exercise Price, as applicable,
shall be payable on the Payment Date (i) in cash or by check or wire
transfer acceptable to the Grantor, (ii) by cancellation by the
Purchaser of indebtedness or other obligations of the Grantor to the
Purchaser, or (iii) by a combination of the consideration described in
clauses (i) and (ii) of this sentence.
(b) This Option shall be deemed to have been exercised immediately
as of 5:00 p.m. (Detroit, Michigan time) on the date (the "Exercise
Date") on which this Agreement and a Notice Of Exercise are surrendered
to the Grantor in a manner contemplated by this Agreement. Provided
that the Purchaser pays the Exercise Price, or the Net Exercise Price,
on the Payment Date, the Purchaser shall be treated for all purposes as
the owner of the Class A Limited Partner Interest
-3-
<PAGE> 4
issuable upon exercise of the Option as of 5:00 p.m. (Detroit, Michigan
time) on the Payment Date.
(c) Notwithstanding any provisions herein to the contrary: When
the Purchaser exercises the Option, it shall be obligated to pay the
Exercise Price on the Payment Date; provided, however, that if the
Partnership Advisory Board, in the exercise of its discretion,
determines, prior to 11:00 a.m. (Detroit, Michigan time) on the Payment
Date, that the Purchaser is to pay the Net Exercise Price, then the
Purchaser shall be obligated to pay the Net Exercise Price on the
Payment Date. If the Purchaser pays the Exercise Price, then the
Purchaser shall receive a Class A Limited Partner Interest having a
Percentage Interest equal to 3.125%. If the Purchaser pays the Net
Exercise Price, then the Purchaser shall receive a Class A Limited
Partnership Interest equal to 2.5%. Upon payment of the Exercise Price
or the Net Exercise Price, as applicable, (i) the Purchaser shall be
deemed to have made a capital contribution to the Partnership for such
Class A Limited Partner Interest that is equal in amount to the Option
Equity Value or the Net Option Equity Value, as applicable, (ii) the
Class A Limited Partnership Interest issuable upon exercise of the
Option shall be issued to the Purchaser, (iii) the Purchaser shall be
admitted as a Class A Limited Partnership with respect to such Class A
Limited Partnership Interest, and (iv) the Grantor shall, or shall
cause its General Partner to, adjust the Percentage Interests and the
Capital Accounts of the Grantor's Class A Limited Partners in an
appropriate manner to reflect the issuance of such Class A Limited
Partner Interest to the Purchaser pursuant to the Option.
2.3 Replacement of Option. On receipt of evidence reasonably
satisfactory to the Grantor of the loss, theft, destruction or mutilation of
this Agreement and the Option and, in the case of loss, theft or
destruction, on delivery of an indemnity agreement reasonably satisfactory
in form and substance to the Grantor or, in the case of mutilation, on
surrender and cancellation of this Agreement, the Grantor at its expense
shall execute and deliver to the Purchaser, in lieu of this Agreement and
the Option, a new instrument of like tenor and amount.
2.4 Transfer of Option.
(a) This Agreement and the Option may only be transferred or
assigned by the Purchaser only in whole and not in part. Any such
transfer or assignment shall be made by endorsement (by the Purchaser
executing the Assignment Form annexed hereto as Annex B) and delivery
in the same manner as a negotiable instrument transferable by
endorsement and delivery; provided, however, that no such transfer or
assignment shall be permitted without compliance with all applicable
federal and state securities laws by the transferor and the transferee.
-4-
<PAGE> 5
(b) On surrender of this Option for transfer and assignment,
accompanied by a properly endorsed Assignment Form, the Grantor at its
expense shall issue to or on the order of the Purchaser a new
instrument of like tenor, in the name of the Purchaser or as the
Purchaser (on payment by the Purchaser of any applicable transfer
taxes) may direct.
(c) The Purchaser acknowledges that this Agreement, the Option and
the Class A Limited Partner Interest issuable upon exercise of the
Option are being acquired solely for the Purchaser's own account and
not as a nominee for any other party, and for investment, and that the
Purchaser will not offer, sell or otherwise dispose of this Agreement,
the Option or any Class A Limited Partner Interest issuable upon
exercise of the Option, except under circumstances that will not result
in a violation of the Securities Act of 1933, as amended, or any state
securities laws. Upon exercise of the Option, the Purchaser shall, if
requested by the Grantor, confirm in writing, in a form satisfactory to
the Grantor, that the Interest so purchased is being acquired solely
for the Purchaser's own account and not as a nominee for any other
party, for investment, and not with a view toward distribution or
resale.
ARTICLE 3
COVENANTS
3.1 Covenants of the Grantor.
(a) The Grantor covenants that at all times during the Option
Period the Grantor will reserve a sufficient Interest to provide for
the issuance of the Class A Limited Partner Interest issuable upon the
exercise of the Option and, from time to time, will take all steps
necessary to issue and evidence the issuance of, the Class A Limited
Partner Interest issuable upon exercise of the Option. The Grantor
agrees that its issuance of this Agreement and the Option shall
constitute full authority to its officers to execute and issue all
certificates, documents and instruments necessary to issue, or to
evidence the issuance of, the Class A Limited Partner Interest issuable
upon the exercise of this Option. The Grantor will not, by any
voluntary action, avoid or seek to avoid the observance or performance
of any of the terms to be observed or performed hereunder by the
Grantor, but will at all times in good faith assist in the carrying out
of all of the provisions of this Agreement and in the taking of all
such action as may be necessary or appropriate in order to protect the
rights of the Purchaser hereunder against impairment.
(b) Upon the occurrence and during the continuance of any breach
or threatened breach of this Agreement, the Purchaser shall have the
right forthwith, its election, to exercise any and all rights and
remedies available to the Purchaser
-5-
<PAGE> 6
at law or in equity, and, in addition, the Purchaser shall have the
specific rights, and remedies, which rights and remedies shall be
cumulative and not exclusive The Grantor recognizes that the remedies
of the Purchaser at law for a breach of the provisions of this
Agreement would be inadequate, and hereby consents to the exercise of
equitable jurisdiction and to the entry of equitable remedies,
including without limitation the remedies of injunction and specific
performance, to remedy any such breach, and waives the right to object
to any such jurisdiction or remedies on the ground of the adequacy of
the Purchaser' remedies at law.
3.2 Covenant of the Purchaser. The Purchaser agrees that until it is
removed as the General Partner pursuant to the Partnership Agreement, it
shall be and remain the General Partner so long as any indebtedness is
outstanding under the Indenture. The Purchaser agrees to be bound by and to
comply with all of the terms of the Partnership Agreement with respect to
the Class A Limited Partner Interest that is issuable upon exercise of the
Option.
ARTICLE 4
MISCELLANEOUS
4.1 Determination of Equity Value.
(a) For all purposes of this Agreement, the calculation of Equity
Value shall initially be made by the General Partner, who shall supply
the Partnership Advisory Board with all such information and data as
shall be requested to enable the Partnership Advisory Board to reach an
informed judgment with respect thereto. In the event the Partnership
Advisory Board shall disagree with any determination of Equity Value
made by the General Partner and the General Partner shall not accept
the determination of Equity Value proposed by the Partnership Advisory
Board, the matter shall be settled by appraisal as provided in this
Section 4.1. Any determination of Equity Value made in accordance with
the provisions of Section 4.1 shall be made in writing and a copy
thereof given to each Limited Partner. In determining Equity Value the
following principles shall apply: (i) the Partnership will be valued on
a going concern basis, in conformity with standard appraisal
techniques, applying the market factors then relevant, and other assets
and other securities not subject to valuation as described below, shall
be valued similarly; (ii) securities which are freely tradable and the
principal market for which (measured by the average daily volume over
the preceding four trading weeks) is either the New York Stock Exchange
or the American Stock Exchange or which are quoted on the National
Market System of the National Association of Securities Dealers, Inc.
shall be valued at their last reported closing sale price, prior to the
date of determination on such exchange, or, if no sales occurred on
such day, at the mean between the closing "bid" and "asked" prices on
such day; and (iii) securities which are freely tradable and the
principal market for which is
-6-
<PAGE> 7
some other national securities exchange or the over-the-counter market
(but which are not quoted on the National Market System) shall be
valued at their last reported closing sale price, regular way, prior to
the date of determination on the principal national securities exchange
on which they are traded, or, if no sales occurred on such day, at the
mean between the closing "bid" and "asked" prices on such day, or, if
the principal market for such securities is, or is deemed to be, in the
over-the-counter market, at their average closing "bid" price as
published by the National Association of Securities Dealers Automated
Quotation System, or if such price is not so published, at the mean
between their closing "bid" and "asked" prices, if available, which
prices may be obtained from any reputable broker or dealer. For all
purposes of this Agreement, Equity Value shall be determined after
considering all factors which might reasonably affect the sales price
of Class A Limited Partner Interests or the value of the assets or
securities of the Partnership, including, without limitation, if and as
appropriate, the anticipated impact on current market prices of
immediate sale, the lack of a market for such Interests or assets of
securities and the impact on present value of, among others, the length
of time before any such sales may become possible and the cost and
complexity of any such sales. For all purposes of this Section 4.1, all
determinations of Equity Value which have been determined in accordance
with the terms of this Section 4.1 shall be final and conclusive on the
Grantor, all Partners, and their respective successors and assigns. In
determining the value of assets in accordance with the provisions of
this Section 4.1, the General Partner and the Partnership Advisory
Board may obtain and rely on information provided by any source or
sources reasonably believed to be accurate.
(b) Any controversy arising out of a determination of Equity Value
which shall be submitted to appraisal as provided for by this Section
4.1 shall be settled in New York, New York by an appraisal undertaken
by two independent nationally recognized experts in the cable
television field (the "Initial Appraisers"), to determine the Equity
Value. One such appraiser shall be appointed by the General Partner,
and the other by the Partnership Advisory Board, and the deliberations
of the appraisers shall commence forthwith following their appointment.
If the disparity between the Equity Values determined by each of the
Initial Appraisers is less than or equal to 5% of the higher of the two
Equity Values, the final Equity Value shall be the average of such two
Equity Values. If such disparity is greater than 5%, then the Initial
Appraisers shall select a third appraiser possessing similar
qualifications. If the Initial Appraisers cannot agree upon a third
appraiser within 25 days of the commencement of their original
deliberations to determine Equity Value, the third appraiser shall be
selected by the American Arbitration Association, and such third
appraiser, within 20 days of appointment, shall make its determination
of Equity Value. The final Equity Value shall be whichever Equity Value
of the two Initial Appraisers is closest to the Equity Value determined
by the third appraiser so long as the disparity
-7-
<PAGE> 8
between the third Equity Value and the earlier Equity Value to which it
is closest is less than or equal to 20% of such earlier Equity Value.
If the disparity is greater than 20%, then the Equity Value shall be
the average of the two Equity Values that are closest. The valuation
decision of such appraisers shall be final and conclusive on the
Grantor, all Partners and their respective successors and assigns. The
cost of any such appraisals shall be borne equally by the Partnership
(as a Partnership expense) and the General Partner.
4.2 Notices. All notices and other communications required or permitted
under this Agreement shall be deemed to have been duly given and made if in
writing and if served by personal delivery to the party for whom intended
(which shall include delivery by Federal Express or any other nationally
recognized overnight delivery service), bearing the address shown in this
Agreement for, or such other address as may be designated in writing
hereinafter by, such party:
If to the Grantor: James Cable Partners, L.P.
710 North Woodward Avenue, Suite 180
Bloomfield Hills, Michigan 48304
with copies to: Miller, Canfield, Paddock and Stone, P.L.C.
840 West Long Lake Road, Suite 200
Troy, Michigan 48098-6358
Attention: Brad B. Arbuckle, Esq.
and
Dow, Lohnes & Albertson, PLLC
Suite 800
1200 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Attention: Edward J. O'Connell, Esq.
If to the Grantor's
Partnership
Advisory Board: James Cable Partners, L.P.
710 North Woodward Avenue, Suite 180
Bloomfield Hills, Michigan 48304
and
-8-
<PAGE> 9
c/o Sandler Capital Management
767 Fifth Avenue
45th Floor
New York, New York 10153
Attention: Douglas E. Schimmel
with copies to: Miller, Canfield, Paddock and Stone, P.L.C.
840 West Long Lake Road, Suite 200
Troy, Michigan 48098-6358
Attention: Brad B. Arbuckle, Esq.
and
Dow, Lohnes & Albertson, PLLC
Suite 800
1200 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Attention: Edward J. O'Connell, Esq.
If to the Purchaser: James Communications Partners
710 North Woodward Avenue, Suite 180
Bloomfield Hills, Michigan 48304
with copies to: Miller, Canfield, Paddock and Stone, P.L.C.
840 West Long Lake Road, Suite 200
Troy, Michigan 48098-6358
Attention: Brad B. Arbuckle, Esq.
and
Dow, Lohnes & Albertson, PLLC
Suite 800
1200 New Hampshire Avenue, N.W.
Washington, D.C. 20036
Attention: Edward J. O'Connell, Esq.
Section 4.3 Entire Agreement. This Agreement embodies the entire
agreement and understanding of the parties hereto with respect to the
subject matter hereof, and supersedes all prior and contemporaneous
agreements and understandings, oral or written, relative to said subject
matter.
Section 4.4 Binding Effect; Assignment. This Agreement shall bind, and
the benefits hereof shall inure to, the Grantor and the Purchaser, and their
respective
-9-
<PAGE> 10
successors and assigns; provided, however, that the Grantor may not transfer
or assign (by operation of law or otherwise) any or all of its rights or
delegate the performance of all or any part of its obligations hereunder
without the prior written consent of the Purchaser.
Section 4.5 Expenses of Transaction. Each party to this Agreement shall
bear its own expenses, including attorneys' fees, in respect of this
Agreement and the transactions contemplated hereby, whether or not such
transactions are consummated.
Section 4.6 Amendment; Waiver; Consent. This Agreement may not be
changed, amended, terminated, augmented, rescinded or discharged (other than
by performance), in whole or in part, except by a writing executed by each
of the parties hereto, and no waiver of any of the provisions or conditions
of this Agreement or any of the rights of a party hereto shall be effective
or binding unless such waiver shall be in writing and signed by the party
claimed to have given a consent thereto. Except to the extent that a party
hereto may have otherwise agreed to in writing, no wavier by that party of
any condition of this Agreement or breach by the other party of any of its
obligations, representations or warranties hereunder shall be deemed to be a
waiver of any other condition or subsequent or prior breach of the same or
any other obligation or representation or warranty by such other party, nor
shall any forbearance by the first party to seek a remedy for any
noncompliance or breach by such other party be deemed to be a waiver by the
first party of its rights and remedies with respect to such noncompliance or
breach.
Section 4.7 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same instrument. In the event
one or more of the provisions of this Agreement should, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other
provisions of this Agreement, and this Agreement shall be construed as if
such invalid, illegal or unenforceable provision had never been contained
herein. Headings in this Agreement are for purposes of reference only and
shall not limit or affect the meaning thereof.
Section 4.8 Governing Law; Consent to Jurisdiction.
(a) This Agreement shall in all respects be construed in
accordance with, and governed by, the laws of the State of Delaware,
without regard to the principles of conflicts of law thereof.
(b) Each of the parties hereto hereby irrevocably submits to the
non-exclusive jurisdiction of the New York Supreme Court, New York
County, or the United States District Court for the Southern District
of New York and any
-10-
<PAGE> 11
appellate court thereof in any action or proceeding arising out of or
relating to this Agreement and the transactions contemplated hereby and
each of the parties hereto hereby irrevocably agrees that all claims in
respect of such action or proceeding shall be heard and determined in
such New York state or Federal court. Each of the parties hereto hereby
irrevocably and unconditionally waives, to the fullest extent any of
them may legally and effectively do so, any objection that any of them
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any of the
transactions contemplated hereby in the New York Supreme Court, New
York County, or the United States District Court for the Southern
District of New York. Each of the parties hereto hereby irrevocably
waives, to the fullest extent possible, the defense of any inconvenient
forum to the maintenance of such action or proceeding.
Section 4.9 Further Assurances. Each of the parties hereto shall take
such other and further actions and shall execute and deliver such other and
further documents and instruments as shall be necessary or desirable to
effectuate the intent and provisions of this Agreement. All covenants,
agreements, representations and warranties made in this Agreement, or in the
certificates delivered in connection herewith, shall be deemed to have been
material and to have been relied upon by the Purchasers, notwithstanding any
investigation made by them or on their behalf, and shall survive the
execution and delivery of this Agreement, and shall continue in full force
and effect until the Option shall be exercised or shall lapse.
-11-
<PAGE> 12
IN WITNESS WHEREOF, this Agreement has been duly executed on behalf of
each of the parties hereto as of the day and year first above written.
GRANTOR:
JAMES CABLE PARTNERS, L.P., a Delaware limited
partnership
By: James Communications Partners, a Michigan general
partnership and its general partner
By: Jamesco, Inc., a Michigan corporation and a
general partner of James Communications
Partners
By:
-----------------------------------
Name: William R. James
Title: President
PURCHASER:
JAMES COMMUNICATIONS PARTNERS, a Michigan
general partnership
By: Jamesco, Inc., a Michigan corporation and a
general partner of James Communications Partners
By:
---------------------------------------
Name: William R. James
Title: President
-12-
<PAGE> 13
ANNEX A
FORM OF NOTICE OF EXERCISE
To: James Cable Partners, L.P.
710 North Woodward Avenue
Suite 180
Bloomfield Hills, Michigan 48304
(1) The undersigned hereby (A) exercises the Option granted the
undersigned pursuant to the attached Option Agreement/Option Certificate
pursuant to the terms thereof, (B) will pay the Exercise Price on the Payment
Date, unless the Partnership Advisory Board determines that the undersigned is
to pay the Net Exercise Price, in which case the undersigned will pay the Net
Exercise Price on the Payment Date, and (C) will tender payment of the Exercise
Price or Net Exercise Price, as applicable, on the Payment Date. The Class A
Limited Partner Interest to be issued to the undersigned pursuant to this
exercise of the Option shall have a Percentage Interest equal to either 3.125%,
if the undersigned pays the Exercise Price, on the Payment Date, or 2.5%, if the
undersigned pays the Net Exercise Price on the Payment Date.
(2) In exercising the Option, the undersigned hereby confirms and
acknowledges that the Class A Limited Partner Interest to be issued pursuant to
this exercise of the Option is being acquired solely for the account of the
undersigned and not as a nominee for any other party, and for investment, and
the undersigned will not offer, sell or otherwise dispose of such Interest
except under circumstances that will not result in a violation of the Securities
Act of 1933, as amended, or any applicable state securities laws.
(3) Please issue the Class A Limited Partnership Interest issuable to
the undersigned pursuant to this exercise of the Option in the name of the
undersigned or in such other name as is specified below:
-------------------------------------
(Name)
-------------------------------------
(Name)
A-1
<PAGE> 14
ANNEX B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned owner of this Option (the
"Purchaser") does hereby (i) sell, assign and transfer unto the assignee named
below (the "Assignee") all of the rights of the Purchaser under the within
Option, and (ii) irrevocably constitute and appoints
as its Attorney to make
such transfer on the books of the Grantor, maintained for the purpose, with full
power of substitution in the premises.
The Purchaser and the Assignee also represent that, by assignment
hereof, the Assignee acknowledges (i) that this Agreement, the Option, and the
Class A Limited Partner Interest to be issued upon exercise of the Option, is
being acquired for investment and that the Assignee will not offer, sell or
otherwise dispose of this Agreement, the Option or any such Interest to be
issued upon exercise of the Option, except under circumstances which will not
result in a violation of the Securities Act of 1933, as amended, or any state
securities laws, and (ii) that upon exercise of the Option, the Assignee shall,
if requested by the Grantor, confirm in writing, in a form satisfactory to the
Grantor, that the Class A Limited Partner Interest so purchased is being
acquired for investment and not with a view toward distribution or resale. The
Assignee hereby agrees to be bound by and to comply with all of the terms of the
Partnership Agreement with respect to the Class A Limited Partner Interest that
is issuable upon the exercise of the Option.
Dated:
------------------------------- ------------------------------------
Signature of Purchaser
Dated:
------------------------------- ------------------------------------
Signature of Assignee
B-1
<PAGE> 1
EXHIBIT 12
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges for each of the years in the
five-year period ended December 31, 1999 is presented below. Ratio of Earnings
to Fixed Charges means the ratio of pretax income from continuing operations
(with certain adjustments described below) to the total of: (i) interest and
(ii) such portion of rental expense as can be demonstrated to be representative
of the interest factor in the particular case.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
EARNINGS BEFORE FIXED CHARGES:
Net (Loss) Income ($6,061,758) ($1,894,244) ($1,840,210) ($3,310,870) $10,299,494
Add: Interest Expense 9,717,511 8,878,285 9,646,679 11,383,449 11,158,350
Interest factor in rental
expense 223,099 233,243 243,890 252,106 254,377
------------------------------------------------------------------------------
EARNINGS BEFORE FIXED CHARGES $3,878,852 $7,217,284 $8,050,359 $8,324,685 $21,712,221
==============================================================================
FIXED CHARGES:
Interest Expense $9,717,511 $8,878,285 $9,646,679 $11,383,449 $11,158,350
Interest factor in rental expense 223,099 233,243 243,890 252,106 254,377
------------------------------------------------------------------------------
TOTAL FIXED CHARGES $9,940,610 $9,111,528 $9,890,569 $11,635,555 $11,412,727
==============================================================================
RATIO OF EARNINGS TO FIXED CHARGES --- --- --- --- 1.9X
DEFICIENCY IN EARNINGS AVAILABLE TO
COVER FIXED CHARGES $6,061,758 $1,894,244 $1,840,210 $3,310,870 ---
==============================================================================
</TABLE>
<PAGE> 1
EXHIBIT 24
KNOW ALL MEN by these presents that each of the undersigned does hereby
make, constitute and appoint William R. James, C. Timothy Trenary and Daniel K.
Shoemaker and each of them, the true and lawful attorney-in-fact of the
undersigned, with full power of substitution and revocation, for and in the
name, place and stead of the undersigned, to execute and deliver the Annual
Report on Form 10-K of James Cable Partners, L.P. and James Cable Finance Corp.
for the year ended December 31, 1999, and any and all amendments thereto; such
Form 10-K and each such amendment to be in such form and to contain such terms
and provisions as said attorney or substitute shall deem necessary or desirable;
giving and granting unto said attorney, or to such person or persons as in any
case may be appointed pursuant to the power of substitution herein given, full
power and authority to do and perform any and every act and thing whatsoever
requisite, necessary or, in the opinion of said attorney or substitute, able to
be done in and about the premises as fully and to all intents and purposes as
the undersigned might or could do if personally present, hereby ratifying and
confirming all that said attorney for such substitute shall lawfully do or cause
to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has duly executed this instrument as of
the 24 day of March, 2000.
/s/ William R. James
---------------------
William R. James
/s/ C. Timothy Trenary
---------------------
C. Timothy Trenary
/s/ Daniel K. Shoemaker
---------------------
Daniel K. Shoemaker
-38-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000926283
<NAME> JAMES CABLE FINANCE CORP.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,342,420
<SECURITIES> 0
<RECEIVABLES> 3,384,585
<ALLOWANCES> 28,141
<INVENTORY> 0
<CURRENT-ASSETS> 8,879,499
<PP&E> 94,495,637
<DEPRECIATION> 70,686,387
<TOTAL-ASSETS> 51,799,444
<CURRENT-LIABILITIES> 9,982,260
<BONDS> 100,000,000
0
0
<COMMON> 0
<OTHER-SE> (58,182,816)
<TOTAL-LIABILITY-AND-EQUITY> 51,799,444
<SALES> 0
<TOTAL-REVENUES> 37,371,831
<CGS> 0
<TOTAL-COSTS> 31,289,133
<OTHER-EXPENSES> 510,539
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,158,350
<INCOME-PRETAX> (5,586,191)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,586,191)
<DISCONTINUED> 0
<EXTRAORDINARY> 15,885,685
<CHANGES> 0
<NET-INCOME> 10,299,494
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
